<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
OR
--- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-21773
FIREARMS TRAINING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 57-0777018
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
7340 MCGINNIS FERRY ROAD
SUWANEE, GEORGIA 30024
(Address of principal executive offices)
TELEPHONE NUMBER (770) 813-0180
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of February 10, 1999, there were (1) 19,015,419 shares of the
Registrant's Class A Common Stock and (2) 1,694,569 shares of the Registrant's
Class B nonvoting Common Stock outstanding.
<PAGE> 2
FIREARMS TRAINING SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statements of Income
Three and nine months ended December 31, 1998 and 1997 ................................. 3
Condensed Consolidated Balance Sheets
December 31, 1998 and March 31, 1998 ................................................... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1998 and 1997 ........................................... 5
Notes to Condensed Consolidated Financial Statements ................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .............................................................. 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ...................................................................... 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................... 16
ITEM 5. OTHER INFORMATION....................................................................... 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ....................................................... 18
SIGNATURES ............................................................................. 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
--------------------- ---------------------
1998 1997 1998 1997
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $ 16,314 $ 18,102 $ 40,690 $ 56,126
Cost of revenues 9,735 9,079 25,347 26,425
-------- -------- -------- --------
Gross profit 6,579 9,023 15,343 29,701
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative expenses 3,115 2,940 8,418 10,831
Research and development expenses 823 1,803 3,195 4,599
Depreciation and amortization 434 246 1,418 630
Non-recurring restructuring charge - - 870 -
-------- -------- -------- --------
Total operating expenses 4,372 4,989 13,901 16,060
-------- -------- -------- --------
Operating income (loss) 2,207 4,034 1,442 13,641
-------- -------- -------- --------
Other (expense) income, net:
Interest (expense), net (1,913) (1,499) (5,306) (4,419)
Other (expense) income, net (683) (70) (959) (77)
-------- -------- -------- --------
Total other (expense), net (2,596) (1,569) (6,265) (4,496)
-------- -------- -------- --------
Income (loss) before income taxes (389) 2,465 (4,823) 9,145
Provision (benefit) for income taxes (149) 814 (1,739) 3,219
-------- -------- -------- --------
Net income (loss) (240) 1,651 (3,084) 5,926
-------- -------- -------- --------
Accretion of preferred stock dividends (31) - (31) -
-------- -------- -------- --------
Net income (loss) applicable to common shareholders $ (271) $ 1,651 $ (3,115) $ 5,926
======== ======== ======== ========
Basic (loss) earnings per common share $ (0.01) $ 0.08 $ (0.15) $ 0.29
======== ======== ======== ========
$ (0.01) $ 0.08 $ (0.15) $ 0.28
Diluted (loss) earnings per common share
======== ======== ======== ========
Weighted average common shares outstanding - basic 20,696 20,410 20,678 20,406
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding - diluted 20,696 21,190 20,678 21,448
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE> 4
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
DEC. 31, March 31,
1998 1998
--------- ---------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,704 $ 3,395
Accounts receivable, net 21,107 22,710
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,325 -
Inventories 17,059 17,725
Income taxes receivable, net 2,327 -
Prepaid expenses and other current assets 648 594
Deferred income taxes, net - 1,050
--------- ---------
Total current assets 45,170 45,474
Property and equipment, net 4,493 3,971
Goodwill, net 4,672 2,751
Deferred financing costs, net 2,994 3,007
Deferred income taxes 975 1,065
Other assets 89 112
--------- ---------
$ 58,393 $ 56,380
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,268 $ 3,389
Accrued liabilities 7,398 11,060
Income taxes payable, net - 390
Deferred income taxes, net 1,249 -
Deferred revenue 167 6,428
Current maturities of long-term debt 6,000 5,300
--------- ---------
Total current liabilities 19,082 26,567
--------- ---------
Long-term debt, less current maturities 65,700 57,700
--------- ---------
Other noncurrent liabilities 158 344
--------- ---------
Mandatory redeemable preferred stock 3,031 -
--------- ---------
Stockholders' equity:
Class A common stock - -
Additional paid-in-capital 114,303 112,390
Accumulated (deficit) earnings (143,684) (140,569)
Cumulative foreign currency translation adjustment (197) (52)
--------- ---------
Total stockholders' (deficit) equity (29,578) (28,231)
--------- ---------
$ 58,393 $ 56,380
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE> 5
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
--------------------
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,084) $ 5,926
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,951 1,163
Deferred income taxes 2,389 (38)
Non-cash compensation expense 71 -
Employee stock compensation plan 87 16
Changes in assets and liabilities:
Accounts receivable, net 1,720 1,800
Costs and estimated earnings in excess of billings
on uncompleted contracts (2,325) -
Inventories 721 (948)
Income taxes receivable (2,327) -
Prepaid expenses and other current assets (28) 212
Escrow and other deposits 24 47
Accounts payable 741 (2,116)
Accrued liabilities (3,934) (196)
Income taxes payable (390) (446)
Deferred revenue (6,260) (120)
Noncurrent liabilities (209) (140)
-------- -------
Total adjustments (7,769) (766)
-------- -------
Net cash (used in) provided by operating (10,853) 5,160
activities
-------- -------
Cash flows from investing activities:
Additions to property and equipment, net (1,505) (1,140)
Payments for business acquisitions, net of cash acquired (394) (2,400)
Sale of business 200 -
-------- -------
Net cash used in investing activities (1,699) (3,540)
-------- -------
Cash flows from financing activities:
Borrowings of long-term debt 12,500 2,000
Repayments of long-term debt (3,899) (800)
Proceeds from sales of preferred stock 3,000
Deferred financing costs (520) (639)
Retirement of common stock (75) -
Proceeds from sales of common stock - 9
-------- -------
Net cash provided by financing activities 11,006 570
-------- -------
Effect of changes in foreign exchange rates (145) (165)
-------- -------
Net (decrease) increase in cash (1,691) 2,025
Cash, beginning of period 3,395 1,663
======== =======
Cash, end of period $ 1,704 $ 3,688
======== =======
Supplemental disclosures of cash paid for:
Interest $ 4,614 $ 3,994
======== =======
Income taxes $ (1,203) $ 3,672
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE> 6
FIREARMS TRAINING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, considered
necessary for a fair presentation have been included. Operating results for
the three and nine months ended December 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended March 31,
1999. For further information, refer to the company's consolidated
financial statements and footnotes thereto for the year ended March 31,
1998.
2. ACQUISITIONS.
On April 1, 1998, FATS, Inc. acquired the outstanding stock of Dart
International, Inc. ("Dart"), a Colorado-based hunter and sports simulation
company, in exchange for 257,577 Class A common shares of the Company. The
Company recorded the acquisition using the purchase method of accounting
with approximately $2.4 million of the purchase price allocated to
goodwill. The results of the operations of Dart have been included in the
Company's consolidated statements of operations since the effective date of
the acquisition.
The following unaudited pro forma consolidated results of operations of the
Company for the three and nine months ended December 31, 1997 is presented
as if the purchase of Dart, as well as the purchases of the ICAT Judgmental
Use of Force Business from SBS Technologies, Inc., and Simtran
Technologies, Inc. described in Note 2 of the Company's consolidated
financial statements for the year ended March 31, 1998, had occurred on
April 1, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
Dec. 31, 1997 Dec. 31, 1997
------------- -------------
<S> <C> <C>
Revenues $ 19,005 $ 59,075
Net income $ 985 $ 4,383
Basic earnings per share $ 0.05 $ 0.21
Diluted earnings per share $ 0.05 $ 0.20
</TABLE>
The operating results of all of the acquisitions noted above are included
in the accompanying consolidated statement of operations for the three and
nine months ended December 31, 1998.
6
<PAGE> 7
3. INVENTORY.
Inventories consist primarily of simulators, computer hardware, projectors,
and component parts. Inventories are valued at the lower of cost (on a
first-in, first-out basis) or market. Cost includes materials, labor, and
manufacturing overhead. Market is defined as net realizable value.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, March 31,
1998 1998
----------- -----------
<S> <C> <C>
Raw materials $ 8,893 $ 11,635
Work in progress 7,110 3,341
Finished Goods 1,056 2,749
----------- -----------
$ 17,059 $ 17,725
=========== ===========
</TABLE>
4. COMPREHENSIVE INCOME.
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of "comprehensive
income (loss)" and its components. Comprehensive income for the Company
consists of net income (loss) and foreign currency translation adjustments.
Total comprehensive income (loss) (in thousands of dollars) was ($273) and
$1,542 for the three-months ended December 31, 1998 and 1997, respectively.
Total comprehensive income (loss) (in thousands of dollars) was ($3,260)
and $5,761 for the nine month ended December 31, 1998 and 1997,
respectively.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's most recently filed Form 10-K.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1998 and 1997
Revenues. Revenues decreased $1.8 million, or 9.9%, to $16.3 million for the
three months ended December 31, 1998 as compared to $18.1 million for the three
months ended December 31, 1997. Sales to U.S. military customers for the three
months ended December 31, 1998, decreased by $5.9 million, or 65.6%, to $3.1
million, primarily due to decreased sales to the U.S. Marine Corps as the
Company has substantially completed deliveries under its contract with this
customer. Sales to U.S. law enforcement customers for the three months ended
December 31, 1998 decreased by $1.1 million, or 39.0%, to $1.7 million primarily
due to lower federal law enforcement sales in the current quarter as compared to
the same period last year. Sales to International customers for the three months
ended December 31, 1998 increased by $4.9 million, or 79.8%, to $11.0 million,
including over $5 million from the Company's subsidiary Simtran Technologies,
Inc. ("Simtran") acquired in March 1998. Sales to U.S. Hunter/Sports customers
for the three months ended December 31, 1998 increased $351,000, or 214.0%, to
$515,000 primarily attributable to the acquisition of Dart International, Inc.
("Dart").
Cost of Revenues. Cost of revenues increased $0.6 million, or 7.2%, to $9.7
million for the three months ended December 31, 1998 as compared to $9.1 million
for the three months ended December 31, 1997. As a percentage of revenues, cost
of revenues increased to 59.7% for the three months ended December 31, 1998 as
compared to 50.2% for the three months ended December 31, 1997. The increase in
cost of revenues as a percentage of revenues is attributable to the higher costs
of Simtran's products under development, as well as the overall lower volume of
revenues to cover the fixed portion of cost of goods sold.
Gross Profit. As a result of the foregoing, gross profit decreased $2.4 million,
or 27.1%, to $6.6 million, or 40.3% of revenues, for the three months ended
December 31, 1998 as compared to $9.0 million, or 49.8% of the revenues, for the
three months ended December 31, 1997.
Total Operating Expenses. Total operating expenses decreased $0.6 million, or
12.4%, to $4.4 million for the three months ended December 31, 1998 as compared
to $5.0 million for the three months ended December 31, 1997. Total operating
expenses as a percentage of revenues decreased to 26.8% for the three months
ended December 31, 1998 from 27.6% for the three months ended December 31, 1997.
The decrease in operating expenses is primarily attributable to the decrease in
Research and Development ("R&D") expenses.
Operating Income. As a result of the foregoing, operating income decreased $1.8
million, or 45.3%, to $2.2 million, or 13.5% of revenues, for the three months
ended December 31, 1998 as compared to $4.0 million, or 22.3% of revenues, for
the three months ended December 31, 1997.
8
<PAGE> 9
Other (Expense) Income, net. Net interest expense totaled $1.9 million, or 11.7%
of revenues for the three months ended December 31, 1998 as compared to $1.5
million, or 8.3% for the three months ended December 31, 1997. The increase in
net interest expense is primarily the result of the Company's increased
borrowings as compared to the prior period as a result of its working capital
needs and payments for acquisitions. The increase is also attributable to the
increase in interest rates incurred as a result of the amendments to its Credit
Agreement on June 26, 1998 and November 13, 1998. Other expenses, net totaled
$683,000, or 4.2 % of revenues for the three months ended December 31, 1998 as
compared to other expenses, net of $70,000, or 0.4% for the three months ended
December 31, 1997. The increase in other expenses, net is primarily the result
of foreign currency losses incurred due to recent fluctuations in currency
exchange rates.
Provision (Benefit) for Income Taxes. The effective tax rate increased to 38.3%
of income before income taxes for the three months ended December 31, 1998 as
compared to 33.0% of income before taxes for the three months ended December 31,
1997. The increase in the effective rate as compared to the prior year
represents the increased tax benefits derived from the Company's foreign sales
subsidiary in the three months ended December 31, 1997 as compared to the
current quarter.
Net Income (Loss). As a result of the foregoing, net income as reported
decreased $1.9 million to a net loss of $0.2 million, or 1.5% of revenues for
the three months ended December 31, 1998 as compared to net income of $1.7
million, or 9.1% of revenues for the three months ended December 31, 1997.
Accretion of preferred stock dividends. As discussed below, on November 13,
1998, the Company issued 18,182 units of a security comprised of 18,182 shares
of Series A Preferred Stock and 2,909,120 in the aggregate non-detachable
warrants to purchase Class B Non-Voting Common Stock with an exercise price of
$1.03125. As a result of this transaction, preferred stock dividends of $31,000
were accrued for the three months ended December 31, 1998 as compared to no
dividends for the three months ended December 31, 1997.
Net Income (Loss) Applicable to Common Shareholders. As a result of the
foregoing, net income applicable to common shareholders as reported decreased
$1.9 million to a net loss applicable to common shareholders of $0.3 million
($0.01 per diluted share), or 1.7% of revenues for the three months ended
December 31, 1998 as compared to net income applicable to common shareholders of
$1.7 million ($0.08 per diluted share), or 9.1% of revenues for the three months
ended December 31, 1997.
Nine Months Ended December 31, 1998 and 1997
Revenues. Revenues decreased $15.4 million, or 27.5%, to $40.7 million for the
nine months ended December 31, 1998 as compared to $56.1 million for the nine
months ended December 31, 1997. Sales to U.S. military customers for the nine
months ended December 31, 1998, decreased by $19.1 million, or 71.7%, to $7.5
million, primarily due to decreased sales to the U.S. Marine Corps as the
Company has substantially completed deliveries under its contract with this
customer. Sales to U.S. law enforcement customers for the nine months ended
December 31, 1998 decreased by $0.4 million, or 5.8%, to $6.3 million. Sales to
International customers for the nine months ended December 31, 1998 increased by
$2.8 million, or 12.9%, to $24.8 million, including over $10 million from the
Company's subsidiary Simtran acquired in March 1998. Sales to U.S.
Hunter/Sports
9
<PAGE> 10
customers for the nine months ended December 31, 1998 increased $1.2 million, or
144.8%, to $2.0 million primarily attributable to the acquisition of Dart.
Cost of Revenues. Cost of revenues decreased $1.1 million, or 4.1%, to $25.3
million for the nine months ended December 31, 1998 as compared to $26.4 million
for the nine months ended December 31, 1997. As a percentage of revenues, cost
of revenues increased to 62.3% for the nine months ended December 31, 1998 as
compared to 47.1% for the nine months ended December 31, 1997. The increase in
cost of revenues as a percentage of revenues is attributable to the higher costs
of Simtran's products under development, as well as, the lower volume of
revenues to cover the fixed portion of cost of goods sold. During the quarter
ended September 30, 1998, the Company reevaluated the required warranty reserve
based on its current systems in place which resulted in a decrease to the
established reserve.
Gross Profit. As a result of the foregoing, gross profit decreased $14.4
million, or 48.3% to $15.3 million, or 37.7% of revenues, for the nine months
ended December 31, 1998 as compared to $29.7 million, or 52.9% of the revenues,
for the nine months ended December 31, 1997.
Total Operating Expenses. Total operating expenses decreased $2.2 million, or
13.4% to $13.9 million for the nine months ended December 31, 1998 as compared
to $16.1 million for the nine months ended December 31, 1997. Total operating
expenses as a percentage of revenues increased to 34.2% for the nine months
ended December 31, 1998 from 28.6% for the nine months ended December 31, 1997.
S, G & A expenses decreased $2.4 million, or 22.3%, as compared to the 27.5%
decrease in revenue. The decrease in S, G & A expenses is primarily due to the
decrease in salary expenses related to the workforce reduction implemented in
June 1998 and the reduction of an incentive accrual established in the previous
year which is not expected to be paid, as well as a decrease in agent's
commission. The decrease in operating expenses was partially offset by the $0.9
million non-recurring restructuring charge related to a workforce reduction and
certain other measures incurred by the Company in the first quarter of fiscal
1999. The decrease in operating expenses was also offset by the $0.8 million
increase in depreciation and amortization expense resulting from amortization of
goodwill related to the Company's recent acquisitions.
Operating Income (Loss). As a result of the foregoing, operating income
decreased $12.2 million, to $1.4 million, or 3.5% of revenues, for the nine
months ended December 31, 1998 as compared to $13.6 million, or 24.3% of
revenues, for the nine months ended December 31, 1997.
Other (Expense) Income, net. Net interest expense totaled $5.3 million, or 13.0%
of revenues for the nine months ended December 31, 1998 as compared to $4.4
million, or 7.9% for the nine months ended December 31, 1997. The increase in
net interest expense is primarily the result of the Company's increased
borrowings as compared to the prior period as a result of its working capital
needs and payments for acquisitions. The increase is also attributable to the
increase in interest rates incurred as a result of the amendments to its Credit
Agreement on June 26, 1998 and November 13, 1998. Other expenses, net totaled
$959,000, or 2.4% of revenues for the nine months ended December 31, 1998 as
compared to $77,000, or 0.1% for the nine months ended December 31, 1997. The
increase in other expenses, net is primarily the result of foreign currency
losses incurred due to recent fluctuations in currency exchange rates.
10
<PAGE> 11
Provision for Income Taxes. The effective tax rate increased to 36.1% of income
before income taxes for the nine months ended December 31, 1998 as compared to
35.2% of income before taxes for the nine months ended December 31, 1997. The
increase in the effective rate as compared to the prior year represents the
increased tax benefits derived from the Company's foreign sales subsidiary in
the nine months ended December 31, 1997 as compared to the nine months ended
December 31, 1998.
Net Income (Loss). As a result of the foregoing, net income as reported
decreased $9.0 million to a net loss of $3.1 million, or 7.6% of revenues for
the nine months ended December 31, 1998 as compared to net income of $5.9
million, or 10.6% of revenues for the nine months ended December 31, 1997.
Accretion of preferred stock dividends. As a result of the issuance of Preferred
Stock in November 1998 described below, preferred stock dividends of $31,000
were accrued for the nine months ended December 31, 1998 as compared to no
dividends for the nine months ended December 31, 1997.
Net Income (Loss) Applicable to Common Shareholders. As a result of the
foregoing, net income applicable to common shareholders as reported decreased
$9.0 million to a net loss applicable to common shareholders of $3.1 million
($0.15 per diluted share), or 7.7% of revenues for the nine months ended
December 31, 1998 as compared to net income applicable to common shareholders of
$5.9 million ($0.28 per diluted share), or 10.6% of revenues for the nine months
ended December 31, 1997.
11
<PAGE> 12
BACKLOG
Backlog represents customer orders that have been contracted for future
delivery. Accordingly, these orders have not yet been recognized as revenue, but
represent potential revenue. As of December 31, 1998, the Company had a backlog
of approximately $39.6 million, comprised of $27.2 million from FATS
international customers, $8.7 from Simtran's Canadian customers and $2.7 million
from FATS U.S. military customers. Recognition of Simtran's backlog will be
dependent upon delivery and acceptance of its products currently under
development. Approximately $13.6 million of the contracted orders are scheduled
for delivery during the remainder of fiscal year 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity and capital needs currently and for the near
future are to fund working capital, debt service, and capital expenditures
necessary to support its business. The Company's primary sources of liquidity
and capital resources are cash generated from operating activities, the senior
bank debt and the additional equity investment from the sale of Preferred Stock
and Warrants in November 1998 to Centre Investors. Net working capital was $26.1
million at December 31, 1998 and $18.9 million at March 31, 1998.
As of November 13, 1998, the Company and the Lenders amended the NationsBank
credit agreement (the "Amendment") to provide, among other things, for a
relaxation of certain financial covenants for periods ending March 31, 2000, a
temporary increase in interest rates, a reduction in available borrowings of
$1.5 million immediately and another $1.5 million no later than March 31, 1999,
and an immediate capital investment of $3,000,030 by affiliates of Centre
Partners Management, LLC on terms described below.
The Centre Investment: As required by the Amendment, on November 13, 1998, the
Company entered into a Securities Purchase Agreement with Centre Capital
Investors II, L.P., Centre Partners Coinvestment, L.P., Centre Capital Tax
Exempt Investors II, L.P., and Centre Capital Offshore Investors II, L.P. (the
"Centre Investors") whereby the Centre Investors, for $3,000,030 purchased
18,182 units of a security comprised of 18,182 shares of Series A Preferred
Stock (the "Preferred Stock") and 2,909,120 in the aggregate of non-detachable
warrants to purchase Class B Non-Voting Common Stock ("Class B stock") with an
exercise price of $1.03125 payable by exchange of shares of Preferred Stock
valued at the liquidation value of $165 per share. Each unit of the security
includes one share of Preferred Stock and 160 warrants, and the security bears a
dividend of 8% per annum payable quarterly in additional units of the security.
The Preferred Stock is subject to mandatory redemption on November 13, 2003 at
the liquidation value thereof. It is also subject to redemption at the option of
the holder in the event of a change of control of the Company as defined.
As of February 10, 1999, the Company had borrowings of $18.5 million and had
outstanding letters of credit of approximately $1.7 million under the amended
$23.5 million revolving credit facility which will be reduced by an additional
$1.5 million no later than March 31, 1999. The Company believes that the cash
flow from operations combined with the borrowings under the senior bank debt,
will be sufficient to meet the Company's presently anticipated working capital,
capital expenditure and debt service needs for at least the next twelve months.
Collection of a $4.7 million outstanding receivable balance, which is supported
in full by a performance letter of credit, will be required,
12
<PAGE> 13
however, to meet the Company's liquidity needs in the quarter ending March 31,
1999. While the Company anticipates collection of this receivable, failure to
receive payment in a timely manner could result in the Company's inability to
comply with certain financial covenants under the amended credit agreement and
to meet scheduled debt repayments. In the event that operations do not provide
sufficient cash flow, management intends to seek further amendment of its credit
agreement or to seek financing from other sources. No assurances can be given
that such relief or financing will be available.
The Company's operating activities used cash of $10.9 million in the nine months
ended December 31, 1998 and generated cash of $5.2 million in the nine months
ended December 31, 1997. The $16.1 million decrease in net cash provided by
operations was primarily due to the net loss of $3.1 million in the nine months
ended December 31, 1998 as compared to the net income of $5.9 million in the
nine months ended December 31, 1997. The decrease in net cash provided by
operations was also attributable to the $6.3 million decrease in deferred
revenues for the nine months ended December 31, 1998 primarily reflecting
Simtran's recognition of revenues on a percentage of completion basis for
contracts under development with its Canadian customer.
The Company's investing activities used cash of $1.7 million for the nine months
ended December 31, 1998 and $3.5 million for the nine months ended December 31,
1997. The Company's primary investing activity for the nine months ended
December 31, 1998 was capital expenditures that were for equipment used in
manufacturing, demonstration equipment, R&D and general administration. The
Company's other use of cash for investing was the purchase of Dart on April 1,
1998 for $394,000, net of cash acquired. On July 31, 1998, the Company sold
substantially all of the assets of the Company's FSS, Inc. subsidiary for
$200,000. The results of operations of this business were immaterial to the
total operating results of the Company. The approximate cost of the assets sold
was $200,000; therefore, no gain resulted from this transaction.
The Company's financing activities provided cash of $11.0 million for the nine
months ended December 31, 1998. The Company's primary financing activity in the
nine month period ended December 31, 1998, was the net borrowing of $8.6 million
from its credit facility and the $3.0 million in proceeds from the sale of
preferred stock to the Centre Investors, to finance the working capital needs of
the Company's operations, capital expenditures and recent acquisition.
The Company's indebtedness and the related covenants will have several important
effects on its future operations, including, but not limited to, the following:
(i) a portion of the Company's cash flow from operations must be dedicated to
the payment of interest on and principal of its indebtedness and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, R&D,
acquisitions, general corporate purposes or other purposes may be limited; and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to business developments and changes in its industry and economic
conditions generally.
13
<PAGE> 14
Concentration of Credit Risk
At December 31, 1998, approximately $12.7 million in accounts receivable was due
from four international customers, of which approximately $4.5 million was
secured by a performance letter of credit.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in date code fields. Beginning in the year 2000,
many of these systems will need to be modified to accept four digit entries or
otherwise distinguish twenty-first century dates from twentieth century dates.
As a result, over the remainder of this calendar year, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.
The management of the Company is currently evaluating the Company's Year 2000
issues. Because the latest versions of the Company's products are designed to be
Year 2000 compliant, this evaluation has focused on determining the compliance
of the Company's earlier software products as implemented in the Company's
installed customers base, as well as the impact on any non-compliance of the
Company and its customers. In addition, the evaluation is designed to address
the Company's Year 2000 readiness with respect to both information technology
(IT) and non-IT systems on which the Company's operations rely. Finally, because
the Company relies upon relationships with third parties over which it can
assert little control, the Year 2000 evaluation is also assessing the risks
associated with the failure of such third parties to adequately address the Year
2000 issue.
The Company does not currently believe that the effects of any Year 2000
non-compliance in the Company's installed base of software will result in a
material adverse effect on the Company's business, financial condition or
results of operations. However, the Company's investigation is in its interim
stages, and no assurance can be given that the Company will not be exposed to
potential claims resulting from system problems associated with the century
change.
The Company has not yet identified any business function that is materially at
risk of Year 2000 related disruption. However, the Company is prepared for the
possibility that certain business functions may be hereafter identified as at
risk and will develop contingency plans for such business functions when and if
such determinations are made.
The Company currently believes that the cost of Year 2000 compliance for its
information systems has not and will not be material to its consolidated results
of operations and financial position.
14
<PAGE> 15
CERTAIN FORWARD LOOKING STATEMENTS
The foregoing forward-looking statements are subject to a number of factors
which could cause actual results to differ as described above and under Item 5
"Other Information". No assurance can be given that actual revenues, operating
income or net income will not be materially different than those anticipated
above.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 2, 1998, the Company filed an action in the United States Court of
Federal Claims to obtain an injunction against award of the U.S. Army Engagement
Skills Trainer contract to a competitor. On November 19, 1998, the Company's
motion to dismiss the action was granted by the U.S. Court of Federal Claims.
The dismissal subsequently allowed the U.S. Army to award a multi-year contract
which includes the Company as a significant participant.
On October 3, 1997, Dart, a Company subsidiary, was sued by Advanced Interactive
Systems, Inc. ("AIS") for alleged infringement of a patent owned by AIS, U.S.
Patent No. 5,649,706 (the "706 Patent"). The parties recently settled the case
and the action was recently dismissed with prejudice. In the opinion of the
Company's management, this proceeding did not have a material adverse effect on
the Company's financial position, liquidity, or results of operations.
The Company is involved in legal proceedings from time to time in the ordinary
course of its business which, in the opinion of management, will not have a
materially adverse effect on the Company's financial position, liquidity, or
results of operation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(b) As described in Item 2(c), the Company issued 18,182 shares of its Series A
Preferred Stock on November 13, 1998, the terms of which are described in the
Certificate of Designation attached as Exhibit 3.03 to this Form 10-Q. Holders
of the Series A Preferred Stock are entitled to receive cumulative dividends at
the rate of 8% of the liquidation preference per year payable quarterly in Units
at the rate of one Unit for each $165 of dividends payable consisting of one
share of Series A Preferred Stock and a non-detachable Warrant to purchase 160
shares of Class B Common Stock. The Certificate of Designation provides that no
dividends or other distributions, other than dividends payable solely in shares
of common stock or other stock ranking (upon liquidation, as to dividends and
any other distribution) junior to the Series A Preferred Stock, shall be paid or
declared and set apart for payment in respect of the Common Stock, and no
purchase or redemption by the Company or its subsidiaries of any Common Stock
can be made, unless all accrued and unpaid dividends, including the dividend for
the then current period, shall have been declared and paid.
(c) Pursuant to a Securities Purchase Agreement dated as of November 13, 1998,
with Centre Capital Investors II, L.P., Centre Partners Coinvestment, L.P.,
Centre Capital Tax- Exempt Investors II, L.P., and Centre Capital Offshore
Investors II, L.P. (the "Centre Investors"), the Company issued in consideration
for cash of $3,000,030, 18,182 units of a security comprised in the aggregate of
18,182 shares of Series A Preferred Stock (the "Preferred Stock") and 2,909,120
non-detachable warrants to purchase Class B Non-voting Common Stock ("Class B
Stock") at an exercise price of $1.03125 per share, payable by exchange of
shares of Preferred Stock valued at the liquidation value of $165 per share. In
connection with such transaction, four directors of the Company who are
affiliated with the Centre Entities agreed to receive in lieu of annual
directors' fees of $20,000, for each director, options to purchase at $1.03125
per share an aggregate of 106,700 shares of Class A Common Stock, exercisable in
equal quarterly installments beginning December 31, 1998 which such directors
assigned to Centre Partners Management LLC. All such
16
<PAGE> 17
securities were sold as unregistered securities pursuant to Section 4(2) of the
Securities Act of 1933 as the purchasers are affiliates of the Company and
represented that the shares were being acquired for investment and not for
disposition.
ITEM 5. OTHER INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
Certain statements in this filing, and elsewhere (such as in other filings by
the Company with the Commission, press releases, presentations by the Company or
its management and oral statements) constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, (i) those described above including the
timing and size of, and the Company's success in competing for, new contracts
awarded by military and other government customers; (ii) significant variability
in the Company's quarterly revenues and results of operations as a result of
variations in the number and size of the Company's shipments in a particular
quarter while a significant percentage of its operating expenses are fixed in
advance; (iii) concentrations of revenues from a few large customers who vary
from one period to the next; (iv) the high percentage of sales to military and
law enforcement authorities whose orders are subject to extensive government
regulations, termination for a variety of factors and budgetary constraints; (v)
a significant proportion of international sales which may be subject to
political, monetary and economic risks; (vi) the relatively undeveloped nature
of the market for small and supporting arms training simulators and the need for
continued adoption of simulation training systems if the market is to expand;
(vii) the potential for increased competition; (viii) the Company's ability to
attract and retain key personnel and adapt to changing technologies; and (ix)
other factors described in the Company's Form 10-K for the fiscal year ended
March 31, 1998 under the caption Part I and in the Company's Prospectus under
the caption "Risk Factors".
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are filed with this report as exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.03 Certificate of Designation of Series A Preferred Stock.
10.21 Form of Warrant to Purchase Shares of Class B Common Stock.
10.22 Series C-2 Option Agreement in form granted to each of Lester Pollack,
Jonathan Kagan, Paul Zepf and Scott Perekslis and assigned by each to
Centre Management LLC.
10.23 Securities Purchase Agreement dated as of November 13, 1998 among the
Company and Purchasers.
11.01 Statement regarding computation of net income per common share.
27.01 Financial Data Schedule. (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
</TABLE>
18
<PAGE> 19
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 thereunto duly authorized.
DATED: February 12, 1999
FIREARMS TRAINING SYSTEMS, INC.
(Registrant)
/s/ Peter A. Marino
-------------------------------------
Peter A. Marino
President and Chief Executive Officer
/s/ Emory O. Berry
-------------------------------------
Emory O. Berry
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
19
<PAGE> 1
EXHIBIT 3.03
FIREARMS TRAINING SYSTEMS, INC.
CERTIFICATE OF DESIGNATION OF SERIES A PREFERRED STOCK
SETTING FORTH THE POWERS, PREFERENCES, RIGHTS,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF SUCH SERIES OF PREFERRED STOCK
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
FIREARMS TRAINING SYSTEMS, INC. (hereinafter referred to as the
"Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, as amended
(the "Delaware Code"), DOES HEREBY CERTIFY THAT, pursuant to authority conferred
by Article Fourth of the Restated Certificate of Incorporation of the
Corporation, the Board of Directors of the Corporation has adopted a resolution
providing for the issuance of a series of preferred stock of the Corporation
consisting of 38,000 shares designated "Series A Preferred Stock", which
resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of Firearms Training Systems, Inc., a Delaware corporation
(the "Corporation"), by Article Fourth of the Restated Certificate of
Incorporation of the Corporation, the Board does hereby create, provide
for and approve a series of preferred stock, par value $.10 per share,
of the Corporation (the "Preferred Stock") to be designated "Series A
Preferred Stock" (such series being herein called the "Series A
Preferred Stock"), consisting of 38,000 shares of the presently
authorized but unissued shares of Preferred Stock, and does hereby fix
and herein state and express the designations, powers, preferences and
relative, participating, optional and other special rights,
<PAGE> 2
and the qualifications, limitations and restrictions of the Series A
Preferred Stock as follows:
Section 1. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive cumulative dividends on the shares of Series A Preferred
Stock from their date of issue at the rate of 8% of the liquidation preference
per share per year (subject to increase during the continuance of a Restriction
Event as provided in Section 3 hereof), payable quarterly on the last day of
each of March, June, September and December (each, a "Quarterly Dividend Payment
Date"), commencing December 31, 1998 (except that if any such date is a
Saturday, Sunday or legal holiday, then such dividend shall be payable on the
next day that is not a Saturday, Sunday or legal holiday), in each year with
respect to the quarterly dividend period (or portion thereof) ending on such
Quarterly Dividend Payment Date. Such dividends shall be payable in Units (as
hereinafter defined) at the rate of one Unit (or fraction thereof) for each $165
of dividends payable (except that the Corporation may pay cash in lieu of any
fractional Units). The amount of dividends payable for the initial dividend
period and any period shorter than a full quarterly dividend period shall be
computed on a pro rata basis, based on the number of days elapsed on the basis
of a 360-day year comprised of twelve 30-day months. As used herein, a "Unit"
refers to a unit of securities comprised of one share of Series A Preferred
Stock and a non-detachable warrant ("Warrant") to purchase one hundred and sixty
(160) shares of common stock of the Corporation on the terms (including price)
set forth in the form of Warrant attached as an exhibit to the Securities
Purchase Agreement, dated as of November 13, 1998, among the Corporation and the
initial purchasers of the Series A Preferred Stock (the "Purchase Agreement").
(b) On each Quarterly Dividend Payment Date, all dividends which
shall have accrued on each share of Series A Preferred Stock outstanding on (and
on each share of Series A Preferred Stock issuable in respect of accrued and
unpaid dividends that should, pursuant to the provisions of this
<PAGE> 3
Certificate of Designations, have been declared and paid prior to) such date
shall accumulate and shall be deemed to have become due. Dividends on due but
unpaid dividends shall be declared and paid at the rate of 10% per annum of the
liquidation preference per share from the Quarterly Dividend Payment Date with
respect to which such dividend was not paid until such date as such dividend is
paid and issued and, from and after the date of payment, the shares issued shall
accrue cumulative dividends at the rate of 8% of the liquidation preference per
share per year (subject to increase as provided in Section 3 hereof), in each
case, payable quarterly in Units as hereinabove set forth.
(c) No dividends or other distributions, other than dividends
payable solely in shares of common stock or other capital stock of the
Corporation ranking (upon liquidation and winding-up, as to dividends and as to
any other distribution of assets other than by way of dividends) junior to the
Series A Preferred Stock, shall be paid, or declared and set apart for payment
by the Corporation in respect of any shares of capital stock of the Corporation
ranking (upon liquidation and winding-up, as to dividends or as to any other
distribution of assets) junior to or on a parity with the Series A Preferred
Stock, and no purchase, redemption or other acquisition shall be made by the
Corporation or any of its subsidiaries of any shares of such junior or parity
stock, unless and until all accrued and unpaid dividends on the Series A
Preferred Stock, including the full dividend for the then current dividend
period, shall have been declared and paid.
(d) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Series A Preferred Stock and common stock, for
the purpose of paying dividends on the Series A Preferred Stock, the full number
of shares of Series A Preferred Stock issuable and, subject to Section 6.4 of
the Purchase Agreement, the full number of shares of common stock issuable upon
exercise of all Warrants issuable, if all dividends from the date hereof through
and including November 13, 2003 were paid in Units at
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<PAGE> 4
the rate that would apply if a Restriction Event had occurred and was
continuing, which number as of the date hereof is 29,794 shares of Series A
Preferred Stock and 4,767,040 shares of Class B Non-voting Common Stock (the
"Required Class B Shares") (which shares of Class B Non-voting Common Stock
shall be convertible at the option of the holders thereof into a like number of
shares of the Corporation's Class A Common Stock, which shares of Class A Common
Stock shall likewise be reserved and kept available).
(e) The Corporation shall pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
Units or shares of common stock upon exercise of Warrants, in respect of
dividends on the Series A Preferred Stock pursuant hereto.
Section 2. Voting Rights.
In addition to any voting rights provided by law, the holders of shares
of Series A Preferred Stock shall have the following voting rights:
(a) So long as any shares of Series A Preferred Stock are
outstanding, subject to the provisions of Section 275(c) of the Delaware Code,
the Corporation shall not, without consent of the holders of at least a majority
of the number of shares of Series A Preferred Stock at the time outstanding,
given in person or by proxy, either in writing or by vote at a special meeting
called for the purpose, enter into any plan of complete liquidation or
dissolution or otherwise effect the voluntary liquidation, dissolution or
winding up of the Corporation unless (i) the Corporation gives the holders of
the Series A Preferred Stock not less than 30 days prior written notice of such
plan and (ii) as a result of such liquidation, dissolution or winding-up, the
liquidation preference on the Series A Preferred Stock is satisfied in full
pursuant to Section 4 herein.
(b) Except as otherwise required by applicable law, the consent of
a majority of the number of shares of Series A
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<PAGE> 5
Preferred Stock at the time outstanding, given in person or by proxy, either in
writing or by vote, at a special or annual meeting, shall be necessary to (i)
authorize or issue, or obligate the Corporation to issue, any other capital
stock or security or right convertible or exchangeable for capital stock of the
Corporation that is senior to or on a parity with the Series A Preferred Stock
as to rights upon liquidation and winding-up, as to dividends or as to any other
distribution of assets; (ii) increase the authorized number of shares of Series
A Preferred Stock; (iii) enter any agreement, contract or understanding or
otherwise incur any obligation which by its terms would violate or be in
conflict with the rights of the holders of Series A Preferred Stock hereunder;
(iv) amend or waive any provision of this Certificate of Designations; or (v)
amend any other provision of the certificate of incorporation of the Corporation
as in effect on the date hereof, if such amendment would adversely affect the
rights of the holders of the Series A Preferred Stock in any material respect.
(c) Whenever, at any time or times, the Corporation shall default
in its obligation to redeem the Series A Preferred Stock pursuant to and in
accordance with the provisions contained in Sections 5 and 6 of this Certificate
of Designations ("Redemption Defaults"), the holders of Series A Preferred Stock
shall have the exclusive right, voting separately as a class, to elect one
director of the Corporation at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders; provided,
however, that if such voting rights shall become vested more than 90 days or
less than 20 days before the date prescribed for such meeting of stockholders,
thereupon the holders of the shares of Series A Preferred Stock shall be
entitled to exercise their voting rights at a special meeting of the holders of
Series A Preferred Stock as hereinafter set forth. At elections for such
directors, each holder of Series A Preferred Stock shall be entitled to one vote
for each share of Series A Preferred Stock held. Upon the vesting of such right
of the holders of Series A Preferred Stock, the maximum authorized number of
members of the Board
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<PAGE> 6
of Directors of the Corporation shall automatically be increased by one and the
vacancy so created shall be filled by vote of the holders of outstanding Series
A Preferred Stock as hereinabove set forth. The right of holders of Series A
Preferred Stock, voting separately as a class, to elect members of the Board of
Directors as aforesaid shall continue until such time as all Redemption Defaults
shall have been cured, at which time such rights shall terminate, except as
herein or by law expressly provided, subject to revesting in the event of each
and every subsequent Redemption Default. Whenever such voting right shall have
vested, such right may be exercised initially either, as provided above, at a
special meeting of the holders of Series A Preferred Stock called as hereinafter
provided, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at such meetings or by the written consent of
such holders pursuant to Section 228 of the Delaware Code.
At any time when such voting right shall have vested in the holders of
Series A Preferred Stock entitled to vote thereon, and if such right shall not
already have been initially exercised, an officer of the Corporation shall, upon
the written request of holders of record of 10%, in the aggregate, of the shares
of Series A Preferred Stock then outstanding, addressed to the Chief Financial
Officer of the Corporation, call a special meeting of holders of shares of
Series A Preferred Stock. Such meeting shall be held at the earliest practicable
date upon the notice required for annual meetings of stockholders at the place
for holding annual meetings of stockholders of the Corporation or, if none, at a
place designated by the Chief Financial Officer of the Corporation. If such
meeting shall not be called by the proper officers of the Corporation within 30
days after the personal service of such written request upon the Chief Financial
Officer of the Corporation, or within 30 days after mailing the same within the
United States, by registered mail, addressed to the Chief Financial Officer of
the Corporation at its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the holders of record
of 10% of the shares of Series A Preferred
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<PAGE> 7
Stock then outstanding may designate in writing any person to call such meeting
at the expense of the Corporation, and such meeting may be called by such person
so designated upon the notice required for annual meetings of stockholders and
shall be held at the same place as is elsewhere provided in this paragraph. Any
holder of shares of Series A Preferred Stock then outstanding that would be
entitled to vote at such meeting shall have access to the stock record books of
the Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to the provisions of this paragraph. Notwithstanding the
provisions of this paragraph, however, no such special meeting shall be called
or held during a period within 45 days immediately preceding the date fixed for
the next annual meeting of stockholders.
The directors elected pursuant to this Section 2(c) shall serve until
the next annual meeting or until their respective successors shall be elected
and shall qualify. Any director elected by the holders of Series A Preferred
Stock may be removed by, and shall not be removed otherwise than by, the vote of
the holders of a majority of the outstanding shares of Series A Preferred Stock
who were entitled to participate in such election of directors, voting as a
separate class, at a meeting called for such purpose or by written consent as
permitted by law and the certificate of incorporation and by-laws of the
Corporation. If the office of the director elected by the holders of Series A
Preferred Stock, voting as a class, becomes vacant by reason of death,
resignation, retirement, disqualification or removal from office or otherwise,
such vacancy shall be filled by the holders of Series A Preferred Stock voting
as a class as herein provided. Upon any termination of the right of the holders
of Series A Preferred Stock to vote for directors as herein provided, the term
of office of the director then in office elected by the holders of Series A
Preferred Stock, voting as a class, shall terminate immediately. Whenever the
terms of office of the director elected by the holders of Series A Preferred
Stock, voting as a class, shall so terminate and the special voting powers
vested in the holders of Series A Preferred Stock shall have expired, the number
of
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<PAGE> 8
directors shall be such number as may be provided for pursuant to the by-laws of
the Corporation irrespective of any increase made pursuant to the provisions of
this Section 2(c).
Section 3. Certain Restrictions.
In case of the happening of any of the following events (each a
"Restriction Event"):
(a) the Corporation shall not have redeemed all shares of
the Series A Preferred Stock when required pursuant to this Certificate
of Designations or the Corporation breaches in any material respect any
of its other obligations under this Certificate of Designations or,
except as provided in clause (b) below, the Purchase Agreement
(including, without limitation, the registration rights granted with
respect to the shares of common stock issuable upon exercise of the
Warrants as contemplated by the Purchase Agreement and the Registration
Rights Agreement referred to therein), and such breach shall have
continued for ten (10) days after notice thereof by any holder;
(b) the Corporation shall not have authorized and
reserved for issuance the Required Class B Shares out of the aggregate
of its authorized (as set forth in the Corporation's certificate of
incorporation) but unissued shares of capital stock by the time the
Corporation was required to do so pursuant to Section 6.4 of the
Purchase Agreement, and in any event by August 31, 1998;
(c) a default or breach shall occur and be continuing
under any other agreement, bond, guaranty, document or instrument to
which the Corporation or any of its subsidiaries is a party relating to
indebtedness for borrowed money incurred by it which is not cured
within any applicable grace period, and such default or breach (I)
involves the failure to make any payment of principal, premium or
interest when due in respect of such indebtedness or (II) results in
the acceleration of
-8-
<PAGE> 9
such indebtedness prior to its express maturity and, in each case the
principal amount of such indebtedness, together with the principal
amount of any other indebtedness as to which there has been such a
payment default or the maturity of which has been accelerated,
aggregates $2,000,000 or more; or
(d) a case or proceeding shall have been commenced
against the Corporation seeking a decree or order in respect of the
Corporation (I) under Title 11 of the United States Code, as now
constituted or hereafter amended or any other applicable federal, state
or foreign bankruptcy, insolvency or other similar law for the relief
or reorganization of debtors, (II) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) for
the Corporation or of any substantial part of the Corporation's assets
or (III) ordering the winding-up or liquidation of the affairs of the
Corporation, and such case or proceeding shall remain undismissed or
unstayed for sixty (60) days or more or such court shall enter a decree
or order granting the relief sought in such case or proceeding;
then, until such breach is cured or until such redemption occurs: (A) in the
case of any Restriction Event described in Section 5(a), the dividend rate set
forth in Section 1 shall be increased to 10% per annum, payable quarterly; (B)
in the case of any Restriction Event described in Section 5(b), the dividend
rate set forth in Section 1 shall be increased, retroactively from the date of
the closing under the Purchase Agreement, to 10% per annum, payable quarterly,
and the Corporation shall issue and deliver to the holders of shares of Series A
Preferred Stock all additional Units payable in respect of such retroactive
increase in the dividend rate within five days of the date of such Restriction
Event; and (C) in the case of any other Restriction Event, the Corporation shall
not declare or pay dividends on, or make any other distributions of cash,
properties or securities of the Corporation on or with respect to any shares of,
or redeem or purchase or otherwise acquire for consideration (or make any
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<PAGE> 10
sinking fund, purchase fund or other similar payments in respect of) any shares
of capital stock of the Corporation ranking (upon liquidation and winding-up, as
to dividends or as to any other distribution of assets other than by way of
dividends) junior to or on a parity with the Series A Preferred Stock, provided
that the Corporation may at any time redeem, purchase or otherwise acquire
shares of capital stock ranking on parity with the Series A Preferred Stock in
exchange for shares ranking junior to the Series A Preferred Stock. The
Corporation shall not permit any subsidiary of the Corporation to make any
payment in respect of, or otherwise acquire for consideration, any shares of
capital stock of the Corporation unless the Corporation could, pursuant to this
Section 3, make such payment or acquisition at such time and in such manner.
Section 4. Liquidation Preference.
In the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive out of the assets of the Corporation, whether
such assets are stated capital or surplus of any nature, an amount equal to $165
per share, plus the amount of any accrued and unpaid dividends or distributions
payable pursuant to Section 1 hereinabove. Such payments shall be made before
any payment shall be made or any assets distributed to the holders of any class
or series of the common stock of the Corporation or any other class or series of
the Corporation's capital stock ranking junior as to liquidation rights to the
Series A Preferred Stock. Neither a consolidation, merger or other business
combination of the Corporation's assets for cash, securities or other property
shall be considered a liquidation, dissolution or winding up of the Corporation
for purposes of this Section 4 (unless in connection therewith the liquidation
of the Corporation is specifically approved).
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<PAGE> 11
Section 5. Redemption.
(a) The Series A Preferred Stock shall not be subject to optional
redemption by the Corporation or the operation of any sinking fund.
(b) On November 13, 2003 (the "Redemption Date"), the Corporation
shall redeem all shares of Series A Preferred Stock that are then outstanding
and all shares of Series A Preferred Stock issuable in respect of accrued but
unpaid dividends, in each case, at a redemption price per share equal to the
liquidation preference thereof, payable in cash. Not more than sixty (60) nor
less than thirty (30) days prior to the Redemption Date, notice by first class
mail, postage prepaid, shall be given to each holder of record of the Series A
Preferred Stock, at such holder's address as it shall appear upon the stock
transfer books of the Corporation. Each such notice of redemption shall be
irrevocable and shall specify the date that is the Redemption Date, the
redemption price, the identification of the shares to be redeemed, the place or
places of payment and that payment will be made upon presentation and surrender
of the certificate(s) evidencing the shares of Series A Preferred Stock to be
redeemed. On or after the Redemption Date, each holder of shares of Series A
Preferred Stock shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the redemption price in the manner set forth in
the notice. If, on the Redemption Date, funds in cash in an amount sufficient to
pay the aggregate redemption price for all outstanding shares of Series A
Preferred Stock shall be available therefor and shall have been irrevocably set
aside and deposited with a bank or trust company in trust for purposes of
payment of such redemption price, then, notwithstanding that the certificates
evidencing any shares so called for redemption shall not have been surrendered,
the shares shall no longer be deemed outstanding, the holders thereof shall
cease to be stockholders, and all rights whatsoever with respect to the shares
so called for redemption (except the right of the holders to receive the
redemption
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<PAGE> 12
price upon surrender of their certificates therefor) shall terminate. If at the
Redemption Date, the Corporation does not have sufficient funds legally
available to redeem all of the outstanding shares of Series A Preferred Stock,
the Corporation shall take all measures permitted under the Delaware Code to
increase the amount of its capital and surplus legally available, and the
Corporation shall purchase as many shares of Series A Preferred Stock as it may
legally redeem, ratably from the holders thereof in proportion to the number of
shares held by them, and shall thereafter, whenever it shall have funds
available therefor, redeem as many shares of Series A Preferred Stock as it
legally may until it has redeemed all of the outstanding shares of Series A
Preferred Stock. Until such time as the redemption price in respect of all
shares of Series A Preferred Stock shall be paid (or set aside and deposited in
trust for payment) to the holders thereof as aforesaid, the Warrants shall
remain exercisable.
Section 6. Change of Control.
(a) In the event that any Change of Control (as hereinafter
defined) shall occur at any time and from time to time while any shares of
Series A Preferred Stock are outstanding, each holder of Series A Preferred
Stock shall have the right to give notice that it is exercising a Change of
Control election (a "Change of Control Election"), with respect to all or any
number of such holder's shares of Series A Preferred Stock, during the period
(the "Exercise Period") beginning on the 10th day and ending on the 90th day
after the date of such Change of Control. Upon any such election, the
Corporation shall redeem each of such holder's shares (including shares issuable
in respect of accrued but unpaid dividends) for which such an election is made,
to the extent permitted by applicable law, at a redemption price per share equal
to the liquidation preference thereof, payable in cash.
(b) As used herein, "Change of Control" shall mean the occurrence
of any of the following events: (i) the Corporation shall fail to own 100% of
the issued and outstanding capital stock (on a fully diluted basis) of FATS,
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<PAGE> 13
Inc., a Delaware corporation; (ii) any person or "group" (within the meaning of
Rule 13d-5 under the Securities Exchange Act of 1934, as amended), together with
its affiliates, shall acquire beneficial ownership (as defined in Rule 13d-3
under such Act), directly or indirectly, of an amount of the outstanding capital
stock of the Corporation entitled to 29% or more of the Total Voting Power (as
hereinafter defined) of the Corporation, but excluding, for purposes of this
clause (ii), any such acquisition by any purchaser party to the Purchase
Agreement or any affiliate of such purchasers ("Permitted Investors"); (iii)
Permitted Investors shall beneficially own, directly or indirectly, an amount of
the outstanding capital stock of the Corporation entitled to less than 30% of
the Total Voting Power of the Corporation; or (iv) the failure at any time of a
majority of the seats (excluding vacant seats) on the Board of Directors of the
Corporation to be occupied by persons who were nominated by the affirmative vote
of members of such Board who are officers or affiliates of the Permitted
Investors. As used herein, "Total Voting Power" means the total number of votes
which may be cast in the election of directors of the Corporation generally at
any meeting of stockholders of the Corporation (other than votes that may only
be cast upon the happening of a contingency) on a fully-diluted basis (assuming
exercise, conversion or exchange of all outstanding options, warrants and
convertible or exchangeable securities which may be exercised or exchanged, or
converted into, such voting securities within 60 days of the date of
determination) assuming all such votes were present and voted at such meeting.
(c) On or before the fourteenth (14th) day after a Change of
Control, the Corporation shall mail to all holders of record of the Series A
Preferred Stock at their respective addresses as the same shall appear on the
books of the Corporation as of such date, a notice disclosing (i) the Change of
Control, (ii) the redemption price per share of the Series A Preferred Stock
applicable hereunder and (iii) the procedure which the holder must follow to
exercise the redemption right provided above. To exercise such redemption
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<PAGE> 14
right, if applicable, a holder of the Series A Preferred Stock must deliver
during the Exercise Period written notice to the Corporation (or an agent
designated by the Corporation for such purpose) of the holder's exercise of such
redemption right, accompanied by each certificate evidencing shares of the
Series A Preferred Stock with respect to which the redemption right is being
exercised, duly endorsed for transfer. On or prior to the fifth (5th) business
day after receipt of such written notice, the Corporation shall accept for
payment all shares of Series A Preferred Stock properly surrendered to the
Corporation (or an agent designated by the Corporation for such purpose) during
the Exercise Period for redemption in connection with the exercise of such
redemption right and shall cause payment to be made in cash for such shares of
Series A Preferred Stock. If at the time of any Change of Control, the
Corporation does not have sufficient capital and surplus legally available to
purchase all of the outstanding shares of Series A Preferred Stock, the
Corporation shall take all measures permitted under the Delaware Code to
increase the amount of its capital and surplus legally available, and the
Corporation shall offer in its written notice of such Change of Control to
purchase as many shares of Series A Preferred Stock as it has capital and
surplus legally available therefor, ratably from the holders thereof in
proportion to the total number of shares tendered, and shall thereafter,
whenever it shall have capital and surplus legally available therefor, offer to
purchase as many shares of Series A Preferred Stock as it has capital and
surplus available therefor until it has offered to purchase all of the
outstanding shares of Series A Preferred Stock.
(d) In the event of any Change of Control, proper provision shall
be made to ensure that the holders of shares of Series A Preferred Stock will be
entitled to receive the benefits afforded by this Section 6; provided, however,
that in the event of any Change of Control effected with the Corporation's
consent, such provision to ensure the benefits of this Section 6 shall be made
prior to such Change of Control.
Section 7. Ranking.
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<PAGE> 15
All shares of Series A Preferred Stock shall rank, as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, prior to all classes and series of the
Corporation's now or hereafter issued Preferred Stock or common stock.
Section 8. Notice. All notices hereunder shall be in writing.
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<PAGE> 16
IN WITNESS WHEREOF, this Certificate of Designations has been signed by
the undersigned as of the 13th day of November, 1998.
FIREARMS TRAINING SYSTEMS, INC.
By: /s/ Peter A. Marino
--------------------
Name: Peter A. Marino
Title: President and CEO
Attest:
/s/ Emory O. Berry
Name: Emory O. Berry
Title: Secretary
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<PAGE> 1
EXHIBIT 10.21
THIS WARRANT AND THE SHARES OF STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH,
OR PURSUANT TO AN EXEMPTION FROM, THE REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
Number of Shares of Class B Non-voting Common Stock:_______
Warrant No. B-_______
WARRANT
To Purchase Class B Non-voting Common Stock of
FIREARMS TRAINING SYSTEMS, INC.
THIS IS TO CERTIFY THAT __________ or its registered assigns, is
entitled, at any time prior to the Expiration Date (as hereinafter defined), to
purchase from FIREARMS TRAINING SYSTEMS, INC., a Delaware corporation (the
"Company"), _________ shares of Class B Common Stock (as hereinafter defined and
subject to adjustment as provided herein), in whole or in part, including
fractional parts, at a purchase price of $1.03125 per share, all on the terms
and conditions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by Company after the Closing Date, other than Warrant Stock.
"Business Day" means each day on which banking institutions in New York
are not required or authorized by law or executive order to close.
"Class B Common Stock" shall mean the Class B Non-voting Common Stock,
$0.000006 par value, of the Company as constituted on the Closing Date.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" shall mean the U.S. Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock of the Company as constituted on the Closing Date,
including without limitation, the Company's Class A Common Stock, Class B Common
Stock, and any capital stock into which such Common Stock may thereafter be
changed, and shall also include
<PAGE> 2
(i) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (ii) shares of common stock of any successor or acquiring
corporation (as defined in Section 4.7) received by or distributed to the
holders of Common Stock of the Company in the circumstances contemplated by
Section 4.7.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities or rights which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified, if there shall then be a public market for
the Common Stock, the average of the daily market prices for five (5)
consecutive Business Days commencing seven (7) Business Days before such date
or, if there is no such public market, the fair market value thereof as mutually
determined by the Board of Directors of the Company and the Majority Holders.
The daily market price for each such Business Day shall be (i) the last sale
price on such day on the principal stock exchange or NASDAQ National Market
System ("NASDAQ/NMS") on which such Common Stock is then listed or admitted to
trading, (ii) if no sale takes place on such day on any such exchange or
NASDAQ/NMS, the average of the last reported closing bid and asked prices on
such day as officially quoted on any such exchange or NASDAQ/NMS, (iii) if the
Common Stock is not then listed or admitted to trading on any stock exchange or
NASDAQ/NMS, the average of the last reported closing bid and asked prices on
such day in the over-the-counter market, as furnished by the National
Association of Securities Dealers Automatic Quotation System or the National
Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged
in the business of reporting such prices, as furnished by any similar firm then
engaged in such business, or (v) if there is no such firm, as furnished by any
member of the NASD selected mutually by the Majority Holders and the Company or,
if they cannot agree upon such selection, the average of the prices as furnished
by two such members of the NASD, one of which shall be selected by the Majority
Holders and one of which shall be selected by the Company.
"Current Warrant Price" shall mean, in respect of a share of Class B
Common Stock at any date herein specified, the price at which a share of Class B
Common Stock may be purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
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<PAGE> 3
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean November 13, 2003; provided, that if the
Company defaults in the payment in full of the redemption price in respect of
Preferred Shares required to be redeemed pursuant to the terms set forth in the
Certificate of Designations for the Preferred Shares filed with the Secretary of
State of the State of Delaware, such date shall be extended until such date as
such default is cured or is waived by the Majority Holders.
"Fair Market Value" of any consideration other than cash or of any
securities shall mean the amount that a willing buyer would pay to a willing
seller in an arms-length transaction as determined in good faith by the Board of
Directors of the Company and, if required by the Majority Holders, supported by
an opinion from an investment banking firm of recognized national standing
acceptable to the Majority Holders.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name this Warrant is registered
on the books of the Company maintained for such purpose.
"Majority Holders" shall mean the holders of Warrants exercisable for
in excess of 50% of the aggregate number of shares of Class B Common Stock then
purchasable upon exercise of all outstanding Warrants.
"NASD" shall mean the National Association of Securities Dealers, Inc.,
or any successor thereto.
"Other Property" shall have the meaning set forth in Section 4.7.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, association, corporation, limited liability company,
institution, entity or government
3
<PAGE> 4
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Preferred Shares" means shares of Series A Redeemable Preferred Stock
of the Company.
"Purchase Agreement" shall mean the Securities Purchase Agreement dated
as of November 13, 1998 among the Company and the purchasers identified therein,
as amended, supplemented or otherwise modified and in effect from time to time.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or of any interest
therein that would constitute a sale thereof within the meaning of the
Securities Act.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Class B Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrants" shall mean, collectively, this Warrant and all of the other
Warrants issued pursuant to the Purchase Agreement, all Warrants issued in
respect of dividends on the Preferred Shares, and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof.
"Warrant Stock" shall mean the shares of Class B Common Stock purchased
by the holders of Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Closing Date and until
5:00 P.M., New York time, on the Expiration Date, the Holder may exercise this
Warrant, on any Business Day, for all or any part of the number of shares of
Class B Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, the
Holder shall deliver to the Company at its principal office at 7340 McGinnis
Ferry Road, Suwanee, Georgia 30024 or at the office or agency designated by the
Company pursuant to Section 11, (i) a written notice in substantially the form
of the Subscription Notice attached hereto of the Holder's
4
<PAGE> 5
election to exercise this Warrant, which notice shall specify the number of
shares of Class B Common Stock to be purchased, and the denominations of the
share certificate or certificates desired, (ii) payment of the Warrant Price as
hereinafter provided and (iii) this Warrant. Upon receipt thereof, the Company
shall, as promptly as practicable, and in any event within five (5) Business
Days thereafter, execute or cause to be executed and deliver or cause to be
delivered to the Holder a certificate or certificates representing the aggregate
number of full shares of Class B Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be in such denomination
or denominations as such Holder shall request in the notice and shall be
registered in the name of the Holder or such other names as shall be designated
in the notice. This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the Holder
or any other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
notice, together with the tender of the exercise price and this Warrant, is
received by the Company as described herein and all taxes required to be paid by
the Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to the Holder a new Warrant evidencing the rights of the
Holder to purchase the unpurchased shares of Class B Common Stock called for by
this Warrant, which new Warrant shall in all other respects be identical with
this Warrant, or, at the request of the Holder, appropriate notation may be made
on this Warrant and the same returned to the Holder.
Payment of the Warrant Price shall be made by the surrender of
Preferred Shares, duly endorsed by or accompanied by appropriate instruments of
transfer duly executed by the holder thereof or by such holder's attorney duly
authorized in writing. For the purposes of making payment of the Warrant Price,
each Preferred Share shall have a value equal to 100% of the liquidation
preference thereof plus all accrued and unpaid dividends thereon to the date of
surrender in respect of payment of the Warrant Price.
If the Holder surrenders Preferred Shares having an aggregate
value that exceeds the aggregate Warrant Price, such surrendered value equal to
such aggregate Warrant Price shall be applied to the payment of the Warrant
Price and a new certificate for Preferred Shares shall be issued by the Company,
at the Company's cost, for such number of Preferred Shares equal to that portion
of such surrendered value not applied to the Warrant Price. If the Holder
surrenders Preferred Shares or any combination thereof, the Holder shall specify
the portion of the value of the Preferred Shares surrendered to be applied
toward the Warrant Price.
5
<PAGE> 6
2.2 Payment of Taxes. All shares of Class B Common Stock issuable
upon the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable and without any preemptive rights. The
Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issuance or
delivery thereof. The Company shall not be required, however, to pay any tax or
other charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Class B Common Stock issuable upon exercise of
this Warrant in any name other than that of the Holder, and in such case the
Company shall not be required to issue or deliver any stock certificate until
such tax or other charge has been paid or it has been established to the
reasonable satisfaction of Company that no such tax or other charge is due.
2.3 Fractional Shares. The Company shall not be required to issue
a fractional share of Class B Common Stock upon exercise of any Warrant. As to
any fraction of a share which the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be entitled
to purchase upon such exercise, the Company may pay a cash adjustment in respect
of such final fraction in an amount equal to the same fraction of the Current
Market Price per share of Class B Common Stock on the date of exercise.
2.4 Share Legend. Each certificate for shares of Class B Common
Stock issued upon exercise of this Warrant shall bear the legends required
pursuant to the Purchase Agreement.
2.5 Registration Rights. Pursuant to the Purchase Agreement, the
Warrants and the shares of Warrant Stock issuable upon exercise thereof are
entitled to the benefits of the Registration Rights Agreement, dated as July 31,
1996, as amended.
3. TRANSFER, DIVISION AND COMBINATION, AND REPLACEMENT OF WARRANTS
3.1 Ownership of Warrant. The Company may deem and treat the
Person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any Person
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Section 3.
3.2 Division and Combination. This Warrant may be divided or
combined with other Warrants upon presentation hereof at the aforesaid office or
agency of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the Holder or
its agent or attorney. As to any transfer which may
6
<PAGE> 7
be involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be
divided or combined in accordance with such notice. The Company shall prepare,
issue and deliver at its own expense (other than transfer taxes) the new Warrant
or Warrants under this Section 3.
3.3 Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants, and, subject to the terms and conditions of transfer
set forth herein, transfer of this Warrant and all rights hereunder shall be
registered, in whole or in part, on such books, upon surrender of this Warrant
at the principal office of the Company referred to in Section 2.1 or the office
or agency designated by the Company pursuant to Section 11, together with a
written assignment of this Warrant substantially in the form of Annex B hereto,
duly executed by the Holder or his duly authorized agent or attorney, with
(unless the Holder is the original Warrantholder or another institutional
investor) signatures guaranteed by a bank or trust company or a broker or dealer
registered with the NASD, and funds sufficient to pay any transfer taxes payable
upon such transfer. Upon surrender and compliance with the terms and conditions
of transfer set forth herein, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in the instrument of assignment, and this Warrant shall
promptly be canceled. Notwithstanding the foregoing, a Warrant may be exercised
by a new holder that receives this Warrant in compliance with the terms and
conditions of transfer set forth herein without having a new Warrant issued.
4. ADJUSTMENTS
The number of shares of Class B Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
(a) take a record of the holders of Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
7
<PAGE> 8
(c) combine outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distributions. If at any time the Company shall
take a record of the holders of Common Stock for the purpose of entitling them
to receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its
stock (other than Additional Shares of Common Stock) or any other
securities or property of any nature whatsoever, or
(c) any Convertible Securities or any warrants or other
rights to subscribe for or purchase any evidences of its indebtedness
or other property,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product obtained by multiplying the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such adjustment by a fraction (A) the numerator of which
shall be the Current Market Price per share of Common Stock at the date of
taking such record and (B) the denominator of which shall be such Current Market
Price per share of Common Stock minus the amount allocable to one share of
Common Stock of any such cash so distributable and of the Fair Market Value of
any and all such evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights so distributable,
and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current
Warrant Price multiplied by the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to the adjustment divided by (B) the
number of shares for which this Warrant is exercisable immediately after such
adjustment. A reclassification of Common Stock (other than a change in par
value, or from par value to no par value or from no par value to par value) into
shares of Common Stock and shares of any other class
8
<PAGE> 9
of stock shall be deemed a distribution by the Company to the holders of Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1. Notwithstanding the foregoing, in the event of any payment of
dividends on the Common Stock in the form of cash from current or retained
earnings of the Company, the Company may, in lieu of any adjustment pursuant to
this Section 4.2, pay to the Holder cash in an amount equal to the amount of
dividends that would have been payable to such Holder in the event this Warrant
had been exercised immediately prior to the record date for such dividend.
4.3 Issuance of Additional Shares of Common Stock. If at any time
the Company shall (except as hereinafter provided) issue or sell any Additional
Shares of Common Stock (other than issuances to existing stockholders as a
dividend or other distribution described in Section 4.2, pursuant to the
conversion or exercise of any Convertible Security or pursuant to any employee
or director incentive or benefit plan approved by the Board of Directors of the
Company) for consideration in an amount per Additional Share of Common Stock
less than the Current Market Price, then (i) the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such issuance or sale by a
fraction (A) the numerator of which shall be the number of shares of Common
Stock Outstanding immediately after such issue or sale, and (B) the denominator
of which shall be the number of shares of Common Stock Outstanding immediately
prior to such issue or sale plus the number of shares which the aggregate
offering price of the total number of such Additional Shares of Common Stock
would purchase at the then Current Market Price; and (ii) the Current Warrant
Price as to the number of shares for which this Warrant is exercisable prior to
such adjustment shall be adjusted by multiplying such Current Warrant Price by a
fraction (X) the numerator of which shall be the number of shares for which this
Warrant is exercisable immediately prior to such issue or sale; and (Y) the
denominator of which shall be the number of shares for which this Warrant is
exercisable immediately after such issue or sale.
4.4 Issuance of Convertible Securities. If at any time the Company
shall in any manner (whether directly or by assumption in a merger in which the
Company is the surviving corporation) issue or sell, any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable (other than issuances to existing stockholders as a dividend or
other distribution described in Section 4.2 or pursuant to any employee or
director incentive or benefit plan approved by the Board of Directors of the
Company), for a consideration having a Fair Market Value on the date of such
issuance or sale less than the Fair
9
<PAGE> 10
Market Value of such Convertible Securities on the date of such issuance or
sale, then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product obtained by multiplying the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such adjustment by a fraction (A) the numerator of which
shall be the Current Market Price per share of Common Stock at the date of such
issuance and (B) the denominator of which shall be such Current Market Price per
share of Common Stock so distributable minus the Per Share Deficiency (as
defined below) and (ii) the Current Warrant Price shall be adjusted to equal (A)
the Current Warrant Price multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the adjustment divided by
(B) the number of shares for which this Warrant is exercisable immediately after
such adjustment. The "Per Share Deficiency" shall mean (x) the Fair Market Value
of such Convertible Securities on the date of such issuance or sale minus the
Fair Market Value of the consideration received by the Company in respect of
such issue or sale divided by (y) the number of shares of Common Stock
Outstanding on the date of such issuance or sale.
4.5 Pro Rata Repurchases. In case the Company or any subsidiary thereof
shall make a pro rata repurchase of shares of Common Stock, the Current Warrant
Price in effect immediately prior to such action shall be adjusted (but shall
not be increased) by multiplying such price by a fraction, the numerator of
which shall be (i) the product of (x) the number of shares of Common Stock
Outstanding immediately before such Pro Rata Repurchase and (y) the Current
Market Price of the Common Stock as of the close of business on the Business Day
immediately preceding the first public announcement by the Company of the intent
to effect such Pro Rata Repurchase minus (ii) the aggregate purchase price of
the Pro Rata Repurchase and the denominator of which shall be the product of (i)
the number of shares of Common Stock Outstanding immediately before such Pro
Rata Repurchase minus the number of shares of Common Stock repurchased by the
Company or any subsidiary thereof in such Pro Rata Repurchase and (ii) the
Current Market Price of the Common Stock as of the close of business on the
Business Day immediately preceding the first public announcement by the Company
of the intent to effect such Pro Rata Repurchase. Such adjustment shall become
effective immediately after the effective date of such Pro Rata Repurchase.
4.6 Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
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<PAGE> 11
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by the Company
therefor shall be the amount of the cash received by the Company
therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price (in any such case subtracting any amounts paid or receivable for
accrued interest or accrued dividends and without taking into account
any compensation, discounts or expenses paid or incurred by the Company
for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to
be the Fair Market Value of such consideration. In case any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase such Additional Shares of
Common Stock or Convertible Securities shall be issued in connection
with any merger in which the Company issues any securities, the amount
of consideration therefor shall be deemed to be the Fair Market Value
of such portion of the assets and business of the nonsurviving
corporation as the Board of Directors of the Company in good faith
shall determine to be attributable to such Additional Shares of Common
Stock, Convertible Securities, warrants or other rights, as the case
may be. The consideration for any Additional Shares of Common Stock
issuable pursuant to any warrants or other rights to subscribe for or
purchase the same shall be the consideration received by the Company
for issuing such warrants or other rights plus the additional
consideration payable to the Company upon exercise of such warrants or
other rights. The consideration for any Additional Shares of Common
Stock issuable pursuant to the terms of any Convertible Securities
shall be the consideration received by the Company for issuing warrants
or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Company in
respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the
Company upon the exercise of the right of conversion or exchange in
such Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment
or satisfaction of any dividends upon any class of stock other than
Common Stock, the Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or
satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be
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<PAGE> 12
postponed (except in the case of a subdivision or combination of shares
of Common Stock, as provided for in Section 4.1) up to, but not beyond
the date of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than 1% of the
shares of Common Stock for which this Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon
as such adjustment, together with other adjustments required by this
Section 4 and not previously made, would result in a minimum adjustment
or on the date of exercise. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be taken
into account to the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall
take a record of the holders of Common Stock for the purpose of
entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
4.7 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then each Holder shall have the right thereafter to receive,
upon exercise of such Warrant, the number of shares of common stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which this Warrant is
exercisable
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<PAGE> 13
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.7, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.7 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.8 Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Section 4, then, unless such
action will not have a materially adverse effect upon the rights of the Holders,
the number of shares of Common Stock or other stock for which this Warrant is
exercisable and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances.
5. NOTICES TO WARRANT HOLDERS
5.1 Notice of Adjustments. Whenever the number of shares of Class
B Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Class B Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors of the Company determined the fair
value of any evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights referred to in
Section 4), specifying the number of shares of Common Stock for which this
Warrant is exercisable and (if such adjustment was made pursuant to Section 4.7)
describing the number and kind of any other shares of stock or Other Property
for which this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The
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<PAGE> 14
Company shall promptly cause a signed copy of such certificate to be delivered
to each Holder in accordance with Section 13.2. The Company shall keep at its
office or agency designated pursuant to Section 11 copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by any Holder or any prospective purchaser of a
Warrant designated by a Holder thereof.
5.2 Notice of Corporate Action. If at any time
(a) The Company shall take a record of the holders of
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock
of the Company or any consolidation or merger of the Company with, or
any sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to the Holder (i)
at least thirty (30) days' prior written notice of the date on which a record
date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least thirty (30) days'
prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (A) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(B) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to the Holder at the last address of the Holder
appearing on the books of the Company and delivered in accordance with Section
13.2.
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<PAGE> 15
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation 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 of this Warrant, but shall at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
Holder against impairment. Without limiting the generality of the foregoing, the
Company shall (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Class B Common
Stock upon the exercise of this Warrant, and (c) use its best efforts to obtain
all such authorizations, exemptions or consents from any public regulatory body,
stock exchange or the NASD as have jurisdiction therefor as may be necessary to
enable the Company to perform its obligations under this Warrant.
7. RESERVATION AND AUTHORIZATION OF CLASS B COMMON STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, and subject to Section 6.4 of the
Purchase Agreement, the Company shall at all times reserve and keep available
for issue upon the exercise of Warrants such number of its authorized but
unissued shares of Class B Common Stock as will be sufficient to permit the
exercise in full of all outstanding Warrants. In addition, the Company shall
also reserve one share of Class A Common Stock for each share of Class B Common
Stock either reserved for issuance pursuant to the preceding sentence or issued
upon the exercise of this Warrant. All shares of Class B Common Stock which
shall be so issuable, when issued upon exercise of this Warrant and payment
therefor in accordance with the terms of the Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Class B Common Stock issuable upon exercise of this Warrant, the
Company shall take any corporate action which may be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such Class B Common Stock at such adjusted Current Warrant Price.
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<PAGE> 16
Before taking any action which would result in an adjustment
in the number of shares of Class B Common Stock for which this Warrant is
exercisable or in the Current Warrant Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
If any shares of Class B Common Stock required to be reserved
for issuance upon exercise of this Warrant require registration or qualification
with any governmental authority or other governmental approval or filing under
any federal or state law before such shares may be so issued, the Company will
in good faith and as expeditiously as possible and at its expense endeavor to
cause such shares to be duly registered.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record as of the close of business on a Business Day. The
Company will not at any time, except upon dissolution, liquidation or winding up
of the Company, close its stock transfer books or Warrant transfer books so as
to result in preventing or delaying the exercise or transfer of any Warrant.
9. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant in supplying
such information as may be reasonably necessary for such holder to complete and
file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it, and in
case of mutilation upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor to such Holder;
provided that no indemnity, other than pursuant to the writing agreement of the
Holder, shall be required if such Holder is an institutional investor, nor shall
any indemnity be required in the case of mutilation if this Warrant in
identifiable form is surrendered to the Company for cancellation.
11. OFFICE OF THE COMPANY
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<PAGE> 17
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the Holder
to purchase shares of Class B Common Stock, and no enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the purchase price of any Class B Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13. MISCELLANEOUS
13.1 Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice the Holder's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to the Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by the Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
13.2 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing and delivered in
person, transmitted by telecopier or sent by registered or certified mail
(return receipt requested) or recognized overnight delivery service, postage
prepaid, addressed as follows, or to such other address as such party may notify
to the other party in writing:
if to the Company, to:
Firearms Training Systems, Inc.
7340 McGinnis Ferry Road
Suwanee, Georgia 30024
Attn: Chief Financial Officer
Facsimile No.: (770) 622-3515
- and -
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<PAGE> 18
if to any Holder or holder of Warrant Stock, at its last known
address appearing on the books of the Company maintained for
such purpose.
A notice or communication will be effective (i) if delivered in person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three business days
after dispatch.
13.3 Remedies. Each holder of Warrants, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
13.4 Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the
Company and the successors and assigns of the Holder. The provisions of this
Warrant are intended to be for the benefit of all the Holders from time to time
of this Warrant and shall be enforceable by any such Holder.
13.5 Amendment. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived with the written consent of the
Company and the Majority Holders, provided that no such Warrant may be modified
or amended to reduce the number of shares of Class B Common Stock for which such
Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant (before giving effect to any adjustment
as provided therein) without the prior written consent of the Holder thereof.
13.6 Severability. Whenever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant is held to be prohibited by
or invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Warrant.
13.7 Headings. The headings used in this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
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<PAGE> 19
13.8 CHOICE OF LAW. THIS WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, APPLICABLE TO
CONTRACTS MADE AND PERFORMED THEREIN.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: November ___, 1998
FIREARMS TRAINING SYSTEMS, INC.
By: /s/ Robert F. Mecredy
--------------------------------
Name: Robert F. Mecredy
Title: Executive Vice President
Attest:
By: /s/ Emory O. Berry
-----------------------------------
Name: Emory O. Berry
Title: CFO, Treasurer and Secretary
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<PAGE> 20
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of _________ shares of Class B Common Stock of
Firearms Training Systems, Inc. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Class B Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be issued in the
name of and delivered to ____________________________________________ whose
address is ____________________________________________ and, if such shares of
Class B Common Stock shall not include all of the shares of Class B Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Class B Common Stock issuable hereunder be
delivered to the undersigned.
--------------------------------------------
(Name of Registered Owner)
--------------------------------------------
(Signature of Registered Owner)
--------------------------------------------
(Street Address)
--------------------------------------------
(City) (State) (Zip Code)
20
<PAGE> 21
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
21
<PAGE> 22
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Class B Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Class B Common Stock
and does hereby irrevocably constitute and appoint ________________________
attorney-in-fact to register such transfer on the books of Firearms Training
Systems, Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated: Print Name:
------------------ ---------------------------------
Signature:
----------------------------------
Witness:
------------------------------------
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE> 1
EXHIBIT 10.22
FIREARMS TRAINING SYSTEMS, INC.
STOCK OPTION AGREEMENT
SERIES C-2
Firearms Training Systems, Inc., a Delaware corporation (the
"Company"), hereby grants to ______________ (the "Optionee") as of November 11,
1998 (the "Option Date"), pursuant to the provisions of the Firearms Training
Systems, Inc. Stock Option Plan (the "Plan"), a non-qualified option to purchase
from the Company (the "Option") 26,675 shares of its Class A Common Stock,
$0.000006 par value ("Stock"), at the price of $1.03125 per share upon and
subject to the terms and conditions set forth below. Capitalized terms not
defined herein shall have the meanings specified in the Plan.
1. Option Subject to Acceptance of Agreement. The Option shall be null
and void unless the Optionee shall accept this Agreement by executing it in the
space provided below and returning such original execution copy to the Company.
2. Time and Manner of Exercise of Option.
2.1. Maximum Term of Option. In no event may the Option be
exercised, in whole or in part, after the seventh anniversary of the Option Date
(the "Expiration Date").
2.2. Exercise of Option. (a) Except as otherwise provided in
Section 3.4 below (relating to a change in control of the Company), the Option
shall become exercisable with respect to twenty-five percent (25%) of the shares
of Stock subject to the Option on December 31, 1998, an additional twenty-five
percent (25%) of the shares of Stock subject to the Option on March 31, 1999, an
additional twenty-five percent (25%) of the shares of Stock subject to the
Option on June 30, 1999, and an additional twenty-five percent (25%) of the
shares of Stock subject to the Option on September 30, 1999.
(b) If the Optionee ceases to be a director of the Company for
any reason and is not replaced as a director within sixty (60) days by another
nominee who is an
-1-
<PAGE> 2
employee, principal or affiliate of Centre Partners Management, LLC, the Option
shall be exercisable only to the extent it is exercisable on the effective date
of the Optionee's ceasing to be a director and may thereafter be exercised by
the Optionee or the Optionee's Legal Representative or his permitted assignee
pursuant to Section 3.1(b) until the Expiration Date. If the Optionee is so
replaced as a director, the Option shall continue as to any portion thereof
which has not previously become exercisable and become exercisable with respect
to such remaining portion of the Stock subject to the Option on the dates set
forth in subsection (a) above by the Optionee's permitted assignee pursuant to
Section 3.1(b).
2.3. Method of Exercise. Subject to the limitations set forth
in this Agreement, the Option may be exercised by the Optionee (1) by giving
written notice to the Company specifying the number of whole shares of Stock to
be purchased and accompanied by payment therefor in full (or arrangement made
for such payment to the Company's satisfaction) either (i) in cash, (ii) by
delivery of previously owned whole shares of Stock (which the Optionee has held
for at least six months prior to the delivery of such shares or which the
Optionee purchased on the open market and in each case for which the Optionee
has good title, free and clear of all liens and encumbrances) having a Fair
Market Value, determined as of the date of exercise, equal to the aggregate
purchase price payable pursuant to the Option by reason of such exercise, (iii)
in cash by a broker-dealer acceptable to the Company to whom the Optionee has
submitted an irrevocable notice of exercise or (iv) a combination of (i), (ii)
and (iii), and (2) by executing such documents as the Company may reasonably
request. The Committee shall have sole discretion to disapprove of an election
pursuant to any of clauses (ii) - (iv). Any fraction of a share of Stock which
would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the Optionee. No certificate
representing a share of Stock shall be delivered until the full purchase price
therefor has been paid.
2.4. Termination of Option. (a) In no event may the Option be
exercised after it terminates as set forth in this Section 2.4. The Option shall
terminate, to the extent not exercised pursuant to Section 2.3 or earlier
terminated pursuant to Section 2.2, on the Expiration Date.
<PAGE> 3
(b) In the event that rights to purchase all or a portion of
the shares of Stock subject to the Option expire or are exercised, canceled or
forfeited, the Optionee shall, upon the Company's request, promptly return this
Agreement to the Company for full or partial cancellation, as the case may be.
Such cancellation shall be effective regardless of whether the Optionee returns
this Agreement. If the Optionee continues to have rights to purchase shares of
Stock hereunder, the Company shall, within 10 business days of the Optionee's
delivery of this Agreement to the Company, either (i) mark this Agreement to
indicate the extent to which the Option has expired or been exercised, canceled
or forfeited or (ii) issue to the Optionee a substitute option agreement
applicable to such rights, which agreement shall otherwise be substantially
similar to this Agreement in form and substance.
3. Additional Terms and Conditions of Option.
3.1. Nontransferability of Option. (a) Subject to subsection
(b) below, the Option may not be transferred by the Optionee other than (i) by
will or the laws of descent and distribution or pursuant to beneficiary
designation procedures approved by the Company or (ii) as otherwise permitted
under Rule 16b-3 under the Exchange Act. Except to the extent permitted by the
foregoing sentence, during the Optionee's lifetime the Option is exercisable
only by the Optionee or the Optionee's Legal Representative. Except to the
extent permitted by the foregoing, the Option may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by
operation of law or otherwise) or be subject to execution, attachment or similar
process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate,
encumber or otherwise dispose of the Option, the Option and all rights hereunder
shall immediately become null and void.
(b) Notwithstanding subsection (a), the Optionee shall have
the right at any time to transfer this Option to Centre Partners Management,
LLC, or any entity that is an affiliate thereof or is managed thereby.
3.2. Investment Representation and Restrictions. The Optionee
hereby represents and covenants that (a) any share of Stock purchased upon
exercise of the Option will be
<PAGE> 4
purchased for investment and not with a view to the distribution thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
unless such purchase has been registered under the Securities Act and any
applicable state securities laws; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; (c) to the extent required by an agreement between one or more
underwriters and the Company in connection with an offering of shares of Stock
pursuant to a registration statement under the Securities Act, the Optionee
shall not offer, sell, contract to sell or otherwise dispose of any shares of
Stock purchased upon exercise of the Option for the period specified in such
agreement; and (d) if requested by the Company, the Optionee shall submit a
written statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of purchase of any shares
hereunder or (y) is true and correct as of the date of any sale of any such
shares, as applicable. As a further condition precedent to any exercise of the
Option, the Optionee shall comply with all regulations and requirements of any
regulatory authority having control of or supervision over the issuance or
delivery of the shares and, in connection therewith, shall execute any documents
which the Board or the Committee shall in its sole discretion deem necessary or
advisable.
3.3. Adjustment. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Stock other than a
regular cash dividend, the number and class of securities subject to the Option
and the purchase price per security shall be appropriately adjusted by the
Committee without an increase in the aggregate purchase price. If any adjustment
would result in a fractional security being subject to the Option, the Company
shall pay the Optionee, in connection with the first exercise of the Option
occurring after such adjustment, an amount in cash determined by multiplying (i)
the fraction of such security (rounded to the nearest hundredth) by (ii) the
excess, if any, of (A) the Fair Market Value on the exercise date over
<PAGE> 5
(B) the exercise price of the Option. The decision of the Committee regarding
any such adjustment shall be final, binding and conclusive.
3.4. Change in Control. (a) Notwithstanding any provision in
this Agreement, in the event of the occurrence of a Change in Control as defined
in paragraph (b)(3) or (4) of Section 3.8 of the Plan in connection with which
the holders of Stock receive shares of common stock that are registered under
Section 12 of the Exchange Act, the Option shall immediately be exercisable in
full and there shall be substituted for each share of Stock subject to the
Option the number and class of shares into which each such share of Stock shall
be converted pursuant to such Change in Control. In the event of any such
substitution, the purchase price per share of the Option shall be appropriately
adjusted by the Committee, such adjustment to be made without an increase in the
aggregate purchase price or base price.
(b) Notwithstanding any provision in this Agreement, in the
event of the occurrence of a Change in Control pursuant to paragraph (b)(1) or
(2) of Section 3.8 of the Plan, or in the event of the occurrence of a Change in
Control pursuant to paragraph (b)(3) or (4) of Section 3.8 of the Plan in
connection with which the holders of Stock receive consideration other than
shares of common stock that are registered under Section 12 of the Exchange Act,
the Option shall be surrendered to the Company by the holder thereof and shall
immediately be canceled by the Company, and the Optionee shall receive, within
10 business days of the occurrence of a Change in Control pursuant to paragraph
(b)(1) or (2) of Section 3.8 of the Plan or within 10 business days of the
approval of the stockholders of the Company contemplated by paragraph (b)(3) or
(4) of Section 3.8 of the Plan, a cash payment from the Company in an amount
equal to the number of shares of Stock then subject to the Option, multiplied by
the excess, if any, of the Fair Market Value of a share of Stock on the date of
occurrence of the Change in Control over (ii) the purchase price per share of
Stock subject to the Option. The Company may, but is not required to, cooperate
with any person who is subject to Section 16 of the Exchange Act to assure that
any cash payment in accordance with the foregoing to such person is made in
compliance with Section 16 and the rules and regulations thereunder.
<PAGE> 6
3.5. Compliance with Applicable Law. The Option is subject to
the condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Option may not be exercised, in whole or in
part, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained, free of any conditions not acceptable to
the Company. The Company agrees to use reasonable efforts to effect or obtain
any such listing, registration, qualification, consent or approval.
3.6. Delivery of Certificates. Upon the exercise of the
Option, in whole or in part, the Company shall deliver or cause to be delivered
one or more certificates representing the number of shares purchased against
full payment therefor. The Company shall pay all original issue or transfer
taxes and all fees and expenses incident to such delivery.
3.7. Option Confers No Rights as Stockholder. The Optionee
shall not be entitled to any privileges of ownership with respect to shares of
Stock subject to the Option unless and until purchased and delivered upon the
exercise of the Option, in whole or in part, and the Optionee becomes a
stockholder of record with respect to such delivered shares; and the Optionee
shall not be considered a stockholder of the Company with respect to any such
shares not so purchased and delivered.
3.8. Option Confers No Rights to Continue to Serve as a
Director. In no event shall the granting of the Option or its acceptance by the
Optionee give or be deemed to give the Optionee any right to continue to serve,
to be elected or reelected to serve or to be nominated to serve as a director of
the Company.
3.9. Decisions of Board or Committee. The Board or the
Committee shall have the right to resolve all questions which may arise in
connection with the Option or its exercise. Any interpretation, determination or
other action made or taken by the Board or the Committee regarding the Plan or
this Agreement shall be final, binding and conclusive.
<PAGE> 7
3.10. Company to Reserve Shares. The Company shall at all
times prior to the expiration or termination of the Option reserve and keep
available, either in its treasury or out of its authorized but unissued shares
of Stock, the full number of shares subject to the Option from time to time.
3.11. Agreement Subject to the Plan. This Agreement is subject
to the provisions of the Plan and shall be interpreted in accordance therewith.
The Optionee hereby acknowledges receipt of a copy of the Plan.
4. Miscellaneous Provisions.
4.1. Designation as Nonqualified Stock Option. The Option is
hereby designated as not constituting an "incentive stock option" within meaning
of section 422 of the Internal Revenue Code of 1986, as amended (the "Code");
this Agreement shall be interpreted and treated consistently with such
designation.
4.2. Meaning of Certain Terms. (a) As used herein, employment
by the Company shall include employment by an affiliate of the Company.
References in this Agreement to sections of the Code shall be deemed to refer to
any successor section of the Code or any successor internal revenue law.
(b) As used herein, the term "Legal Representative" shall
include an executor, administrator, legal representative, guardian or similar
person and the term "Permitted Transferee" shall include any transferee (i)
pursuant to a transfer permitted under Section 3.4 of the Plan and Section 3.1
hereof or (ii) designated pursuant to beneficiary designation procedures
approved by the Company.
4.3. Successors. This Agreement shall be binding upon and
inure to the benefit of any successor or successors of the Company and any
person or persons who shall, upon the death of the Optionee, acquire any rights
hereunder in accordance with this Agreement or the Plan and any permitted
assignee pursuant to Section 3.1(b).
4.4. Notices. All notices, requests or other communications
provided for in this Agreement shall be made,
<PAGE> 8
if to the Company, to Firearms Training Systems, Inc., 7340 McGinnis Ferry Road,
Suwanee, Georgia 30174, Attention: Corporate Secretary, and if to the Optionee,
to ______________, c/o Centre Partners Management, LLC, 30 Rockefeller Plaza,
Suite 5050, New York, New York 10020. All notices, requests or other
communications provided for in this Agreement shall be made in writing either
(a) by personal delivery to the party entitled thereto, (b) by facsimile with
confirmation of receipt, (c) by mailing in the United States mails to the last
known address of the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed to be received upon
personal delivery, upon confirmation of receipt of facsimile transmission or
upon receipt by the party entitled thereto if by United States mail or express
courier service; provided, however, that if a notice, request or other
communication sent to the Company is not received during regular business hours,
it shall be deemed to be received on the next succeeding business day of the
Company.
4.5. Governing Law. This Agreement, the Option and all
determinations made and actions taken pursuant hereto and thereto, to the extent
not governed by the laws of the United States, shall be governed by the laws of
the State of Delaware and construed in accordance therewith without giving
effect to principles of conflicts of laws.
4.6. Counterparts. This Agreement may be executed in two
counterparts each of which shall be deemed an original and both of which
together shall constitute one and the same instrument.
FIREARMS TRAINING SYSTEMS, INC.
By: /s/ Peter A. Marino
-----------------------
Name: Peter A. Marino
Title: President & CEO
Accepted this 11th day of
November, 1998.
Optionee
<PAGE> 1
EXHIBIT 10.23
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
among
THE PURCHASERS NAMED HEREIN
and
FIREARMS TRAINING SYSTEMS, INC., as Issuer
Dated as of November 13, 1998
Preferred Stock and Warrants
- --------------------------------------------------------------------------------
<PAGE> 2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of November 13, 1998
among FIREARMS TRAINING SYSTEMS, INC., a Delaware corporation (the "Company"),
and each of the parties listed on Schedule 1 annexed hereto (each, a
"Purchaser," and collectively, the "Purchasers").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell (i) an
aggregate of 18,182 shares (the "Preferred Shares") of its Series A Preferred
Stock having the rights, powers, privileges and preferences set forth in the
Certificate of Designations thereof attached hereto as Exhibit A (the "Preferred
Stock") and (ii) warrants in the form attached hereto as Exhibit B to purchase
an aggregate of 2,909,120 shares of the Company's common stock (the "Warrants"
and together with the Preferred Shares, the "Purchased Securities"); and
WHEREAS, the Purchasers have severally agreed to purchase from
the Company the Purchased Securities set forth opposite the name of each such
Purchaser on Schedule 1 attached hereto, on the terms and subject to the
conditions set forth herein below;
NOW, THEREFORE, in consideration of the promises and the
covenants hereinafter contained, the parties hereby agree as follows:
ARTICLE I
AUTHORIZATION, SALE AND TERMS OF SHARES AND WARRANTS
SECTION 1.1 THE PREFERRED SHARES. The Company, by all
requisite corporate action, has authorized the issuance and sale to the
Purchasers of the Preferred Shares and all additional shares of Preferred Stock
issuable in respect of dividends thereon (the "Additional Preferred Shares").
The relative powers, preferences and rights and qualifications, limitations and
restrictions of the Preferred Stock shall be set forth in the Certificate of
Designations thereof attached hereto as Exhibit A (the "Certificate of
Designation"). In reliance on the representations and warranties of the Company
contained herein and subject to the terms and conditions hereof, the Purchasers
agree to purchase the Preferred Shares from the Company, severally and in the
amounts set forth on Schedule 1, and the Company agrees to sell the Preferred
Shares to the Purchasers.
<PAGE> 3
SECTION 1.2 THE WARRANTS. The Company, by all requisite
corporate action, has authorized the issuance and sale to the Purchasers of the
Warrants, all additional warrants issuable in respect of dividends on the
Preferred Stock (the "Additional Warrants"), and all shares of common stock of
the Company issuable upon exercise of the Warrants and the Additional Warrants.
The Warrants and Additional Warrants shall (a) be exercisable for shares of
Class B Non-voting Common Stock of the Company on the terms set forth in the
form of Warrant attached as Exhibit B hereto and (b) not be transferable
separately from the Preferred Stock with which they were issued. In reliance on
the representations and warranties of the Company contained herein and subject
to the terms and conditions hereof, the Company agrees to issue the Warrants to
the Purchasers in the amounts set forth on Schedule 1.
ARTICLE II
CLOSING
SECTION 2.1 CLOSING DATE. The closing (the "Closing") of the
purchase and sale of the Purchased Securities contemplated hereby shall take
place as soon as practicable following such time as all of the conditions set
forth in Article V are satisfied or waived (the date of the Closing is
hereinafter referred to as the "Closing Date"). The Closing shall be held at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, or at such other place as agreed to by the Company and the Purchasers.
Delivery of the Purchased Securities to be purchased by the
Purchasers pursuant to this Agreement shall be made at the Closing by the
Company delivering to each Purchaser, against payment of the purchase price
therefor, certificates representing the appropriate number of Preferred Shares
and Warrants (registered in the name of such Purchaser or such other person
which shall be an affiliate of such Purchaser or a nominee of such Purchaser or
such affiliate as such Purchaser may have designated in writing to the Company
prior to the date hereof). The purchase price for the Purchased Securities shall
be the amount set forth opposite each Purchaser's name on Schedule 1 and shall
be paid by wire transfer of immediately available funds to the account of the
Company specified in writing to the Purchasers prior to the date hereof.
SECTION 2.2 FURTHER ASSURANCES. From time to time following
the Closing, upon the request of any Purchaser, the Company shall execute and
deliver, or cause to be executed and delivered, to such Purchaser such other
instruments and take such other action as may be reasonably necessary to more
effectively vest in such Purchaser and put the Purchaser in possession of the
2
<PAGE> 4
Preferred Shares, the Warrants, the Additional Preferred Shares, the Additional
Warrants and all shares of common stock issuable upon exercise of the Warrants
and the Additional Warrants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to the Purchasers to enter into this
Agreement and to consummate the transactions contemplated hereby, the Company
represents and warrants to each of the Purchasers as follows:
SECTION 3.1 ORGANIZATION, STANDING AND POWER OF THE COMPANY
AND ITS SUBSIDIARIES; HOLDINGS OF THE COMPANY. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware; and each of the subsidiaries of the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and each subsidiary of the
Company has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
Company and its subsidiaries are duly qualified to transact business and are in
good standing as foreign corporations in each jurisdiction where the character
of their activities requires such qualification, except where the failure of the
Company or its subsidiaries to be so qualified would not cause a material
adverse effect on the business, results of operations, condition (financial or
otherwise), properties, assets or prospects of the Company and its subsidiaries,
taken as a whole ("Material Adverse Change").
The Company owns, directly or indirectly, all of the issued
and outstanding shares of capital stock of each of its subsidiaries free and
clear of any liens, encumbrances, equities and claims (other than liens and
encumbrances pursuant to the Amended and Restated Credit Agreement, dated as of
October 15, 1997, among the Company, FATS, Inc., the lenders named therein, and
NationsBank, N.A., as agent; the "Credit Agreement"). All such shares were duly
authorized, validly issued and are non-assessable and were not issued or
transferred in violation of any preemptive or similar rights.
SECTION 3.2 AUTHORITY. The Company has all necessary corporate
power and corporate authority to enter into this Agreement and all documents and
instruments (including, without limitation, the Purchased Securities) to be
executed by the Company in furtherance of the transactions contemplated hereby
(collectively, the "Transaction Documents"), and to consummate the transactions
contemplated hereby and thereby.
3
<PAGE> 5
SECTION 3.3 NON-CONTRAVENTION. The execution, delivery, and
performance of the Transaction Documents by the Company and the consummation of
the transactions contemplated thereby by the Company do not and will not (a)
result in a breach of any of the terms and provisions of, or constitute a
default (or an event which with notice or lapse of time, or both, would
constitute a default) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to any agreement, instrument, franchise, license or
permit to which the Company or any of its subsidiaries is a party or by which
any of such corporations or their respective properties or assets may be bound
or (b) violate any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body applicable to the
Company or any of its subsidiaries or any of their respective properties or
assets, other than such breaches, defaults or violations that are not reasonably
expected to impair the ability of the Company to consummate the transactions
contemplated by the Transaction Documents. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation of
the transactions contemplated thereby do not and will not violate or conflict
with any provision of the certificate of incorporation or by-laws of the Company
or any of its subsidiaries, as currently in effect. Except as set forth in
Section 3.3 of the Disclosure Letter dated the date hereof from the Company to
the Purchasers (the "Disclosure Letter"), no consent, approval, authorization,
order, registration, filing, qualification, license or permit of or with any
court or any government agency or body or self regulatory organization
(including, without limitation, the NASD or the NASDAQ Stock Market) applicable
to the Company or any of its subsidiaries or any of their respective properties
or assets is required for the execution, delivery and performance of the
Transaction Documents or the consummation of the transactions contemplated
thereby, including the issuance, sale and delivery of the Purchased Securities
to be issued, sold and delivered by the Company hereunder and the issuance of
the Additional Preferred Shares, the Additional Warrants, and the issuance of
shares of the Company's common stock upon exercise of the Warrants and the
Additional Warrants.
SECTION 3.4 ENFORCEABILITY OF AGREEMENT. This Agreement has
been, and the other Transaction Documents to be executed and delivered by the
Company pursuant hereto have been duly and validly authorized by all requisite
corporate action on the part of, and executed and delivered by, the Company, and
this Agreement is, and such other Transaction Documents when so executed and
delivered will be, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to applicable
bankruptcy, insolvency,
4
<PAGE> 6
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity). The Board of Directors of the Company has unanimously approved, and
resolved to take all actions described in, Section 6.4 of this Agreement.
SECTION 3.5 SEC REPORTS. The Company has filed all documents
required to be filed since January 1, 1996 with the Securities and Exchange
Commission (the "Commission") (the "SEC Reports"). As of their respective dates,
the SEC Reports complied in all material respects with the requirements of the
Securities Act of 1933, as amended (including the rules and regulations
promulgated thereunder, the "Securities Act"), and the Securities Exchange Act
of 1934, as amended (including the rules and regulations promulgated thereunder,
the "Exchange Act"), as the case may be, and none of the SEC Reports contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein, in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.6 ACCOUNTANTS. Arthur Andersen LLP, who have
expressed their opinion with respect to the financial statements and schedules
included in the SEC Reports, are independent accountants as required by the
Securities Act.
SECTION 3.7 FINANCIAL STATEMENTS. (a) The annual audited
financial statements of the Company included in the Company's Report on Form
10-K for its fiscal year ending March 31, 1998 (the "10-K") present fairly in
all material respects the financial position of the Company, as of the
respective date of such financial statements, and the results of operations and
changes in cash flows of the Company for the respective periods covered thereby.
Such statements and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, in each
case, as certified by the independent accountant named in Section 3.6.
(b) The unaudited interim financial statements of the Company
included in the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1998 (the "10-Q") present fairly in all material respects the financial
position of the Company, as of the respective dates of such financial
statements, and the results of operations and changes in cash flows of the
Company for the respective periods covered thereby. Such statements and related
notes have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis except for normal year-end adjustments
and the omission of certain footnote disclosure.
5
<PAGE> 7
SECTION 3.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Section 3.8 of the Disclosure Letter, (a) since the date of the latest balance
sheet presented in the 10-Q there has been no Material Adverse Change, whether
or not arising from transactions in the ordinary course of business, provided
that a decline in the trading price of the Company's common stock shall not be
deemed to be such a Material Adverse Change if such decline is not attributable
to a material adverse change in the business, properties, operations, prospects,
condition (financial or other) or results of operations of the Company and its
subsidiaries taken as a whole, (b) since the date of the latest balance sheet
presented in the 10-Q, neither the Company nor any of its subsidiaries has
incurred or undertaken any liabilities or obligations, direct or contingent,
except for (i) liabilities or obligations which are reflected in the 10-Q; (ii)
the transactions contemplated by this Agreement; (iii) contractual liabilities
incurred in the ordinary course of business; and (iv) other liabilities that
would not cause a Material Adverse Change.
SECTION 3.9 CAPITALIZATION. The Company's authorized and
outstanding capitalization is set forth in Section 3.9 of the Disclosure Letter.
All of the outstanding shares of the Company's capital stock are duly and
validly authorized and issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and were not issued and
are not now in violation of or subject to any preemptive rights. Except as
disclosed in the 10-Q, as of the date hereof neither the Company nor any
subsidiary has outstanding any warrants or options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into or exchangeable for, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, warrants, rights, convertible securities or obligations. There are
currently no shares of the Company's preferred stock outstanding.
The Purchased Securities, the Additional Preferred Shares, the
Additional Warrants and all shares of common stock issuable upon exercise of the
Warrants and Additional Warrants have been duly and validly authorized by the
Company. When issued, sold and delivered in accordance with this Agreement, the
Warrants and the Additional Warrants, the Preferred Shares, the Additional
Preferred Shares, and all shares of the Company's common stock issuable upon
exercise of the Warrants and Additional Warrants, will be duly and validly
issued, fully paid and nonassessable. All of the currently authorized but
unissued shares of
6
<PAGE> 8
Class B Non-voting Common Stock of the Company have been, and, upon compliance
by the Company with its covenants set forth in Section 6.4 hereof, a sufficient
number of shares of Class B Non-voting Common Stock will have been, reserved for
issuance upon exercise of all Warrants and Additional Warrants; a sufficient
number of shares of Class A Common Stock of the Company has been reserved for
issuance upon conversion (pursuant to the Company's certificate of
incorporation) of all shares of Class B Non-voting Common Stock issuable upon
exercise of the Warrants and Additional Warrants; and, except as contemplated by
Section 6.4, no further approval or authority of the stockholders or the Board
of Directors of the Company under the Delaware General Corporation Law, the
Exchange Act or the rules of the NASDAQ Stock Market will be required for any
such issuance. No preemptive rights or other rights to subscribe for or purchase
securities exist with respect to the issuance and sale of the Purchased
Securities by the Company pursuant to this Agreement or the issuance of common
stock upon exercise of all Warrants and Additional Warrants.
Except as set forth in Section 3.9 of the Disclosure Letter,
no security holder of the Company has any right which has not been satisfied or
waived to require the Company to register the sale of any securities owned by
such security holder under the Securities Act.
SECTION 3.10 ACTIONS. Except as described in Section 3.10 of
the Disclosure Letter, there is no litigation or governmental proceeding to
which the Company or any of its subsidiaries is a party or to which any property
of the Company or any of its subsidiaries is subject or which is pending or, to
the knowledge of the Company, threatened against the Company or any of its
subsidiaries which could reasonably be expected to cause a Material Adverse
Change.
SECTION 3.11 INVESTMENT COMPANY ACT. Neither the Company nor
any of its subsidiaries is (i) an "investment company" or a company "controlled"
by an investment company within the meaning of the Investment Company Act of
1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" thereof within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or (iii) subject to regulation
under the Federal Power Act, the Interstate Commerce Act or any federal or state
statute or regulation limiting its ability to consummate the transactions
contemplated hereby.
SECTION 3.12 REPORTING. The Company is subject to Section 13
of the Exchange Act and is in compliance in all material respects with the
provisions of such section.
SECTION 3.13 REGISTRATION AND QUALIFICATION. Assuming the
accuracy of the representations and warranties made by each of the Purchasers
set forth in Article IV hereof, it is not
7
<PAGE> 9
necessary in connection with the offer, sale and delivery of the Purchased
Securities to the Purchasers in the manner contemplated by this Agreement to
register under the Securities Act the Purchased Securities, the Additional
Preferred Shares, the Additional Warrants or the shares of common stock issuable
upon exercise of the Warrants and the Additional Warrants.
SECTION 3.14 NO LIABILITIES. Neither the Company nor its
subsidiaries has any liabilities or obligations (direct or indirect, contingent
or absolute, known or unknown, matured or unmatured) of any nature whatsoever,
whether arising out of contract, tort, statute or otherwise, except (i) as
reflected or reserved against in the latest balance sheet of the Company
presented in the 10-Q and not heretofore discharged, (ii) as set forth in
Section 3.14 of the Disclosure Letter, (iii) liabilities incurred in the
ordinary course of business since the date of the latest balance sheet presented
in the 10-Q, (iv) contractual liabilities incurred in the ordinary course of
business, or (v) other liabilities that would not cause a Material Adverse
Change.
SECTION 3.15 NO DEFAULTS. Except as disclosed in Section 3.15
of the Disclosure Letter, neither the Company nor any of its subsidiaries is in
violation or default under any provision of its certificate of incorporation,
bylaws or other organizational documents, or is in breach of or default with
respect to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound; and
there does not exist an event of default (as defined in such documents) on the
part of the Company or any such subsidiary or any other event or circumstance
which, with notice or lapse of time or both, would constitute a default, which
such violation or default, in either such case, would cause a Material Adverse
Change.
SECTION 3.16 VIOLATIONS OF LAW. The Company and its
subsidiaries are in compliance, and have complied at all times during the past
three years, and all transactions pursuant to the Transaction Documents shall
comply with, all applicable federal, state and local statutes, codes,
ordinances, rules and regulations of the United States and all other countries
and all subdivisions thereof (the "Laws") to the extent applicable, other than
violations which would not cause a Material Adverse Change. Neither the Company
nor any of its Subsidiaries has received notice within the past three years of
any violations of any Laws, which violations would be material to the Company
and its subsidiaries taken as a whole.
SECTION 3.17 PROPERTIES. The Company holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of
8
<PAGE> 10
the Company. Except as disclosed in Section 3.17 of the Disclosure Letter, the
Company owns or leases all such properties as are necessary to its operations as
now conducted.
SECTION 3.18 INTELLECTUAL PROPERTY. Except as disclosed in
Section 3.18 of the Disclosure Letter, the Company and its subsidiaries have
sufficient trademarks, trade names,patent rights, copyrights, licenses,
approvals and governmental authorizations to conduct their businesses
substantially as now conducted; and the Company has no knowledge of any
infringement by it or its subsidiaries of any trademark, trade name, patent,
copyright, licenses, trade secret or other similar rights of others, and there
is no claim being made against the Company or its subsidiaries regarding
trademark, trade name, patent, copyright, license, trade secret or other
infringement, in any such case which could reasonably be expected to cause a
Material Adverse Change.
SECTION 3.19 TAXES. The Company and its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax returns.
and have paid all taxes shown as due thereon; and the Company has no knowledge
of any tax deficiency which has been asserted or threatened against the Company
or its subsidiaries which could cause a Material Adverse Change.
SECTION 3.20 INSURANCE. The Company and its subsidiaries
maintain insurance of the types and in the amounts generally deemed adequate for
its business and that of its subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
SECTION 3.21 CERTAIN PAYMENTS. To the knowledge of the
Company, neither the Company nor any of its subsidiaries has at any time (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law or (ii) made any payment to
any federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
SECTION 3.22 DELAWARE GENERAL CORPORATION LAW SECTION 203.
Section 203 of the Delaware General Corporation Law will not apply to this
Agreement or the other Transaction Documents or the transactions contemplated
hereby and thereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
As an inducement to the Company to enter into this Agreement
and to consummate the transactions contemplated hereby, each of the Purchasers
hereby represents and warrants to the Company as follows:
SECTION 4.1 INVESTMENT. Purchaser is acquiring the Purchased
Securities for investment for its own account, and not with a view to any
distribution thereof in contravention of applicable securities laws. Purchaser
understands that the Purchased Securities and the shares of common stock
issuable upon exercise of the Warrants have not been registered under the
Securities Act by reason of specific exemptions therefrom which depend upon,
among other things, the bona fide nature of the investment intent and the
accuracy of Purchaser's representations as expressed herein.
Purchaser's financial condition and investments are such that
it is in a position to hold the Purchased Securities and the shares of common
stock issuable upon exercise of the Warrants for an indefinite period, bear the
economic risks of the investment and to withstand the complete loss of the
investment. Purchaser has extensive knowledge and experience in financial and
business matters and has the capability to evaluate the merits and risks of any
Purchased Securities and the shares of common stock issuable upon exercise of
the Warrants. Purchaser qualifies as an "accredited investor" as such term is
defined in Regulation D promulgated under the Securities Act.
SECTION 4.2 RULE 144. Purchaser acknowledges that the
Purchased Securities and the shares of common stock issuable upon exercise of
the Warrants must be held indefinitely unless subsequently registered under the
Securities Act or any applicable state securities laws or unless exemptions from
such registrations are available. Purchaser is aware of the provisions of Rule
144 promulgated under the Securities Act which permit limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions.
SECTION 4.3 ORGANIZATION OF PURCHASER. Purchaser is duly
organized and validly existing under the laws of the jurisdiction of its
organization.
SECTION 4.4 AUTHORITY OF PURCHASER. Purchaser has the power
and authority (corporate or similar) to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to comply with the terms,
conditions and provisions hereof.
The execution, delivery and performance of this Agreement by
Purchaser has been duly authorized and approved by Purchaser and does not
require any further authorization or
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consent of Purchaser or its beneficial owners. This Agreement is the legal,
valid and binding agreement of Purchaser, enforceable against Purchaser in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
SECTION 4.5 NON-CONTRAVENTION. The execution, delivery and
performance of this Agreement by Purchaser and the consummation of any of the
transactions contemplated hereby by Purchaser will not (a) conflict with or
result in a breach of any of the terms and provisions of, or constitute a
default (or an event which with notice or lapse of time, or both, would
constitute a default) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of Purchaser pursuant to
any agreement, instrument, franchise, license or permit to which Purchaser is a
party or by which any of its properties or assets may be bound or (b) violate or
conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body applicable to
Purchaser or any of its properties or assets, other than such breaches, defaults
or violations that are not reasonably expected to impair the ability of
Purchaser to consummate the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement by Purchaser and the
consummation of the transactions contemplated hereby by Purchaser do not and
will not violate or conflict with any provision of the organizational documents
of Purchaser, as currently in effect.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
OBLIGATIONS OF THE PURCHASERS
SECTION 5.1 GENERAL CONDITIONS TO OBLIGATIONS OF THE
PURCHASERS. The obligation of each of the Purchasers to consummate the
transactions contemplated herein is subject to the accuracy of the
representations and warranties of the Company herein contained, as of the date
hereof and as of the Closing Date, and to the performance in all material
respects by the Company of its obligations hereunder (including the covenants
contained in Article VI of this Agreement).
SECTION 5.2 REGISTRATION RIGHTS AGREEMENT. The obligation of
each of the Purchasers to consummate the transactions contemplated herein is
subject to the (i)
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Registration Rights Agreement dated as of July 31, 1996 among the Company,
certain of the Purchasers and affiliates thereof (the "Registration Rights
Agreement") continuing to be in full force and effect and (ii) the Purchasers'
receipt of the Company's agreement, in form and substance satisfactory to the
Purchasers, that all shares of common stock issuable upon exercise of the
Warrants and the Additional Warrants, and all shares of the Company's Class A
Common Stock issued upon conversion of such shares (and all securities issuable
in respect thereof upon a split, combination or reclassification of such
securities or pursuant to a merger of the Company with another entity),
constitute "Registrable Securities" under and for purposes of the Registration
Rights Agreement.
SECTION 5.3 OFFICERS' CERTIFICATES. The obligation of each of
the Purchasers to consummate the transactions contemplated herein is subject to
each of the Purchasers at the Closing Date receiving a certificate of the Chief
Executive Officer and Chief Financial Officer of the Company, dated the Closing
Date, to the effect that (i) as of the date hereof and as of the Closing Date,
the representations and warranties of the Company set forth in Article III
hereof are accurate and (ii) as of the Closing Date, the obligations of the
Company to be performed hereunder on or prior to the Closing Date have been duly
performed in all material respects.
SECTION 5.4 OPINION. The obligation of each of the Purchasers
to consummate the transactions contemplated herein is subject to the Purchasers'
receiving at the Closing Date the opinion of Sidley & Austin, counsel to the
Company, to the effect of the matters set forth in Exhibit C attached hereto.
SECTION 5.5 CERTIFICATE OF DESIGNATION. The obligation of each
of the Purchasers to consummate the transactions contemplated herein is subject
to the Certificate of Designation attached hereto as Exhibit A having been duly
adopted by the Company and filed with the Secretary of State of the State of
Delaware in accordance with the General Corporation Law of that State.
SECTION 5.6 MATERIAL ADVERSE CHANGE. The obligation of each of
the Purchasers to consummate the transactions contemplated herein is subject to
there being since the date of the last balance sheet presented in the 10-Q no
fact or condition which would cause, or insofar as reasonably can be foreseen
could cause a Material Adverse Change; provided, that a decline in the trading
price of the Company's common stock shall not be deemed to be such a Material
Adverse Change if such decline is not attributable to a Material Adverse Change
in the business, properties, prospects, operations, condition (financial or
other) or results of operations of the Company and its subsidiaries taken as
a whole.
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SECTION 5.7 NATIONSBANK CONSENT. The obligation of each of the
Purchasers to consummate the transactions contemplated herein is subject to the
execution and delivery by the Company and the required lenders of a waiver and
amendment to the Credit Agreement reflecting the terms set forth in the term
sheet with respect thereto previously delivered to the Purchasers.
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OBLIGATIONS OF THE COMPANY
SECTION 5.8 GENERAL CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY. The obligation of the Company to issue the Purchased Securities to each
of the Purchasers shall be subject to the accuracy of the representations and
warranties of each of the Purchasers herein contained except to the extent any
inaccuracies do not materially impair the ability of the Purchasers to
consummate the transaction contemplated by the Agreement, as of the date hereof
and as of the Closing Date, and to the performance in all material respects by
each of the Purchasers of its obligations hereunder.
OBLIGATIONS OF EACH OF THE COMPANY AND THE PURCHASERS
SECTION 5.9 NO INJUNCTION. The obligations of each of the
Company and the Purchasers to consummate the transactions contemplated herein
are subject to the condition that no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction prohibiting or preventing consummation of the transactions
contemplated herein shall be in effect.
ARTICLE VI
COVENANTS OF THE COMPANY
As an inducement to the Purchasers to enter into this
Agreement and to consummate the transactions contemplated hereby, the Company
hereby covenants with each of the Purchasers as follows:
SECTION 6.1 REPORTING. The Company shall, so long as the
Preferred Shares, the Additional Preferred Shares or the shares of common stock
issuable upon exercise of the Warrants and the Additional Warrants are
outstanding and are "restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act, file reports and other information with the Commission
under Section 13 or 15 (d) of the Exchange Act.
SECTION 6.2 PAYMENT OF EXPENSES. Whether or not the
transactions contemplated in this Agreement are consummated or this Agreement is
terminated, the Company hereby agrees to pay (i) all costs and expenses incident
to the performance of the obligations of the Company hereunder, including those
in connection with (a) the issuance, transfer and delivery of the Preferred
Shares, the Additional Preferred Shares, the Warrants, the Additional Warrants,
and all shares of common stock issuable upon exercise of the Warrants and the
Additional Warrants, including any transfer or similar taxes payable therein,
(b) the qualification of the Preferred Shares, the Additional Preferred
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Shares and the shares of common stock issuable upon exercise of the Warrants and
the Additional Warrants under state or foreign securities or Blue Sky laws, (c)
the cost of printing certificates for the Preferred Shares, the Additional
Preferred Shares and the shares of common stock issuable upon exercise of the
Warrants and the Additional Warrants and (d) the cost and charges of any
transfer agent, registrar, trustee or fiscal paying agent; and (ii) all
documented out-of-pocket costs and expenses, including attorneys', accountants'
and consultants' fees, incurred by each of the Purchasers in connection with the
negotiation and of this Agreement and consummation of the transactions
contemplated hereby.
SECTION 6.3 INSPECTION. Prior to and following the Closing,
the Company will permit each of the Purchasers and their representatives to
visit and inspect any of the Company's properties, to examine its books and
records and to make copies and to take extracts therefrom, and to discuss its
business affairs and finances with its officers and key employees, all at such
reasonable times as the Purchasers may request.
SECTION 6.4 AVAILABILITY OF COMMON STOCK. The Company hereby
covenants and agrees to use its best efforts to take all action necessary,
desirable or appropriate to have, reserve and keep available at all times out of
the Company's authorized but unissued shares of capital stock the full number of
shares of Class B Non-voting Common Stock issuable upon exercise of the Warrants
and the Additional Warrants, and the full number of shares of Class A Common
Stock into which such shares are convertible pursuant to the Company's
certificate of incorporation, for issuance for the purpose of effecting the
exercise of the Warrants and the Additional Warrants and such conversions.
Without limiting the generality of the foregoing, the Company
shall, in compliance with the provisions of the General Corporation Law of the
State of Delaware, the Exchange Act and the rules of the NASD and the NASDAQ
Stock Market (and any other market upon which the common stock may be listed)
applicable thereto:
(a) submit any necessary increase in the Company's authorized
common stock capitalization for approval by the Company's stockholders
at the earliest to occur of (i) the next special or annual meeting, or
consent solicitation, of the Company's stockholders, (ii) a meeting of
the Company's stockholders that the Purchasers, in connection with any
pending Change of Control (as defined in the Credit Agreement) of the
Company, requested that the Company call and convene, and (iii) August
31, 1999;
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<PAGE> 17
(b) the Company shall duly call, give notice of and convene
(x) any stockholders' meeting requested by the Purchasers described in
clause (a)(ii) above within 25 days of receipt of such request and (y)
its next annual meeting of stockholders prior to the date set forth in
clause (a)(iii) above;
(c) timely prepare and distribute an appropriate proxy
statement and form of proxy for the purpose of obtaining such
stockholder approvals;
(d) recommend that all stockholders vote in favor of such
increase in the Company's authorized capitalization; and
(e) take all other actions as may be necessary or appropriate
from time to time to effectuate the intent of this Section 6.4.
SECTION 6.5 NO GENERAL SOLICITATION. None of the Company, its
affiliates (as defined in Rule 501(b) of the Securities Act) or any person
acting on their behalf will solicit any offer to buy or offer or sell the
Purchased Securities, Additional Preferred Shares or any shares of common stock
issuable upon exercise of the Warrants or the Additional Warrants by means of
any form or general solicitation or general advertising (as those terms are used
in Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act that would
require the registration of such securities under the Securities Act.
SECTION 6.6 EXCHANGE OF STOCK CERTIFICATES. Upon surrender of
any certificate representing the Purchased Securities, the Additional Preferred
Shares, the Additional Warrants, or the common stock issuable upon exercise of
such Warrants for exchange at the office of the Company, the Company at its
expense will cause to be issued in exchange therefor new certificates in such
denomination or denominations as may be requested for the same aggregate number
of securities represented by the certificate so surrendered and registered as
such holder may request.
SECTION 6.7 LOST CERTIFICATES. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any certificate evidencing any of the Purchased Securities, the
Additional Preferred Shares, the Additional Warrants, or the common stock
issuable upon exercise of the Warrants and Additional Warrants, and (in case of
loss, theft or destruction) of indemnity reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable
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<PAGE> 18
expenses incidental thereto, and upon surrender and cancellation of such
certificate, if mutilated, the Company will make and deliver in lieu of such
certificate a new certificate of like tenor and for the number of shares
evidenced by such certificate which remain outstanding. A Purchaser's agreement
of indemnity shall constitute indemnity satisfactory to the Company for the
purposes of this Section 6.7.
ARTICLE VII
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES
SECTION 7.1 RESTRICTIVE LEGEND. Each certificate representing
(a) the Preferred Shares, (b) the Warrants, (c) the Additional Preferred Shares,
(d) the Additional Warrants, (e) the shares of the common stock issuable upon
exercise of the Warrants and Additional Warrants, and (f) any other securities
issued in respect of such shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR EXEMPTIONS THEREFROM UNDER SAID ACT AND LAWS.
The Company will promptly, upon request, remove any such legend when no longer
required by the terms of this Agreement or by applicable law.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 INDEMNIFICATION. The Company hereby agrees to
indemnify, defend and hold harmless each Purchaser and its partners,
stockholders, directors, officers and affiliates from and against all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
costs and expenses (collectively, "Claims"), including without limitation,
interest, penalties and attorneys' fees and expenses, asserted against,
resulting to, or imposed upon or incurred by such Purchaser directly or
indirectly, in connection with the transactions contemplated hereby.
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SECTION 8.2 TERMS OF INDEMNIFICATION. The obligations and
liabilities of the Company with respect to Claims by third parties will be
subject to the following terms and
conditions:
a. a Purchaser will give the Company prompt notice of any
Claims asserted against, resulting to, imposed upon or incurred by a
Purchaser, directly or indirectly, and the Company will undertake the
defense thereof by representatives of their own choosing which are
reasonably satisfactory to such Purchaser; provided that the failure of
any Purchaser to give notice as provided in this Section 8.2 shall not
relieve the Company of its obligations under this Article VIII, except
to the extent that such failure has materially and adversely affected
the rights of the Company;
b. if within a reasonable time after notice of any Claim, the
Company fails to defend, such Purchaser will have the right to
undertake the defense, compromise or settlement of such Claims on
behalf of and for the account and at the risk of the Company, subject
to the right of the Company to assume the defense of such Claim at any
time prior to settlement, compromise or final determination thereof;
c. the Company on one hand and the Purchasers on the other
will not, without the prior written consent of the other, settle or
compromise any Claim or consent to entry of any judgment relating to
any such Claim;
d. with respect to any Claims asserted against a Purchaser,
such Purchaser will have the right to employ one counsel of its choice
in each applicable jurisdiction (if more than one jurisdiction is
involved) to represent such Purchaser if, in such Purchaser's
reasonable judgment, a conflict of interest between such Purchaser and
the indemnifying party exists in respect of such Claims, and in that
event the reasonable fees and expenses of such separate counsel shall
be paid by such indemnifying party; and
e. the Company will provide each Purchaser reasonable access
to all records and documents of the Company relating to any Claim.
ARTICLE IX
ADDITIONAL AGREEMENT OF THE PARTIES
(a) The Purchasers acknowledge that the Class B Non-voting Common Stock
issuable upon exercise of the Warrants and the Additional Warrants has no voting
rights, but in other respects is entitled to the same rights as the Class A
Common Stock of the Company, and pursuant to the Fourth Article of the
Certificate of Incorporation of the Company, a holder of Class B Non-voting
Common Stock is entitled to convert at the holder's election and
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at any time any or all of such holder's Class B Non-voting Common Stock into
shares of Class A Common Stock at the rate of one share of Class B Non-voting
Common Stock for one share of Class A Common Stock.
(b) Notwithstanding the provisions of the Certificate of Incorporation
of the Company establishing conversion rights with respect to the Class B
Non-voting Common Stock, the Company and the Purchasers each severally agree as
follows: (i) the Purchasers will not exercise, and hereby waive irrevocably, any
right to elect to convert shares of Class B Non-voting Common Stock issuable
upon exercise of the Warrants and the Additional Warrants to shares of Class A
Common Stock if, as a result of such conversion, Centre Partners Management LLC,
Centre Partners II, L.P. and the Purchasers (individually, a "Centre Entity" and
collectively, the "Centre Entities") would hold, collectively, of record or
beneficially with power to vote, more than 50% of the shares of Class A Common
Stock outstanding immediately following such conversion, unless concurrently
with such conversion the shares of Class A Common Stock are transferred to an
unaffiliated person or entity; (ii) the Company shall be entitled to refuse to
honor and carry out an election to convert shares of Class B Non-voting Common
Stock in violation of clause (i) above; and (iii) the limitations on the
conversion of the Class B Non-voting Common Stock issuable upon exercise of the
Warrants and the Additional Warrants shall apply only so long as the shares of
Class B Non-voting Common Stock are owned by any of the Centre Entities and do
not apply to a conversion exercised in connection with a sale or transfer of
shares of Class B Non-voting Common Stock by a Centre Entity to a person or
entity that is not an affiliate of the Centre Entities.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAWS RULES THEREOF.
SECTION 10.2 SURVIVAL. All representations and warranties,
covenants and agreements of the Company and any Purchaser contained in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Purchaser or any representative or
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof; and such
representations and warranties shall survive for a
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period of one year from the Closing Date and such covenants and agreements shall
survive indefinitely.
SECTION 10.3 SUCCESSORS AND ASSIGNS. Except as otherwise
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and permitted assigns of the parties hereto. No
assignment of this Agreement may be made by the Company at any time, whether or
not by operation of law, without the Purchasers' prior written consent. Each
Purchaser may assign any of its rights hereunder to an affiliate of such
Purchaser without the Company's consent provided that such affiliate expressly
assumes in writing all of the Purchaser's obligations hereunder, and provided
that such assignment shall not relieve the assigning Purchaser of its
obligations hereunder. From and after the Closing Date, all rights of the
Purchasers hereunder shall inure to subsequent holders of the Purchased
Securities, the Additional Preferred Shares, the Additional Warrants, and the
shares of common stock issuable upon the exercise of the Warrants and the
Additional Warrants.
SECTION 10.4 ENTIRE AGREEMENT: AMENDMENT. This Agreement, the
Transaction Documents and the Registration Rights Agreement constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof. Except as expressly provided herein, neither this Agreement nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
SECTION 10.5 NOTICES, ETC. All notices and other
communications provided for or permitted hereunder shall be made in writing by
hand delivery, first-class mail (registered or certified, return receipt
requested), telex, telecopier or courier guaranteeing overnight delivery,
addressed (a) if to the Purchasers to Centre Partners Management LLC, 30
Rockefeller Plaza, Suite 5050, New York, New York 10020, Attention: Mr. Scott
Perekslis, Facsimile No.: (212) 332-5801 or at such other addresses as shall
have been furnished to the Company, with a copy (which shall not constitute
notice) to: Weil, Gotshal & Manges LLP; 767 Fifth Avenue, New York, New York
10153, Attn: Norman D. Chirite, Esq., Facsimile No.: (212) 310-8007 and (b) if
to the Company, at 7340 McGinnis Ferry Road, Suwanee, Georgia 30174, Attention:
Chief Financial Officer, or at such other address as the Company shall have
furnished to the Purchasers in writing, with a copy to: Sidley & Austin, 875
Third Avenue, New York, New York 10022, Attn: James G. Archer, Esq., Facsimile
No.: (212) 906-2021. All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in
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the mail, postage prepaid, if mailed; when answered back, if telexed; when
receipt is acknowledged, if telecopied; and on the next business day, if timely
delivered to a courier guaranteeing overnight delivery.
SECTION 10.6 DELAYS OR OMISSIONS. Except as expressly
provided herein, no delay or omission to exercise any right, power or remedy
accruing to the Company or any of the Purchasers upon any breach or default of
any party under this Agreement, shall impair any such right, power or remedy of
the Company or any of the Purchasers nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein. or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of the Company or any of the Purchasers of any breach or
default under this Agreement, or any waiver on the part of any such party of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to the
Company or any of the Purchasers, shall be cumulative and not alternative.
SECTION 10.7 COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which may be executed by only one of the
parties hereto, each of which shall be enforceable against the party actually
executing such counterpart, and all of which together shall constitute one
instrument.
SECTION 10.8 SEVERABILITY. In the event that any provision of
this Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provisions; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
SECTION 10.9 TITLES AND SUBTITLES. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
SECTION 10.10 NO PUBLIC ANNOUNCEMENT. Neither the Company nor
any of the Purchasers shall make any press release or other public announcement
concerning the transactions contemplated by this Agreement except as and to the
extent that any such party shall be obligated to make any such disclosure by law
or by the rules of NASDAQ and then only after consultation
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with the other regarding the basis of such obligation and the content of such
press release or other public announcement or as the parties shall mutually
agree.
SECTION 10.11 DISTRIBUTIONS AND ADJUSTMENTS. If from June 30,
1998 through the Closing Date the Company shall have taken any action which
would entitle the holders of Preferred Stock to a distribution or adjustment in
accordance with the Certificate of Designation if the Preferred Stock were then
outstanding, then the consideration to be received by the Purchasers hereunder
shall be appropriately adjusted.
SECTION 10.12 SPECIFIC ENFORCEMENT. Purchasers, on the one
hand, and the Company, on the other, acknowledge and agree that irreparable
damage would occur in the event that any of the covenants contained in this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, and that money damages are an inadequate remedy for breach
thereof because of the difficulty of ascertaining and quantifying the amount of
damage that will be suffered by the parties hereto in the event that such
covenants are not performed in accordance with their terms or are otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of the covenants referred to in
the immediately preceding sentence and to enforce specifically the terms and
provisions hereof in any court of the United States or any state thereof having
jurisdiction, this being in addition to any other rights and remedies to which
they may be entitled at law or equity.
SECTION 10.13 TIME OF THE ESSENCE. Time is of the essence for
purposes of the Company's covenants and agreements contained herein.
[signature page follows]
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IN WITNESS WHEREOF, each of the undersigned has caused the
foregoing Agreement to be executed by one of its duly authorized officers as of
the date first above written.
FIREARMS TRAINING SYSTEMS, INC.
By /s/ Emory O. Berry
-----------------------------------------
Name: Emory O. Berry
Title: CFO, Treasurer and Secretary
CENTRE CAPITAL INVESTORS II, L.P.
CENTRE CAPITAL TAX-EXEMPT INVESTORS II, L.P.
CENTRE CAPITAL OFFSHORE INVESTORS II, L.P.
By: Centre Partners II, L.P.,
as General Partner
By: Centre Partners Management LLC,
as Attorney-in-fact
By: /s/ Jonathan Kagan
-----------------------------------------
Managing Director
CENTRE PARTNERS COINVESTMENT, L.P.
By: Centre Partners II LLC,
as General Partner
By: Jonathan Kagan
Managing Director
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EXHIBIT 11.01
FIREARMS TRAINING SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE (1) DILUTED EARNINGS PER SHARE (1)
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 20,696 20,410 20,696 20,410
Shares issued upon assumed exercise of
outstanding warrants -- -- -- --
Shares issued upon assumed exercise of
outstanding options -- -- -- 780
Weighted average common and common ------- ------- ------- -------
equivalent shares outstanding 20,696 20,410 20,696 21,190
======= ======= ======= =======
Net income (loss) applicable to common
shareholders $ (271) $ 1,651 $ (271) $ 1,651
======= ======= ======= =======
Earnings (loss) per share $ (0.01) $ 0.08 $ (0.01) $ 0.08
======= ======= ======= =======
<CAPTION>
BASIC EARNINGS PER SHARE (1) DILUTED EARNINGS PER SHARE (1)
NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 20,678 20,406 20,678 20,406
Shares issued upon assumed exercise of
outstanding warrants -- -- -- --
Shares issued upon assumed exercise of
outstanding options -- -- -- 1,042
Weighted average common and common ------- ------- ------- -------
equivalent shares outstanding 20,678 20,406 20,678 21,448
======= ======= ======= =======
Net income (loss) applicable to common
shareholders $(3,115) $ 5,926 $(3,115) $ 5,926
======= ======= ======= =======
Earnings (loss) per share $ (0.15) $ 0.29 $ (0.15) $ 0.28
======= ======= ======= =======
</TABLE>
- ------------------
(1) Shares reflect a 100,000-for-one stock split in July 1996 in connection
with the recapitalization and a split of 1.66-for-one in October 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,704
<SECURITIES> 0
<RECEIVABLES> 21,357
<ALLOWANCES> 250
<INVENTORY> 17,059
<CURRENT-ASSETS> 45,170
<PP&E> 7,318
<DEPRECIATION> 2,825
<TOTAL-ASSETS> 58,393
<CURRENT-LIABILITIES> 19,082
<BONDS> 65,858
3,031
0
<COMMON> 114,303
<OTHER-SE> (143,881)
<TOTAL-LIABILITY-AND-EQUITY> 58,393
<SALES> 40,690
<TOTAL-REVENUES> 40,690
<CGS> 25,347
<TOTAL-COSTS> 25,347
<OTHER-EXPENSES> 14,710
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 5,306
<INCOME-PRETAX> (4,823)
<INCOME-TAX> (1,739)
<INCOME-CONTINUING> (3,084)
<DISCONTINUED> 0
<EXTRAORDINARY> 31
<CHANGES> 0
<NET-INCOME> (3,115)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
