UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 21, 1997
Q.E.P. CO. INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
FLORIDA 0-21161 13-2983807
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
1081 HOLLAND DRIVE, BOCA RATON, FL 33487
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 994-5550
_________________________________________N/A____________________________________
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 21, 1997, pursuant to a Stock Purchase Agreement dated as
of the same date between the Registrant and RCI Holdings Inc., a Delaware
corporation (the "Seller"), the Registrant purchased (the "Roberts Acquisition")
all of the issued and outstanding stock of Roberts Consolidated Industries Inc.
("Roberts"), a Delaware corporation and wholly owned subsidiary of the Seller.
Roberts is engaged in the manufacture and sale of carpet installation products,
including carpet adhesives and installation tools. Roberts operates three leased
manufacturing facilities: one in city of Industry, California; one in Mexico,
Missouri; and one in Bramalea, Ontario, Canada. The Registrant expects to
continue Roberts's current operations.
The purchase price for the Roberts Acquisition was $12,350,000 in cash,
the issuance to the Seller and its designees of 8% Subordinated Debentures due
2001 in an aggregate amount of $7,500,000 and the issuance to the Seller and its
designees of warrants to purchase 200,000 shares of common stock of the
Registrant at a purchase price of $10 per share. The purchase price was
determined through negotiations between the Registrant and the Seller. The cash
portion of the purchase price was funded through an increase in the Registrant's
existing term loan and revolving credit facilities with Fleet National Bank. In
connection with the acquisition, the Registrant received a fairness opinion from
Fahnestock & Co., Inc., the Registrant's investment banker.
The foregoing is subject to the actual provisions of the above
referenced Stock Purchase Agreement, which is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. It is
impracticable to provide the financial statements relative to
the acquired business described in Item 2 at the time this
report on Form 8-K is filed. The Registrant intends to file
the required financial statements as soon as possible, but no
later than 60 days from the date of this filing.
(b) PRO FORMA FINANCIAL INFORMATION. It is impracticable to
provide the pro forma financial information relative to the
acquired business described in Item 2 at the time this report
on Form 8-K is filed. The Registrant intends to file the
require pro forma financial information as soon as
practicable, but no later than 60 days from the date of
filing.
<PAGE>
(c) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 Stock Purchase Agreement dated
October 21, 1997 between the Registrant
and RCI Holdings, Inc.
99.1 Form of Warrant issued to the
following persons, in the following
amounts:
RCI Holdings, Inc. 100,000
Marlborough Capital Fund, LTD. 100,000
99.2 Form of 8% Convertible Debenture
issued to the following persons in the
following amounts:
RCI Holdings, Inc. $1,911,673.30
Marlborough Capital Fund $5,088,326.70
IBJ Schroeder as Escrow agent $ 500,000.00
99.3 Escrow Agreement dated October 21, 1997
among the Registrant, RCI Holdings, Inc.
and IBJ Schroeder
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Q.E.P. Co., Inc.
(Registrant)
By: /s/ MARC P. APPLEBAUM
---------------------------------------------
Marc P. Applebaum, Chief Financial Officer
Date: November 3, 1997
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 Stock Purchase Agreement dated
October 21, 1997 between the Registrant
and RCI Holdings, Inc.
99.1 Form of Warrant issued to the
following persons, in the following
amounts:
RCI Holdings, Inc. 100,000
Marlborough Capital Fund, LTD. 100,000
99.2 Form of 8% Convertible Debenture
issued to the following persons in the
following amounts:
RCI Holdings, Inc. $1,911,673.30
Marlborough Capital Fund $5,088,326.70
IBJ Schroeder as Escrow agent $ 500,000.00
99.3 Escrow Agreement dated October 21, 1997
among the Registrant, RCI Holdings, Inc.
and IBJ Schroeder
STOCK PURCHASE AGREEMENT
AMONG
Q.E.P. CO., INC.
AND
RCI HOLDINGS INC.
October 21, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. Definitions............................................................................1
2. Purchase and Sale of Company Shares....................................................4
(a) Purchase Price................................................................4
(b) Application of the Purchase Price.............................................4
3. Representations and Warranties Concerning the Transaction..............................5
(a) Representations and Warranties of the Seller..................................5
(b) Representations and Warranties of the Purchaser...............................6
4. Representations and Warranties Concerning the Company and Its
Subsidiaries...........................................................................7
(a) Organization, Qualification and Corporate Power...............................7
(b) Capitalization................................................................8
(c) Noncontravention..............................................................8
(d) Brokers' Fees.................................................................8
(e) Title to and Condition of Assets..............................................8
(f) Subsidiaries..................................................................8
(g) Financial Statements..........................................................9
(h) Events Subsequent to August 31, 1997..........................................9
(i) Absence of Undisclosed Liabilities...........................................10
(j) Legal Compliance.............................................................10
(k) Tax Matters..................................................................10
(l) Real Property................................................................12
(m) Intellectual Property........................................................12
(n) Inventory....................................................................14
(o) Contracts....................................................................14
(p) Notes and Accounts Receivable................................................15
(q) Powers of Attorney...........................................................15
(r) Insurance....................................................................15
(s) Litigation...................................................................16
(t) Products and Product Warranty................................................16
(u) List of Accounts.............................................................16
(v) Employees....................................................................16
(w) Employee Benefits............................................................17
(x) Guaranties...................................................................18
(y) Environment, Health and Safety...............................................18
(z) Customers and Suppliers; Supplies............................................18
(aa) Related Parties..............................................................18
(bb) Absence of Certain Business Practices........................................19
5. Post-Closing Covenants................................................................19
(a) General......................................................................19
(b) Litigation Support...........................................................19
i
<PAGE>
(c) Transition...................................................................19
(d) Confidentiality..............................................................20
(e) Covenant Not to Compete......................................................20
(f) General Release..............................................................20
(g) Arbitration..................................................................21
(h) Carl Watson..................................................................21
(i) Right to Nominate Director...................................................22
(j) Tax Matters..................................................................22
6. Indemnification and Related Matters...................................................23
(a) Indemnification..............................................................23
(b) Determination of Damages and Related Matters.................................23
(c) Time and Manner of Certain Claims............................................24
(d) Defense of Claims by Third Parties...........................................24
7. Miscellaneous.........................................................................25
(a) Press Releases and Public Announcements......................................25
(b) No Third-Party Beneficiaries.................................................25
(c) Entire Agreement.............................................................25
(d) Succession and Assignment....................................................25
(e) Counterparts.................................................................25
(f) Headings.....................................................................25
(g) Notices......................................................................25
(h) Governing Law................................................................26
(i) Waiver and Amendment.........................................................26
(j) Severability.................................................................26
(k) Expenses.....................................................................26
(l) Construction.................................................................27
(m) Specific Performance.........................................................27
(n) Submission to Jurisdiction...................................................27
(o) Materiality..................................................................27
Exhibits
A Form of 8% Subordinated Debenture Due 2001
B Form of Common Stock Purchase Warrant
C Flow of Funds and Allocation of Warrants and Subordinated
Debentures
</TABLE>
ii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("AGREEMENT") entered into as of October
21, 1997, by and among Q.E.P. Co., Inc., a Delaware corporation (the
"PURCHASER"), and RCI Holdings Inc., a Delaware corporation (the "SELLER"). The
Purchaser and the Seller are referred to collectively herein as the "PARTIES."
The Seller owns all of the outstanding common stock of Roberts
Consolidated Industries Inc., a Delaware corporation (the "COMPANY"). This
Agreement contemplates a transaction in which the Purchaser will purchase from
the Seller, and the Seller will sell to the Purchaser, all of the outstanding
common stock of the Company on the terms set forth herein.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"AFFILIATE" has the meaning set forth in Rule 12-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504.
"CASH AMOUNT" means U.S. $12,350,000.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the preface above.
"COMPANY SHARE" means any outstanding share of the Common Stock, par
value $.01 per share, of the Company.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Company and its Subsidiaries that is not already
available to the public.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Section 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4 below.
"ESCROW AGENT" means the escrow agent appointed pursuant to the Escrow
Agreement executed by Purchaser and Seller as of the date hereof with respect to
the Fund (as such term is defined in the Escrow Agreement).
"EMPLOYEE BENEFIT PLAN" means any plan or arrangement maintained by the
Company and its subsidiaries or to which any of the Company and its subsidiaries
contribute covering employees of the Company and its subsidiaries that is a (A)
nonqualified deferred compensation or retirement plan or
<PAGE>
arrangement which is an Employee Pension Benefit Plan, (B) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multi employer Plan), or (D)
Employee Welfare Benefit Plan or material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENCUMBRANCE" has the meaning set forth in Section 3(a)(vii) below.
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, and all other Laws of any Governmental Body
concerning pollution or protection of the environment, public health and safety
or employee health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCESS LOSS ACCOUNT" has the meaning set forth in Treas. Reg. Section
1.1502-19.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section 4(g) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"GOVERNMENTAL BODY" means any multi-national body (including the
European Union) with legal powers, any country, state, province, municipality,
political subdivision of any of the foregoing or of any political subdivision
thereof, or any court or other legal instrumentality of any of the foregoing.
"IBJ" means IBJ Schroder Bank & Trust Company.
"INDEBTEDNESS" means all indebtedness for borrowed money or for the
deferred purchase price of property or services, including all accrued and
unpaid interest thereon, for which the Company or any of its Subsidiaries is
liable, contingently or otherwise, as obligor, guarantor or otherwise, and which
would be required to be reflected on a balance sheet prepared in accordance with
GAAP.
"INTELLECTUAL PROPERTY" means (A) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (B) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (C) all copyrightable works, all copyrights, and all applications,
registrations,
2
<PAGE>
and renewals in connection therewith, (D) all mask works and all applications,
registrations, and renewals in connection therewith, (E) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (F) all computer software (including data and related
documentation), (G) all other proprietary rights, and (H) all copies and
tangible embodiments thereof (in whatever form or medium).
"LAW" means a rule of conduct promulgated or recognized by any
Governmental Body as being legally binding on those subject thereto.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section 4(a)
below.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section
4(g) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section
4(g) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section 4(g)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37)
or 4001(a)(3).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMIT" means any license, permit, approval, consent, authorization,
requirement, order, license application and license amendment application of or
to a Governmental Body and all governmental or third party product registrations
or approvals.
"PERMITTED ENCUMBRANCE" means any (A) mechanic's, materialmen's, and
similar liens (provided such liens are being diligently contested in good faith
in an appropriate proceeding); (B) liens for Taxes not yet due and payable, (C)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (D) encumbrances specified as such in the Disclosure Schedule
or in the notes to any of the Financial Statements.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"PURCHASE PRICE" has the meaning set forth in Section 2(a) below.
"PURCHASER" has the meaning set forth in the preface above.
3
<PAGE>
"QEP COMMON STOCK" means the common stock, par value $.01 per share, of
the Purchaser.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section 4043(6).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SELLER" has the meaning set forth in the preface above.
"SUBORDINATED DEBENTURES" means an aggregate of $7,500,000 face amount
of the Purchaser's 8% Subordinated Debentures due 2001 in the form of Exhibit A.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"TAX" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"WARRANTS" means warrants to purchase an aggregate of 200,000 shares of
QEP Common Stock at a price of $10.00 per share, as evidenced by Common Stock
Purchase Warrants in the form of Exhibit B to this Agreement.
2. PURCHASE AND SALE OF COMPANY SHARES. On and subject to the terms and
conditions of this Agreement, the Purchaser is hereby purchasing from the
Seller, and the Seller is hereby selling to the Purchaser, all of the Company
Shares for the consideration specified below in this Section 2.
(A) PURCHASE PRICE. The Purchase Price for all of the Company
Shares consists of the Cash Amount, the Subordinated Debentures and the Warrants
(the "PURCHASE PRICE"), and is being paid by the Purchaser to the Seller
herewith by (i) wire transfer of the Cash Amount in accordance with the
provisions of Section 2(b) below; (ii) issuance and delivery by Purchaser of the
Subordinated Debentures; and (iii) issuance and delivery by the Purchaser of the
Warrants.
(B) APPLICATION OF THE PURCHASE PRICE. Simultaneously
herewith, Purchaser is (i) paying to IBJ, at the direction of the Seller, such
portion of the Cash Amount as shall be necessary to satisfy and pay in full all
of the Company's indebtedness to IBJ; (ii) depositing Subordinated Debentures in
an aggregate face amount of $500,000 with the Escrow Agent; (iii) paying the
balance of the Cash Amount after the payment provided for in the preceding
clause (i) to the Seller or to such other
4
<PAGE>
person(s) as Seller has designated in writing to Purchaser as provided in
Exhibit C; (iv) issuing and delivering the remaining Subordinated Debentures
after the delivery provided for in the preceding clause (ii), registered to such
persons and in such principal amounts as the Seller has instructed the Purchaser
in writing in the form of Exhibit C; and (v) issuing and delivering the
Warrants, registered to such persons and in such amounts as the Seller has
instructed the Purchaser in writing in the form of Exhibit C.
(C) THE CLOSING. The closing of the transactions contemplated
by this Agreement are taking place at the offices of Holland & Knight LLP, 195
Broadway, New York, New York, simultaneously with the execution and delivery of
this Agreement.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(A) REPRESENTATIONS AND WARRANTIES OF THE SELLER. Seller
represents and warrants to the Purchaser that the statements contained in this
Section 3(a) are correct and complete as of the date of this Agreement.
(i) ORGANIZATION. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) AUTHORIZATION OF THE TRANSACTION. The Seller has
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Seller, enforceable in accordance with its
terms and conditions. The Seller need not give any notice to, make any filing
with, or obtain any Permit of any Governmental Body in order to consummate the
transactions contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any Law or restriction of any Governmental
Body to which the Seller is subject or any provision of its charter or bylaws,
or (B) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which the Seller is a party or by
which it is bound or to which any of its assets is subject.
(iv) BROKERS' FEES. The Seller has no liability to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Purchaser could become
liable or obligated.
(v) INVESTMENT REPRESENTATIONS--SUBORDINATED
DEBENTURES. Seller repre sents that each of the Persons to whom the Subordinated
Debentures are to be issued and delivered hereunder (A) understands that the
Subordinated Debentures have not been, and will not be, registered under the
Securities Act or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (B) is acquiring the Subordinated Debentures
solely for his or its own account for investment purposes, and not with a view
to the distribution thereof, (C) is a sophisticated investor with knowledge and
experience in business and financial matters, (D) has received certain
information concerning the Purchaser and has
5
<PAGE>
had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Subordinated
Debentures, (E) is able to bear the economic risk and lack of liquidity inherent
in holding the Subordinated Debentures, and (F) is an Accredited Investor.
(vi) INVESTMENT REPRESENTATIONS--WARRANTS. Seller
represents that each of the Persons to whom the Warrants are to be issued and
delivered hereunder (A) understands that the Warrants and the underlying shares
of QEP Common Stock have not been, and will not be, registered under the
Securities Act or under any state securities laws (subject to the registration
rights set forth in the Warrants), and are being offered and sold in reliance
upon federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Warrants solely for his or its own account for
investment purposes, and not with a view to the distribution thereof, (C) is a
sophisticated investor with knowledge and experience in business and financial
matters, (D) has received certain information concerning the Purchaser and has
had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Warrants and the
underlying QEP Common Stock, (E) is able to bear the economic risk and lack of
liquidity inherent in holding the Warrants and the underlying QEP Common Stock,
and (F) is an Accredited Investor.
(vii) COMPANY SHARES. The Seller holds of record and
owns beneficially 20,428 Company Shares, free and clear of any security
interest, encumbrance or other adverse claims ("ENCUMBRANCE") (other than any
restrictions under the Securities Act and state securities laws), and is not a
party to any option, warrant, purchase right or other contract or commitment
that could require the Seller to sell, transfer or otherwise dispose of any
Company Shares, or, except as provided in Section 3(a) of the Disclosure
Schedule, any other capital stock of the Company (other than this Agreement).
The Company Shares owned by Seller constitute all of the issued and outstanding
shares of capital stock of the Company. Seller is not a party to, or otherwise
bound by, any voting trust, proxy or other agreement or understanding with
respect to the voting of the capital stock of the Company and its Subsidiaries.
(b) REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Seller that the statements contained in
this Section 3(b) are correct and complete as of the date of this Agreement.
(i) ORGANIZATION. The Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) AUTHORIZATION OF TRANSACTION. The Purchaser has
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Purchaser, enforceable in accordance with its
terms and conditions. The Purchaser need not give any notice to, make any filing
with, or obtain any Permit of any Governmental Body in order to consummate the
transactions contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any Law or restriction of any Governmental
Body to which the Purchaser is subject or any provision of its charter or
bylaws, or (B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any
6
<PAGE>
notice under any agreement, contract, lease, license, instrument or other
arrangement to which the Purchaser is a party or by which it is bound or to
which any of its assets is subject.
(iv) BROKERS' FEES. The Purchaser has no liability to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which any Seller could become
liable or obligated.
(v) INVESTMENT. The Purchaser (A) understands that
the Company Shares have not been, and will not be, registered under the
Securities Act or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (B) is acquiring the Company Shares solely for
its own account for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information concerning
the Company and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Company Shares, (E) is able to bear the economic risk and lack of liquidity
inherent in holding the Company Shares, and (F) is an Accredited Investor.
(vi) CURRENT PAYMENTS. As of the date of this
Agreement, the Purchaser is current, based on the existing terms of its accounts
payable to the Company and any of its Subsidiaries, on all such accounts
payable.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS
SUBSIDIARIES. The Seller represents and warrants to the Purchaser that the
statements contained in this Section 4 and in the disclosure schedule delivered
by the Seller to the Purchaser on the date hereof (the "DISCLOSURE SCHEDULE")
are correct and complete as of the date of this Agreement.
(a) ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Each of
the Company and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Company and its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the failure to be so
qualified would not materially and adversely affect the Company and its
Subsidiaries taken as a whole ("MATERIAL ADVERSE EFFECT"). Each of the Company
and its Subsidiaries has full corporate power and authority and all material
governmental licenses, permits, and authorizations necessary to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. Section 4(a) of the Disclosure Schedule lists the directors and
officers of each of the Company and its Subsidiaries. The Seller has made
available to the Purchaser correct and complete copies of the charter and bylaws
and has delivered minute books of each of the Company and its Subsidiaries (as
amended to date), it being understood, however, that the minute books of Roberts
Company Canada Ltd. are located at the main offices of Roberts Company Canada
Ltd. and will not be present at Closing. The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of each of the Company and its Subsidiaries are correct and
complete. None of the Company and its Subsidiaries is in default under or in
violation of any provision of its charter or bylaws.
7
<PAGE>
(b) CAPITALIZATION. The entire authorized capital stock of the
Company consists of 36,845 Company Shares, of which 20,428 Company Shares are
issued and outstanding and no Company Shares are held in treasury. All of the
issued and outstanding Company Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the Seller.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Company to sell, transfer or otherwise
dispose of any capital stock of any of its Subsidiaries or that could require
the Company or any of its Subsidiaries to issue, sell or otherwise cause to
become outstanding, or to purchase or otherwise acquire, any of its capital
stock, and there are no voting trusts, proxies or other agreements or
understandings with respect to the voting of the capital stock of the Company or
any of its Subsidiaries. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Company or any of its Subsidiaries.
(c) NONCONTRAVENTION. Except as set forth in Section 4(c) of
the Disclosure Schedule, neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) violate
any Law or restriction of any Governmental Body to which any of the Company and
its Subsidiaries is subject or any provision of the charter or bylaws of any of
the Company and its Subsidiaries, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any material agreement, contract, lease, license, instrument, or other
arrangement to which any of the Company and its Subsidiaries is a party or by
which any of them is bound or to which any of its assets is subject, or result
in the imposition of any Encumbrance on any of the assets of any of them. Except
as set forth in Section 4(c) of the Disclosure Schedule, none of the Company and
its Subsidiaries needs to give any notice to, make any filing with, or obtain
any registration, qualification or Permit of or from any Governmental Body in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(d) BROKERS' FEES. None of the Company and its Subsidiaries
has any liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this Agreement.
(e) TITLE TO AND CONDITION OF ASSETS. The Company and its
Subsidiaries own or have a valid contractual right to use the properties and
assets currently used by them, free and clear of all Encumbrances except for
Permitted Encumbrances, which properties and assets comprise all the assets
necessary for the conduct of business of the Company and its Subsidiaries as
presently conducted. The tangible assets owned and currently used by the Company
and its Subsidiaries are generally in good operating condition and repair
(subject to normal wear and tear).
(f) SUBSIDIARIES. Section 4(f) of the Disclosure Schedule sets
forth for each Subsidiary of the Company (i) its name and jurisdiction of
incorporation, (ii) the number of shares of authorized capital stock of each
class of its capital stock, (iii) the number of issued and outstanding shares of
each class of its capital stock, the names of the holders thereof, and the
number of shares held by each such holder, and (iv) the number of shares of its
capital stock held in treasury. All of the issued and outstanding shares of
capital stock of each Subsidiary of the Company have been duly authorized and
are validly issued, fully paid, and nonassessable. One of the Company and its
Subsidiaries holds of record and owns beneficially all of the outstanding shares
of each Subsidiary of the Company, free and clear of all Encumbrances (other
than restrictions under the Securities Act and other applicable
8
<PAGE>
securities laws). None of the Company or any of its Subsidiaries controls,
directly or indirectly, or has any direct or indirect equity participation in,
any Person which is not a Subsidiary of the Company.
(g) FINANCIAL STATEMENTS. Attached as Section 4(g) of the
Disclosure Schedule are the following financial statements (collectively, the
"FINANCIAL STATEMENTS"): (i) audited consolidated balance sheets and
consolidated statements of income, cash flow, and changes in stockholders'
equity as of and for the fiscal years ended March 31, 1993, March 31, 1994,
March 31, 1995, March 31, 1996, and March 31, 1997 (the "Most Recent Fiscal Year
End") for the Company and its Subsidiaries; and (ii) unaudited consolidated and
consolidating balance sheets and statements of income, changes in stockholders'
equity and cash flow (the "MOST RECENT FINANCIAL STATEMENTS") as of and for the
six months ended September 30, 1997 (the "MOST RECENT FISCAL MONTH END") for the
Company and its Subsidiaries. Except as otherwise set forth in Section 4(g) of
the Disclosure Schedule or in the information contained elsewhere in this
Agreement or in the Disclosure Schedule, the Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby and present fairly the
financial condition of the Company and its Subsidiaries as of such dates and the
results of operations of the Company and its Subsidiaries for such periods and
are consistent with the books and records of the Company and the Subsidiaries,
which books and records are maintained in accordance with generally accepted
accounting standards; provided, however, that the Most Recent Financial
Statements are subject to normal year-end adjustments and lack footnotes and
other presentation items.
(h) EVENTS SUBSEQUENT TO THE MOST RECENT FISCAL MONTH END.
Since the Most Recent Fiscal Month End, there has not been any material adverse
change in the business, financial condition, operations, results of operations
of the Company and its Subsidiaries taken as a whole. Without limiting the
generality of the foregoing, except as set forth in Section 4(h) of the
Disclosure Schedule, since the Most Recent Fiscal Month End, none of the Company
and its Subsidiaries has: (i) sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than in the ordinary course of business;
(ii) accelerated, terminated, modified or canceled any agreement or license (or
series of related agreements and licenses), involving more than $25,000 to which
any of the Company and its Subsidiaries is a party or by which any of them is
bound, nor has any other party thereto taken any such action; (iii) granted any
security interest in any of its assets, tangible or intangible; (iv) made any
capital expenditure (or series of related capital expenditures) involving more
than $25,000; (v) made any capital investment in, loan to, or acquisition of the
securities or assets of, any other Person (or series of related capital
investments, loans and acquisitions) outside the ordinary course of business;
(vi) issued any note, bond or other debt security or created, incurred, assumed
or guaranteed any Indebtedness or capitalized lease obligation either involving
more than $10,000 singly or $25,000 in the aggregate; (vii) delayed or postponed
the payment of accounts payable and other liabilities outside the Company's
ordinary course of business; (viii) cancelled, compromised, waived or released
any right or claim (or series of related rights and claims) either involving
more than $25,000 or outside the ordinary course of business, or increased its
reserve for bad debts or uncollectible accounts receivable; (ix) amended or
authorized an amendment of any provision of its charter, bylaws or other
constituent documents; (x) issued, sold or otherwise disposed of any of its
capital stock, or granted any options, warrants or other rights to purchase or
obtain (including upon conversion, exchange or exercise) any of its capital
stock; (xi) declared, set aside or paid any dividend or made any distribution
with respect to its capital stock (whether in cash or in kind) or redeemed,
purchased or otherwise acquired any of its capital stock; (xii) experienced any
material damage, destruction or loss (whether or not covered by insurance) to
its property; (xiii) made any loan to, or entered into any other transaction
with, any of its
9
<PAGE>
directors, officers or employees outside the ordinary course of business; (xiv)
entered into any employment contract or collective bargaining agreement, written
or oral, which is not cancelable upon 30 days notice (or less), or modified the
terms of any existing such contract or agreement;(xv) adopted, amended, modified
or terminated any bonus, profit-sharing, incentive, severance or other plan,
contract or commitment for the benefit of any of its directors, officers and
employees (or taken any such action with respect to any other Employee Benefit
Plan except as required by law); (xvi) made any other change in employment terms
for any of its directors, officers, and employees outside the ordinary course of
business; (xvii) made or pledged to make any charitable or other capital
contribution outside the ordinary course of business that would have a Material
Adverse Effect; (xviii) repaid an aggregate principal amount of Indebtedness
exceeding $50,000, other than payments of trade accounts payable, possible pay
downs of the indebtedness to IBJ in respect of the working capital line of
credit, and of principal then due under the terms of existing debt instruments
otherwise than by reason of the acceleration of maturity of such principal
amounts; (xix) ceased doing business with any customer, sales to which exceeded
$100,000 during the fiscal year ended March 31, 1997; (xx) experienced any other
material occurrence, event, incident, action, failure to act or transaction
which would have a Material Adverse Effect; or (xxi) agreed or committed to any
of the foregoing.
(i) ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company
nor any of its Subsidiaries has any liability (and there is no valid basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against any of them giving rise to any liability),
except for (i) liabilities and obligations covered by insurance; (ii)
obligations to be performed after the date hereof pursuant to contracts,
instruments or other documents; (iii) liabilities otherwise disclosed herein or
on the Disclosure Schedule; (iv) liabilities not otherwise required to be
disclosed herein due to limitations relating to knowledge, materiality or the
amount of the liability itself; (v) liabilities set forth on the Most Recent
Balance Sheet or in the notes to the Most Recent Financial Statements; and (vi)
liabilities that have arisen after the Most Recent Fiscal Month End in the
Company's ordinary course of business.
(j) LEGAL COMPLIANCE. Each of the Company, its Subsidiaries,
and their respective predecessors has complied with all applicable Laws and the
provisions of its charter and bylaws, except where non-compliance would not have
a Material Adverse Effect, and has all material Permits necessary to carry on
the businesses in which it is now engaged, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or, to the knowledge of the Seller and the directors and officers of the
Company and its Subsidiaries, commenced against any of them alleging any failure
so to comply. Section 4(j) of the Disclosure Schedule lists all material Permits
required under applicable law or regulation for the operation of the businesses
of the Company and its Subsidiaries as presently operated, all of which have
been duly issued or obtained and are in full force and effect, and the Company
and its Subsidiaries are in compliance with the material terms of all such
Permits.
(k) TAX MATTERS.
(i) Since August 10, 1994, each Affiliated Group of
which the Company and each of its Subsidiaries was a member (A) has filed all
Tax Returns required to be filed, which, to the knowledge of the Seller and each
current employee of the Company responsible for Tax matters, were correct and
complete in all material respects, insofar as they relate to facts, events or
circumstances arising or occurring after August 10, 1994, and (B) has paid all
Taxes due and payable
10
<PAGE>
by any of them (whether or not shown on any Tax Return) prior to the date of
this Agreement. Except as set forth in Section 4(k) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries currently is the beneficiary of
any extension of time within which to file any Tax Return. Since August 10,
1994, neither the Seller nor the Company has received notice that any claim has
been made by any authority in a jurisdiction where the Company or any of its
Subsidiaries does not file Tax Returns that it is subject to taxation by that
jurisdiction. There are no Encumbrances asserted in writing on any of the assets
of the Company or any of its Subsidiaries that have arisen in connection with
any failure (or alleged failure) to pay any Tax.
(ii) Each of the Company and its Subsidiaries has
withheld and paid all Taxes required to have been withheld and paid prior to the
date of this Agreement in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party.
(iii) To the knowledge of the Seller and each
employee of the Company responsible for Tax matters, without independent
investigation, no authority will successfully assess any additional Taxes in
respect of Taxes paid or Taxes that should have been paid or Tax Returns filed
or Tax Returns that should have been filed prior to the date hereof for which
the Company or any of its Subsidiaries will be liable for any period ended on or
before the Most Recent Fiscal Month End. Except as set forth in Section 4(k) of
the Disclosure Schedule, there is no dispute or claim concerning any Tax
liability of any Affiliated Group for any taxable period during which the
Company or any of its Subsidiaries was a member either (A) claimed or raised by
any authority in writing or (B) as to which the Seller or any employee of the
Company responsible for Tax matters has knowledge based upon personal contact
with any agent of such authority. Section 4(k) of the Disclosure Schedule lists
all federal, state, local and foreign income Tax Returns filed with respect to
the Company or any of its Subsidiaries for all taxable periods ended on or after
March 31, 1992, indicates those Tax Returns that have been audited and indicates
those Tax Returns that currently are the subject of audit. The Seller has made
available for review by the Purchaser correct and complete copies of all federal
income Tax Returns filed, examination reports and statements of deficiencies
assessed against or agreed to by the Company or any of its Subsidiaries since
March 31, 1992.
(iv) No Affiliated Group has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency for any taxable period during which any of the
Company and its Subsidiaries was a member.
(v) None of the Company and its Subsidiaries has
filed a consent under Code Section 341(f) concerning collapsible corporations.
None of the Company and its Subsidiaries has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code Section 280G. None of the Company and its Subsidiaries has been a
United States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). Each of the Company and its Subsidiaries has disclosed on its
federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 6662. Except as set forth in Section 4(k) of the Disclosure Schedule,
none of the Company and its Subsidiaries (A) is a party to any Tax allocation or
sharing agreement, (B) has been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common parent of
which was the Company or the Seller) or (C) has any liability for the
11
<PAGE>
Taxes of any Person (other than any of the Company and its Subsidiaries) under
Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract or otherwise.
(vi) The amount of net operating losses reported by
the Company and its Subsidiaries on the Company's Tax Returns for the fiscal
years ended March 31, 1994 through March 31, 1997 is not subject to Code Section
382 limits with respect to any ownership changes occurring after 1994 and prior
to this date.
(l) REAL PROPERTY. Neither the Company nor any of its
Subsidiaries owns any real property. Section 4(l) of the Disclosure Schedule
includes a list and brief description of all real property leased or subleased
to or by any of the Company and its Subsidiaries. The Seller has made available
for review by the Purchaser correct and complete copies of the leases and
subleases listed in Section 4(l) of the Disclosure Schedule (as amended to date)
(the "LEASES"). With respect to each of the Leases, except as set forth in
Section 4(l) of the Disclosure Schedule, (i) the lease or sublease is the legal,
valid and binding obligation of the parties, and is enforceable and in full
force and effect, neither the Company nor the Seller has received any notice
that any such lease or sublease will not continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (ii) neither the Company
or any of its Subsidiaries nor, to the knowledge of the Seller and the Company,
any other party to the lease or sublease is in breach or default thereunder, and
to the knowledge of the Seller and the Company, no event has occurred which,
with notice or lapse of time, would constitute a breach or default thereunder or
permit termination, modification or acceleration thereunder; (iii) neither the
Company or any of its Subsidiaries nor, to the knowledge of the Seller and the
Company, any other party to the lease or sublease has repudiated any provision
thereof; (iv) there are no disputes, oral agreements or forbearance programs in
effect as to the lease or sublease; (v) with respect to each sublease, the
representations and warranties set forth in clauses (i) through (iv) above, to
the knowledge of Seller and the Company, are true and correct with respect to
the underlying lease; and (vi) to the knowledge of Seller and the Company
without any independent investigation, the owner of the facility leased or
subleased has good and marketable title to the parcel of real property, free and
clear of any Security Interest, easement, covenant, or other restriction, except
for installments of special easements not yet delinquent and recorded easements,
covenants and other restrictions which do not impair the current use, occupancy,
or value, or the marketability of title, of the property subject thereto.
(m) INTELLECTUAL PROPERTY.
(i) The Company and its Subsidiaries own or have a
valid and legally binding right to use all Intellectual Property necessary for
the operation of the businesses of the Company and its Subsidiaries as presently
conducted. Neither the Seller nor the Company has received notice that any item
of Intellectual Property used by any of the Company and its Subsidiaries
immediately prior hereto will not be available for use by the Company or the
Subsidiary immediately subsequent hereto.
(ii) To the knowledge of the Seller and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Company and its Subsidiaries, except as set forth in Section
4(m) of the Disclosure Schedule, none of the Company and its Subsidiaries has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with
12
<PAGE>
any Intellectual Property rights of third parties which, in each such case,
would have a Material Adverse Effect, and neither the Seller nor any of the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company and its Subsidiaries has ever received any
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation (including any claim that any of the
Company and its Subsidiaries must license or refrain from using any Intellectual
Property rights of any third party). Except as set forth in Section 4(m)(ii) of
the Disclosure Schedule, to the knowledge of the Seller and the directors and
officers (and employees with responsibility for Intellectual Property matters)
of the Company and its Subsidiaries, no third party has materially interfered
with, infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of any of the Company and its Subsidiaries.
(iii) Section 4(m)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to any of the
Company and its Subsidiaries with respect to any of its Intellectual Property
and the jurisdiction of such issuance, identifies each pending patent
application or application for registration which any of the Company and its
Subsidiaries has made with respect to any of its Intellectual Property and the
jurisdiction in which such application has been made, and identifies each
license, agreement or other permission which any of the Company and its
Subsidiaries has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). The Seller has made
available for review by the Purchaser correct and complete copies of all such
patents, registrations, applications, licenses, agreements and permissions (as
amended to date) and has made available to the Purchaser correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. Section 4(m)(iii) of the Disclosure Schedule
also identifies each trade name or unregistered trademark used by any of the
Company and its Subsidiaries in connection with any of its businesses. Other
than as provided in Section 4(m)(iii) of the Disclosure Schedule, with respect
to each item of Intellectual Property required to be identified in Section
4(m)(iii) of the Disclosure Schedule, (A) the Company and its Subsidiaries
possess all right, title and interest in and to the item, free and clear of any
Encumbrance other than a Permitted Encumbrance, license or other restriction;
(B) the item is not subject to any outstanding injunction, judgment, order,
decree, ruling or charge; (C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to the
knowledge of the Seller and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company and its
Subsidiaries, threatened which challenges the legality, validity,
enforceability, use or ownership of the item; and (D) none of the Company and
its Subsidiaries has ever agreed to indemnify any Person for or against any
interference, infringement, misappropriation or other conflict with respect to
the item.
(iv) Section 4(m)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns and that
any of the Company and its Subsidiaries uses pursuant to license, sublicense,
agreement or permission. The Seller has made available for review by the
Purchaser correct and complete copies of all such licenses, sublicenses,
agreements and permissions (as amended to date). With respect to each material
item of Intellectual Property required to be identified in Section 4(m)(iv) of
the Disclosure Schedule, (A) the license, sublicense, agreement or permission
covering the item is legal, valid, binding, enforceable and in full force and
effect; (B) neither the Seller nor the Company has received any notice that the
license, sublicense, agreement or permission will not continue to be legal,
valid, binding, enforceable and in full force and effect following the date
hereof; (C) neither Seller or the Company nor, to the knowledge of the Seller
and the directors and officers (and employees with responsibility for
Intellectual Property matters) of the
13
<PAGE>
Company and its Subsidiaries, any other party to the license, sublicense,
agreement or permission, is in material breach or default thereunder and, to the
knowledge of the Seller and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company and its
Subsidiaries, no event has occurred which with notice or the passage of time
would constitute a material breach or default thereunder or permit the
termination, modification, or acceleration thereof; (D) neither the Seller or
the Company nor, to the knowledge of the Seller and the directors and officers
(and employees with responsibility for Intellectual Property matters of the
Company and its Subsidiaries) any other party to the license, sublicense,
agreement or permission, has repudiated any material provision thereof; (E) with
respect to each sublicense, the representations and warranties set forth in
subsections (A) through (D) above are, to the knowledge of the Seller and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company and its Subsidiaries, true and correct with
respect to the underlying license; and (F) to the knowledge of the Seller and
the directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company and its Subsidiaries, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand is
pending or is threatened which challenges the legality, validity or
enforceability of the underlying item of any material Intellectual Property.
(n) INVENTORY. The inventory of the Company and its
Subsidiaries, all of which physically exists, is in the possession of the
Company or one of its Subsidiaries or their respective agents. At the Most
Recent Fiscal Month End, subject to Section 4(n) of the Disclosure Schedule, the
inventory loss factor incorporated in the standard costs of the Company and the
reserve for inventory write-down reflected in the Most Recent Fiscal Month End
balance sheet and claims covered by insurance, to the knowledge of the Seller
and the Company, the inventory existing as of the Most Recent Fiscal Month End
was (i) merchantable and fit for the purposes for which they were procured or
manufactured, and (ii) neither obsolete, nor damaged, nor defective nor
slow-moving (i.e., expected to be sold after September 30, 1998).
(o) CONTRACTS. Section 4(o) of the Disclosure Schedule lists
the following contracts and other agreements to which any of the Company and its
Subsidiaries is a party: (i) any agreement (or group of related agreements) for
the lease of personal property to or from any Person providing for lease
payments in excess of $25,000 per annum; (ii) any agreement (or group of related
agreements) for the purchase or sale of raw materials, commodities, supplies,
products or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one
year, or involve consideration in excess of $25,000 per annum; (iii) any
agreement concerning a partnership or joint venture; (iv) any agreement (or
group of related agreements) under which it has created, incurred, assumed or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $25,000 or under which it has imposed a security
interest on any of its assets, tangible or intangible; (v) any agreement
concerning confidentiality or noncompetition; (vi) any agreement with the Seller
or any of its Affiliates (other than the Company and its Subsidiaries); (vii)
any stock option, stock purchase, stock appreciation, severance or other plan or
arrangement for the benefit of its current or former directors, officers and
employees (other than an Employee Benefit Plan); (viii) any collective
bargaining agreement; (ix) any agreement for the employment of any individual on
a full-time, part-time, consulting or other basis; (x) any agreement under which
it has advanced or loaned any amount to any of its directors, officers or
employees outside the ordinary course of business; (xi) any agreement under
which the consequences of a default or termination could have a Material Adverse
Effect; or (xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.
14
<PAGE>
The Seller has made available for review by the Purchaser a
correct and complete copy of each written agreement listed in Section 4(o) of
the Disclosure Schedule (as amended to date) and a written summary setting forth
the terms and conditions of each oral agreement referred to in Section 4(o) of
the Disclosure Schedule. With respect to each such agreement: (A) the agreement
is the legal, valid, binding and enforceable obligation of the parties thereto
and is in full force and effect; (B) neither the Seller nor the Company has
received notice that the agreement will not continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) neither the
Company or its Subsidiaries nor, to the knowledge of the Seller and the Company,
any other party is in material breach or default thereunder, and to the
knowledge of the Seller and the Company, no event has occurred which with notice
or lapse of time would constitute a material breach or default thereunder, or
permit termination, modification or acceleration, under the agreement; and (D)
neither the Company or its Subsidiaries nor, to the knowledge of the Seller and
the Company, any other party has repudiated any material provision of the
agreement.
(p) NOTES AND ACCOUNTS RECEIVABLE. At the Most Recent Fiscal
Month End, subject to the reserve for bad debt reflected in the Most Recent
Fiscal Month End balance sheet and Section 4(p) of the Disclosure Schedule, all
notes and accounts receivable of the Company and its Subsidiaries were reflected
properly on their books and records, were valid receivables subject only to
historical levels of setoffs or counterclaims and were collectible prior to
September 30, 1998 at their recorded amounts (it being understood that with
respect to historical setoffs and counterclaims on such notes and accounts
receivable, no reserves have been taken against such setoffs and counterclaims
in the Financial Statements).
(q) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of any of the Company and its Subsidiaries.
(r) INSURANCE. Section 4(r) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability and workers' compensation
coverage and bond and surety arrangements) currently in force to which any of
the Company and its Subsidiaries is a party, a named insured, or otherwise the
beneficiary of coverage: (i) the name, address, and telephone number of the
agent; (ii) the name of the insurer, the name of the policyholder, and the name
of each covered insured; (iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on a claims
made, occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and (v) a
description of any retroactive premium adjustments or other loss-sharing
arrangements. With respect to each such insurance policy: (A) the policy is
legal, valid, binding, enforceable and in full force and effect; (B) neither the
Seller nor the Company has received notice that the policy will not continue to
be legal, valid, binding, enforceable and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C)
neither any of the Company and its Subsidiaries nor to the knowledge of the
Seller and the Company any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and to the knowledge of the Seller and the Company no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification or acceleration, under the policy; and (D) no
party to the policy has repudiated any provision thereof. Each of the Company
and its Subsidiaries has been covered during
15
<PAGE>
the past five years by insurance in scope and amount customary and reasonable
for the businesses in which it has engaged during the aforementioned period.
(s) LITIGATION. Section 4(s) of the Disclosure Schedule sets
forth each instance in which any of the Company and its Subsidiaries (i) is
subject to any outstanding injunction, judgment, order, decree, ruling or charge
or (ii) is a party or, to the knowledge of the Seller and the directors and
officers (and employees with responsibility for litigation matters) of the
Company and its Subsidiaries, is threatened to be made a party to any action,
suit, proceeding, hearing or investigation of, in or before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings and investigations set forth in Section 4(s) of the Disclosure Schedule
is expected to have a Material Adverse Effect. None of the Seller and the
directors and officers (and employees with responsibility for litigation
matters) of the Company and its Subsidiaries has received any notice of any
other action, suit, proceeding, hearing or investigation, pending or threatened,
which could reasonably be expected to have a Material Adverse Effect on the
Company or any of its Subsidiaries, taken as a whole.
(t) PRODUCTS AND PRODUCT WARRANTY. To the knowledge of the
Seller and the Company and subject to the reserve for product warranty and
liability claims reflected in the Most Recent Fiscal Month End balance sheet and
claims covered by insurance, each product manufactured, sold, leased or
delivered by the Company or any of its Subsidiaries has been in substantial
conformity with all applicable express and implied product warranties. Section
4(t) of the Disclosure Schedule includes (i) copies of the terms and conditions
of outstanding warranties for products sold by the Company or any of its
Subsidiaries after August 10, 1994 and (ii) a list that is true and correct in
all material respects of written claims for breach of warranty or product
liability made against the Company or any of its subsidiaries after August 10,
1994. Except as set forth on Section 4(t) of the Disclosure Schedule, neither
the Seller nor the Company know of or have received notice of any valid basis
for the recall, withdrawal or suspension of any product packaged, distributed or
sold by the Company or any of its Subsidiaries or that would otherwise cause the
Company or any of its Subsidiaries to recall, withdraw or suspend any such
product from the market, where such recall, withdrawal or suspension would have
a Material Adverse Effect.
(u) LIST OF ACCOUNTS. Section 4(u) of the Disclosure Schedule
lists: (A) the name and address of each bank or other institution with which the
Company or any of its Subsidiaries maintains an account (cash, securities or
other) or safe deposit box; (B) the name and phone number of the contact person
at such bank or institution; (C) the account number of the relevant account and
a description of the type of account; and (D) the persons authorized to transact
business in such accounts.
(v) EMPLOYEES. Section 4(v) of the Disclosure Schedule
contains the names, job descriptions and salary rates and other compensation of
all officers, non-exempt employees and consultants of the Company or its
Subsidiaries and others providing material services to the Company or its
Subsidiaries whose total annualized salary during the year ending December 31,
1996 exceeded $50,000, and a list of all material employee policies, employee
manuals or other written statements of rules or policies as to working
conditions, vacation and sick leave, a complete copy of each of which has been
made available for review by the Purchaser. Except as set forth in Section 4(v)
of the Disclosure Schedule; (i) none of the Company and its Subsidiaries is a
party to or bound by any collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes; (ii) none of the Company and its
16
<PAGE>
Subsidiaries has committed any unfair labor practice; and (iii) none of the
Seller and the directors and officers (and employees with responsibility for
employment matters) of the Company and its Subsidiaries has any knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of any of the Company and its
Subsidiaries.
(w) EMPLOYEE BENEFITS. Section 4(w) of the Disclosure Schedule
lists each Employee Benefit Plan that any of the Company and its Subsidiaries
maintains or to which any of the Company and its Subsidiaries contributes.
Except as set forth on Section 4(w) of the Disclosure Schedule, each such
Employee Benefit Plan (other than any Multiemployer Plan) complies in all
material respects with the applicable requirements of ERISA, the Code and other
applicable laws. The Seller has made available for review by the Purchaser
correct and complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each such
Employee Benefit Plan (other than any Multiemployer Plan).
With respect to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan, (i) all contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan by the Company and its subsidiaries
or accrued in accordance with the past custom and practice of the Company and
its Subsidiaries; (ii) each such Employee Benefit Plan has received, a favorable
determination letter from the Internal Revenue Service; and (iii) except as set
forth on Section 4(w) of the Disclosure Schedule, the fair market value of
assets at December 30, 1996 under each such Employee Benefit Plan (other than
any Multiemployer Plan) equals or exceeds the present value of all vested and
non-vested "BENEFIT LIABILITIES", (as defined in ERISA Section 4001(a)(16)
thereunder based on the actuarial assumptions used for funding purposes as set
forth in the most recent actuarial report as of the most recent actuarial
valuation date.
With respect to each Employee Benefit Plan that any of the Company, its
Subsidiaries and the Controlled Group of Corporations which includes the Company
and its Subsidiaries maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to contribute, (A)
all premiums or other payments due from the Company or any of its Subsidiaries
for all periods ending on or before the date hereof have been paid with respect
to each such Plan, (B) no such Plan which is an Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been completely or partially terminated
or been the subject of a Reportable Event as to which notices would be required
to be filed with the PBGC, and no proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
instituted or, to the knowledge of the Seller and the directors and officers
(and employees with responsibility for employee benefits matters) of the Company
and its Subsidiaries, threatened; and (C) there have been no Prohibited
Transactions with respect to any such Employee Benefit Plan, no Fiduciary has
any liability for breach of fiduciary duty or any other failure to act or comply
in connection with the administration or investment of the assets of any such
Employee Benefit Plan, no action, suit, proceeding, hearing or investigation
with respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending or, to
the knowledge of the Seller and the directors and officers (and employees with
responsibility for employee benefits matters) of the Company and its
Subsidiaries, threatened, and none of the Seller and the directors and officers
(and
17
<PAGE>
employees with responsibility for employee benefits matters) of the Company and
its Subsidiaries has any knowledge of any basis for any such action, suit,
proceeding, hearing or investigation.
None of the Company, its Subsidiaries, and the other members of the
Controlled Group of Corporations that includes the Company and its Subsidiaries
contributes to, ever has contributed to, or ever has been required to contribute
to any Multiemployer Plan or has any liability (including withdrawal liability)
under any Multiemployer Plan. Except as set forth on Section 4(w) of the
Disclosure Schedule, none of the Company and its Subsidiaries maintains or ever
has maintained or contributes, ever has contributed, or ever has been required
to contribute to any Employee Welfare Benefit Plan providing medical, health or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses or their dependents (other than in
accordance with Code Section 4980B).
(x) GUARANTIES. None of the Company and its Subsidiaries is a
guarantor or otherwise is liable for any liability or obligation (including
Indebtedness) of any other Person.
(y) ENVIRONMENT, HEALTH AND SAFETY. Except as set forth on
Schedule 4(y) of the Disclosure Schedule, each of the Company, its Subsidiaries,
and, to the knowledge of the Seller, their respective predecessors has complied
in all material respects with all applicable Environmental, Health and Safety
Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been filed or commenced against the
Company and its Subsidiaries alleging any material failure so to comply.
(z) CUSTOMERS AND SUPPLIERS; SUPPLIES. Section 4(z) of the
Disclosure Schedule contains a list of the ten largest customers of the Company
(which term, for purposes of this Section 4(z), shall include the Company's
Subsidiaries) and the ten largest suppliers of goods or services to the Company
during the fiscal year ended March 31, 1997, and the period beginning on April
1, 1997, and ending on August 22, 1997, and with respect to each, the name and
address, dollar volume involved and nature of the relationship (including with
respect to the list of suppliers, the principal categories of products
purchased). Except as set forth on Section 4(z) of the Disclosure Schedule, (A)
the Company's relationships with such suppliers and customers are generally good
commercial working relationships; (B) no such supplier or customer of the
Company has cancelled or otherwise terminated, or threatened to cancel or
terminate, its relationship with the Company; and (C) no supplier or customer
has, during the past 12 months, decreased materially, or threatened to decrease
or limit materially, any such supplier's provision of services, supplies or
materials to the Company or any such customer's usage or purchase of services or
products of the Company, as compared to the 12-month period ending on the date
one year prior to the date hereof.
(aa) RELATED PARTIES. Except as set forth in Section 4(aa) of
the Disclosure Schedule, neither Seller nor any current director or officer of,
nor to the best of Seller's knowledge, any employee or consultant of, or other
person providing services to, the Company (individually, a "RELATED PARTY", and
collectively, the "RELATED PARTIES") or any Affiliate of Seller or any Related
Party (A) owns, directly or indirectly, any interest in any competitor of the
Company or its Subsidiaries, any supplier of goods or services to the Company or
its Subsidiaries or any customer of the Company or its Subsidiaries; (B) owns,
directly or indirectly, in whole or in part, any property, asset or right, real,
personal or mixed, tangible or intangible (including, but not limited to, any of
the Intellectual Property) which is utilized in the operation of the business of
the Company or its Subsidiaries; nor (C) has an interest in or is,
18
<PAGE>
directly or indirectly, a party to any contract, agreement, lease or arrangement
pertaining or relating to the Company.
(bb) ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as set
forth in Section 4(bb) of the Disclosure Schedule, none of Seller, any Related
Party, any Affiliate of Seller or any Related Party, any agent of the Company
(which term, for purposes of this Section 4(bb) shall include the Company's
Subsidiaries), or any other Person acting on behalf of the Company or Seller,
acting alone or together, has (A) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature or type, from any customer, supplier, employee or
agent of any customer or supplier, official or employee of any government
(domestic or foreign) or other Person; or (B) directly or indirectly, given or
agreed to give any money, gift or similar benefit to any customer, supplier,
employee or agent of any customer or supplier, official or employee of any
government (domestic or foreign), or any political party or candidate for office
(domestic or foreign) or other Person who was, is or may be in a position to
help or hinder the business of the Company (or assist the Company in connection
with any actual or proposed transaction) which may subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding.
5. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the date hereof.
(a) GENERAL. In case at any time after the closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 6 below). The Seller acknowledges and agrees that from and after the
closing the Purchaser will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Company and its Subsidiaries.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or prior
to the date hereof involving the Company or its Subsidiaries, each of the other
Parties will reasonably cooperate with it and its counsel in the contest or
defense, make available their personnel, and provide such testimony and access
to their books and records as shall be necessary in connection with the contest
or defense, all at the sole cost and expense of the contesting or defending
Party (unless the contesting or defending Party is entitled to indemnification
therefor under Section 6 below).
(c) TRANSITION. Seller will not take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of any of the Company and its
Subsidiaries from maintaining the same business relationships with the Company
and its Subsidiaries after the date hereof as it maintained with the Company and
its Subsidiaries prior to the closing. Seller will refer all customer inquiries
relating to the businesses of the Company and its Subsidiaries to the Purchaser
from and after the closing.
19
<PAGE>
(d) CONFIDENTIALITY. Seller shall hold in confidence and treat
as confidential all of the Confidential Information, refrain from using any of
the Confidential Information except in connection with this Agreement, and
deliver promptly to the Purchaser or destroy, at the request and option of the
Purchaser, all tangible embodiments (and all copies) of the Confidential
Information which are in its possession. If the Seller is requested or required
(by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, Seller shall notify the
Purchaser promptly of the request or requirement so that the Purchaser may seek
an appropriate protective order or waive compliance with the provisions of this
Section 5(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, Seller is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt,
Seller may disclose the Confidential Information to the tribunal; provided,
however, that the Seller shall use its best efforts to obtain, at the reasonable
request of the Purchaser, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as the Purchaser shall designate. The foregoing
provisions shall not apply to any Confidential Information which is available to
the public immediately prior to the time of disclosure.
(e) COVENANT NOT TO COMPETE. For a period of five years from
and after the date hereof, Seller will not engage, directly or indirectly, in
any business that any of the Company and its Subsidiaries conducts as of the
date hereof; provided, however, that no owner of less than 1% of the outstanding
stock of any publicly traded corporation shall be deemed to engage in a business
solely by reason of its ownership thereof. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section 5(e)
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed. During the five year period
following the date hereof, Seller shall not, directly or indirectly, recruit or
otherwise solicit or induce any person (other than Carl Watson) who is an
employee of, or otherwise engaged by, the Company, any of its Subsidiaries or
any successor to the business of any of them to terminate his or her employment
or other relationship with the Company or any subsidiary or successor thereof,
and during the six-month period following the date hereof, Seller shall not,
directly or indirectly, recruit or otherwise solicit or induce Doug Omer to
terminate his employment with the Company, nor shall the Seller hire any officer
who has left the employ of the Company, any of its Subsidiaries or any successor
thereto during the preceding year.
(f) GENERAL RELEASE. As additional consideration for the sale
of the Company Shares pursuant to this Agreement, Seller hereby unconditionally
and irrevocably releases and forever discharges, effective as of the date
hereof, the Company, each of its Subsidiaries and each of their respective
officers, directors, employees and agents, from any and all rights, claims,
demands, judgments, obligations, liabilities and damages, whether accrued or
unaccrued, asserted or unasserted, and whether known or unknown, relating to the
Company or its Subsidiaries which ever existed, now exist, or may hereafter
exist, by reason of any tort, breach of contract, violation of law or other act
or failure to act which shall have occurred at or prior to the date hereof, or
in relation to any other liabilities of the Company or its Subsidiaries to the
Seller. The Seller expressly intends that the foregoing release shall be
effective regardless of whether the basis for any claim or right hereby
20
<PAGE>
released shall have been known to or anticipated by the Seller. Notwithstanding
the foregoing, the rights of the Seller and its Affiliates to indemnification
under the certificate of incorporation or bylaws of the Company or its
Subsidiaries and any rights under any agreement among any of the Seller or its
Affiliates (other than the Company and its Subsidiaries) on the date hereof.
(g) ARBITRATION. Except for claims, disputes and matters in
controversy arising under Section 5(d) and 5(e) of this Agreement, after the
closing any and all claims, disputes or matters in controversy arising under
this Agreement which the Parties are unable to settle by mutual agreement shall
be resolved by binding arbitration pursuant to the Commercial Arbitration Rules
and the Guidelines for Expediting Larger Complex Commercial Arbitrations of the
American Arbitration Association as in force at the time ("AAA").
(i) A Party which desires to submit a claim, dispute
or controversy to binding arbitration under this Agreement shall so notify the
other Parties, and if after 30 days from the date of such notice the claim,
dispute or controversy remains unsettled, any Party may petition the AAA for
arbitration of the claim, dispute or controversy. Matters submitted to
arbitration shall be resolved in accordance with the decision of a panel of
three arbitrators selected by the AAA. The arbitrators shall be experienced in
the resolution of commercial disputes arising in the context of negotiated
acquisitions of businesses, and the place of arbitration shall be New York, New
York.
(ii) The three arbitrators shall investigate the
facts and shall hold hearings at which the Parties to this Agreement may present
evidence and arguments, be represented by counsel and conduct cross-examination.
In determining any question, matter or dispute before them, the arbitrators
shall apply the provisions of this Agreement and shall not have the power to add
to, modify or change any of the provisions of this Agreement. The three
arbitrators shall render a written decision upon the matter presented to them by
a majority vote within 90 days after the date on which the hearings and
presentation of evidence are concluded, unless a longer period is provided under
the rules of the AAA. The decision rendered by the arbitrators shall be final
and binding on, and unappealable by, the Parties. Judgment upon the decision
rendered in such arbitration may be entered by any court having jurisdiction
thereof. No party to an arbitration proceeding shall be considered in default
hereunder during the pendency of arbitration proceedings relating to a disputed
default. The arbitrators shall determine in what proportion the Parties shall
bear the fees and expenses of the arbitrators, and each Party shall otherwise
bear its own fees and expenses, including expenses of legal counsel and other
advisors or consultants. It is the intention of the Parties that arbitration as
described above be the sole and exclusive means available to them for the
resolution of claims, disputes or matters in controversy arising under this
Agreement, other than claims, disputes and matters arising under those
provisions referred to in the first sentence of this Section 5(g). It shall be a
complete defense to any action instituted by a Party with respect to a claim,
dispute or matter in controversy under this Agreement that such claim, dispute
or matter has not first been submitted to arbitration in accordance with the
foregoing provisions.
(h) CARL WATSON. Seller shall be responsible for, and shall
pay or reimburse the Company upon demand for, all severance costs and expenses
for which the Company may be liable under existing severance policies and
contracts for Carl Watson should Purchaser elect to cause the Company to
terminate his employment; provided, however, that Purchaser shall pay the
accrued but unused vacation time of Carl Watson. Seller hereby acknowledges that
Carl Watson's termination is at the election of Purchaser in its sole discretion
and that Seller has not advised Purchaser with respect
21
<PAGE>
to such decisions and Purchaser has not requested such advice. Seller shall have
no responsibility for, and the Purchaser shall have no claim, cause of action or
other right with respect to, any outcome or effect on or consequence to the
Company or any of its Subsidiaries or any other result on any Person arising out
of or in relation to, Carl Watson's termination or the termination of any other
officer or employee of the Company or any of its Subsidiaries. The Purchaser
hereby unconditionally and irrevocably releases and forever discharges,
effective as of the date hereof, the Seller, Balfour Investors Incorporated and
each of their respective officers, directors, affiliates and agents, and Harry
Freund, Jay Goldsmith, Jay Bloom, Andrew Heyer and Dean Kehler from any and all
rights, claims, demands and liabilities arising out of, in connection with or in
relation to, any of the matters described in this Section 5(h).
(i) RIGHT TO NOMINATE DIRECTOR. So long as 50% or more of the
original aggregate principal amount of the Subordinated Debentures is
outstanding, Seller shall have the right to nominate one person of its choice
for election as a director of Purchaser, such nominee to run for election on the
management slate of nominees or whatever slate is being endorsed by Lewis Gould,
and Lewis Gould shall undertake to vote all of the Company Shares held by him,
his designees and affiliates in favor of the election of such nominee.
(j) TAX MATTERS.
(i) RETURNS FOR PERIODS THROUGH THE DATE HEREOF.
Seller will include the income of the Company and its Subsidiaries (including
any deferred income triggered into income by Reg. Section 1.1502-13 and Reg.
Section 1.1502-14) and any Excess Loss Accounts taken into income under Reg.
Section 1.1502-19) on the Seller's federal income Tax Returns for all periods
through the date hereof and pay any federal income Taxes attributable to such
income. The Company and its Subsidiaries will furnish Tax information to Seller
for inclusion in a federal consolidated income Tax Return for the period which
includes the date hereof in accordance with the Seller's past custom and
practice. Seller will allow the Purchaser an opportunity to review and comment
upon such Tax Returns (including any amended returns to the extent that they
relate to the Company and its Subsidiaries. The income of the Company and its
Subsidiaries will be apportioned to the period up to and including the date
hereof and the period after the date hereof by closing the books of the Company
and its Subsidiaries as of the end of the date hereof.
Seller shall be responsible, at its cost and expense,
for preparation and filing of all Tax Returns of the Company and its
Subsidiaries which are due with respect to any period ending on or prior to the
date hereof. Purchaser shall cause the Company to provide Seller and its
employees and accountants with responsibility for tax matters access, upon
reasonable notice and during normal business hours, to the books and records of
the Company which may be necessary for the preparation of such tax returns, and
Seller shall reimburse the Company for any costs incurred by the Company in
providing such access (such as photocopying, office services and the like).
(ii) AUDITS. Seller will allow the Company and its
counsel to participate in any audits of Seller's consolidated federal income Tax
Returns to the extent that such returns relate to the Company and its
Subsidiaries.
(iii) CARRYBACKS. Seller will immediately pay to the
Purchaser any Tax refund (or reduction in Tax liability) resulting from a carry
back of a post-acquisition Tax attribute of any of the
22
<PAGE>
Company and its Subsidiaries into the Seller's consolidated Tax Return, when
such refund or reduction is realized by the Seller group. Seller will cooperate
with the Company and its Subsidiaries in obtaining such refunds (or reduction in
Tax liability), including through the filing of amended Tax Returns or refund
claims. The Purchaser agrees to indemnify Seller for any Taxes resulting from
the disallowance of such post-acquisition Tax attribute on audit or otherwise.
(iv) RETENTION OF CARRYOVERS. Seller will not elect
to retain any net operating loss carryovers or capital loss carryovers of the
Company and its Subsidiaries under Reg. Section 1.1502- 20(g).
(v) PRIOR OWNERSHIP CHANGES. Seller will file a
timely election under Prop. Reg. Section 1.1502-95(e) to apportion all of the
Seller group's annual consolidated Section 382 limitation from any previous
ownership change while any of the Company and its Subsidiaries was a member of
the Seller group to the Company and its Subsidiaries.
6. INDEMNIFICATION AND RELATED MATTERS.
(a) INDEMNIFICATION.
(i) Subject to the provisions of this Section 6, the
Seller shall indemnify and hold the Purchaser harmless from and against (A)
losses, liabilities, damages and expenses (including reasonable attorneys' fees)
resulting from any breach of warranty or agreement, or any misrepresentation, by
the Seller under this Agreement (collectively "PURCHASER'S LOSSES"); and (B)
except as otherwise specifically provided in this Agreement, all liabilities and
obligations arising before or after the closing out of or with respect to the
Seller or any of its Affiliates (other than the Company or its Subsidiaries).
(ii) The Seller agrees to indemnify the Purchaser
from and against the entirety of any losses, liabilities, damages and expenses
the Purchaser may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any Liability of any of the Company and its Subsidiaries
for Taxes of any Person other than any of the Company and its Subsidiaries (A)
under Reg. Section 1.1502-6 (or any similar provision of state, local or foreign
law), (B) as a transferee or successor, or (C) by contract.
(iii) Subject to the provisions of this Section 6,
the Purchaser shall indemnify and hold the Seller harmless from and against all
losses, liabilities, damages and expenses (including reasonable attorneys' fees)
resulting from any breach of warranty or agreement, or any misrepresentation, by
the Purchaser under this Agreement.
(b) DETERMINATION OF DAMAGES AND RELATED MATTERS.
(i) Except as specifically set forth in this
Agreement, neither Party has made or shall have liability for any representation
or warranty, express or implied, in connection with the transactions
contemplated by this Agreement, including any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding the Company or its Subsidiaries. The Parties agree that the remedies
provided in this Section 6 are the exclusive remedies for breach of warranty and
agreement, and misrepresentation, under this Agreement.
23
<PAGE>
(ii) The Seller shall have no liability under this
Agreement for any Purchaser's Losses resulting from a breach of warranty or
agreement, or misrepresentation contained in Section 4 hereof unless, and only
to the extent that, the aggregate amount of Purchaser's Losses from all claims
for breach of any warranty, agreement or misrepresentation under Section 4
hereof exceeds $50,000. The amount of Purchaser's Losses shall not include any
amount for breach of any warranty or agreement, or misrepresentation contained
in Sections 4(n), 4(p) or 4(t) unless, and only to the extent that, the
aggregate amount of the losses, liabilities, damages and expenses from all
claims for breach of any warranty, agreement or misrepresentation under Section
4(n), 4(p) and 4(t) hereof exceeds $150,000. In addition, the Seller shall have
no liability for breach of warranty or agreement, or misrepresentation under
Section 4 hereof, except to the extent of the Fund (as defined in the escrow
agreement dated the date hereof among the Purchaser, the Seller and IBJ (the
"ESCROW AGREEMENT")) and then only in accordance with and pursuant to the Escrow
Agreement.
(iii) In calculating any amounts payable under
Section 6(a), (A) the indemnifying Party shall receive credit for any insurance
recoveries by the indemnified Party; and (B) no amount shall be included for the
indemnified Party's special or consequential damages.
(c) TIME AND MANNER OF CERTAIN CLAIMS. The representations,
warranties and agreements in this Agreement shall survive the closing. However,
a Party shall have no liability under this Agreement for breach of warranty,
agreement or misrepresentation, unless a claim therefor is asserted by the other
Party in a written notice delivered prior to the date that is six months from
the date hereof. Any notice of any such claim shall set forth the
representations, warranties and agreements with respect to which the claim is
made, the facts giving rise to and the alleged basis for the claim and the
amount of liability asserted by reason of the claim.
(d) DEFENSE OF CLAIMS BY THIRD PARTIES.
(i) If any claim is made against a Party that, if
sustained, would give rise to a liability of the other Party under this
Agreement, the Party against whom the claim is made shall promptly cause notice
of the claim to be delivered to the other Party and, subject to Section 6(d)(ii)
shall afford the other Party and its counsel, at the other Party's sole expense,
the opportunity to control the defense and settlement of the claim. The failure
to provide the notice referred to above shall not relieve the indemnifying party
of liability under this Agreement, except to the extent the indemnifying Party
has actually been prejudiced by such failure. If any claim is compromised or
settled without the consent of the indemnifying Party, no liability shall be
imposed upon the indemnifying party by reason of the claim.
(ii) Notwithstanding anything to the contrary in
6(d)(i), if the amount of liability of the Seller that is asserted by reason of
all claims for breach of a representation, warranty or agreement contained in
Section 4 hereof exceeds the principal of, and accrued interest on, the
Subordinated Debentures in the Fund (as defined in the Escrow Agreement) at any
time by more than $50,000, the indemnified Party, at its sole expense, shall be
entitled to assume the defense, compromise and settlement of such claims
(excluding those claims that were asserted earliest and the aggregate liability
of the Seller under which does not exceed the principal of, and accrued interest
on, the Subordinated Debentures in the Fund at that time by more than $50,000).
Should the Fund at any time or for any reason be depleted, the Purchaser shall
have the right to assume the defense,
24
<PAGE>
compromise and settlement of any then pending claims for breach of a
representation, agreement or warranty contained in Section 4 of the agreement.
7. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement at any time relating to
the subject matter of this Agreement without the prior written approval of the
Purchaser and the Seller; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement and the exhibits and
schedules hereto, including the Disclosure Schedule, all of which are
incorporated by reference herein, constitutes the entire agreement among the
Parties and supersedes any prior understandings, agreements or representations
by or among the Parties, written or oral, to the extent they related in any way
to the subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. Delivery of an executed
facsimile page shall be treated as the execution and delivery of an original.
(f) HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing and shall be deemed duly given two
business days after being sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller, to: RCI Holdings Inc.
c/o Balfour Investors Incorporated
Rockefeller Center
620 Fifth Avenue
New York, New York 10020
Attention: Kenneth Grossman
25
<PAGE>
With a copy to: Edward W. Kerson
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
If to the Purchaser, to: Q.E.P. Co., Inc.
1081 Holland Drive
Boca Raton, Florida 33487
Attn: President
With a copy to: Steven Sonberg
Holland & Knight LLP
One East Broward Boulevard
Fort Lauderdale, Florida 33301
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
(i) WAIVER AND AMENDMENT. Any representation, warranty,
covenant, term or condition of this Agreement which may legally be waived, may
be waived, or the time of performance thereof extended, at any time by the Party
entitled to the benefit thereof. No waiver or extension shall be valid or
effective unless evidenced by an instrument in writing executed by the
appropriate Party. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by the Purchaser and the
Seller. No waiver by any Party, whether intentional or not, of its rights under
any provision of this Agreement shall constitute a waiver of such Party's rights
under such provisions at any other time or a waiver of such Party's rights under
any other provision of this Agreement. No failure by any Party to take any
action against any breach of this Agreement or default by another Party shall
constitute a waiver of the former Party's right to enforce any provision of this
Agreement or to take action against such breach or default or any subsequent
breach or default by such other Party.
(j) SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
26
<PAGE>
(k) EXPENSES. Each of the Parties, the Company and its
Subsidiaries will bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. The Seller agrees that none of the Company and its
Subsidiaries has borne or will bear any of the Seller's costs and expenses
(including any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
(n) SUBMISSION TO JURISDICTION. Each of the Parties submits to
the jurisdiction of any state or federal court sitting in either Palm Beach
County, Florida or New York, New York, in any action or proceeding arising out
of or relating to this Agreement and agrees that all claims in respect of the
action or proceeding may be heard and determined in any such court. Each Party
also agrees not to bring any action or proceeding arising out of or relating to
this Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety or other security that might be required of any other
Party with respect thereto. Any Party may make service on any other Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 7(g)
above. Nothing in this Section 7(n), however, shall affect the right of any
Party to serve legal process in any other manner permitted by law or at equity.
Each Party agrees that a final judgment in any action or proceeding so brought
shall be conclusive and may be enforced by suit on the judgment or in any other
manner provided by law or at equity.
(o) MATERIALITY. The specification or inclusion of any dollar
amounts in any provision of this Agreement is not intended, and shall not be
deemed, to imply that such amounts, or higher or lower amounts, or the items so
included or other items, are or are not "material," and shall have no bearing,
in any dispute or controversy between the Parties, on whether or not an
obligation, item or matter is or is not "material" for purposes of this
Agreement.
* * * * *
27
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
Q.E.P. CO., INC.
By: /s/ LEWIS GOULD
---------------------------------
Lewis Gould, President
RCI HOLDINGS INC.
By: /s/ CARL C. WATSON
---------------------------------
Carl C. Watson, President
28
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON OCTOBER 21, 2002
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND
TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Right to Purchase [ ] Shares of Common Stock,
par value $0.001 per share
October 21, 1997
Q.E.P. CO., INC.
SERIES A
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received,[NAME OF HOLDER] or its
registered assigns, is entitled to purchase from Q.E.P. CO., INC., a Delaware
corporation (the "COMPANY"), at any time or from time to time during the period
specified in Section 2 hereof, [ ] fully paid and nonassessable shares of the
Company's Common Stock, par value $0.001 per share (the "COMMON STOCK"), at an
exercise price per share (the "EXERCISE PRICE") of TEN DOLLARS ($10.00) per
share. The number of shares of Common Stock purchasable hereunder (the "WARRANT
SHARES") and the Exercise Price are subject to adjustment as provided in Section
4 hereof.
This Warrant is subject to the following terms, provisions and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the resale of the Warrant Shares
by the holder is not then registered pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
delivery to the Company of a written notice of election to effect a Cashless
Exercise (as defined in Section 11(c)) for the Warrant Shares specified in the
Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued
to the holder hereof or such holder's designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment shall have been made for such shares as set forth above.
Certificates for the Warrant Shares so
1
<PAGE>
purchased, representing the aggregate number of shares specified in the Exercise
Agreement, shall be delivered to the holder hereof within a reasonable time, not
exceeding ten business days, after this Warrant shall have been so exercised.
The certificates so delivered shall be in such denominations as may be requested
by the holder hereof and shall be registered in the name of such holder or such
other name as shall be designated by such holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and before
5:00 p.m., New York City time on the fifth anniversary of the date of issuance
(the "EXERCISE PERIOD").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
4. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF WARRANT SHARES. During
the Exercise Period, the Exercise Price and the number of Warrant Shares shall
be subject to adjustment from time to time as provided in this Section 4.
(a) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company
at any time during the Exercise Period subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time during the Exercise Period combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
2
<PAGE>
(b) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into, any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time during the Exercise Period, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the holder of this Warrant will have the right to
acquire and receive upon exercise of this Warrant in lieu of the shares of
Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Section 4 will thereafter be applicable as nearly as may be
possible in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Section 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(c) DISTRIBUTION OF ASSETS. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "DISTRIBUTION") at any time during the Exercise Period, then
the holder of this Warrant shall be entitled upon exercise of this Warrant for
the purchase of any or all of the shares of Common Stock subject hereto, to
receive the amount of such assets (or rights) which would have been payable to
the holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(d) ISSUANCE OF CERTAIN COMMON STOCK BELOW EXERCISE PRICE.
(i) In case the Company shall issue or sell to all
its then existing shareholders rights to subscribe for or purchase shares of
Common Stock ("Rights") in any transaction at a price per share of Common Stock
(determined by dividing (A) the total amount receivable by the Company in
consideration of the issuance and sale of such Rights plus the total
consideration payable to the Company upon exercise, conversion or exchange
thereof, by (B) the total number of shares of Common Stock covered by such
Rights) that is lower (at the date of such sale or issuance) than the Exercise
Price, or the Market Price (as defined below), or for no consideration, then in
each case the number of shares of Common Stock thereafter issuable upon the
exercise of all Warrants then outstanding shall be increased in a manner
determined by multiplying the number of shares of Common Stock theretofore
issuable upon the exercise of all Warrants then outstanding by a fraction, of
which the numerator shall be the number of shares of Common Stock outstanding
immediately prior to the sale or issuance plus the number of additional shares
of Common Stock offered for subscription and of which the denominator shall be
the number of shares of Common Stock outstanding immediately prior to the sale
or issuance plus the number of shares of Common Stock which the "aggregate
consideration to be received by the Company" (as defined in the following
paragraph) in connection with such sale or issuance would purchase at the lower
of the Market Price or Exercise Price.
(ii) For the purpose of such adjustments the
"aggregate consideration to be received by the Company" therefor shall be deemed
to be the consideration received by the Company
3
<PAGE>
for such Rights plus any consideration or premiums stated in such Rights to be
paid for the shares of Common Stock covered thereby.
(iii) In case the Company shall issue or sell Rights
for a consideration consisting, in whole or in part, of property other than cash
or its equivalent, then in determining the "price per share of Common Stock" and
the "consideration" receivable by or payable to the Company for purposes of this
Section 3(c), the Board of Directors of the Company shall determine, in good
faith, the fair value of such property. In case the Company shall issue and sell
Rights together with one or more other securities as part of a unit at a price
per unit, then in determining the "price per share of Common Stock" and the
"consideration" receivable by or payable to the Company for purposes of this
Section 3(c), the Board of Directors of the Company shall determine, in good
faith, the fair value of the Rights then being sold as part of such unit.
(iv) Any increase of the number of shares of Common
Stock issuable upon exercise of all Warrants then outstanding made pursuant to
this Section 4(d) shall be allocated among such Warrants on a pro rata basis.
(v) Upon the expiration or termination of any
unexercised Rights for which any adjustment was made pursuant to this Section
4(d), the Warrant Price shall be readjusted, and shall thereafter be such price
as would have prevailed had the Warrant Price been originally adjusted (or had
the original adjustment not been required, as the case may be) on the basis of
(a) the Common Shares, if any, actually issued or sold upon the exercise of such
Rights and (b) the consideration actually received by the Company upon such
exercise plus the consideration, if any, actually received by the Company for
the issuance, sale, or grant of all of such Rights, whether or not exercised;
provided, however, that no such readjustment shall have the effect of increasing
the Warrant Price by an amount in excess of the amount of the adjustment
initially made for the issuance, sale or grant of such Rights.
(e) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(f) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(g) FRACTIONAL EXERCISE PRICE. In the event that any
adjustment of the Exercise Price required herein results in a fraction of a
cent, then the Exercise Price shall be rounded up to the nearest cent.
(h) FRACTIONAL SHARES. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price (as defined
in Section 4(k)) of a share of Common Stock on the date of such exercise.
4
<PAGE>
(i) NOTICE OF ADJUSTMENT. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or
(ii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or distributions payable in cash out of retained
earnings consistent with the Company's past practices with respect to declaring
dividends and making distributions) to the holders of the Common Stock;
(iii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) "MARKET PRICE," as of any date, (i) means the average of
the closing bid prices for the shares of Common Stock as reported on the Nasdaq
National Market for the five (5) trading days immediately preceding such date,
or (ii) if the Nasdaq National Market is not the principal trading market for
the shares of Common Stock, the average of the last reported bid prices on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the holder, with the costs of the appraisal to be borne
by the Company. The manner of determining the Market Price of the Common Stock
set forth in the foregoing definition shall apply with
5
<PAGE>
respect to any other security in respect of which a determination as to market
value must be made hereunder.
(l) "COMMON STOCK," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Shares,
par value $0.001 per share, in respect of which this Warrant is exercisable, or
shares resulting from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation, merger, or sale
of the character referred to in Section 4(j) hereof, the stock or other
securities or property provided for in such Section.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
PROVIDED that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable with the prior written consent of
the Company, in whole or in part, upon surrender of this Warrant, together with
a properly executed assignment in the form attached hereto, at the office or
agency of the Company referred to in Section 7(e) below, PROVIDED, however, that
any transfer or assignment shall be subject to the conditions set forth in
Section 7(f) hereof, and PROVIDED FURTHER, that no consent of the Company shall
be required for transfers to affiliates of the holder (it being understood that
partners of a partnership are hereby deemed to be Affiliates of the partnership)
and to clearing firms that execute trades on behalf of the holder. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder. Each of such new Warrants shall represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this
6
<PAGE>
Warrant, the Company, at its expense, will execute and deliver, in lieu thereof,
a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 7.
(e) WARRANT REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder of this Warrant furnish to the Company a written opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that such
exercise, transfer, or exchange may be made without registration under the
Securities Act and under applicable state securities or blue sky laws, (ii) that
the holder execute and deliver to the Company an investment letter in form and
substance acceptable to the Company and (iii) that the transferee be an
"ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities
Act.
(g) REDEMPTION. If, at any time after the first anniversary of
the date of issuance hereof, the average selling price for the shares of Common
Stock as reported on the Nasdaq National Market (or the then principal trading
market for the Common Stock if not the Nasdaq National Market) (the "REPORTED
PRICE"), shall, for a period of twenty (20) consecutive trading days (the
"DETERMINATION PERIOD"), be greater than or equal to $15.00 (subject to
equitable adjustments from time to time for the events described in Section
4(a)), then the Company shall have the right, exercisable on the first trading
day after the Determination Period, by written notice to the holders of this
Warrant (a "REDEMPTION NOTICE") of such exercise at least thirty (30) days prior
to the date of redemption (the "REDEMPTION DATE") to redeem this Warrant and
all, but not less than all, of the other Warrants then outstanding in full at a
redemption price per Warrant equal to the product of (i) the number of shares of
Common Stock issuable upon the exercise of such Warrant, multiplied by (ii)
$.05. Nothing herein shall prevent the exercise of, and the holder shall have
the right to exercise this Warrant at any time during the period after the
Redemption Notice and on or prior to the Redemption Date.
(h) BROKER FEES. The holder of this Warrant shall indemnify
the Company and hold it harmless for the fees of any broker engaged by the
holder in connection with the transfer or exercise of this Warrant or otherwise.
The Company shall indemnify and hold the holder of this Warrant harmless for the
fees of any broker engaged by the Company in connection with the issuance or
redemption of this Warrant or otherwise.
7
<PAGE>
8. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS.
(i) At any time after 90 days from the date hereof
until a date that is 21 months from the date hereof, upon receipt of a written
request from the holders of Warrants or Warrant Share representing a majority in
interest of all shares of Common Stock issuable (or issued) upon conversion of
Series A Warrants (the "REQUESTING WARRANTHOLDERS"), the Company promptly shall
prepare and file with the Securities and Exchange Commission ("SEC") a
registration statement under the Securities Act on an appropriate form covering
the resale through a public offering of all of the shares of Common Stock
issuable upon exercise of Series A Warrants. Upon such request, the Company
shall use all reasonable efforts to cause the registration statement to become
effective as soon as is practicable. If permitted by the Securities Act, the
Company shall use a Form S-3 registration statement (or any successor form) to
register Shares pursuant to this Section 8(a). The holders of Series A Warrants
and of shares of Common Stock issuable (or issued) upon conversion of Series A
Warrants (the "WARRANTHOLDERS"), as a group, may exercise this demand
registration only once. The Warrantholders shall state in their request for
registration whether they intend to distribute the registered Shares by means of
an underwriting. If the Warrantholders intend to distribute the registered
Shares by means of an underwriting, the Warrantholders shall sell the registered
Shares through one or more underwriters (or a syndicate managed by one or more
underwriters) that are selected by the Warrantholders with the approval of the
Company, which shall not be unreasonably withheld, and the Company shall join
the Warrantholders in entering into an underwriting agreement with the selected
underwriter or underwriters, which will provide (among other things) for the
Company, the Warrantholders, and each underwriter (and each person who controls
each underwriter within the meaning of Section 15 of the Securities Act) to
grant to each other reciprocal indemnification against liabilities under the
Securities Act (it being understood that indemnification by the Warrantholders
will be limited to those Warrantholders that include their shares in the
underwriting). The Company may not include in a registration of Shares for any
Warrantholders pursuant to the exercise of a demand registration right under
this Section 8(a) any debt or equity securities of the Company without the
advance approval of the Warrantholders, which shall not be unreasonably
withheld.
(ii) Notwithstanding anything in this Agreement to
the contrary, the Company may postpone filing with the SEC for a reasonable
period of time (not to exceed 75 days) a registration statement for a demand
registration requested by the Warrantholders, but only if: (a) the Company's
Board of Directors reasonably determines that (i) based on the written advice of
the Company's legal counsel, the postponement is necessary to avoid premature
public disclosure of a pending material event that would likely jeopardize the
outcome or success of the pending event, or (ii) based on the written advice of
the investment banking firm representing the Company, in connection with a
pending public offering of its securities, the postponement is necessary to
avoid jeopardizing the success of the pending public offering; (b) the Company
notifies the Warrantholders of the postponement and the duration of it within
five days after the determination by its Board of Directors; and (c) the Company
delivers to the Warrantholders with the notice of postponement (i) a
certificate, signed by its Chief Executive Officer and Chief Financial Officer
stating that the condition described in clause (a)(i) or (a)(ii) has occurred,
and (ii) in the case of clause (a)(ii) a copy of the written advice that the
Company's Board of Directors received from its investment banker.
(iii) Upon receipt of a request from the
Warrantholders for a demand registration, the Company promptly shall notify the
Warrantholders of any fact, event, or circumstance that reasonably could be
expected to require or lead to a postponement of the filing of a registration
statement for the demand registration requested by the Warrantholders. If the
Company postpones the
8
<PAGE>
filing with the SEC of a registration statement for a demand registration
requested by the Warrantholders (as permitted by this Section), (x) the
Warrantholders may elect to withdraw their request for the demand registration
at any time during the duration of the postponement specified in the Company's
notice to the Warrantholders of the postponement, and the withdrawn demand
registration will not count as an exercise of the Warrantholders' demand
registration rights, and (y) the term of this Agreement shall be extended for a
period corresponding to the duration of the postponement.
(b) PIGGY-BACK REGISTRATIONS.
(i) If at any time during the Exercise Period, the
Company shall file with the SEC a Registration Statement under the Securities
Act (a "REGISTRATION STATEMENT") relating to an underwritten offering for its
own account or the account of others of any of its equity securities, other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity of business
or equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each holder who is entitled to
registration rights under this Section 8(b) written notice of such determination
and, if within twenty (20) days after receipt of such notice, such Warrantholder
shall so request in writing, the Company shall include in such Registration
Statement all or any part of the Warrant Shares such Warrantholder requests to
be registered, except that if, in connection with any underwritten public
offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock which may be
included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Warrant Shares
with respect to which such Warrantholder has requested inclusion hereunder. Any
exclusion of Warrant Shares shall be made pro rata among the holders of all
shares of Common Stock (or securities convertible into Common Stock) seeking to
include such shares in the Registration Statement in proportion to the number of
registerable Securities sought to be included by such Warrantholders. The
obligations of the Company under this Section 8(b) may be waived by
Warrantholders holding a majority in interest of the Warrant Shares and shall
expire after the Company has afforded the opportunity for the Warrantholders to
exercise registration rights under this Section 8(b) for two registrations;
PROVIDED, however, that any Warrantholder who shall have had any Warrant Shares
excluded from any Registration Statement in accordance with this Section 8(b)
shall be entitled to include in an additional Registration Statement filed by
the Company the Warrant Shares so excluded. If an offering in connection with
which an Warrantholder is entitled to registration under this Section 8(b) is an
underwritten offering, then each Warrantholder whose Warrant Shares are included
in such Registration Statement shall, unless otherwise agreed by the Company,
offer and sell such Warrant Shares in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering.
(c) SALES UNDER RULE 144. Notwithstanding the registration of
Warrant Shares in accordance with Section 8(a), if at any time of offer and sale
of such Warrant Shares by an Warrantholder such Warrant Shares can be sold
pursuant to Rule 144 promulgated under the Securities Act or any other similar
rule or regulation of the SEC that may at anytime permit the Warrantholder to
sell securities of the Company to the public without registration ("RULE 144")
in the manner, amount and on such terms as such Warrantholder wishes to offer
and sell such Warrant Shares, such Warrantholder may endeavor to offer and sell
such Warrant Shares pursuant to Rule 144; PROVIDED, however, that such
Warrantholder shall not be required to limit the amount or manner of sale or
otherwise modify such offer or sale to use Rule 144; and PROVIDED FURTHER,
however, that such Warrantholder shall have no liability to the Company under
this Section 8(c) if such Warrantholder
9
<PAGE>
does not offer and sell such Warrant Shares pursuant to Rule 144 notwithstanding
the availability thereof.
(d) OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Warrant Shares, the Company shall:
(i) prepare promptly and file with the SEC a
Registration Statement or Statements with respect to all Warrant Shares to be
included therein, and thereafter use its best efforts to cause the Registration
Statement to become effective as soon as possible after such filing, and, if the
Registration Statement utilizes to Rule 415 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at anytime permit
the Company to register securities to the public on a continuous or delayed
basis ("RULE 415"), to keep the Registration Statement effective at all times
until the date that is six months after the date such Registration Statement is
first ordered effective by the SEC (plus the number of days in the period of
discontinuance referred to in Section 8(e)(iii) hereof). In any case, the
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) filed by the Company shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(ii) furnish to each Warrantholder whose Warrant
Shares are included in the Registration Statement (i) promptly after the same is
filed with the SEC, one copy of the Registration Statement and any amendment
thereto, each preliminary prospectus and prospectus and each amendment or
supplement thereto and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as such Warrantholder may reasonably request in order to
facilitate the disposition of the Warrant Shares owned by such Warrantholder;
(iii) use reasonable efforts to (i) register and
qualify the Warrant Shares covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the Warrantholders
who hold a majority in interest of the Warrant Shares being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements, (iii) take such other actions as may
be necessary to maintain such registrations and qualifications in effect at all
times, if the Registration Statement utilizes to Rule 415, effective at all
times until the date that is six months after the date such Registration
Statement is first ordered effective by the SEC; and (iv) take all other actions
reasonably necessary or advisable to qualify the Warrant Shares for sale in such
jurisdictions; PROVIDED, however, that the Company shall not be required in
connection therewith or as a condition thereto to (a) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 8(d)(iii), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause more than nominal expense
or burden to the Company or (e) make any change in its charter or bylaws, which
in each case the Board of Directors of the Company determines to be contrary to
the best interests of the Company and its stockholders;
(iv) as promptly as practicable after becoming aware
of such event, notify each Warrantholder who holds Warrant Shares being sold
pursuant to such registration of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such
10
<PAGE>
untrue statement or omission, and deliver a number of copies of such supplement
or amendment to each Warrantholder as such Warrantholder may reasonably request;
(v) as promptly as practicable after becoming aware
of such event, notify each Warrantholder who holds Warrant Shares being sold
pursuant to such registration of the issuance by the SEC of any stop order or
other suspension of effectiveness of the Registration Statement at the earliest
possible time;
(vi) permit a single firm of counsel designated as
selling stockholders' counsel by the Warrantholders who hold a majority in
interest of the Warrant Shares being sold pursuant to such registration to
review the Registration Statement and all amendments and supplements thereto a
reasonable period of time prior to their filing with the SEC, and shall not file
any document in a form to which such counsel reasonably objects;
(vii) make available for inspection by any
Warrantholder whose Warrant Shares are being sold pursuant to such registration,
any underwriter participating in any disposition pursuant to the Registration
Statement and any attorney, accountant or other agent retained by any such
Warrantholder or underwriter (collectively, the "INSPECTORS"), all pertinent
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "RECORDS"), as shall be reasonably necessary to
enable each Inspector to exercise its due diligence responsibility, and cause
the Company's officers, directors and employees to supply all information which
any Inspector may reasonably request for purposes of such due diligence;
PROVIDED, however, that each Inspector shall hold in confidence (making such
confidential information known only to officers, agents or employees thereof who
have a need to know), shall not use any information so obtained for any purpose
other than preparation or review of the registration statement, and shall not
make any disclosure (except to an Warrantholder or underwriter) of any Record or
other information which the Company determines in good faith to be confidential,
and of which determination the Inspectors are so notified, unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (ii) the release of such Records is
requested pursuant to a subpoena or other order from a court or government body
of competent jurisdiction, or (iii) the information in such Records has been
made generally available to the public other than by disclosure in violation of
this or any other agreement. The Company shall not be required to disclose any
confidential information in such Records to any Inspector or Warrantholder until
and unless such Warrantholder or Inspector shall have entered into
confidentiality agreements (in a form as is customary in similar circumstances)
with the Company with respect thereto, substantially in the form of this Section
8(d)(vii). Each Warrantholder agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at the Company's expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Warrantholder provided to the Company
pursuant to Section 8(e)(v) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Warrantholder is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Warrantholder, to undertake, at Warrantholder's expense,
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information;
11
<PAGE>
(viii) use its best efforts either to (i) cause all
the Warrant Shares covered by the Registration Statement to be listed on a
national securities exchange and on each additional national securities exchange
on which similar securities issued by the Company are then listed, if any, if
the listing of such Warrant Shares is then permitted under the rules of such
exchange or (ii) secure designation of all the Warrant Shares covered by the
Registration Statement as a National Association of Securities Dealers Automated
Quotations System ("NASDAQ") "national market system security" within the
meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), and the quotation of the Warrant Shares on the
Nasdaq National Market System; or, if, despite the Company's best efforts to
satisfy the preceding clause (i) or (ii), the Company is unsuccessful in
satisfying the preceding clause (i) or (ii), to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Warrant Shares;
(ix) provide a transfer agent and registrar, which
may be a single entity, for the Warrant Shares not later than the effective date
of the Registration Statement;
(x) cooperate with the Warrantholders who hold
Warrant Shares being sold and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Warrant Shares to be sold pursuant to the
denominations or amounts as the case may be, and registered in such names as the
Warrantholders may reasonably request; and, within three business days after a
Registration Statement which includes Warrant Shares is ordered effective by the
SEC the Company shall deliver, and shall cause legal counsel selected by the
Company to deliver, to the transfer agent for the Warrant Shares (with copies to
the Warrantholder whose Warrant Shares are included in such Registration
Statement) instructions to the transfer agent to issue new stock certificates
without a legend and an opinion of such counsel that the shares have been
registered; and
(xi) take all other reasonable actions necessary to
expedite and facilitate disposition by the Warrantholder of the Warrant Shares
pursuant to the Registration Statement.
(e) OBLIGATIONS OF THE WARRANTHOLDERS. In connection with the
registration of the Warrant Shares, the Warrantholders shall have the following
obligations:
(i) It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to each Warrantholder that such Warrantholder shall
furnish to the Company such information regarding itself, the Warrant Shares
held by it and the intended method of disposition of the Warrant Shares held by
it as shall be reasonably required to effect the registration of the Warrant
Shares and shall execute such documents in connection with such registration as
the Company may reasonably request. At least fifteen (15) days prior to the
first anticipated filing date of the Registration Statement, the Company shall
notify each Warrantholder of the information the Company requires from each such
Warrantholder (the "REQUESTED INFORMATION") if such Warrantholder elects to have
any of such Warrantholder's Warrant Shares included in the Registration
Statement. If within five (5) business days prior to the filing date the Company
has not received the Requested Information from an Warrantholder (a
"NON-RESPONSIVE WARRANTHOLDER"), then the Company may file the Registration
Statement without including Warrant Shares of such Non-Responsive Warrantholder;
(ii) Each Warrantholder by such Warrantholder's
acceptance of the Warrant Shares agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Warrantholder has
12
<PAGE>
notified the Company in writing of such Warrantholder's election to exclude all
of such Warrantholder's Warrant Shares from the Registration Statement;
(iii) Each Warrantholder agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in Section 8(d)(iv) or 8(d)(v), such Warrantholder will immediately discontinue
disposition of Warrant Shares pursuant to the Registration Statement covering
such Warrant Shares until such Warrantholder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 8(d)(iv) or 8(d)(v)
and, if so directed by the Company, such Warrantholder shall deliver to the
Company (at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Warrantholder's possession, of
the prospectus covering such Warrant Shares current at the time of receipt of
such notice;
(iv) In the event Warrantholders holding a majority
in interest of Warrant Shares being registered determined to engage the services
of an underwriter, each Warrantholder agrees to enter into and perform such
Warrantholder's obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Warrant Shares, unless such Warrantholder has
notified the Company in writing of such Warrantholder's election to exclude all
of such Warrantholder's Warrant Shares from the Registration Statement; and
(v) No Warrantholder may participate in any
underwritten registration hereunder unless such Warrantholder (i) agrees to sell
such Warrantholder's Warrant Shares on the basis provided in any underwriting
arrangements approved by the Warrantholders entitled hereunder to approve such
arrangements, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
requested under the terms of such underwriting arrangements and (iii) agrees to
pay its pro rata share of all underwriting discounts and commissions and other
fees and expenses of investment bankers and any manager or managers of such
underwriting and legal expenses of the underwriters applicable with respect to
its Warrant Shares, in each case to the extent not payable by the Company
pursuant to the terms of this Agreement.
(f) EXPENSES OF REGISTRATION. All expenses (other than
brokerage commissions or discounts) incurred in connection with registrations,
filings or qualifications pursuant to Section 8(d)(iii), including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees and the fees and disbursements of counsel for the Company, shall
be borne by the Company; PROVIDED, HOWEVER, that the Warrantholders shall bear
the fees and out-of-pocket expenses of the one legal counsel selected by the
Warrantholders pursuant to Section 8(d)(vi) hereof.
(g) INDEMNIFICATION. In the event any Warrant Shares are
included in a Registration Statement under this Agreement:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Warrantholder who holds such Warrant Shares,
the directors, if any, of such Warrantholder, the officers, if any, of such
Warrantholder, each person, if any, who controls any Warrantholder within the
meaning of the Securities Act or the Exchange Act, any underwriter (as defined
in the Securities Act) for the Warrantholders, the directors, if any, of such
underwriter and the officers, if any, of such underwriter, and each person, if
any, who controls any such underwriter within the meaning of the Securities Act
or the Exchange Act (each, an "INDEMNIFIED PERSON"), against any losses, claims,
damages, expenses or liabilities (joint or several) (collectively "CLAIMS") to
which any of them become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims
13
<PAGE>
(or actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act or any state securities law or
any rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
8(g)(iv) with respect to the number of legal counsel, the Company shall
reimburse the Warrantholders and each such underwriters or controlling person,
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 8(g)(i) (a) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
8(d)(ii) hereof; (b) with respect to any preliminary prospectus shall not inure
to the benefit of any such person from whom the person asserting any such Claim
purchased the Warrant Shares that are the subject thereof (or to the benefit of
any person controlling such person) if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus was timely made
available by the Company pursuant to Section 8(d)(ii) hereof; (c) shall not be
available to the extent such Claim is based on a failure of the Warrantholder to
deliver or cause to be delivered the prospectus made available by the Company;
and (d) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld.
(ii) In connection with any Registration Statement in
which an Warrantholder is participating, each such Warrantholder agrees to
indemnify and hold harmless, to the same extent and in the same manner set forth
in Section 8(g)(i), the Company, each of its directors, each of its officers who
signs the Registration Statement, each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act (collectively and
together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim
to which any of them may become subject, under the Securities Act, the Exchange
Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs (a) in reliance upon and in conformity with written information
furnished to the Company by such Warrantholder expressly for use in connection
with such Registration Statement or (b) the Warrantholder's violation of
Regulation M; and such Warrantholder will promptly reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; PROVIDED, however, that the indemnity agreement
contained in this Section 8(g)(ii) shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent of
such Warrantholder, which consent shall not be unreasonably withheld; and
PROVIDED FURTHER, that the Warrantholder shall be liable under this Section
8(g)(ii) for only that amount of a Claim
14
<PAGE>
as does not exceed the net proceeds to such Warrantholder as a result of the
sale of Warrant Shares pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
8(g)(ii) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(iii) The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons so furnished
in writing by such persons expressly for inclusion in the Registration
Statement.
(iv) Promptly after receipt by an Indemnified Party
of notice of the commencement of any action (including any governmental action),
such Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 8(g), deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying parties and the Indemnified Party;
PROVIDED, however, that an Indemnified Party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if, in the reasonable written opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Party and the
indemnifying party would be inappropriate due to actual or potential differing
interests between such Indemnified Party or other party represented by such
counsel in such proceeding. The Company shall pay for only one separate legal
counsel for the Warrantholders; such legal counsel shall be selected by the
Warrantholders holding a majority in interest of the shares of Common Stock
issuable (or issued) upon exercise of Series A Warrants that are included in the
Registration Statement to which the claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Party under this Section 8(g), except to the extent
that the indemnifying party is prejudiced in its ability to defend such action.
The indemnification required by this Section 8(g) shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
(h) CONTRIBUTION. To the extent any indemnification provided
for herein is prohibited or limited by law, the indemnifying party agrees to
make the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 8(g) to the fullest extent permitted by law;
PROVIDED, however, that (a) no contribution shall be made under circumstances
where the maker would not have been liable for indemnification under the fault
standards set forth in Section 8(g)(ii); (b) no seller of Warrant Shares guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Warrant
Shares who was not guilty of such fraudulent misrepresentation and (c)
contribution by any seller of Warrant Shares shall be limited in amount to the
net amount of proceeds received by such seller from the sale of such Warrant
Shares.
(i) REPORTS UNDER EXCHANGE ACT. With a view to making
available to the Warrantholders the benefits of Rule 144 or any other similar
rule or regulation of the SEC that may at any time permit the Warrantholders to
sell securities of the Company to the public without Registration,
15
<PAGE>
until such time as the Warrantholders have sold all the Warrant Shares pursuant
to a Registration Statement or Rule 144, the Company agrees to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144;
(ii) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act; and
(iii) furnish to each Warrantholder so long as such
Warrantholder owns Warrants or Warrant Shares, promptly upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the exchange Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (iii) such other information
as may be reasonably requested to permit the Warrantholder to sell such
securities pursuant to Rule 144 without Registration.
9. NOTICES. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, or
upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Q.E.P. Co., Inc.
1081 Holland Drive
Boca Raton, FL 33487
Attn: Chief Financial Officer
with copy to:
Holland & Knight
One East Broward Boulevard
Fort Lauderdale, FL 33301
Attention: Steven Sonberg
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
contracts made and to be performed in the State of Florida. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in Florida in any suit or proceeding based on or arising under this
Warrant and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. Nothing herein shall affect the
holder's right to serve process in any other manner permitted by law.
16
<PAGE>
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised at any time or from time
to time in whole or in part during the Exercise Period, by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "CASHLESS EXERCISE").
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the holder shall surrender this Warrant for that number of shares of
Common Stock determined by multiplying the number of Warrant Shares to which it
would otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Q.E.P. CO., INC.
By:____________________
Lewis Gould
Its: President
17
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
_______ of the shares of Common Stock of Q.E.P. CO., INC., a Delaware
corporation (the "COMPANY"), evidenced by the attached Warrant, and herewith
makes payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144(k) is
unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR
AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY
FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD
PURSUANT TO RULE 144(K) UNDER SAID ACT.
The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:_____________________ ___________________________
Signature of Holder
___________________________
Name of Holder (Print)
Address:
___________________________
___________________________
___________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
and hereby irrevocably constitutes and appoints ________________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated:_______________, ___
In the presence of
______________________________ Name:_____________________________________
Signature:________________________________
Title of Signing Officer or Agent (if any):
__________________________________________
Address:__________________________________
__________________________________
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
8% SUBORDINATED DEBENTURE DUE 2001
THIS SUBORDINATED DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") AND MAY NOT BE NEGOTIATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT AND
EXCEPT IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
8% SUBORDINATED DEBENTURE DUE APRIL 1, 2001
$[ ] October 21, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, Q.E.P. Co., Inc., a Delaware
corporation (the "COMPANY"), hereby promises to pay to [NAME OF HOLDER] or to
its order or to such persons as it may designate from time to time (hereinafter
referred to as the "HOLDER") the principal sum of [ ]
ARTICLE ONE
DEFINITIONS AND TERMS
Section 1.1 DEFINITIONS.
For purposes of this Debenture, the following terms shall have the
following meanings:
"COLLATERAL" means that term as defined in the Loan Agreement.
"CONSOLIDATED EBITDA" means, earnings (or losses) from operations for
any period, after all expenses and other proper charges but before payment or
provision for any depreciation, amortization or income taxes and increased by
interest expense (including non-cash interest expense) and pension expense and
option- or warrant-related expenses.
"EFFECTIVE DATE" means October 21, 1997.
"EVENT OF DEFAULT" has the meaning set forth in Section 3.1 below.
"LENDER" means Fleet National Bank and its permitted successors and
assigns.
"LOAN AGREEMENT" means the Amended and Restated Loan Agreement dated as
of October 20, 1997 by and between the Company, certain of its affiliates and
the Lender.
"LOAN DOCUMENTS" means that term as defined in the Loan Agreement.
"REDEMPTION DATE" has the meaning set forth in Section 1.5 below.
"REDEMPTION PRICE" has the meaning set forth in Section 1.5 below.
<PAGE>
"SENIOR INDEBTEDNESS" means with respect to the Company and its
subsidiaries, the principal of and premium, if any (including, without
limitation, interest accruing or that would have accrued but for the filing of a
bankruptcy, reorganization or other insolvency proceeding whether or not such
interest constitutes an allowed claim in such proceeding) on, and any and all
other fees, expense reimbursement obligations, indemnities and other amounts,
due pursuant to the terms of all agreements, documents and instruments providing
for, creating, securing or evidencing or otherwise entered into in connection
with: (i) all indebtedness for borrowed money owed to Lender, including, without
limitation all indebtedness under revolving lines of credit and term loans, and
all obligations to reimburse Lender in respect of amounts paid under letters of
credit, acceptance or other similar instruments; and (ii) all deferrals,
renewals, increases up to a maximum of $23,500,000 in aggregate outstanding
principal amount, extensions and refunding of, and amendments, modifications and
supplements to any of the Senior Indebtedness described above.
"SUBORDINATED CLAIMS" means all monetary claims of the holder against
the Company created or evidenced by this Debenture or any concurrent or
subsequent agreements of any type or form whatsoever relating thereto.
"TOTAL FUNDED INDEBTEDNESS" means with respect to the Company and its
subsidiaries, without duplication and excluding intercorporate obligations
solely among the Company and its subsidiaries: (i) all indebtedness for borrowed
money (including without limitation this Debenture and all other Debentures
issued on the date of this Debenture) owed to any bank or financial institution,
whether or not secured, which by its terms matures more than one year from the
date of any calculation thereof, including current maturities of such
indebtedness including, without limitation all indebtedness under revolving
lines of credit and term loans; and (ii) capital lease obligations; provided,
however, that "Total Funded Indebtedness" shall not include any obligations of
the Company with respect to: (x) current trade payables incurred in the ordinary
course of business; (y) undrawn commercial letters of credit; and (z) direct or
indirect guaranties in respect of the obligations of others.
Section 1.2 MATURITY.
The principal amount of this Debenture shall be due and payable,
subject to earlier required prepayment as set forth in one installment on April
1, 2001.
Section 1.3 INTEREST.
The unpaid principal amount of this Debenture shall bear interest from
the Effective Date until paid at a rate of eight percent (8%) per annum.
Interest on the unpaid principal amount of this Debenture shall be computed on
the basis of a year of 365 or 366 days, as the case may be, and the actual days
elapsed, and shall be payable semi-annually in arrears on April 30 and October
31 of each year, commencing on April 30, 1998, and upon any other payment of any
principal amount of this Debenture.
2
<PAGE>
Section 1.4 NO PREPAYMENT.
Except as provided in Sections 1.5 and 1.6 below, the Company shall not
have the right to prepay all or any portion of the principal amount of this
Debenture prior to scheduled maturity. This Debenture is transferable only on
the books of the Company by the registered Holder hereof or its duly authorized
agent or attorney.
Section 1.5 OPTIONAL REDEMPTION.
The Company may at any time, and from time to time, redeem the then
outstanding principal amount of this Debenture, in whole or in part, at the
"Redemption Price" (as hereinafter defined) by giving written notice of
redemption to the Holder not less 15 days prior to the date of redemption (the
"REDEMPTION DATE"); provided, however, that the Company shall have the right to
redeem this Debenture on a Redemption Date prior to October 20, 2000, only with
the proceeds of the sale by the Company of equity securities. The notice of
redemption shall specify: (i) the principal amount of this Debenture to be
redeemed; (ii) the Redemption Date; (iii) the accrued and unpaid interest
applicable to this Debenture as of the Redemption Date; and (iv) the applicable
Redemption Price. Notice of redemption having been so given, the aggregate
amount of the Redemption Price, together with all accrued and unpaid interest,
if any, to the Redemption Date shall become due and payable on the Redemption
Date. For purposes of this Debenture, the Redemption Price shall mean an amount
equal to the indicated percentage of the principal amount of this Debenture to
be redeemed for the applicable period set forth below:
REDEMPTION DATE PERCENTAGE
--------------- ----------
October 20, 1997 through October 19, 1998 104%
October 20, 1998 through October 19, 1999 103%
October 20, 1999 through October 19, 2000 102%
October 20, 2000 through April 1, 2001 100%
ARTICLE TWO
SUBORDINATION
Section 2.1 SUBORDINATION OF PAYMENT.
(a) The payment of the principal of, and interest and premium on, this
Debenture is subordinated, to the extent and in the manner provided in this
Debenture, to the prior indefeasible payment in full in cash of all Senior
Indebtedness. Upon the maturity of the principal of any Senior Indebtedness by
lapse of time, acceleration or otherwise, all Senior Indebtedness shall first be
paid in full in cash, in a manner satisfactory to the holders of such Senior
Indebtedness, before any payment is made on account of the principal, premium or
interest on this Debenture.
(b) Upon the occurrence of an event of default with respect to any
Senior Indebtedness (as such event of default is defined in the instrument under
which such Senior Indebtedness is out standing), or if an event of default with
respect to any Senior Indebtedness would result upon any payment with respect to
this Debenture, and, if the default is other than a default in payment of any
principal or interest due on such Senior Indebtedness, upon written notice
thereof given to the Company by the holder of such Senior Indebtedness, (i) in
the case of an event of default consisting of a payment default unless and until
such event of default shall have been cured or waived or shall have ceased to
exist, no payment shall be made by the Company with respect to the principal of,
or
3
<PAGE>
premium or interest on, this Debenture; and (ii) in the case of any other event
of default no payment shall made by the Company with respect to the principal
of, or premium or interest on, this Debenture, unless and until the earlier of
(1) the date on which such event of default shall have been cured or waived, or
(2) the date which is one hundred eighty (180) days after such written notice
had been given to the Company by such holder, provided that (a) such holder may
not give more than one (1) consecutive notice to the Company under this
subsection 2.1(b)(ii) as a result of the same event of default, even if such
event of default is continuing following the expiration of such 180-day period
and (b) such payment shall not be blocked by such holder for more than one
hundred eighty (180) days during any consecutive three hundred sixty (360) day
period.
(c) If, notwithstanding the provisions of this Section 2.1, the Company
shall make any payment to the Holder on account of the principal of, or premium
or interest on, this Debenture after the occurrence of an event of default under
the Senior Indebtedness, or after receipt by the Company of written notice as
provided in this Section 2.1 of an event of default with respect to any Senior
Indebtedness, then, unless and until such default or event of default shall have
been cured or waived or shall have ceased to exist, such payment shall be
received and held in trust for and shall be immediately paid over and delivered
to the holder of the Senior Indebtedness, or to the trustee under any indenture
under which Senior Indebtedness may have been issued, for application to the
payment of such Senior Indebtedness until all such Senior Indebtedness shall
have been paid in full in cash, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Indebtedness.
Section 2.2 DISSOLUTION, LIQUIDATION OR REORGANIZATION OF COMPANY.
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, receivership proceedings, or upon an assignment for
the benefit of creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full in cash of all such Senior Indebtedness before the
Holder is entitled to receive any payment of principal of, or premium or
interest on, this Debenture;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the Holder would be
entitled but for the provisions of this Section 2.2, shall be paid by the
liquidating trustee, agent or other person making such payment or distribution
directly to the holder of Senior Indebtedness to the extent necessary to make
payment in full in cash of all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution or provision therefor to
the holder of such Senior Indebtedness; and
(c) if, notwithstanding the foregoing provisions of this Section 2.2,
the Holder shall receive any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, on account of
principal of, or premium or interest on, this Debenture before all Senior
Indebtedness is indefeasibly paid in full in cash, such payment or distribution
shall be received and held in trust for and shall be immediately paid over and
delivered to the holders of the Senior Indebtedness, or to the trustee under any
indenture under which Senior Indebtedness may have been issued, for application
in the case of cash, to the payment of such Senior Indebtedness until all such
Senior Indebtedness shall have been indefeasibly paid in full in cash and in the
case of property or securities as additional collateral for such Senior
Indebtedness in each case, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Indebtedness.
The Holder shall not commingle any such amounts or assets with any of the
Holder's property.
4
<PAGE>
(d) The Company shall give prompt written notice to the Holder of any
dissolution, winding up, liquidation or reorganization of the Company.
Section 2.3 ENFORCEMENT; LIMITATION ON REMEDIES. Except for default notices
given to the Company, Holder will not assert, collect, make demand under,
accelerate or enforce this Debenture or take any action to realize upon any of
the Subordinated Claims or enforce this Debenture, whether by legal process,
exercise of rights of set-off, exercise of any rights or remedies (including
without limitation, prejudgment remedies) or otherwise until the full and final
and indefeasible payment in cash of the Senior Indebtedness, except (or until
the earlier of):
(i) to the extent (but only to such extent) that the commencement
of a legal action or arbitration may be required to toll the
running of any applicable statute of limitation;
(ii) following the commencement of Insolvency Proceedings (in which
case Section 6 hereof shall control);
(iii) following the acceleration by Lender of the Senior
Indebtedness; or
(iv) until one hundred eighty (180) days after the Holder has
notified Lender in writing that the Company is in default
under this Debenture.
Upon giving any notice to the Company declaring this Debenture due and
payable prior to the stated maturity thereof, the Holder thereof shall
contemporaneously furnish a copy of such notice to Lender. If at the time the
Holder initiates any enforcement action, Lender has also initiated action
against the Company, or Lender thereafter initiates such action to foreclose and
realize upon the Collateral for the Senior Indebtedness, the Holder agrees to
permit Lender to control the process of liquidating such Collateral in
accordance with the terms and conditions contained in the Loan Documents and as
more specifically provided in Section 7 hereof. Any payments received by the
Holder as a result of the actions permitted by this Section shall be subject to
the remaining terms and conditions of this Debenture.
Section 2.4. DEFENSE TO ENFORCEMENT. If the Holder, in violation of this
Debenture, shall commence, prosecute or participate in any suit, action or
proceeding against the Company, then the Company may interpose as a defense or
plea the making of this Debenture, and Lender may intervene and interpose such
defense or plea in its name or in the name of the Company. If Holder, in
violation of this Debenture, shall attempt to collect any of the Subordinated
Claims or to enforce this Debenture, then Lender or (as the case may be) the
Company may, by virtue of this Debenture, restrain the enforcement thereof in
the name of Lender or in the name of the Company. If Holder, in violation of
this Debenture, obtains any cash or other assets of the Company as a result of
any administrative, legal or equitable actions, or otherwise, Holder agrees
forthwith to pay, deliver and assign to Lender any such cash or other assets for
application, in the case of cash, upon the amount of the Senior Indebtedness
and, in the case of non-cash assets, as additional collateral for the Senior
Indebtedness.
Section 2.5 BANKRUPTCY, ETC. At any meeting of creditors of the Company or in
the event of any proceeding, voluntary or involuntary, for the distribution,
division or application of all or part of the assets of the Company or the
proceeds thereof, whether such proceeding be for the liquidation, dissolution or
winding up of the Company or its business, a receivership, insolvency or
bankruptcy proceeding, an assignment for the benefit of creditors or a
proceeding by or against the Company for relief under any bankruptcy,
reorganization or insolvency law or any law relating to the relief of debtors,
readjustment of indebtedness, reorganization, arrangement, composition or
extension or
5
<PAGE>
otherwise (any or all of the foregoing being referred to herein as an
"Insolvency Proceeding"). Lender shall be entitled following the commencement of
an Insolvency Proceeding to receive payment in full in cash of all Senior
Indebtedness before the holders of Subordinated Claims are entitled in any such
proceedings to receive any payment on account of the Subordinated Claims, and to
that end in any such proceedings any payment or distribution of any kind or
character, whether in cash or in other property, to which the holders of
Subordinated Claims would be entitled but for the provisions hereof shall be
delivered to Lender to the extent necessary to make payment in full in cash of
all Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to or for Lender in respect thereof.
In the event that any holder of Subordinated Claims shall fail to file
claims, proofs of claim and other instruments of similar character necessary to
enforce the obligations of the Company, in respect of the Subordinated Claims,
Lender shall be entitled to file the same in the name of the Company and to vote
such claims, and to receive and apply to the Senior Indebtedness every payment
or distribution to which such holders of Subordinated Claims are entitled in
respect thereof and give acquittance therefor. If requested by Lender, Lender
may sue or otherwise seek equitable relief in order to enable it to take such
action on behalf of such holder of Subordinated Claims. In no event shall Holder
take any action or vote in favor of any plan of reorganization (or confirmation
thereof) which is adverse to the interests of Lender or is otherwise in
contravention of this Debenture. Lender is hereby irrevocably authorized at any
such meeting or in any such proceeding to receive or collect any assets of the
Company distributed, divided or applied by way of dividend or payment, or any
securities issued, on account of any Subordinated Claims and apply the same, or
the proceeds of any realization upon the same that Lender in its discretion
elects to effect, to the Senior Indebtedness until all Senior Indebtedness shall
have been paid in full in cash, rendering any surplus to Holder. Lender will
upon the full, final and indefeasible payment of the Senior Indebtedness, assign
its claims for any Senior Indebtedness to Holder to the extent that such claims
have been paid from proceeds of the Subordinated Claims.
Section 2.6 FREEDOM OF DEALING. Holder agrees, with respect to the Senior
Indebtedness and any and all collateral therefor or guaranties thereof, that
Lender may grant extensions of the time of payment or performance to and make
compromises, including releases of collateral or guaranties, and settlements
with the Company and all other persons without the consent of Holder and without
affecting the agreements of Holder hereunder. Without the necessity of any
reservation of rights against, or any notice to, or further assent by Holder,
any demand for payment of any Senior Indebtedness made by Lender may be
rescinded in whole or in part by Lender and any Senior Indebtedness may be
continued, Lender may exercise or refrain from exercising any rights and
remedies against the Company and others, the Senior Indebtedness, or any
collateral security or guaranty therefor or right of offset with respect
thereto, may be extended, modified, accelerated, compromised, waived,
surrendered, or released by Lender, and any agreement or instrument evidencing,
securing or otherwise relating to Senior Indebtedness may be amended, modified,
surrendered, released or compromised, without impairing, abridging, releasing or
affecting the subordination provided for herein; such amendment or modification
may include, without limitation, increasing the principal amount of, or the
method of determining the rates of interest on, Senior Indebtedness above the
maximum amounts stated currently in the Loan Documents. Each holder of
Subordinated Claims waives any and all notice (except notices specifically
provided for herein) of the creation or modification of any Senior Indebtedness
and notice of or proof of reliance by Lender upon the subordination provided for
herein. The Senior Indebtedness shall conclusively be deemed to have been
created, contracted or incurred in reliance upon the provisions of this
Subordination Agreement.
6
<PAGE>
Holder hereby consents to the collection or other disposition of the
Collateral by the Lender free of any security interest, lien, claim, attachment
or right of the Holder or, if Lender requests, by the Company or its successor,
including a trustee in bankruptcy, and that the proceeds shall first be used to
repay the Senior Indebtedness and provided further, that the security interest
of the Lender shall continue in the proceeds of any such sale or in any
replacement collateral, which proceeds shall be distributed in accordance with
the provisions of this Debenture. The Holder agrees to take such action as the
Lender may reasonably request to facilitate such collection or disposition,
including, without limitation, the termination of financing statements,
attachments and the like with respect to the Collateral. The Holder hereby
consents to any and all dispositions of the Collateral now or hereafter made by
Lender upon the Company's default or demand by the Lender as to any Senior
Indebtedness (including without limitation the compromise of any accounts or
claims of the Company). Notwithstanding anything to the contrary contained in
this Debenture or in the Loan Documents or the documents evidencing and securing
the Subordinated Claims, Lender and Holder agree that in the event the Company
requests permission to sell, transfer or dispose of any Collateral and Lender
approves such a request, the Holder will consent to the sale transfer or
disposition of such Collateral.
Section 2.7 NO LIENS. Holder shall not acquire by subrogation, contract or
otherwise any lien, attachment, security interest, right or claim upon or other
estate, right or interest in the Collateral described in the Loan Documents or
against the Company (including, without limitation, any such lien, estate, right
of interest which may arise with respect to any taxes, assessments or other
governmental charges) provided, however, that following the indefeasible payment
in full in cash of the Senior Indebtedness, Subordinated Creditor shall have a
right of subrogation.
Section 2.8 TERMINATION; FINAL PAYMENT. This Debenture shall continue in full
force and effect, and the obligations and agreements of Holder and the Company
hereunder shall continue to be fully operative, until all of the Senior
Indebtedness shall have been paid and satisfied in full in cash and such full
payment and satisfaction shall be final, indefeasible and not avoidable and the
Lender has no further obligation to extend any further credit to the Company. To
the extent that the Company makes any payment on the Senior Indebtedness that is
subsequently invalidated, declared to be fraudulent or preferential or set aside
or is required to be repaid to a trustee, receiver or any other party under any
bankruptcy, insolvency or reorganization act, state or federal law, common law
or equitable cause (such payment being hereinafter referred to as a "Voided
Payment"), then to the extent of such Voided Payment, that portion of the Senior
Indebtedness that had been previously satisfied by such Voided Payment shall be
revived and continue in full force and effect as if such Voided Payment had
never been made. In the event that a Voided Payment is recovered from Lender, an
Event of Default shall be deemed to have existed and to be continuing from the
date of Lender's initial receipt of such Voided Payment until the full amount of
such Voided Payment is restored to Lender. During any continuance of any such
Event of Default, this Debenture shall be in full force and effect with respect
to the Subordinated Claims. To the extent that Holder has received any payments
with respect to any of the Subordinated Claims subsequent to the date of
Lender's initial receipt of such Voided Payment, Holder shall be obligated and
hereby agrees that any such payment so made or received shall be deemed to have
been received in trust for the benefit of Lender and Holder hereby agrees to pay
to Lender, upon demand, the full amount so received by Holder during such period
of time to the extent necessary to fully restore to Lender the amount of such
Voided Payment.
Section 2.9 PRIORITY OF PERFECTION; FURTHER ASSURANCES. The Senior Indebtedness,
and any and all other documents and instruments evidencing or creating the
Senior Indebtedness and all mortgages,
7
<PAGE>
security agreements, pledges and other collateral securing the Senior
Indebtedness shall be senior to the Subordinated Claims and this Debenture
irrespective of the time of the execution, delivery or issuance of any thereof
or the filing or recording for perfection of any thereof or the filing of any
financing statement or continuation statement relating to any thereof. Except as
otherwise permitted by Lender, this Debenture shall specifically state that a
copy of this Debenture is on file with the Company and Lender and is available
for inspection at the Company's and Lender's offices. Holder hereby agrees to
execute such other documents or instruments as may be requested by Lender
further to evidence, or evidence of record, the agreement of Holder herein
contained or to perfect or preserve the rights of Lender hereunder.
Section 2.10 LIMITATIONS ON SALE OF SUBORDINATED CLAIMS. Holder will not sell or
otherwise dispose of any of the Subordinated Claims or any of the Subordinated
Loan Documents unless Holder gives Lender at least five (5) days prior written
notice of any such proposed transfer stating the identity of the buyer or other
transferee and providing such other information as Lender shall reasonably
require. No such sale, transfer or other disposal shall be valid or binding upon
Lender unless the transferee agrees in writing in form and substance
satisfactory in all respects to Lender to be bound by the terms and conditions
of and subject to the obligations contained in this Debenture.
Section 2.11 MODIFICATIONS. Without the consent of Lender, the holders of
Subordinated Claims shall not amend, modify or supplement any provisions of this
Debenture which in any way would have the effect of increasing the amount or
changing the amortization of principal of, or interest on, the Subordinated
Claims or would otherwise have an adverse effect on the Senior Indebtedness.
Section 2.12 OBLIGATION OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article Two or elsewhere in this Debenture is
intended to or shall impair, as between the Company and the Holder, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holder the principal of, and premium or interest on, this Debenture as and when
the same shall become due and payable in accordance with its terms, or is
intended to or shall affect the relative rights of the Holder and creditors of
the Company other than the holders of Senior Indebtedness, nor shall anything
herein or therein prevent the Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Debenture, subject to the
rights, if any, under this Article Two of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy. Upon any distribution of assets of the Company
referred to in this Article Two, the Holder shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of the liquidating trustee or agent or other person making any
distribution to the Holder, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Two.
Section 2.13 ACTS OR OMISSIONS OF COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such Holder, or by any
noncompliance by the Company with the terms of this Debenture regardless of any
knowledge thereof which any such Holder may have or be otherwise charged with.
8
<PAGE>
ARTICLE THREE
DEFAULT AND REMEDY
Section 3.1 EVENTS OR DEFAULT.
An "Event of Default" shall be deemed to have occurred if:
(i) the Company fails to pay any installment of principal of, or
interest on, this Debenture when the same becomes due and payable and such
failure continues for a period of five (5) days;
(ii) at any time after the first anniversary of the Effective Date,
Total Funded Indebtedness exceeds 5.5 times Consolidated EBITDA for the previous
four complete fiscal quarters of the Company;
(iii) the Company is in default in respect of more than $1,000,000 of
Senior Indebtedness and such Senior Indebtedness is declared due and payable by
the holder thereof prior to its scheduled maturity as a result of the default;
or
(iv) the Company shall make an assignment for the benefit of creditors,
file a petition in bankruptcy, petition or apply to any tribunal for the
appointment of a custodian, receiver or trustee, or commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect, or any such petition or application shall have been filed,
or any such proceeding shall have been commenced against the Company in which an
order for relief is entered or which remains undismissed for a period of 90 days
or more.
Section 3.2 ACCELERATION.
Subject to the provisions of Section 2.3, if an Event of Default under
Section 3.1 occurs and is continuing, the entire outstanding principal balance
of, and all accrued and unpaid interest on, this Debenture shall become
immediately due and payable at the Holder's election upon written notice from
the Holder to the Company of such acceleration.
9
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
Section 4.1 TRANSFER
Upon surrender of this Debenture, the Holder shall have the right, at
any time upon ten business days' written notice to the Company, to (i) exchange
this Debenture for one or more Debentures of like tenor of lesser denominations
having an aggregate value equal to that of this Debenture or (ii) transfer, sell
or otherwise dispose of a Debenture to any person that the Holder may designate
(or a trust for the benefit of such Holder). If, at the time of the surrender of
this Debenture in connection with any transfer or exchange thereof, this
Debenture shall not be registered under the Securities Act and under applicable
state securities or blue sky laws, the Company may require, as a condition of
allowing such exchange or transfer, (i) that the Holder of this Debenture
furnish to the Company a written opinion of counsel (which opinion shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exchange or transfer may be made without
registration under the Securities Act and under applicable state securities or
blue sky laws, and (ii) that the Holder execute and deliver to the Company an
investment letter in form and substance acceptable to the Company. Within ten
business days of receiving (i) notice of a request for exchange or transfer of
this Debenture, (ii) the opinion or other documents referred to in the previous
sentence, and (ii) the surrender of this Debenture, the Company shall deliver
one or more Debentures issued in the names and in the amounts designated by the
Holder. A late fee of $1,000 per day will be assessed against the Company for
each full business day that such new Debenture or Debentures have not been
received by the Holder, commencing on the tenth day after receipt of the
documents described in the previous sentence.
Section 4.2 NO WAIVER.
No failure or delay on the part of the Company or the Holder in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Holder at law or in equity or otherwise.
Section 4.3 GOVERNING LAW.
This Debenture shall be governed by the laws of the State of New York,
without regard to its conflict of law doctrine.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed and delivered on the date set forth above by the duly authorized
representative of the Company.
ATTEST: Q.E.P. CO., INC.
By:______________________________
Name: Lewis Gould
Its: President
10
ESCROW AGREEMENT
This Escrow Agreement is entered into as of October 21, 1997 by and
among IBJ Schroder Bank & Trust Company, a banking corporation organized under
the laws of the State of New York (the "Escrow Agent"), Q.E.P. Co., Inc. a
Delaware corporation ("the "Purchaser") and RCI Holdings Inc. (the "Seller").
WHEREAS, the stock purchase agreement dated October 21, 1997 (the
"Purchase Agreement") between the Purchaser and Seller provides for the
acquisition of Roberts Consolidated Industries, Inc. (the "Company") by the
Purchaser through the purchase of all the outstanding shares of common stock of
the Company; and
WHEREAS, the Purchaser is depositing with you, as escrow agent,
$500,000 aggregate principal amount of the Purchaser's 8% Subordinated
Debentures due 2001 (the "Subordinated Debentures"); and
WHEREAS, the Escrow Agent is willing to establish an escrow account on
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
Escrow Agent agrees to hold those Subordinated Debentures, and the
interest on those Subordinated Debentures and the interest on such interest (the
"Fund"), on the following terms:
1. The Fund shall be held and disposed of by you as follows:
a. On December 20, 1997, if (1) the sum of (A) the
aggregate principal amount of Subordinated Debentures included in the Fund plus
(B) the accrued and unpaid interest on such Subordinated Debentures, reduced by
(2) the amount, if any, you are then required to hold separately pursuant to
paragraphs 1(d) and 1(e) exceeds $250,000, you shall deliver to the Seller
Subordinated Debentures the aggregate principal amount of, and accrued and
unpaid interest thereon, which equals that excess. On April 20, 1998, if the sum
of (1) the aggregate principal amount of Subordinated Debentures included in the
Fund plus (2) the accrued and unpaid interest on such Subordinated Debentures
exceeds the amount, if any, Escrow Agent is then required to hold separately
pursuant to paragraphs 1(c) and 1(d), Escrow Agent shall deliver to the Seller
Subordinated Debentures the aggregate principal amount of, and accrued and
unpaid interest on, which equals that excess. The amount of all Damages (as
defined in paragraph 1(b)) and all Maximum Additional Damages (as defined in
paragraph 1(b)) in respect of affidavits delivered pursuant to paragraph 1(b)
Escrow Agent is not yet required to hold separately in escrow pursuant to
paragraph 1(c) or 1(d) and in respect of which Escrow Agent has not yet made any
payment shall, for purposes of this paragraph 1(a), be deemed to be required to
be held separately in escrow pursuant to paragraph 1(c) or 1 (d). All payments
and deliveries to the Seller shall be made as directed in an affidavit of the
Seller delivered to Escrow Agent.
b. (i) Escrow Agent receives an affidavit of an
officer of the Purchaser stating (A) that the Purchaser has incurred a loss,
liability, damage or expense, including attorneys' fees and expenses and the
expenses of investigating or defending against any claim or proceeding
<PAGE>
for which the Purchaser is entitled to indemnification pursuant to the Purchase
Agreement (collectively, the "Damages") as a result of any misrepresentation or
any breach of warranty or agreement by the Seller in the Purchase Agreement for
which the Purchaser is entitled to indemnification pursuant to the Purchase
Agreement (collectively, a "Breach"), (B) the amount of the Damages incurred to
date by the Purchaser as a result of the Breach and the maximum amount of
additional Damages the Purchaser may incur (the "Maximum Additional Damages"),
and (C) that the amounts specified in clause (B) are reasonable estimates of
such Damages and Maximum Additional Damages, Escrow Agent shall promptly deliver
a copy of the affidavit to the Seller. The Purchaser shall deliver a copy of any
such affidavit to the Seller promptly after it delivers the affidavit to Escrow
Agent. Any affidavit delivered by the Purchaser pursuant to this paragraph shall
set forth in reasonable detail the individual items of Damages sustained by the
Purchaser and the nature of those items.
(ii) With respect to any Breach, the Purchaser may
from time to time submit additional affidavits stating the amount of additional
Damages incurred by it or revising the amount of the Maximum Additional Damages
and stating that those amounts are reasonable estimates of such Damages and
Maximum Additional Damages, and Escrow Agent shall promptly deliver a copy of
each such affidavit to the Seller. The Purchaser shall deliver a copy of any
such affidavit to the Seller promptly after it delivers the affidavit to Escrow
Agent.
c. Escrow Agent shall hold the amount of Damages
claimed in the Purchaser's affidavit separately for 30 days or for such
additional time as required by paragraph 1(d) hereof. If, 30 days after delivery
by Escrow Agent to the Seller of a copy of an affidavit from the Purchaser
claiming Damages, Escrow Agent has not received an affidavit from the Seller
disputing either the Purchaser's right to Damages or the amount of Damages
incurred by the Purchaser, Escrow Agent shall promptly deliver to the Purchaser
the amount specified in its affidavit as Damages and, if the Purchaser stated
that it may incur additional Damages as a result of the Breach, Escrow Agent
shall continue to hold separately in escrow an amount equal to the amount of the
Maximum Additional Damages with respect to the Breach.
d. If, during the 30-day period referred to in
paragraph 1(c), Escrow Agent receives an affidavit of an officer of the Seller
disputing the Purchaser's right to Damages or the amount of Damages incurred by
the Purchaser, as the case may be, Escrow Agent shall (i) promptly forward a
copy of that affidavit to the Purchaser, (ii) pay to the Purchaser any
undisputed amount of Damages, and (iii) hold the balance of the amount claimed
by the Purchaser as Damages, separately in escrow until receipt of either an
affidavit signed by an officer of the Purchaser and an officer of the Seller
directing the disposition of all or part of the Fund or a certified copy of a
final, non-appealable order of a court of competent jurisdiction ordering Escrow
Agent to dispose of the amount subject to the dispute accompanied by an opinion
of legal counsel as to the finality and non-appealability of such order. The
Seller shall deliver to the Purchaser a copy of any affidavit delivered to
Escrow Agent hereunder promptly after it delivers the affidavit to you. Upon
receipt of an affidavit or court order, Escrow Agent shall promptly comply with
its terms. In any proceeding to resolve a dispute, part of the final
determination shall be an allocation of the costs of the proceeding (including
attorneys' fees), and the Purchaser shall bear all such costs, unless it is
finally determined that the Purchaser's claim for Damages was valid.
2. It is understood and agreed that Escrow Agent's duties are
purely ministerial in nature. It is further agreed that:
2
<PAGE>
a. Escrow Agent shall not be responsible for the
performance of Purchaser or Seller under this agreement or any other agreement;
b. Escrow Agent may conclusively rely and shall be
protected in acting or refraining from acting upon any document, instrument,
certificate, instruction or signature believed by you to be genuine and may
assume and shall be protected in assuming that any person purporting to give any
notice or instructions in accordance with this agreement or in connection with
any transaction to which this Escrow Agreement relates has been duly authorized
to do so. Escrow Agent shall not be obligated to make any inquiry as to the
authority, capacity, existence or identity of any person purporting to have
executed any such document or instrument or have made any such signature or
purporting to give any such notice or instructions;
c. Escrow Agent undertakes to perform only such
duties as are expressly set forth herein and shall not be bound in any way by
any agreement between Purchaser and Seller (whether or not Escrow Agent has
knowledge thereof); and
d. Escrow Agent shall not assume any responsibility
or liability for the completeness, correctness or accuracy of the Fund or for
any transactions between Purchaser and Seller.
e. Escrow Agent shall receive, as compensation for
your services hereunder, the sum of $1,500 as an Initial Acceptance Fee, which
fee shall be payable at closing and, as an Administration Fee, the sum of
$2,500, per annum or part thereof, payable by the Purchaser upon funding of the
Fund and annually thereafter. Escrow Agent shall also receive payment for
certain transaction fees as set forth in Schedule I hereto.
3. Escrow Agent shall hold and dispose of the Fund in the
manner set forth above and shall have no other duties as escrow agent; your
duties shall be determined only with reference to this agreement and applicable
law. Escrow Agent is not charged with knowledge of or any duties or
responsibilities under any other document or agreement. If in doubt as to its
duties and responsibilities under this agreement, Escrow Agent may consult with
counsel of its choice and shall be protected in any action taken or omitted upon
the advice or opinion of that counsel. The Purchaser and the Seller shall
indemnify Escrow Agent and hold Escrow Agent harmless against any loss,
liability, damage or expense you may incur as a result of acting as escrow agent
under this agreement, except for any loss, liability, damage or expense arising
from its own gross negligence or wilful misconduct, in the following
proportions: 50% by the Purchaser and 50% by the Seller. The Purchaser and the
Seller agree Escrow Agent shall not be liable to them for any actions taken by
Escrow Agent pursuant to this agreement. The provisions of this paragraph 3
shall survive any termination of this agreement.
4. In the event Escrow Agent is at any time confronted with
inconsistent claims or demands by the parties to this agreement, Escrow Agent
may interplead the parties in any court of competent jurisdiction and request
that the court determine the respective rights of the parties with respect to
this agreement, and, upon doing so, Escrow Agent automatically shall be released
from any obligation or liability as a consequence of any such claims or demands.
5. Escrow Agent may execute any of its powers or
responsibilities under this agreement and exercise any rights under this
agreement directly or by or through its agents or attorneys. Nothing in this
agreement shall be deemed to impose upon you any duty to qualify to
3
<PAGE>
do business or to act as fiduciary in any jurisdiction other than the state of
New York. Escrow Agent shall not be responsible for and shall not be under a
duty to examine into or pass upon the validity, binding effect, execution or
sufficiency of this agreement or of any amendment or supplement to this
agreement.
6. Escrow Agent may resign at any time upon 30 days' notice to
the Purchaser and the Seller, but only if a successor escrow agent has been
appointed by the Seller and the Purchaser prior to the effective date of its
resignation. Upon receipt of notice of resignation, the Purchaser and the Seller
promptly shall use their best efforts to designate a successor escrow agent to
serve in accordance with this agreement. Upon receipt of an affidavit signed by
an officer of the Purchaser and an officer of the Seller directing the
disposition of the Fund to a successor escrow agent, Escrow Agent shall promptly
comply with that affidavit. In the case of Escrow Agent's resignation, its only
duty shall be to hold and dispose of the Fund in accordance with the original
provisions of this agreement until a successor shall be appointed by Purchaser
and Seller and a written notice of the name and address of such successor escrow
agent shall be given to Escrow Agent by Purchaser and Seller, whereupon its only
duty shall be to turn over the Fund to such successor in accordance with the
written instructions of Purchaser and Seller.
7. This agreement cannot be changed or terminated orally and
may be changed only with the prior written consent of the Purchaser, the Seller
and Escrow Agent. Should Purchaser and Seller attempt to change this agreement
in a manner which, in your sole opinion, is undesirable, Escrow Agent may resign
upon 30 days notice to Purchaser and Seller subject to the provisions of
paragraph 6 above.
8. Any notice or other communication under this agreement
shall be in writing and shall be considered given when delivered personally or
mailed by registered mail, return receipt requested, to the parties at the
following addresses (or at such other address as a party may specify by notice
to the others):
If to the Purchaser, to it at:
1081 Holland Drive
Boca Raton, Florida 33487
Attn: Chief Financial officer
with a copy to:
Holland & Knight LLP
One East Broward Boulevard
Fort Lauderdale, Florida
Attn: Steven Sonberg, Esq.
If to the Seller, to it at:
c/o Balfour Investors Incorporated
Rockefeller Center
620 Fifth Avenue
New York, New York 10020
Attn: Kenneth Grossman, Esq.
4
<PAGE>
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attn: Edward Kerson, Esq.
If to the Escrow Agent, to it at:
One State Street
New York, New York 10004
Attn: __________________
Notwithstanding the foregoing, any notice or other communication under
paragraph 1(d) or 1(e) shall be given by registered mail, return receipt
requested, and shall be considered given by you to the Seller or the Purchaser
two days after you receive a registered mail return receipt with respect to the
notice so given.
9. The Purchaser and the Seller each acknowledge that the
security procedures designated by each of them on Schedules A and B hereto with
respect to funds transfers from the Escrow Amount were selected from the
security procedures offered by the Escrow Agent. The Purchaser and the Seller
will each restrict access to confidential information relating to such security
procedures to authorized persons. Each party must notify the Escrow Agent
immediately if it has reason to believe unauthorized persons may have obtained
access to such information, or of any change in its authorized personnel. In
executing funds transfers, the Escrow Agent will rely upon account numbers or
other identifying numbers of a beneficiary, beneficiary's bank or intermediary
bank rather than names. The Escrow Agent shall not be liable for any loss,
liability or expense resulting from any error in an account number or other
identifying number provided it has accurately transmitted the numbers provided.
10. If any provision of this agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of this agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
11. This agreement may be executed in several counterparts or
by separate instruments, and all of such counterparts or instruments shall
constitute one agreement, binding on all the parties hereto.
12. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as the context may
require.
13. This agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings (written or oral) of the parties in
connection herewith.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this agreement as of the
date first above written.
Q.E.P.CO., Inc.
By: /s/ LEWIS GOULD
-----------------------------
Name: Lewis Gould
Title:
RCI HOLDINGS INC.
By: /s/ CARL C. WATSON
-----------------------------
Name: Carl C. Watson
Title: President
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ TERENCE RAWLINS
-----------------------------
Name: Terence Rawlins
Title:
6
<PAGE>
SCHEDULE A
Upon receipt of Disbursement Instructions from the Purchaser directing the
Escrow Agent to disburse amounts from the Escrow Funds, the Escrow Agent will
confirm the instructions set forth in such notice with one of the authorized
individual(s) listed below at an authorized telephone number appearing opposite
such individual's name:
AUTHORIZED INDIVIDUAL(S) AUTHORIZED TELEPHONE
OF THE PURCHASER NUMBER(S)
----------------------- --------------------
------------------- ------------------
------------------- ------------------
------------------- ------------------
7
<PAGE>
SCHEDULE B
Upon receipt of Disbursement Instructions from the Seller directing the Escrow
Agent to disburse amounts from the Escrow Funds, the Escrow Agent will confirm
the instructions set forth in such notice with one of the authorized
individual(s) listed below at an authorized telephone number appearing opposite
such individual's name:
AUTHORIZED INDIVIDUAL(S) AUTHORIZED TELEPHONE
OF THE SELLER NUMBER(S)
----------------------- --------------------
------------------- ------------------
------------------- ------------------
------------------- ------------------
8
