SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 15, 2000
IMAGEMAX, INC.
(Exact name of issuer as specified in charter)
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Pennsylvania 000-23077 23-2865585
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<S> <C> <C>
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation or file Identification
Organization) number) Number)
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455 Pennsylvania Avenue
Suite 128
Fort Washington, PA 19034
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(Address of principal executive offices)
(215) 628-3600
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(Registrant's telephone number, including area code)
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Item 5. Other Events.
On February 15, 2000, ImageMax, Inc. ("ImageMax" or the "Company")
completed a $6 million financing transaction involving the sale of convertible
subordinated notes (the "Notes") with warrants ("Warrants") to TDH III, L.P.
("TDH"), Dime Capital Partners, Inc. and Robert E. Drury (the "Investors"). The
proceeds of this financing will be used primarily to repay senior bank debt and
provide working capital for the Company. Additionally, J.B. Doherty, the
managing general partner of TDH, joined the Company's Board of Directors.
The Notes are due and payable upon the fourth anniversary of the date of
issuance and bear an interest rate of nine percent (9%) payable semi-annually.
The Company cannot voluntarily prepay the Notes. The Notes are convertible into
the Company's common stock, no par value, at a price of $3.50 per share, which
price may be adjusted downward if, under certain circumstances, the holders
thereof convert the Notes prior to the third anniversary of the date of
issuance. The Company also issued Warrants to the Investors to purchase an
additional 1,800,000 shares of common stock of the Company (subject to downward
adjustment under certain circumstances), no par value, at $3.50 per share.
Simultaneous with this investment, the Company amended its current Interim
Agreement dated September 30, 1999 (the "Amended Interim Agreement") with First
Union National Bank (successor by merger to Corestates Bank, N.A.) and Commerce
Bank, N.A. (together, the "Banks"), who are parties to its Credit Facility dated
March 30, 1998, as amended pursuant to Amendment No.1 dated June 9, 1998 and
Amendment No. 2 dated November 16, 1998 (as amended the "Credit Facility").
Pursuant to the Amended Interim Agreement, the Banks have agreed to forbear from
exercising their rights and remedies with respect to all existing defaults under
the Credit Facility until June 30, 2000 or the occurrence of a default under the
Amended Interim Agreement or any additional default under the Credit Facility.
Under the terms of the Amended Interim Agreement, the Company was required
to pay to the Banks $5 million from the proceeds of investment discussed above,
reducing the outstanding principal balance thereof to $13.4 million. Principal
repayments of $50,000, $125,000, $150,000, $250,000 and $300,000 are due
February 15, March 1, April 1, May 1 and June 1, 2000, respectively, with all
remaining sums payable on June 30, 2000. The Amended Interim Agreement also (i)
prohibits the Company from making capital expenditures in excess of $250,000 for
the quarter ending March 31, 2000 and $500,000 for the quarter ending June 30,
2000, in each case determined on a non-cumulative basis; (ii) requires that the
Company maintain a minimum stockholders' equity of $42 million and (iii)
prohibits the Company from incurring any additional indebtedness in excess of
$10,000 without the permission of the Banks.
Statements in this Form 8-K which are not historical fact, are
forward-looking statements that involve risk and uncertainty, including risks
associated with the uncertainty of the impact of $6 million financing
transaction with the Investors on the Company, risks associated with the
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results of the Company's continuing operations and those risks set forth in
"Business-Risk Factors" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and other filings with the Securities and Exchange
Commission.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit No. Exhibit
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10.1 Loan and Warrant Purchase Agreement by and
among the Company, TDH, III, L.P., Dime Capital
Partners, Inc. and Robert Drury dated
February 15, 2000.
10.2 Form of Promissory Note.
10.3 Form of Warrant.
10.4 Amendment to Forbearance Agreement by and
among the Company, First Union National Bank
and Commerce Bank, N.A. dated February 15,
2000.
99 Press Release dated February 15, 2000.
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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.
IMAGEMAX, INC.
By: /s/ Mark P. Glassman
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Name: Mark P. Glassman
Title: Chief Financial Officer
Dated: _________ __, 2000
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INDEX OF EXHIBITS
Exhibit No. Exhibit
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10.1 Loan and Warrant Purchase Agreement by and among the
Company, TDH, III, L.P., Dime Capital Partners, Inc.
and Robert Drury dated February 15, 2000.
10.2 Form of Promissory Note.
10.3 Form of Warrant.
10.4 Amendment to Forbearance Agreement by and among the
Company, First Union National Bank and Commerce
Bank, N.A. dated February 15, 2000.
99 Press Release dated February 15, 2000.
Exhibit 10.1
CONVERTIBLE SUBORDINATED LOAN AND
WARRANT PURCHASE AGREEMENT
THIS AGREEMENT is dated this 15th day of February, 2000, by
and among IMAGEMAX, INC., a corporation incorporated under the laws of the
Commonwealth of Pennsylvania (the "Company"), TDH III, L.P., a limited
partnership organized under the laws of the State of Delaware ("TDH"), DIME
CAPITAL PARTNERS, INC., a corporation organized under the laws of the State of
New Jersey ("Dime") and ROBERT E. DRURY, an individual resident of Pennsylvania
("Drury") (TDH and Dime sometimes individually an "Institutional Investor" and
collectively the "Institutional Investors"; TDH, Dime and Drury sometimes
individually an "Investor" and collectively the "Investors").
BACKGROUND
The Company desires to obtain from the Investors convertible
subordinated loans in an aggregate amount of Six Million Dollars ($6,000,000)
(the "Subordinated Loan") and the Investors are willing to provide the
Subordinated Loan to the Company on the terms and pursuant to the conditions set
forth herein, including but not limited to the issuance to the Investors of
warrants to purchase shares of the Company's Common Stock as set forth herein.
The Investors and the Company also desire to set forth the
terms and conditions pursuant to which the Investors and the Company will govern
their future relations.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, the parties hereto, intending to be legally bound,
agree as follows:
1. Definitions. Unless the context otherwise requires, the
following terms shall have the following meanings for purposes of this
Agreement:
1.1 "1998 Balance Sheet" shall have the meaning set forth
in Section 5.7(c) of this Agreement.
1.2 "Affiliate" shall mean, with respect to any Person, (i)
a director, officer or stockholder of such Person, (ii) a spouse, parent,
sibling or descendant of such Person (or spouse, parent, sibling or descendant
of any director or executive officer of such Person), and (iii) any other Person
that, directly or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, such person.
1.3 "Articles of Incorporation" shall have the meaning set
forth in Section 5.2 of this Agreement.
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1.4 "Board of Directors" shall mean the Board of Directors
of the Company.
1.5 "Change of Control" shall have the meaning set forth in
Section 12 of this Agreement.
1.6 "Closing" shall have the meaning set forth in Section 4
of this Agreement.
1.7 "Closing Date" shall have the meaning set forth in
Section 4 of this Agreement.
1.8 "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
1.9 "Common Stock" shall mean the common stock, no par
value, of the Company.
1.10 "Company Securities" shall have the meaning set forth
in Section 10.2(b) of this Agreement.
1.11 "Control" shall mean, with respect to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
1.12 "Disclosure Schedule" shall have the meaning set forth
in Section 5.1 of this Agreement.
1.13 "Environmental Law" shall have the meaning set forth
in Section 5.15(a) of this Agreement.
1.14 "ERISA" shall have the meaning set forth in Section
5.10(a) of this Agreement.
1.15 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
1.16 "Exit Event" shall have the meaning set forth in
Section 12 of this Agreement.
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1.17 "GAAP" shall mean generally accepted accounting
principles of the United States.
1.18 "Governmental Body" shall mean any United States or
state governmental body, any agency, commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory or taxing authority
thereunder.
1.19 "Hazardous Substance" shall have the meaning set forth
in Section 5.15(a) of this Agreement.
1.20 "Holder" shall mean the Investors if the Investors
holds Registrable Securities or other securities of the Company which are
convertible into or exercisable for Registrable Securities including the
Warrants, and any permitted transferee of any Investor who holds Registrable
Securities or other securities of the Company which are convertible into or
exercisable for Registrable Securities including the Warrants.
1.21 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act, as amended.
1.22 "Indebtedness" shall mean, without duplication,
indebtedness of a Person for borrowed money or which is evidenced by a note,
bond, debenture or similar instrument.
1.23 "Institutional Investor" and "Institutional Investors"
shall have the meaning set forth in the first paragraph of this Agreement.
1.24 "Institutional Notes" shall mean the Notes
(individually an "Institutional Note") originally issued to the Institutional
Investors and any notes issued in exchange or substitution for such Notes, as
each may hereafter be amended and/or restated.
1.25 "Institutional Warrants" shall mean the Warrants
(individually an "Institutional Warrant") originally issued to the Institutional
Investors and any warrants issued in exchange or substitution for such Warrants,
as each may hereafter be amended and/or restated.
1.26 "Investor"and "Investors" shall have the meaning set
forth in the first paragraph of this Agreement.
1.27 "Knowledge of the Company" shall refer to matters that
are known or in the exercise of reasonable business judgment should be known by
one or more of the Company's or any Subsidiary's executive officers or the
individuals serving on the Company's Board of Directors.
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1.28 "Material Adverse Effect" shall have the meaning set
forth in Section 5.1 of this Agreement.
1.29 "Material Contract"shall have the meaning set forth in
Section 5.16 of this Agreement.
1.30 "Notes" shall mean the Notes (individually a "Note")
described in Section 2.2 hereof and any notes issued in exchange or substitution
for such notes, as each may hereafter be amended and/or restated.
1.31 "Person" shall include an individual, corporation,
limited liability company, partnership, joint venture, association, trust, or
any other entity or organization.
1.32 "Plan" shall have the meaning set forth in Section
5.10 of this Agreement.
1.33 "Register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the declaration or ordering
of effectiveness of such registration statement by the Commission.
1.34 "Registrable Securities" shall mean shares of the
Company's Common Stock issued or issuable upon the conversion of the Notes or
upon the exercise of the Warrants; provided such Common Stock will cease to be
Registrable Securities when the entire amount of Registrable Securities proposed
to be sold in a single sale, in the opinion of counsel to the Company may be
distributed to the public without any limitation as to volume pursuant to Rule
144 (or any successor provision then in effect) under the Securities Act.
1.35 "Request for Registration" shall have the meaning set
forth in Section 10.2 of this Agreement.
1.36 "Required Interest of Institutional Investors" shall
mean the following:
(a) So long as the Institutional Investors both hold
Notes, a Required Interest of Institutional Investors shall mean the holders of
Institutional Notes representing at least sixty percent (60%) of the outstanding
principal balance of all Institutional Notes plus TDH; provided, however, that
the additional consent of TDH shall not be required if the outstanding principal
balance of the Institutional Notes held by TDH (including partners of TDH to
whom such Institutional Notes may have been assigned and trusts established for
their benefit) is less than One Million Dollars ($1,000,000) other than by
reason of payments made on a pro rata basis to all holders of Notes;
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(b) If TDH no longer holds a Note but Dime still holds
a Note, a Required Interest of Institutional Investors shall mean Dime;
(c) If Dime no longer holds a Note but TDH still holds
a Note, a Required Interest of Institutional Investors shall mean TDH; and
(d) If neither Institutional Investor holds an
Institutional Note, a Required Interest of Institutional Investors shall mean
holders of Institutional Warrants representing at least sixty percent (60%) of
the Warrant Shares purchasable upon the exercise of all then outstanding
Institutional Warrants plus TDH; provided, however, that the additional consent
of TDH shall not be required if the Institutional Warrants held by TDH
(including partners of TDH to whom such Institutional Warrants may have been
assigned and trusts established for their benefit) represent the right to
purchase less than sixty-two and one-half percent (62.5%) of the number of
Institutional Warrant Shares originally purchasable under the Warrant issued to
TDH on February 15, 2000 (subject to any intervening adjustments by reason of
the anti-dilution provisions thereof).
1.37 "Requirements of Law" means, as to any Person, any
law, statute, treaty, rule, regulation, right, privilege, qualification, license
or franchise or determination of an arbitrator or a court or other Governmental
Body or stock exchange, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to in this
Agreement.
1.38 "SEC Reports" shall have the meaning set forth in
Section 5.7(a) of this Agreement.
1.39 "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
1.40 "Stock Option Plan" shall mean the Company's 1997
Incentive Plan, as amended by Amendment No. 98-1.
1.41 "Subordinated Loan" shall have the meaning set forth
in the Background section of this Agreement.
1.42 The term "subsidiary"shall mean as to any Person, any
entity of which more than 50% (by number of votes) of the voting securities
shall be owned by such Person and/or one or more entities which are themselves
subsidiaries of such Person and the term "Subsidiary" shall mean any subsidiary
of the Company.
1.43 "Third Party Registrable Securities" shall have the
meaning set forth in Section 10.2(b) of this Agreement.
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1.44 "Transaction" shall have the meaning set forth in
Section 5.4 of this Agreement.
1.45 "Transfer" as to any Warrants or Common Stock issued
upon conversion of the Notes or exercise of the Warrants, shall mean to sell, or
in any other way directly or indirectly, to transfer, assign, distribute,
encumber, pledge, hypothecate or otherwise dispose of, either voluntarily or
involuntarily (or a sale, or any other direct or indirect transfer, assignment,
distribution, encumbrance or other voluntary or involuntary disposition), as the
case may be.
1.46 "WARN" shall have the meaning set forth in Section
5.10(f) of this Agreement.
1.47 "Warrants" shall mean the Warrants (individually a
"Warrant") described in Section 2.3 hereof and any warrants issued in exchange
or substitution for such warrants, as each may hereafter be amended and/or
restated.
2. The Subordinated Loan.
2.1 The Subordinated Loan. On the date hereof, the
Investors shall lend to the Company and its Subsidiaries and the Company and its
Subsidiaries shall borrow from the Investors, the aggregate principal amount of
Six Million Dollars ($6,000,000), upon the terms and subject to the conditions
of this Section 2.
2.2 Promissory Notes. The indebtedness of the Company and
its Subsidiaries to the Investors for the Subordinated Loan pursuant to this
Section 2 will be evidenced by convertible subordinated promissory notes
executed by the Company and its Subsidiaries in favor of each Investor, in the
principal amount set forth opposite its name on Schedule 2.2, such notes to be
in substantially the form attached hereto as Exhibit A (each a "Note" and
collectively the "Notes"). The Notes are convertible into an aggregate of
1,714,286 shares of Common Stock on or before February 15, 2004 and shall be
subordinated to all bank and other commercial lending obligations of the Company
and its Subsidiaries outstanding on the date hereof or incurred in accordance
with the terms hereof from time to time hereafter, but shall be senior to all
other debt of the Company and its Subsidiaries.
2.3 Issuance of Warrants. Concurrently with the delivery by
the Company of the Notes, the Company shall issue to, and in the name of, each
Investor stock purchase warrants to acquire the number of shares of the
Company's Common Stock set forth opposite their name on Schedule 2.3 on or
before February 15, 2005 at an exercise price of Three Dollars and Fifty Cents
($3.50) (the "Warrants"). The Warrants issued in accordance with this Section
2.3 shall be in substantially the form attached hereto as Exhibit B.
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3. Use of Proceeds. The net proceeds received by the Company
and its Subsidiaries hereunder shall be used by the Company and its Subsidiaries
for the purposes set forth on Schedule 3.
4. Closing. The closing of the purchase and sale of the Notes
and the Warrants (the "Closing") shall take place at the offices of Pepper
Hamilton LLP in Berwyn, Pennsylvania on February 15, 2000, or at such other
place and time as the Company and the Investors may otherwise agree (the
"Closing Date"). At the Closing, the Company and its Subsidiaries will deliver
to the Investors the Notes and the Company will deliver to the Investors the
Warrants to be purchased at such Closing against payment of the purchase price
therefor by wire transfer to such account as shall be designated by the Company.
5. Representations and Warranties of the Company. Except as
set forth in the Company's disclosure schedules which are attached to and
incorporated by reference into, this Agreement, the Company hereby represents
and warrants to the Investors as follows:
5.1 Organization and Qualification; Subsidiaries. Each of
the Company and each Subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect (as defined below). The Company and each Subsidiary is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect. When used in connection with the Company or any
Subsidiary, the term "Material Adverse Effect" means any effect that is or is
reasonably likely to be materially adverse to the business, operations,
condition or assets (including, without limitation, contingent liabilities) of
the Company and the Subsidiaries taken as a whole. A true and complete list of
all the Subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary and the percentage of the outstanding capital stock of each
Subsidiary owned by the Company and each other Subsidiary, is set forth in
Section 5.1 of the Disclosure Schedule, which has been delivered prior to the
date of this Agreement by the Company to the Investors and which is attached
hereto (the "Disclosure Schedule"). Except as disclosed in such Schedule, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
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5.2 Articles of Incorporation and Bylaws. The Company has
heretofore furnished to the Investors a complete and correct copy of the Amended
and Restated Articles of Incorporation, as amended ("Articles of Incorporation")
and the Bylaws or equivalent organizational documents, each as amended to date,
of the Company and each Subsidiary. Such Articles of Incorporation, Bylaws and
equivalent organization documents are in full force and effect. Neither the
Company nor any Subsidiary is in violation of any provision of its Articles of
Incorporation, Bylaws or equivalent organizational documents.
5.3 Capitalization.
(a) The authorized capital stock of the Company
consists of 10,000,000 shares of preferred stock (none of which is issued and
outstanding) and 40,000,000 shares of Common Stock. As of the date hereof,
(i) 6,633,316 shares of Common Stock are issued
and outstanding, all of which are validly issued, fully paid and nonassessable,
(ii) no shares of Common Stock are held by the
Subsidiaries,
(iii) 600,000 shares of Common Stock are reserved
for issuance pursuant to stock options granted pursuant to the Company's Stock
Option Plan or otherwise of which options to purchase an aggregate of 465,000 of
Common Stock have been granted to date, and
(iv) an additional 1,000,000 shares of Common
Stock are reserved for issuance pursuant to stock options that may be granted to
certain management employees.
Except as set forth in this Section 5.3 or Section 5.3 of the
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any Subsidiary or obligating the Company or any
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any Subsidiary. All shares of Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section 5.3
of the Disclosure Schedule, there are no outstanding contractual obligations of
the Company or any Subsidiary to repurchase, redeem or otherwise acquire any
shares of Common Stock or any capital stock of any Subsidiary or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any Subsidiary or any other person. Each outstanding
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share of capital stock of each Subsidiary is duly authorized, validly issued,
fully paid and nonassessable.
(b) 1,714,286 shares of Common Stock have been duly
reserved for issuance upon conversion of the Notes. The issuance, sale and
delivery of such shares of Common Stock have been duly authorized by all
requisite corporate action of the Company and when so issued, sold and
delivered, such shares of Common Stock will be validly issued and outstanding,
fully paid and nonassessable, not subject to preemptive or any other similar
rights of the shareholders of the Company or others and free and clear of any
and all liens and encumbrances except as contemplated by this Agreement.
(c) 1,800,000 shares of Common Stock have been duly
reserved for issuance upon exercise of the Warrants. The issuance, sale and
delivery of such shares of Common Stock have been duly authorized by all
requisite corporate action of the Company and when so issued, sold and
delivered, such shares of Common Stock will be validly issued and outstanding,
fully paid and nonassessable, not subject to preemptive or any other similar
rights of the shareholders of the Company or others and free and clear of any
and all liens and encumbrances except as contemplated by this Agreement.
5.4 Authority Relative to this Agreement. The Company has
all necessary power and authority to execute and deliver this Agreement, the
Notes and the Warrants to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby (the
"Transactions"). The execution and delivery of this Agreement, the Notes and the
Warrants by the Company and the consummation by the Company of the Transactions
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement, the Notes and the Warrants, or to consummate the
Transactions. This Agreement, the Notes and the Warrants, have been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the Investors of the Agreement,
constitute legal, valid and binding obligations of the Company.
5.5 No Conflict; Required Filings and Consents.
(a) Except as set forth in Section 5.5(a) of the
Disclosure Schedule, the execution and delivery of this Agreement, the Notes and
the Warrants by the Company do not, and the performance of this Agreement by the
Company will not, (a) conflict with or violate the Articles of Incorporation or
Bylaws or equivalent organizational documents of the Company or any Subsidiary,
(b) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any Subsidiary is bound or subject or (c) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any right of
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termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance of any nature on any property or asset
of the Company or any Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any property or asset of the Company or
any Subsidiary is bound or subject, in each case except for any such conflicts,
violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) Except as set forth in Section 5.5(b) of the
Disclosure Schedule, the execution and delivery of this Agreement, the Notes and
the Warrants by the Company do not, and the performance of this Agreement, the
Notes and the Warrants by the Company will not, require any consent, approval,
authorization or permit of, or filing with, or notification to, any governmental
or regulatory authority, domestic or foreign, except (i) for any filing required
under applicable federal or state securities laws, (ii) for consents, approvals,
authorizations or permits which have already been obtained, and (iii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay the Company from
performing its obligations under this Agreement, the Notes and the Warrants, and
would not, individually or in the aggregate, have a Material Adverse Effect.
5.6 Compliance. Except as set forth in Section 5.6 of the
Disclosure Schedule, neither the Company nor any Subsidiary is in conflict with,
or in default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any subsidiary is bound or subject or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any property
or asset of the Company or any Subsidiary is bound or subject, except for any
such conflicts, defaults or violations that would not, individually or in the
aggregate, have a Material Adverse Effect.
5.7 SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports and
documents required to be filed by it with the SEC, and has heretofore delivered
or made available to the Investors, in the form filed with the SEC, (a) its
Annual Reports on Form 10-K for the fiscal years ended December 31, 1997 and
1998, respectively, (b) its Quarterly Reports on Form 10-Q for the periods ended
March 31, June 30 and September 30, 1999, (c) all proxy statements relating to
the Company's meetings of shareholders (whether annual or special) held in this
period and (d) all other forms, reports and other registration statements filed
by the Company with the SEC since January 1, 1999 (the forms, reports and other
documents referred to in clauses (a), (b), (c) and (d) above being referred to
herein, collectively, as the "SEC Reports"). The SEC Reports (i) were prepared
in all material respects in accordance with the requirements of the Securities
Act, and the Exchange
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Act, as the case may be, and the rules and regulations promulgated thereunder
and (ii) did not, at the time they were filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No Subsidiary is
required to file any form, report or other document with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the SEC Reports was
prepared in all material respects in accordance with GAAP throughout the periods
indicated (except as may be indicated in the notes thereto) and each fairly
presents in all material respects the consolidated financial position, results
of operations and changes in shareholders' equity and cash flows of the Company
and the consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein (subject, in the case of unaudited
statements, to the absence of notes and to normal and recurring year-end
adjustments none of which individually or in the aggregate would have a Material
Adverse Effect.
(c) Except as and to the extent set forth on the
consolidated balance sheet of the Company and the consolidated Subsidiaries as
at December 31, 1998 including the notes thereto (the "1998 Balance Sheet"), or
in Section 5.7 of the Disclosure Schedule, neither the Company nor any
Subsidiary has any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise) which would be required to be reflected on a
balance sheet, or in the notes thereto, prepared in accordance with GAAP, except
for liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 1998 and liabilities and
obligations which do not individually or in the aggregate have a Material
Adverse Effect.
5.8 Absence of Certain Changes or Events. Since September
30, 1999, except as set forth in Section 5.8 of the Disclosure Schedule or as
contemplated by this Agreement or disclosed in any SEC Report filed since
September 30, 1999 and prior to the date of this Agreement, the Company and the
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since September 30, 1999, there has
not been (i) any change in the business, operations, properties, condition,
assets or liabilities of the Company or any Subsidiary having, individually or
in the aggregate, a Material Adverse Effect, (ii) any damage, destruction or
loss (whether or not covered by insurance) with respect to any property or asset
of the Company or any Subsidiary and having, individually or in the aggregate, a
Material Adverse Effect, (iii) any material change by the Company in its
accounting methods, principles or practices, (iv) any revaluation by the Company
of any asset (including, without limitation, any writing down of the value of
inventory or writing off of notes or accounts receivable), other than in the
ordinary course of business consistent with past practice, (v) any failure by
the Company to revalue any asset in accordance with GAAP consistent with past
practice, (vi) any entry by the Company or any Subsidiary into any commitment or
transaction material to the Company and the
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Subsidiaries taken as a whole, (vii) any declaration, setting aside or payment
of any dividend or distribution in respect of any capital stock of the Company
(except for cash dividends consistent with the Company's current dividend policy
and described in Section 5.8 of the Disclosure Schedule) or any redemption,
purchase or other acquisition of any of its securities, (viii) other than
pursuant to the contracts referred to in Section 5.16, any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any officers or key employees of the Company or any Subsidiary,
except in the ordinary course of business consistent with past practice, or (ix)
any entering into, renewal, modification or extension of, any contract,
arrangement or agreement with any other party having individually or in the
aggregate, a Material Adverse Effect.
5.9 Absence of Litigation. Except as set forth in Section
5.9 of the Disclosure Schedule or as disclosed in the SEC Reports filed prior to
the date of this Agreement, there is no claim, action, proceeding or
investigation pending or, to the Knowledge of the Company, threatened against
the Company or any Subsidiary, or any property or asset of the Company or any
Subsidiary, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign. As of the date hereof,
neither the Company nor any Subsidiary nor any property or asset of the Company
or any Subsidiary is subject to any order, writ, judgment, injunction, decree,
determination or award having, individually or in the aggregate, a Material
Adverse Effect.
5.10 Employee Benefit Plans.
(a) Section 5.10 of the Disclosure Schedule contains a
true and complete list of (i) all employee benefit plans (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements to which the Company or any Subsidiary is a party, with respect to
which the Company or any Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or any Subsidiary for the benefit of
any current or former employee, officer or director of the Company or any
Subsidiary and (ii) each employee benefit plan for which the Company or any
Subsidiary could incur liability under Section 4069 of ERISA, in the event such
plan were terminated, or under Section 4212(c) of ERISA, or in respect of which
the Company or any Subsidiary remains secondarily liable under Section 4204 of
ERISA (collectively, the "Plans"). Except as set forth in Section 5.10 of the
Disclosure Schedule, no Plan is a "defined benefit plan" within the meaning of
Section 3(35) of ERISA and no Plan is subject to Part IV of ERISA. Each Plan is
in writing and the Company has previously furnished the Investors with or made
available to the Investors a true and complete copy of each Plan and a true
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and complete copy of each material document prepared in connection with each
such Plan, including, without limitation, (i) a copy of each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed IRS Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the most
recently prepared financial statement in connection with each such Plan. Except
as set forth in Section 5.10 of the Disclosure Schedule, neither the Company nor
any Subsidiary has any obligation (i) to create, incur liability with respect to
or cause to exist any other employee benefit plan, program or arrangement, (ii)
to enter into any contract or agreement to provide compensation or benefits to
any individual or (iii) to modify, change or terminate any Plan, other than with
respect to a modification, change or termination required by ERISA or the Code.
(b) Except as set forth in Section 5.10 of the
Disclosure Schedule none of the Plans (i) provides for the payment of
separation, severance or termination benefits to any person, (ii) obligates the
Company or any Subsidiary to pay separation, severance, termination or other
benefits as a result of any Transaction or (iii) obligates the Company or any
Subsidiary to make any payment or provide any benefit that could be subject to a
tax under Section 4999 of the Code. Except as disclosed in Section 5.10 of the
Disclosure Schedule, none of the Plans provides for or promises retiree medical,
disability or life insurance benefits to any current or former employee, officer
or director of the Company or any Subsidiary.
(c) Except as set forth in Section 5.10 of the
Disclosure Schedule, each Plan which is intended to be qualified under Section
401(a) or 401(k) of the Code has received a favorable determination letter from
the IRS that such Plan is so qualified, and each trust established in connection
with any Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
such trust is so exempt. To the Knowledge of the Company, no fact or event has
occurred since the date of any such determination letter from the IRS that could
adversely affect the qualified status of any such Plan or the exempt status of
any such trust. Each trust maintained or contributed to by the Company or any
Subsidiary which is intended to be qualified as a voluntary employees'
beneficiary association exempt from federal income taxation under Sections
501(a) and 501(c)(9) of the Code has received a favorable determination letter
from the IRS that it is so qualified and so exempt, and, to the Knowledge of the
Company, no fact or event has occurred since the date of such determination by
the IRS that could adversely affect such qualified or exempt status.
(d) There has been no prohibited transaction (within
the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to
any Plan which is not subject to a statutory exemption or which could result in
any material liability to the Company. Neither the Company nor any Subsidiary is
currently liable or has previously incurred any liability for any tax or penalty
arising under Section 4971, 4972, 4979, 4980 or 4980B of the Code or Section
502(c) of ERISA, and to the Knowledge of the Company no fact or event exists
which could give rise to any such liability. Neither the Company nor any
Subsidiary has incurred any liability under, arising out
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of or by operation of Title IV of ERISA, including, without limitation, any
liability in connection with (i) the termination or reorganization of any
employee pension benefit plan subject to Title IV of ERISA or (ii) the
withdrawal from any Multiemployer Plan or Multiple Employer Plan, and no fact or
event exists which could give rise to any such liability.
(e) To the Knowledge of the Company, each Plan is now
and has been operated in all respects in accordance with the requirements of all
applicable laws, including, without limitation, ERISA and the Code, and the
Company and each Subsidiary have performed all obligations required to be
performed by them under, are not in any respect in default under or in violation
of, and have no Knowledge of any default or violation by any party to, any Plan.
All contributions, premiums or payments required to be made with respect to any
Plan have been timely made, are fully deductible for income tax purposes and no
such deduction previously claimed has been challenged by any government entity.
The 1998 Balance Sheet reflects an accrual of all amounts of employer
contributions and premiums accrued but unpaid with respect to the Plans.
(f) The Company and the Subsidiaries have not incurred
any liability under, and have complied in all respects with, the Worker
Adjustment Retraining Notification Act and the regulations promulgated
thereunder ("WARN").
5.11 Labor Matters. Except as set forth in Section 5.11 of
the Disclosure Schedule, (i) there are no controversies pending or, to the
Knowledge of the Company, threatened between the Company or any Subsidiary and
any of their respective employees, which controversies have had or could have a
Material Adverse Effect; (ii) neither the Company nor any Subsidiary is a party
to any collective bargaining agreement or other labor union contract applicable
to persons employed by the Company or any Subsidiary, nor, to the Knowledge of
the Company, are there any activities or proceedings of any labor union to
organize any such employees; (iii) neither the Company nor any Subsidiary has
breached or otherwise failed to comply with any provision of any such agreement
or contract and there are no grievances outstanding against the Company or any
Subsidiary under any such agreement or contract; (iv) there are no unfair labor
practice complaints pending against the Company or any Subsidiary before the
National Labor Relations Board or any current union representation questions
involving employees of the Company or any Subsidiary; and (v) there is no
strike, slowdown, work stoppage or lockout, or, to the Knowledge of the Company,
threat thereof, by or with respect to any employees of the Company or any
Subsidiary.
5.12 Tangible Property; Real Property and Leases.
(a) The Company and the Subsidiaries have sufficient
title to or leasehold interests in all their tangible properties and assets to
conduct their respective businesses as currently conducted, with only such
exceptions as, individually or in the aggregate, would not have a Material
Adverse Effect.
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(b) No parcel of real property owned or leased by the
Company is subject to any governmental decree or order to be sold nor is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the Knowledge of the Company,
has any such condemnation, expropriation or taking been proposed.
(c) Except as set forth on Section 5.12 to the
Disclosure Schedule, all leases of real property leased for the use or benefit
of the Company or any Subsidiary to which the Company or any Subsidiary is a
party requiring annual rental payments in excess of U.S. $50,000 during the term
of the lease are in full force and effect, and there exists no default under any
such lease by the Company or any Subsidiary, nor to the Knowledge of the Company
any event which with notice or lapse of time or both would constitute a default
thereunder by the Company or any Subsidiary, except as, individually or in the
aggregate, would not have a Material Adverse Effect.
5.13 Trademarks, Patents and Copyrights. Except as set
forth in Section 5.13 of the Disclosure Schedule, the Company and the
Subsidiaries own or possess adequate licenses or other valid rights to use all
patents, patent rights, trademarks, trademark rights, trade names, trade dress,
trade name rights, copyrights, servicemarks, trade secrets, applications for
trademarks and for servicemarks, mask works, know-how and other proprietary
rights and information used or held for use in connection with the business of
the Company and the Subsidiaries and the Company is unaware of any assertion or
claim challenging the validity of any of the foregoing which, individually or in
the aggregate, could have a Material Adverse Effect. Except as set forth in
Section 5.13 of the Disclosure Schedule, to the Knowledge of the Company, the
conduct of the business of the Company and the Subsidiaries as conducted since
December 31, 1998 does not conflict in any way with any patent, patent right,
license, trademark, trademark right, trade dress, trade name, trade name right,
service mark, mask work or copyright of any third party that, individually or in
the aggregate, could have a Material Adverse Effect. To the Knowledge of the
Company, there are no infringements of any propriety rights owned by or licensed
by or to the Company or any Subsidiary which, individually or in the aggregate,
could have a Material Adverse Effect.
5.14 Taxes. The Company and the Subsidiaries have filed all
federal, state, local and foreign tax returns and reports required to be filed
by them (taking into account applicable extensions) and have paid and discharged
all federal, state, local and foreign taxes as are due and have paid all
applicable ad valorem taxes as are due, other than (i) such payments as are
being contested in good faith by appropriate proceedings and (ii) such filings,
payments or other occurrences that, individually or in the aggregate, could not
result in a Material Adverse Effect. Neither the IRS nor any other taxing
authority or agency, domestic or foreign, is now asserting or, to the Knowledge
of the Company, threatening to assert against the Company or any Subsidiary any
deficiency or claim for additional taxes or interest thereon or penalties in
connection therewith. Neither the Company nor any Subsidiary has granted any
waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any federal, state, county, municipal or foreign
income tax which is currently in effect. The accruals and reserves for taxes
reflected in
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the 1998 Balance Sheet and the interim balance sheet for the period ended
September 30, 1999 are adequate to cover all taxes accruable through closing
date (including interest and penalties, if any, thereon) in accordance with
GAAP. Neither the Company nor any Subsidiary has made an election under Section
341(f) of the Code.
5.15 Environmental Matters.
(a) For purposes of this Agreement, the following
terms shall have the following meanings: (i) "Hazardous Substances" means (A)
any petroleum or petroleum product, including crude oil, and any fractions
thereof, natural gas, natural gas liquids, synthetic gas or polychlorinated
biphenyls; (B) any pollutant or contaminant; or (C) any substance with respect
to which a federal, state or local agency requires environmental investigation,
monitoring, reporting or remediation; and (ii) "Environmental Law," means any
federal, state or local law relating to (A) releases or threatened releases of
Hazardous Substances; (B) the manufacture, handling, transport, use, treatment,
storage or disposal of Hazardous Substances; or (C) otherwise relating to
pollution of the environment or the protection of human health.
(b) Except as described in Section 5.15 of the
Disclosure Schedule: (i) the Company's and its Subsidiaries' operations are not
violating any applicable Environmental Law; (ii) the Company and the
Subsidiaries have all material permits and licenses required under any
applicable Environmental Law to conduct its business; (iii) the soils, surface
and ground waters at the properties owned or leased by the Company or any of its
Subsidiaries have not been contaminated with any Hazardous Substance by the
Company's or any Subsidiary's operations to any extent requiring removal or
remediation under any Environmental Law; (iv) neither the Company nor any
Subsidiary has received any written notice of violation under any Environmental
Law which notice of violation remains unresolved; and (v) to the Knowledge of
the Company, no Hazardous Substances are present on or under any real property
owned or occupied by the Company or any of its Subsidiaries or have emanated
from or been transported from any such real property except in compliance with
applicable Environmental Law.
(c) Notwithstanding anything in this Agreement to the
contrary, this Section 5.15 is the exclusive representation and warranty as to
all matters related to or arising from Environmental Laws, Hazardous Substances,
pollution, contamination, exposure to or the presence of Hazardous Substances
and any conditions attributed to any of the foregoing.
5.16 Material Contracts. Each contract or agreement to
which the Company or any of the Subsidiaries is a party that is material to the
Company or any Subsidiary (a "Material Contract") is in full force and effect
and is enforceable against the Company or Subsidiary, as the case may be, in
accordance with its terms and no condition or state of facts exists that, with
notice or the passage of time, or both, would constitute a material default by
the Company or any Subsidiary or, to the Knowledge of the Company, any third
party under such Material Contracts. The Company
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or the applicable Subsidiary has duly complied in all material respects with the
provision of each Material Contract to which it is a party except where any
failure would not have a Material Adverse Effect. Copies of each Material
Contract have either been furnished to the Investors directly by the Company or
are attached as an exhibit to the Company's SEC Reports, which have been
delivered or made available to the Investors in accordance with Section 5.7(a)
hereto.
5.17 Brokers. Except as set forth in Section 5.17 to the
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of the Company.
5.18 Offering Exemption. Assuming with respect to the
Investors the accuracy of the representations, warranties, acknowledgments and
agreements of the Investors set forth in Section 6 hereof, the issuance of the
Notes, the offering for sale of each of the Warrants and the issuance of Common
Stock upon conversion of the Notes and upon exercise of the Warrants are exempt
from registration under the Securities Act and from registration or
qualification under applicable state securities or blue sky laws.
6. Representations and Warranties of the Investors. Each
Investor, severally and not jointly, represents and warrants about itself to the
Company as follows:
6.1 Such Investor is acquiring the Note in the amount set
forth opposite its name on Schedule 2(b), the Warrant, the Common Stock to be
issued upon exercise of the Warrant and the Common Stock to be issued upon
conversion of the Note solely for its own account, for investment and not with a
view to the distribution thereof within the meaning of the Securities Act.
6.2 Such Investor understands that the Note, the Warrant,
the Common Stock to be issued upon exercise of the Warrant and the Common Stock
to be issued upon conversion of the Note have not been registered or qualified
under the Securities Act or any state securities laws, by reason of their
issuance and sale in transactions exempt from the registration or qualification
requirements of the Securities Act and applicable state securities laws. Such
Investor acknowledges that reliance on said exemptions is predicated in part on
the accuracy of its representations and warranties herein. Such Investor
acknowledges and agrees that the Note, the Warrant, the Common Stock to be
issued upon exercise of the Warrant and the Common Stock to be issued upon
conversion of the Note, must be held indefinitely unless a subsequent
disposition thereof is registered or qualified under the Securities Act and
applicable state securities laws or is exempt from registration; and that,
except as required herein, the Company is not required so to register or qualify
any such securities or to take any action to make such an exemption available
except to the extent provided herein.
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6.3 Such Investor further understands that the exemption
from registration afforded by Rules 144 and 144A (the provisions of which are
known to it) issued under the Securities Act depends on the satisfaction of
various conditions and that, if applicable, Rules 144 and 144A afford the basis
for sales under certain circumstances only in limited amounts.
6.4 Such Investor represents and warrants to the Company
that it will not Transfer the Note, the Warrant, the Common Stock to be issued
upon exercise of the Warrant and/or the Common Stock to be issued upon
conversion of the Note, except in accordance with the terms of this Agreement,
the Note and the Warrant, as the case may be, and in compliance with the
Securities Act and applicable state securities laws. The parties acknowledge
that each Institutional Investor may transfer the Note, the Warrant, the Common
Stock to be issued upon exercise of the Warrants or the Common Stock to be
issued upon conversion of the Note to one or more of its partners or a trust
established for their benefit, subject to compliance with the Securities Act and
applicable state securities laws.
6.5 Such Investor represents and warrants to the Company
that (i) it has such knowledge and experience in financial and business matters
as is necessary to enable it to evaluate the merits and risks of an investment
in the Company and is not utilizing any other person to be its purchaser
representative in connection with evaluating such merits and risks; (ii) it has
no present need for liquidity in its investment in the Company and is able to
bear the risk of that investment for an indefinite period and to afford a
complete loss thereof, and (iii) it was not formed for the specific purpose of
making an investment in the Company.
6.6 Such Investor represents and warrants to the Company
that it is qualified as an "accredited investor" as defined in Rule 502
promulgated under the Securities Act of 1933.
6.7 Such Investor acknowledges that it has been provided
with and has been furnished with all information it has requested from the
Company and has had an opportunity to review all of the books and records of the
Company and to discuss with management of the Company all of the business and
financial affairs of the Company.
6.8 Such Investor represents and acknowledges that it has
received a copy of the documents and items on the data room diskette delivered
to such Investor, and it has had the opportunity to ask questions of and to
receive answers from the Company concerning, and to review all books and records
of the Company and to obtain additional information regarding, the Company and
such documents and items to such Investor's satisfaction, that such Investor has
in fact asked all such questions, received such answers and obtained such
information to such Investor's satisfaction.
7. Deliveries. At the Closing:
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7.1 The Company shall cause to be delivered to the
Investors the following:
(a) Subordinated Notes in accordance with Section 2.2
hereof to each Investor, in the principal amount set forth next to such
Investor's name on Schedule 2(b);
(b) The Warrants in accordance with Section 2.3
hereof;
(c) A "Good Standing Certificate" of the Company in
the Commonwealth of Pennsylvania dated as of a recent date and a certified copy
of the Articles of Incorporation of the Company issued by the Secretary of the
Commonwealth of the Commonwealth of Pennsylvania as of a recent date;
(d) A Certificate of the Secretary of the Company
attaching (A) the Articles of Incorporation of the Company in effect at the
Closing, (B) the Bylaws of the Company in effect at the Closing, (C) copies of
resolutions by the Board of Directors authorizing and approving this Agreement,
the issuance and delivery of the Notes, the Warrants, the Common Stock to be
issued upon exercise of the Warrants and the Common Stock to be issued upon
conversion of the Notes, and the consummation of the transactions contemplated
hereby; and (D) certifying as to the incumbency of the officers entering into
this Agreement and the documents contemplated by this Agreement; and
(e) An opinion of Pepper Hamilton, LLP satisfactory in
form and substance to each Investor.
7.2 The Investors shall cause to be delivered to the
Company Six Million Dollars ($6,000,000) and TDH, pursuant to Section 8.1(c)
hereof, shall have requested that J.B. Doherty be elected or appointed to the
Board of Directors of the Company as TDH's designee.
8. Affirmative Covenants of the Company.
8.1 The Company covenants and agrees that, so long as
either Institutional Note is outstanding (in which case references to the
Investors in this Section 8.1 shall refer to those Investor(s) holding an
Institutional Note) and thereafter so long as either Institutional Warrant is
outstanding and entitles the holder thereof to acquire five percent (5%) or more
of the issued and outstanding Common Stock of the Company on a fully diluted
basis (in which case references to the Investors in this Section 8.1 shall refer
to those Investor(s) holding such Institutional Warrant(s), except to the extent
the Company receives the approval of a Required Interest of the Institutional
Investors:
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(a) Accounts, Reports and Notices. The Company and its
Subsidiaries will maintain a system of accounts in accordance with generally
accepted accounting principles consistently applied, will keep full and complete
financial records and will furnish to the Investors:
(i) within ninety (90) days after the end of each
fiscal year, beginning with the fiscal year ending December 31, 1999, a copy of
the balance sheet of the Company and its Subsidiaries as at the end of such
year, together with statements of income, shareholder's equity and cash flows of
the Company and its Subsidiaries for such year, all audited by a firm of
independent accountants reasonably acceptable to the Investors;
(ii) within forty-five (45) days after the end of
each fiscal quarter (except for the fourth quarter), a copy of the internally
prepared unaudited balance sheet of the Company and its Subsidiaries as of the
end of such quarter and statements of income and cash flow of the Company and
its Subsidiaries for such quarter and for the portion of the fiscal year ending
on the last day of such quarter; and
(iii) within twenty (20) days after the end of
each month, a copy of the internally prepared balance sheet of the Company as at
the end of such month and statements of income and cash flow of the Company and
its Subsidiaries for such month and for the portion of the fiscal year ending on
the last day of such month.
(b) Other Reports and Inspection. The Company, upon
reasonable prior written notice and subject to reasonable confidentiality
measures, will make available to the Investors or its representatives or
designees during normal business hours (a) all assets, properties and business
records of the Company and its Subsidiaries for inspection and copying and (b)
the directors, officers, employees and public accountant (and by this provision
the Company hereby authorizes and instructs said accountants to discuss with
such holder and such designees its affairs, finances and accounts and the
responses of attorneys representing the Company and its Subsidiaries to
inquiries made by the Company and its Subsidiaries on behalf of said accountants
in connection with their audit of the financial affairs of the Company and its
Subsidiaries) of the Company and its Subsidiaries for interviews concerning the
business, affairs and finances of the Company.
(c) Election of Directors. The Company, if requested
to do so in writing by an Institutional Investor (a "Requesting Investor"), will
promptly take all reasonable actions necessary to increase the size of the Board
of Directors by one (1) for each Requesting Investor (unless a vacancy shall
exist) and fill the vacancy created thereby (or such existing vacancy) by
electing or appointing as director a person designated by the Requesting
Investor to serve in such capacity as a member of the Board of Directors of the
Company until the next annual meeting of the shareholders of the Company.
Thereafter, the Company agrees to include a nominee of each Requesting Investor
in management's slate of nominees to be elected to the Board of Directors and
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to recommend to the shareholders of the Company the election of such nominee.
Any designee or nominee of a Requesting Investor shall be reimbursed for all
reasonable expenses incurred as a director and shall be entitled to receive such
compensation as may be received by other non-employee directors of the Company.
(d) Observer Rights. An Institutional Investor that
has not elected to be a Requesting Investor under paragraph (iii) above, shall
be entitled to have one (1) observer attend each meeting of the Board of
Directors (subject to the ability of the Board of Directors to meet in closed
session in instances of potential conflicts of interest), and each such observer
shall be given notice of each meeting by the Company in accordance with the
Company's Bylaws and Certificate of Incorporation and shall be provided with
copies of all materials distributed to the Board of Directors in connection with
such meeting as if such observer were a member of the Board of Directors.
Observers shall be reimbursed for all reasonable expenses incurred as an
observer.
8.2 The Company covenants and agrees that, so long as
either Institutional Note is outstanding (in which case references to the
Investors in this Section 8.2 shall refer to those Investor(s) holding such
Institutional Note(s)), except to the extent the Company receives the approval
of a Required Interest of the Institutional Investors:
(a) Corporate Existence, Etc. Each of the Company and
its Subsidiaries will preserve and keep in force and effect its corporate
existence and good standing in the state of its incorporation, its qualification
and good standing as a foreign corporation in each jurisdiction where such
qualification is required by applicable law except where the failure to so
qualify would not have a Material Adverse Effect and all licenses and permits
necessary to the proper conduct of its business except where the failure to have
such licenses and permits would not have a Material Adverse Effect; provided,
however, that nothing in this Section 8.2(a) shall preclude mergers among the
Company and its Subsidiaries or the transfer of assets among the Company and its
Subsidiaries.
(b) Maintenance, Etc. Each of the Company and its
Subsidiaries will maintain, preserve and keep its properties and assets which
are used in the conduct of its business (whether owned in fee or pursuant to a
leasehold interest) in good repair and working order and from time to time will
make all necessary repairs, replacements, renewals and additions so that at all
times the efficiency thereof shall be maintained except where the failure to
maintain, keep and preserve such properties and assets in good repair and good
working order could not reasonably be expected to have a Material Adverse
Effect.
(c) Nature of Business. The Company and its
Subsidiaries will not engage in any business if, as a result, the general nature
of the business which would then be engaged in by the Company and its
Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and its Subsidiaries on the date of this
Agreement.
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(d) Insurance. The Company and its Subsidiaries will
maintain insurance coverage by financially sound and reputable insurers with
respect to their properties and business in such forms and amounts and against
such risks, casualties and contingencies as is usually carried by companies
engaged in the same or similar business and similarly situated.
(e) Taxes; Claims for Labor and Materials. The Company
and its Subsidiaries will promptly pay and discharge (i) all lawful taxes,
assessments and governmental charges or levies imposed upon the property or
business of the Company and/or its Subsidiaries, (ii) all trade accounts payable
in accordance with usual and customary business terms, and (iii) all claims for
work, labor or materials, which if unpaid, might become a lien or charge upon
any property of the Company and/or its Subsidiaries; provided, however, neither
the Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy, account payable or claim if (a) the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any property
of the Company and/or its Subsidiaries or any material interference with the use
thereof by the Company and/or its Subsidiaries, and (b) the Company shall set
aside on its books, reserves reasonably deemed by it to be adequate with respect
thereto to the extent required under GAAP.
(f) Compliance with Laws, Agreements. etc. Each of the
Company and its Subsidiaries shall maintain its business operations and property
owned or used in connection therewith in compliance with (i) all applicable
federal, state and local laws, regulations and ordinances, and such laws,
regulations and ordinances of foreign jurisdictions, governing such business
operations and the use and ownership of such property, and (ii) all agreements,
licenses, franchises, indentures and mortgages to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of its or
their respective properties are bound. Without limiting the foregoing, the
Company and its Subsidiaries shall pay all material indebtedness promptly and
substantially in accordance with the terms thereof.
8.3 Reservation of Common Stock. The Company shall reserve
and keep available out of its authorized but unissued Common Stock the number of
shares of Common Stock required for issuance upon the exercise of each of the
Warrants and the conversion of the Notes (including any additional shares of
Common Stock which may become so issuable by reason of the operation of
anti-dilution provisions of the Warrants).
9. Negative Covenants of the Company. The Company covenants
and agrees that, so long as either Institutional Note is outstanding (in which
case references to the Investors in this Section 9 shall refer to those
Investor(s) holding such Institutional Note(s)), except to the extent the
Company receives the approval of a Required Interest of the Institutional
Investors:
9.1 No Dispositions. Neither the Company nor any of its
Subsidiaries will sell, lease, encumber or otherwise dispose of or agree to
sell, lease, encumber or otherwise dispose
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of, in any transaction or series of related transactions, all or substantially
all of the assets of the Company and the Subsidiaries taken as a whole, provided
that nothing herein shall prevent transfers of assets among Subsidiaries or
among the Company and its Subsidiaries.
9.2 Restrictions on Indebtedness. Neither the Company nor
any of its Subsidiaries will incur any new Indebtedness except: (i) the
Indebtedness proposed under the Commerce Bank commitment in the total amount of
$15,000,000 set forth in that certain letter dated January 26, 2000, that
refinances the existing Indebtedness to First Union National Bank, a copy of
which is attached hereto as Schedule 9(b), including any additional borrowing
availability that might arise under the revolving credit formula provided for
therein resulting from term debt amortization and/or the generation of
additional collateral, up to the $15,000,000 limitation; (ii) purchase money
indebtedness (including lease obligations) incurred in connection with the
purchase of equipment in the ordinary course of business; and (iii) indebtedness
incurred, assumed or arising from the acquisition of a business or from the
formation of a joint venture or partnership arrangement within the scope of the
Company's primary business (subject to a cumulative limit of $2,000,000).
9.3 Limitation on Liens. Neither the Company nor any of its
Subsidiaries will create or incur, or suffer to be incurred or to exist, any
mortgage, pledge, security interest, encumbrance, lien or charge of any kind
(collectively, "Liens") on its property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations in
priority to the payment of its general creditors, or acquire or agree to
acquire, any property or assets upon conditional sales agreement or other title
retention devices, except (i) the existing Liens in favor of First Union Bank
and (ii) Liens which secure Indebtedness permitted by Section 9.2, and except:
(a) Liens for taxes not yet due and payable and Liens
for taxes, assessments and governmental charges or levies which the Company is
contesting in good faith by proper proceedings and as to which appropriate
reserves are being maintained in accordance with GAAP on the books of the
Company;
(b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other similar liens
arising in the ordinary course of business and securing obligations (other than
indebtedness for borrowed money) that (A) are not overdue for a period of more
than 60 days or (B) are being contested in good faith by proper proceedings and
as to which appropriate reserves are being maintained in accordance with GAAP on
the books of the Company;
(c) pledges or deposits to secure obligations under
worker's compensation laws or other similar legislation or to secure public or
statutory obligations;
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(d) Liens securing the performance of, or payment in
respect of, bids, tenders, government contracts (other than for the repayment of
borrowed money), surety and appeal bonds and other obligations of a similar
nature incurred in the ordinary course of business;
(e) other encumbrances consisting of zoning
restrictions, easements, restrictions on the use of real property or minor
irregularities in the title thereto, which do not arise in connection with the
borrowing of, or any obligation for the payment of, money and which, in the
aggregate, do not materially detract from the value of the premises or the
business, properties or assets of the Company.
9.4 Restricted Payments. The Company will not, directly or
indirectly, purchase, redeem or retire any shares of its capital stock of any
class or any warrants, rights or options to purchase or acquire any shares of
its capital stock.
9.5 Investments. Neither the Company nor any of the
Subsidiaries will make any investments outside the ordinary course of business
of the Company or such Subsidiary except:
(a) investments in direct obligations of the United
States of America, or any agency or instrumentality of the United States of
America, the payment or guaranty of which constitutes a full faith and credit
obligation of the United States of America, in either case maturing in twelve
months or less from the date of acquisition thereof;
(b) investments in certificates of deposit maturing
within one year from the date of origin, issued by a bank or trust company
organized under the laws of the United States or any state thereof, having
capital surplus and undivided profits aggregating at least $100,000,000 and
whose long-term certificates of deposit are, at the time of acquisition thereof
by the Company or a Subsidiary, rated AA or better by Standard & Poor's
Corporation or Aa or better by Moody's Investors Service, Inc.;
(c) investments in commercial paper maturing in 180
days or less from the date of issuance which, at the time of acquisition by the
Company or a Subsidiary, is accorded the highest rating by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or another nationally recognized
credit rating agency of similar standing;
(d) loans or advances in the usual and ordinary course
of business to officers, directors and employees for expenses (including moving
expenses related to a transfer) incidental to carrying on the business of the
Company and its Subsidiaries; and
(e) any investment permitted under paragraph (f)
below.
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9.6 Subsidiaries, Mergers, Consolidations, Purchases of
Assets. Neither the Company nor any of its Subsidiaries will create any
subsidiaries unless the same agree to be bound by the Notes by signing a joinder
in form and substance reasonably satisfactory to a Required Interest of the
Institutional Investors.
9.7 Environment. The Company and each of its Subsidiaries
shall be and remain in compliance with the provisions of all Environmental Laws;
notify Investors immediately of any written notice of a hazardous discharge or
written environmental complaint received from any governmental agency or any
other party; notify Investors immediately of any hazardous discharge from or
affecting its premises; promptly contain and remove the same, as required by all
Environmental Laws; promptly pay any fine or penalty assessed in connection
therewith subject to a right to reasonably contest same; permit Investors to
inspect the premises, to conduct tests thereon, and to inspect all books,
correspondence, and records pertaining thereto at reasonable times.
10. Registration Rights.
10.1 Demand Registration Rights.
(a) Upon written request at any time by Holders
representing in the aggregate at least twenty-five percent (25%) of the total
number of Registrable Securities at the time of such request, the Company shall
use its best efforts to effect the registration under the Securities Act and
registration or qualification under all applicable state securities laws of the
Registrable Securities, as requested by the Holders, and to keep such federal or
state registrations effective for a period of at least nine (9) months, all as
provided in the following provisions of this Section 10;
(b) Notwithstanding the foregoing, if the Board of
Directors of the Company makes a good faith determination that it would be
detrimental to the Company and its shareholders for a registration requested
pursuant to Section 10.1(a) hereof to be made because there exists a bona fide
financing, acquisition or other transaction of the Company and it is therefore
essential to defer the filing of a registration statement to effect such
registration, the Company shall have the right to defer taking action with
respect to such filing for a period of not more than ninety (90) days after
receipt of the request from the Holders pursuant to Section 10.1(a) hereof,
provided that the Company shall not defer its obligation in this manner more
than once in any six-month period, and for no more than one hundred eighty (180)
days in the aggregate in any twelve (12) month period, and provided further that
the Holder shall be entitled to withdraw the request for registration and, if
such request is withdrawn, such registration shall not count as a requested
registration hereunder and the Company shall pay all registration expenses
incurred in connection with such withdrawn Request for Registration. In
addition, the Company shall not be obligated to effect, or to take any action to
effect any registration pursuant to this Section 10.1:
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(i) After the Company has effected two (2)
registrations at the request of one or more Holders pursuant to this Section
10.1 and such registrations have been declared or ordered effective. A Request
for Registration shall not count for these purposes (A) unless such registration
statement has been declared effective and an offering closed in which 80% of the
Registrable Securities requested to be included in such registration have been
sold or (B) if the registration has been withdrawn by the Holder pursuant to
Section 10.1(b).
(ii) During the period starting with the date
thirty (30) days prior to the Company's good faith estimate of the date of
filing of, and ending on the date ninety (90) days after the effective date of,
a registration subject to Section 10.3 hereof, provided that the Company is
actively using its best efforts to cause such registration statement to become
effective.
(iii) In the event the Commission shall have
declared any other registration statement with respect to an offering of
securities of the Company to be effective within three (3) months prior to the
Company's receiving a Request for Registration, the Company may delay the
effective date of the registration statement filed in response to the Request
for Registration until three (3) months after the effective date of the previous
registration statement.
10.2 Registration Requested by Holders. Whenever the
Company shall be requested, pursuant to Section 10.1(a) hereof, to effect the
registration of any of the Registrable Securities under the Securities Act (a
"Request for Registration"), the Company shall promptly (but in any event within
twenty (20) days) give notice of such proposed registration to all Holders and
thereupon shall, as expeditiously as possible (but in no event later than sixty
(60) days from receipt of the Request for Registration), use its best efforts to
effect the registration under the Securities Act and under all applicable state
securities laws of:
(a) all Registrable Securities which the Company has
been requested to register pursuant to the Request for Registration; and
(b) all other Registrable Securities which Holders
have, within thirty (30) days after the Company has given such notice, requested
the Company to register; all to the extent requisite to permit the sale or other
disposition by the Holders so to be registered. If the Holders who requested the
registration of Registrable Securities engage one or more underwriters to
distribute such Registrable Securities, the Company shall permit the managing
underwriter(s) and counsel to the underwriter(s) to visit and inspect any of the
properties of the Company, examine its books, take copies and extracts therefrom
and discuss the affairs, finances and accounts of the Company with its officers,
employees and public accountants (and by this provision the Company hereby
authorizes said accountants to discuss with such underwriter(s) and such counsel
its affairs, finances and accounts), at reasonable times and upon reasonable
notice, with or without a representative of the Company being present. The
Company shall have the right to include in any registration of Registrable
Securities required pursuant to this Section 10.2 additional shares of its
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Common Stock to be issued by the Company ("Company Securities") or shares of
Common Stock ("Third Party Registrable Securities") that have the benefit of
duly exercised registration rights contractually binding on the Company,
provided that if any Registrable Securities to be so registered for sale are to
be distributed by or through underwriters, then all Registrable Securities to be
so registered for sale and Company Securities and Third Party Registrable
Securities, if any, shall be included in such underwriting on the same terms and
provided, however, that if, in the written opinion of the managing
underwriter(s), the total amount of such securities to be registered will exceed
the maximum amount of the Company's securities which can be marketed without
materially and adversely affecting the entire offering, then the Company shall
exclude from such underwriting (x) first, the maximum number of Company
Securities and Third Party Registrable Securities as is necessary in the opinion
of the managing underwriter(s) to reduce the size of the offering and (y) then,
the minimum number of Registrable Securities, pro rata to the extent
practicable, on the basis of the number of Registrable Securities requested to
be registered among the participating Holders, as is necessary to reduce the
size of the offering. A registration that covers both Registrable Securities,
Company Securities and Third Party Registrable Securities shall be deemed to
have been requested pursuant to a Request for Registration pursuant to Section
10.1(a) hereof if the Registrable Securities of the type covered by such Section
constitute at least fifty percent (50%) of the total offering on the effective
date of the registration statement and satisfies the conditions set forth in
Section 10.1(b)(i) but shall not be deemed to be one of the registrations
referred to in Section 10.1(a) hereof if Registrable Securities of the type
covered by such Section constitute less than fifty percent (50%) of the total
offering on the effective date of the registration statement or does not satisfy
the conditions set forth in Section 10.1(b)(i).
10.3 "Piggyback" Registrations.
(a) If the Company at any time proposes, other than in
accordance with a Request for Registration, to register any of its securities
under the Securities Act on Form S-1, S-2 or S-3 or on any other form upon which
the Registrable Securities may be registered for sale to the general public,
whether for its own account or for the account of others, the Company will at
each such time give notice to all Holders of such proposal at least ten (10)
days before the Company files a registration statement. Upon the request of any
Holder given within fifteen (15) days after the Holder has received such notice,
the Company will use its best efforts to cause the Registrable Securities which
the Company has been requested to register by such Holder to be registered under
the Securities Act, all to the extent requisite to permit the sale or other
disposition by such Holder of the Registrable Securities so registered.
(b) If securities are to be registered for sale under
a registration not initiated by a Request for Registration and are to be
distributed by or through a firm of underwriters, then any Registrable
Securities which the Company has been requested to register pursuant to clause
(i) of this Section 10.3 shall also be included in such underwriting on the same
terms as other securities of the same class as the Registrable Securities
included in such underwriting, provided that
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if, in the written opinion of the managing underwriter(s), the total amount of
such securities to be so registered, when added to the Registrable Securities
and the securities held by holders of securities other than the Registrable
Securities, if any, will exceed the maximum amount of the Company's securities
which can be marketed without materially and adversely affecting the entire
offering, then the Company shall exclude from such underwriting (x) first, the
maximum number of securities, if any, other than Registrable Securities or Third
Party Registrable Securities, being sold for the account of persons other than
the Company as is necessary to reduce the size of the offering and (y) second,
the minimum number of Registrable Securities and Third Party Registrable
Securities, if any, as is necessary in the opinion of the managing
underwriter(s) to reduce the size of the offering (any such reduction in
Registrable Securities or Third Party Registrable Securities to be made pro rata
to the extent practicable on the basis of the number of Registrable Securities
and Third Part Registrable Securities requested to be registered), provided that
in no event may less than one-third (1/3) of the total number of securities
included in the registration be made available for Registrable Securities.
(c) If securities are to be registered for sale under
a registration not initiated by a Request for Registration and are to be
distributed for the account of holders of Third Party Registrable Securities or
holders (other than the Company) of other securities of the Company other than
Registrable Securities by or through a firm of underwriters of recognized
standing under underwriting terms appropriate for such transaction, then any
Registrable Securities which the Company has been requested to register pursuant
to clause (i) of this Section 10.3 shall also be included in such underwriting
on the same terms as other securities included in such underwriting, provided
that if, in the written opinion of the managing underwriter or underwriters, the
total amount of such securities to be so registered, when added to such
Registrable Securities, will exceed the maximum amount of the Company's
securities which can be marketed without materially and adversely affecting the
entire offering, then the Company shall exclude from such underwriting the
number of Registrable Securities and other securities, pro rata to the extent
practicable, on the basis of the number of securities requested to be
registered, as is necessary in the opinion of the managing underwriter(s) to
reduce the size of the offering , provided that in no event may less than
one-third (1/3) of the total number of securities included in the registration
be made available for Registrable Securities.
(d) Notwithstanding anything to the contrary contained
herein, the provisions of clause (y) of Section 10.3(b) hereof or the provisions
of Section 10.3(c) limiting the amount of the Registrable Securities requested
to be registered that may be excluded from such registration may be waived by
the affirmative vote of fifty percent (50%) of the Holders requested to be
registered.
10.4 Registrations on S-3. Each Holder shall have the right
to request in writing an unlimited number of registrations on Form S-3, or any
successor thereto, provided that the Registrable Securities proposed to be
included in the Registration Statement have a proposed aggregate offering price
of at least Five Hundred Thousand ($500,000) and that no Holder shall have
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a right to request that Registrable Securities be registered on Form S-3 during
any12-month period if Registrable Securities of such Holder were included in two
Registration Statements on Form S-3 pursuant to a request made by such Holder
during such 12-month period. Each such request by a Holder shall: (a) specify
the number of Registrable Securities which the Holder intends to sell or dispose
of, and (b) state the intended method by which the Holder intends to sell or
dispose of such Registrable Securities. Upon receipt of a request pursuant to
this Section 10.4, the Company shall use its best efforts to effect such
registration or registrations on Form S-3.
10.5 Company's Obligations in Registration. Whenever the
Company is obligated to effect the registration of any Registrable Securities
under the Securities Act, as expeditiously as possible the Company will use its
best efforts to:
(a) prepare and file with the Commission, a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become and remain
effective, including to promptly obtain the removal of any stop order or
suspension of such registration statement, provided, that the Company shall not
be required to keep such registration statement effective, or to prepare and
file any amendments or supplements thereto, after the later of (i) the last
business day of the ninth month following the date on which such registration
statement becomes effective under the Securities Act or such longer period
during which the Holders shall pay all expenses reasonably incurred to keep such
registration statement effective with respect to any of the Registrable
Securities so registered or (ii) the date on which all of the Registrable
Securities registered pursuant to such registration statement have been sold;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement whenever the Holders covered by such registration
statement shall desire to dispose of the same;
(c) as soon as practicable after filing such documents
with the Commission, furnish to the Holders and each of the underwriters, if
any, without charge, at least one manually signed or conformed copy of such
registration statement and any amendment or supplement thereto, including
financial statements and schedules; and as soon as practicable after the request
of any Holder or underwriter, furnish to such Holder or underwriter, as the case
may be, at least one copy of any document incorporated by reference in such
registration statement or in any related prospectus, prospectus supplement or
amendment, together with all exhibits thereto (including those previously
furnished or incorporated by reference);
(d) furnish to the Holders for whom such Registrable
Securities are registered or are to be registered such number of copies of a
printed prospectus, including a
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preliminary prospectus and any amendments or supplements thereto, in conformity
with the requirements of the Securities Act, and such other documents as such
Holders may reasonably request in order to facilitate the disposition of such
Registrable Securities;
(e) notify each Holder, at any time when a prospectus
relating to the Registrable Securities covered by such registration statement is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and at the request of any Holder, prepare and furnish to such
Holder any reasonable number of copies of any supplement to or amendment of such
prospectus necessary so that, as thereafter delivered to any purchaser of the
Registrable Securities, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading;
(f) register or qualify the Registrable Securities
covered by such registration statement under such securities or blue sky laws of
such jurisdictions as the Holders for whom such Registrable Securities are
registered or are to be registered or, in the case of an underwritten public
offering, the managing underwriter shall reasonably request, and do any and all
other reasonable acts and things which may be necessary or advisable to enable
such Holders to consummate the disposition in such jurisdictions of such
Registrable Securities; provided, however, that the Company shall not be
required to consent to general service of process for all purposes in any
jurisdiction where it is not then subject to process or qualify to do business
as a foreign corporation where it would not be otherwise required to qualify;
(g) furnish to the Holders for whom such Registrable
Securities are registered or are to be registered an agreement satisfactory in
form and substance to them by the Company that during a period of up to one
hundred eighty (180) days if required by the managing underwriter after the
effective date of any underwritten public offering, the Company and such Holders
and security holders shall not offer, sell, contract to sell or otherwise
dispose of any shares of capital stock or securities convertible into capital
stock, except as part of such underwritten public offering, provided that all
executive officers and directors of the Company and all holders of more than 5%
of the outstanding Common Stock and all other holders of registration rights
enter into similar agreements identical in terms to that of the Holders;
(h) furnish to the Holders for whom such Registrable
Securities are registered or are to be registered at the closing of the sale of
such Registrable Securities by such Holders a signed copy of an opinion or
opinions of counsel for the Company acceptable to such Holders in form and
substance as is customarily given to underwriters in public offerings;
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(i) in connection with any underwritten offering,
enter into an underwriting agreement with the underwriter(s) of such offering in
the form customary for such underwriter(s) for similar offerings, including such
representations and warranties by the Company, provisions regarding the delivery
of opinions of counsel for the Company and accountants' "comfort" letters,
provisions regarding indemnification and contribution, and such other terms and
conditions as are at the time customarily contained in such underwriter's
underwriting agreements for similar offerings (and, at the request of any Holder
that are to be distributed by such underwriter(s), any or all (as requested by
such Holder) of the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriter(s) shall
also be made to and for the benefit of such Holder); provided that the Holders
that are to be distributed by such underwriter(s) shall enter into such
underwriting agreement(s) on the same terms and conditions as the Company;
(j) provide a CUSIP and a transfer agent and registrar
for the Registrable Securities no later than the effective date of such
registration statement;
(k) cause all such Registrable Securities covered by
such registration to be listed on each securities exchange on which similar
securities of the Company are then listed; and
(l) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission relating to such registration
and the distribution of the securities being offered (including, without
limitation, Regulation M promulgated under the Securities Act) and make
generally available to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act, not later than 60 days after
the end of any 12-month period (or 120 days, if such period is a fiscal year)
commencing at the end of any fiscal quarter in which the Registrable Securities
are sold to underwriters in a firm commitment or best efforts underwritten
offering, or, if not sold to underwriters in such an offering, beginning with
the first month of the Company's first fiscal quarter commencing after the
effective date of such registration statement, which earning statements shall
cover such 12-month periods.
10.6 Payment of Registration Expenses. The costs and
expenses of all registrations and qualifications under the Securities Act, and
of all other actions which the Company is required to take or effect pursuant to
this Section 10, shall be paid by the Company or holders of Third Party
Registrable Securities or other securities of the Company other than Registrable
Securities, if any (including, without limitation, all registration and filing
fees, printing expenses, expenses incident to filings with the National
Association of Securities Dealers, Inc., auditing costs and expenses, and the
reasonable fees and disbursements of counsel for the Company and one special
counsel for the Holders) and the Holders shall pay only the underwriting
discounts and commissions and transfer taxes, if any, relating to the
Registrable Securities sold by them.
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10.7 Information from Holders. Notices and requests
delivered by Holders to the Company pursuant to this Section 10 shall contain
such information regarding the Registrable Securities to be so registered and
the intended method of disposition thereof as shall reasonably be required in
connection with the action to be taken. Each Holder hereby agrees to provide the
Company, or its agents or designees, with all information relating to the Holder
reasonably required in connection with the registration under the Securities Act
or any applicable state securities law of any Registrable Securities, provided
that no Holder shall be required to make any representations or warranties to
the Company or the underwriters (other than representations and warranties
regarding such Holder and such Holder's intended method of distribution).
10.8 Indemnification.
(a) In the event of any registration under the
Securities Act of any Registrable Securities pursuant to this Section 10, the
Company shall indemnify and hold harmless each Holder disposing of such
Registrable Securities and each other Person, if any, which controls (within the
meaning of the Securities Act) such Holder and each other Person (including
underwriters) who participates in the offering of such Registrable Securities,
against any expenses, losses, claims, damages or liabilities, joint or several,
to which such Holder or controlling Person or participating Person may become
subject under the Securities Act or otherwise, to the extent that such expenses,
losses, claims, damages or liabilities (or proceedings in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which such Registrable Securities were registered under the
Securities Act, in any preliminary prospectus or final prospectus contained
therein, or in any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein (in the case of a prospectus, in the light of the
circumstances under which they were made) or necessary to make the statements
therein not misleading, and will reimburse such Holder and each such controlling
Person or participating person for any legal or any other expenses reasonably
incurred by such Holder or such controlling Person or participating Person in
connection with investigating or defending any such loss, claim, damage,
liability or proceeding, provided, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary or
final prospectus or amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such Holder or such
controlling or participating Person, as the case may be, specifically for use in
the preparation thereof. Each such Holder will, if requested by the Company
prior to the initial filing of any such registration statement, agree in
writing, severally but not jointly, to indemnify and hold harmless the Company
and each Person which controls (within the meaning of the Securities Act) the
Company and each other Person (including underwriters) who participates in the
offering of such Registrable Securities against all losses, claims, damages and
liabilities to which the Company or such controlling Person or participating
Person may become subject under the Securities Act or otherwise, insofar as such
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losses, claims, damages or liabilities arise out of or are based upon any untrue
statement of any material fact contained, on the effective date thereof, in any
registration statement under which such Registrable Securities were registered
under the Securities Act, or in any preliminary prospectus or final prospectus
contained therein, or in any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
the case of a prospectus, in the light of the circumstances under which they
were made) not misleading, to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such statement or omission made in
such registration statement, preliminary or final prospectus or amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Holder and stated to be specifically for use in the
preparation thereof. This indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Holder,
underwriter, controlling person or such other participating Person, and shall
survive the transfer of such securities by such Holder. Each indemnified party
shall cooperate with each indemnifying party in defending any loss, claim,
damage, liability or proceeding by furnishing such information regarding itself
or the claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with the defense of
such claim.
(b) Indemnification similar to that specified in the
preceding clause of this Section 10.8 (with appropriate modifications) shall be
given by the Company and, at the Company's request, each Holder with respect to
any registration or other qualification of securities under any state securities
and "blue sky" laws.
(c) If the indemnification provided for in clauses (i)
and (ii) of this Section 10.8 is held by a court of competent jurisdiction to be
unavailable or insufficient to hold harmless an indemnified party, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party referred to in clauses (i) and (ii) of this Section 10.8 in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other hand
in connection with statements or omissions which resulted in expenses, losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omissions. The parties agree that
it would not be just and equitable if contributions pursuant to this clause were
to be determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
first sentence of this clause. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this clause shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any loss, claim, damage, liability or proceeding which is the
subject of
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this clause. In no case shall any Holder of Registrable Securities be required
to contribute any amount if it has no relative fault for the action giving rise
to such losses, claims or liabilities. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(d) Each indemnified party shall notify the
indemnifying party in writing within ten (10) days after its receipt of notice
of the commencement of any action against it in respect of which indemnity may
be sought from the indemnifying party pursuant to this Section 10.8, provided
that the failure of an indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under this Section 10.8,
to the extent such failure is not prejudicial. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying
party, the indemnifying party will be entitled to participate in the defense
with counsel satisfactory to such indemnified party.
(e) Notwithstanding clauses (a) through (c) of this
Section 10.8, the aggregate amount which may be recovered by the Company,
controlling persons of the Company or underwriters from each Holder pursuant to
the indemnification and contribution provided for in this Section 10.8 shall be
limited to the total net proceeds received by such Holder, for which the
Registrable Securities were sold by such Holder.
(f) Notwithstanding any of the foregoing, if, in
connection with an underwritten public offering of Registrable Securities, the
Company, the selling stockholders and the underwriter(s) enter into an
underwriting or purchase agreement relating to such offering which contains
provisions covering indemnification and contribution among the parties, the
indemnification and contribution provisions of this Section 10.8 shall be deemed
inoperative for purposes of such offering.
11. Acquisition of Additional Shares.
11.1 Standstill. For a period of three (3) years from the
date of this Agreement, each Investor agrees that, neither it nor any of its
Affiliates shall, directly or indirectly, acquire shares of Common Stock or
securities convertible into or exercisable or exchangeable for shares of Common
Stock, if as a result of such acquisition, such Investor together with any of
its Affiliates, would beneficially own (as defined in Rule 13d-3 under the
Exchange Act) on an as converted basis, in the aggregate, greater than 49.9% of
the total number of then outstanding shares of Common Stock, on a fully diluted
basis.
11.2 Transfers. So long as an Investor holds a Note, such
Investor shall not transfer the Warrant or any Common Stock issued upon exercise
of the Warrant; provided, however, that (i) such restriction shall be of no
further force or effect upon the earlier of (A) that date which
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<PAGE>
is three (3) years from the date hereof and (B) the occurrence of a Change of
Control or an Exit Event and (ii) such restriction shall not apply to a transfer
by an Institutional Investor to one or more of its partners or a trust
established for their benefit.
12. Effect of Change of Control and Exit Events.
12.1 Change of Control.
(a) Each of the following events shall constitute a
"Change of Control" unless it also constitutes an Exit Event in which case such
event shall only constitute an Exit Event:
(i) The acquisition by a Person (other than an
Investor or an Affiliate of an Investor or one or more partners of an
Institutional Investor or a trust established for their benefit) of more than
fifty percent (50%) of the beneficial ownership (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended), of the
Common Stock of the Company;
(ii) a sale, conveyance, exchange or transfer
("Sale") to another Person of all or substantially all of the assets of the
Company or the Subsidiaries taken as a whole;
(iii) the merger or consolidation of the Company
or any of its Subsidiaries with one or more other Persons (excluding mergers of
one Subsidiary into another or the merger of any Subsidiary into the Company);
(iv) the merger or consolidation of one or more
Persons into or with the Company or any of the Subsidiaries (excluding mergers
of one Subsidiary into another or the merger of any Subsidiary into the
Company);
if, in the case of (C) or (D), the shareholders of the Company
and/or Subsidiary involved (the "Involved Company") prior to such merger or
consolidation do not retain at least a majority of the voting power of the
Involved Company or surviving Person, as the case may be.
(b) If, at any time, a Change of Control occurs which
reflects a price per share of Common Stock of the Company of [$1.39376] or less
(subject to adjustment as provided in Sections 7(b) and (c) of the Notes), the
principal balance and all accrued interest under the Notes shall, at the
election of each Holder thereof, be due and payable on the effective date of
such Change of Control, without penalty or premium.
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(c) If, on or before February 15, 2002, a Change of
Control occurs which reflects a price per share of Common Stock of the Company
of more than [$1.39376] (subject to adjustment as provided in Sections 7(b) and
(c) of the Notes), but less than $4.80 (subject to adjustment as provided in
Sections 7(b) and (c) of the Notes), the principal balance and all accrued
interest under the Notes, together with an aggregate premium payment of
$4,568,571 shall, at the election of each Holder thereof, be due and payable
(and the Company and its Subsidiaries jointly and severally agree to pay such
amount) concurrently with the closing of such Change of Control and, if any
Holder makes such election, it shall, concurrently with its receipt of such
amount, surrender all Warrants held by such Holder.
(d) Subject to the provisions of Section 12.4 below,
if, after February 15 , 2002 but on or before February 15, 2003, a Change of
Control occurs which reflects a price per share of Common Stock of the Company
of more than [$1.39376] (subject to adjustment as provided in Sections 7(b) and
(c) of the Notes), but less than $3.50 (subject to adjustment as provided in
Sections 7(b) and (c) of the Notes) the principal balance and all accrued
interest under the Notes, together with an aggregate premium payment of
$3.000,000 shall, at the election of each Holder thereof, be due and payable
(and the Company and its Subsidiaries jointly and severally agree to pay such
amount) concurrently with the closing of such Change of Control and, if any
Holder makes such election, it shall, concurrently with its receipt of such
amount surrender all Warrants held by such Holder.
(e) Subject to the provisions of Section 12.4 below,
if, after February 15, 2002, but on or before February 15, 2003, a Change of
Control occurs which reflects a price per share of Common Stock of the Company
of more than $3.50 (subject to adjustment as provided in Sections 7(b) and (c)
of the Notes) but less than $4.80 (subject to adjustment as provided in Sections
7(b) and (c) of the Notes), the principal balance and all accrued interest,
together with a premium payment of $3,000,000 if the value is $3.50 per share
(subject to adjustment as provided in Sections 7(b) and (c) of the Notes), such
premium increasing proportionately to $4,568,571 if the value is $4.80 per share
(subject to adjustment as provided in Sections 7(b) and (c) of the Notes) (i.e.,
an increase of $12,065.93 for each $0.01 by which the value is greater than
$3.50) shall, at the election of each Holder thereof, be due and payable (and
the Company and its Subsidiaries jointly and severally agree to pay such amount)
concurrently with the closing of such Change of Control and, if any Holder makes
such election, it shall, concurrently with its receipt of such amount, surrender
all Warrants held by such Holder.
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<PAGE>
12.2 Exit Event.
(a) A Change of Control shall be deemed an "Exit
Event" if,
(i) the Change of Control reflects a price per
share of Common Stock of the Company of more than $3.50 (subject to adjustment
as provided in Sections 7(b) and (c) of the Notes; and
(ii) all holders of the Notes and Warrants are
able to participate in such transaction and receive cash and/or marketable
securities in exchange for all Common Stock receivable by them upon conversion
of the Notes and exercise of the Warrants.
(b) If, on or before February 15, 2002, an Exit Event
occurs which reflects a price per share of Common Stock of the Company of $3.50
or more (subject to adjustment as provided in Sections 7(b) and (c) of the
Notes), but less than $4.80 (subject to adjustment as provided in Sections 7(b)
and (c) of the Notes), the Company will use its best efforts to facilitate the
contemporaneous conversion of the Notes and exercise of the Warrants so that the
Common Stock received upon such conversion and exercise will qualify to
participate fully in or otherwise enjoy the full benefit of such Exit Event. In
addition, concurrently with the closing of such Exit Event, the Company and its
Subsidiaries jointly and severally agree to pay the Investors a premium payment
of $4,568,571 (payable in cash) if the value is $3.50 per share (subject to
adjustment as provided in Sections 7(b) and (c) of the Notes), such premium
reducing proportionately to $0 if the value is $4.80 per share (subject to
adjustment as provided in Sections 7(b) and (c) of the Notes); i.e., a reduction
of $35,142.85 for each $0.01 by which the value is greater than $3.50.
(c) Subject to the provisions of Section 12.4 below,
if after February 15, 2002, but on or before February 15, 2003, an Exit Event
occurs which reflects a price per share of Common Stock of the Company of $3.50
or more (subject to adjustment as provided in Sections 7(b) and (c) of the
Notes), but less than $4.80 (subject to adjustment as provided in Sections 7(b)
and (c) of the Notes), the Company will use its best efforts to facilitate the
contemporaneous conversion of the Notes and exercise of the Warrants so that the
Common Stock received upon conversion and exercise will qualify to participate
fully in or otherwise enjoy the full benefit of such Exit Event. In addition,
concurrently with the closing of such Exit Event, the Company and its
subsidiaries jointly and severally agree to pay the Investors a premium payment
in the aggregate amount of $3,000,000 (payable in cash) if the value is $3.50
per share (subject to adjustment as provided in Sections 7(b) and (c) of the
Notes), such premium reducing proportionately to $0 if the value is $4.80 per
share (subject to adjustment as provided in Sections 7(b) and (c) of the Notes);
i.e. a reduction of $23,076.92 for each $0.01 by which the value is greater than
$3.50.
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<PAGE>
12.3 Changes of Control and Exit Events after February 15,
2003 or Reflecting Prices of $4.80 or More. No premium shall be due or payable
in connection with a Change of Control or Exit Event occurring after February
15, 2003 or where the Change of Control or Exit Event reflects a price per share
of Common Stock of the Company of $4.80 or more (subject to adjustment as
provided in Sections 7(b) and (c) of the Notes).
12.4 Limitation on Premium. Notwithstanding the provisions
of Sections 12.1(d), 12.1(e) and 12.2(c) above, if the Change of Control
described in Section 12.1(d) or 12.1(e) or the Exit Event described in Section
12.2(c) reflects a valuation of the Company equal to at least seven (7) times
the Company's and its Subsidiaries' consolidated earnings before interest,
taxes, depreciation and amortization calculated based on the immediately
preceding four (4) fiscal quarters (i) as reported in the Company's filings with
the Securities Exchange Commission, and (ii) excluding the effects of
non-recurring charges as reasonably agreed to by a Required Interest of
Institutional Investors (such valuation a "Seven Times EBITDA Valuation"),
(a) the premium payable under Section 12.2(c) shall
not exceed an aggregate amount equal to five percent (5%) of the gross proceeds
otherwise received by the Investors and the holders of Common Stock by reason of
such Exit Event; and
(b) the premium payable under Section 12.1(d) or
12(a)(v) shall not exceed that amount required to generate a return to the
Investors equal to the return they would have received under (A) above had such
Change of Control been an Exit Event in which they were able to participate.
12.5 Change of Control/Exit Event Valuations. The Company
shall promptly notify the Investors in writing of its position regarding the
price per share of Common Stock reflected by a Change of Control or Exit Event
and, where applicable, the Seven Times EBITDA Valuation (collectively the
"Change of Control/Exit Event Valuations").
12.6 Disputes. Should a Required Interest of Institutional
Investors disagree with the Change of Control/Exit Event Valuations, they shall
so notify the Company in writing (the "Value Challenge Notice") within ten (10)
days after delivery of the Company's statement of Change of Control/Exit Event
Valuations. If the Company and a Required Interest of Institutional Investors
cannot resolve such dispute, the Company or a Required Interest of Institutional
Investors may by written notice to all parties hereto (the "Resolution Notice")
submit such dispute to binding resolution by an investment banker experienced in
valuing public companies comparable to the Company in size and market position.
If the Company and a Required Interest of Institutional Investors cannot agree
on such an investment banker within ten (10) days of delivery of the Resolution
Notice, they shall each designate one investment banker by written notice prior
to the expiration of such ten (10) day period and the two investment bankers
shall promptly select a third investment banker meeting the criteria set forth
above and such third investment banker shall make
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the final determination of the Change of Control/Exit Event Valuations. The cost
of the investment banker selected hereunder shall be paid by the Company and his
or her determination shall be final and binding on all parties.
13. [Intentionally Omitted]
14. Legend on Stock Certificates. The Notes, the Warrants and
each certificate representing shares of Common Stock held by the Investors or
any transferee of the Investors shall bear the following legends until such time
as the shares represented thereby are no longer subject to the provisions
hereof:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A SUBORDINATED LOAN AND
WARRANT PURCHASE AGREEMENT, DATED AS OF FEBRUARY 15, 2000
AMONG IMAGEMAX, INC. (THE "COMPANY") AND HOLDERS OF
CERTAIN SHARES OR HOLDERS HAVING RIGHTS TO ACQUIRE SHARES
OF THE OUTSTANDING CAPITAL STOCK OF THE COMPANY. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE
TO THE COMPANY.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND NEITHER MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
15. Survival of Representations and Warranties;
Indemnification; Fees and Expenses.
15.1 All representations and warranties contained herein
shall survive the Closing. All statements contained in a certificate or other
instrument delivered by the Company pursuant to this Agreement in connection
with the transactions contemplated by this Agreement shall constitute
representations and warranties by the Company under this Agreement.
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<PAGE>
15.2 The Company shall, with respect to the
representations, warranties and agreements made by the Company herein, and the
each Investor shall, with respect to the representations, warranties and
agreements made by such Investor herein, indemnify, defend and hold the other
harmless against all liability, loss or damage, together with all reasonable
costs and expenses related thereto (including reasonable legal and accounting
fees and expenses) arising from the untruth, inaccuracy or breach of any of the
representations, warranties or agreements of the Company or such Investor, as
the case may be.
15.3 The Company hereby agrees to reimburse Investors for
their out-of-pocket expenses, including reasonable attorney's fees and costs and
filing fees, incurred by the Investors in connection with its due diligence and
the development, preparation and execution of this Agreement and all other
documents and instruments relating thereto whether or not Closing occurs. Such
reimbursement shall be made simultaneously with Closing.
16. Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the Company
or the Investors, the Investors or the Company (as the case may be) may proceed
to protect and enforce its rights either by suit in equity and/or by action at
law, including, but not limited to, an action for damages as a result of any
such breach and/or an action for specific performance or injunctive relief with
respect to any such covenant or agreement contained in this Agreement.
17. Notices. All notices or requests provided for or permitted
to be given pursuant to this Agreement must be in writing and may be given or
served by (i) depositing the same in the United States mail, addressed to the
party to be notified, postage paid, and registered or certified with return
receipt requested, or (ii) by delivering such notice in person to such party.
Notices so deposited in the mail shall be deemed to have been given or served on
the date on which the party actually received or refused such written notice, as
shown by the date or postmark of any return receipt indicating the date of
delivery or attempted delivery to such receiving party. The addresses of the
parties hereto for all purposes of this Agreement are:
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Company:
ImageMax, Inc.
1100 East Hector Street
Suite 396
Conshohocken, PA 19428
Attention: David C. Carney
Mark P. Glassman
Andrew R. Bacas
Telephone: (610) 832-2111
with a copy to:
Pepper Hamilton LLP
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
Attention: Michael P. Gallagher
Telephone: 610-640-7807
The Investors:
TDH III, L.P.
919 Conestoga Road
Building One
Suite 301
Rosemont, PA 19010
Attention: J.B. Doherty
Telephone: 610-526-9970
with a copy to:
McCausland, Keen & Buckman
Radnor Court
259 North Radnor-Chester Road
Suite 160
Radnor, PA 19087
Attention: Robert H. Young Jr.
Telephone: 610-341-1050
and
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Dime Capital Partners, Inc.
Third Floor
1401 Valley Road
Wayne, NJ 07470
Attention: Stephen Lane
Telephone: 973-628-5841
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068-1791
Attention: Robert Minion
Telephone 973-597-2424
and
Robert Drury
c/o ChemConnect, Inc.
44 Montgomery Street, Suite 250
San Francisco, CA 94104
Telephone (415) 364-3300
By giving to the other parties at least five (5) days written
notice thereof, any party hereto shall have the right from time to time and at
any time during the term of this Agreement to change its respective address and
each party shall have the right to specify as its address any other address
within the United States of America.
18. Binding Agreement. This Agreement and each provision
herein shall be binding upon and applicable to, and shall inure to the benefit
of, the Investors, their permitted assigns and legal representatives.
19. Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Agreement had been executed with the invalid or
unenforceable portion thereof eliminated and it is hereby declared the intention
of the parties hereto that they would have executed the remaining portion of
this Agreement without including therein any such part, parts or portion which
may for any reason be hereafter declared invalid or unenforceable.
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20. Consents and Waivers. No consent or waiver, express or
implied, by any party hereto of the breach, default or violation by any other
party hereto of its obligations hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach, default or violation of the same or
any other obligations of such party hereunder. Failure on the part of any party
hereto to complain of any act of any of the other parties or to declare any of
the other parties hereto in default, irrespective or how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder.
21. Applicable Law. This Agreement and all questions relating
to its validity, interpretation and performance shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
22. Prior Agreements. This Agreement, together with all
exhibits hereto, and the other agreements contemplated hereby supersede any
prior or contemporaneous understanding or agreement among the parties respecting
the subject matter hereof. There are no arrangements, understandings or
agreements, oral or written, among the parties hereto relating to the subject
matter of this Agreement, except those fully expressed herein or in documents
executed contemporaneously herewith. No change or modification of this Agreement
shall be valid or binding upon the parties hereto unless such change or
modification or waiver shall be in writing and signed by the parties hereto.
23. Counting of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday, then the final day shall be
deemed to be the next day which is not a Saturday, Sunday or holiday.
24. Captions. The captions used in this Agreement are for
convenience only and shall not be construed in interpreting this Agreement.
Whenever the context so requires, the neuter shall include the feminine and
masculine, and the singular shall include the plural, and conversely.
25. Headings. All section headings herein have been inserted
for convenience of reference only and shall in no way modify or restrict any of
the terms or provisions hereof.
26. Gender. All pronouns used herein shall include all genders
and the singular and plural as the context requires.
27. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original for all purposes, but all of
which taken together shall constitute only one agreement. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
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28. Publicity; Confidentiality. Except as may be required by
applicable Requirements of Law, (i) none of the parties to this Agreement shall
issue a publicity release or public announcement or otherwise make any
disclosure concerning this Agreement or the tran sactions contemplated hereby,
without prior approval by the other parties hereto (which approval shall not be
unreasonably withheld) and (ii) the Company and the Investors agree that all
information received from each other will be held strictly confidential and each
party will take reasonable steps to maintain the confidentiality of such
information; provided, however, that nothing in this Agreement shall restrict
the Company or the Investors from disclosing information: (a) that is already
publicly available; and (b) to their respective (i) shareholders, principals,
partners and employees and (ii) attorneys, accountants, consultants and other
advisors to the extent necessary to obtain their services in connection with the
transactions contemplated by this Agreement. If any announcement is required by
law to be made by any party hereto, prior to making such announcement such party
will deliver a draft of such announcement to the other parties and shall give
the other parties an opportunity to comment thereon.
29. Waiver of Trial by Jury. THE PARTIES HERETO HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR ANY DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION WITH THIS
AGREEMENT.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
IMAGEMAX, INC.
By: /s/ Andrew R. Bacas
----------------------------------------
Name: Andrew R. Bacas
----------------------------------------
Title: Acting CEO
----------------------------------------
TDH III, L.P.
By: /s/ James M. Buck IV
----------------------------------------
Name: James M. Buck IV
----------------------------------------
Title: General Partner, TDH III, Partners, L.P.,
----------------------------------------
The General Partner
----------------------------------------
DIME CAPITAL PARTNERS, INC.
By: /s/ Stephen M. Lane
----------------------------------------
Name: Stephen M. Lane
----------------------------------------
Title: President
----------------------------------------
/s/ Robert Drury
------------------------------------------------
Robert Drury
<PAGE>
EXHIBIT A--FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE
EXHIBIT B--FORM OF WARRANT
<PAGE>
Schedule 2.2
Name of Investor Amount of Investment
---------------- --------------------
TDH $1,600,000
Dime $4,300,000
Drury $ 100,000
<PAGE>
Schedule 2.3
Name of Investor Number of Shares
---------------- ----------------
TDH 480,000
Dime 1,290,000
Drury 30,000
Exhibit 10.2
FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE
This Note and the shares of Common Stock (as defined herein) issuable
upon conversion of this Note are subject to the terms and conditions of a
Subordinated Loan and Warrant Purchase Agreement, dated as of the date hereof
among ImageMax, Inc. (the "Company") and holders of certain shares or holders
having rights to acquire shares of the outstanding capital stock of the Company.
Copies of such agreement may be obtained at no cost by written request made by
the holder of record of this Note to the Company.
Neither this Note nor the shares of Common Stock (as defined herein)
issuable upon conversion of this Note have been registered under the Securities
Act of 1933, as amended (the "Act"), and neither may be offered, sold or
otherwise transferred, pledged or hypothecated unless and until registered under
the Act or unless the Company has received an opinion of counsel or other
evidence satisfactory to the Company and its counsel that such registration is
not required.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
Due February 15, 2004
[$____________] February 15, 2000
FOR VALUE RECEIVED, IMAGEMAX, INC., a Pennsylvania corporation having
its principal place of business at 1100 East Hector Street, Suite 396,
Conshohoken, PA 19428 (the "Company"), IMAGEMAX OF ARIZONA, INC., a Pennsylvania
corporation having its principal place of business at 2000 W. First Street,
Tempe, Arizona 85281 ("ImageMax of Arizona"), AMMCORP ACQUISITION CORP., a
Pennsylvania corporation having its principal place of business at 1040 Wabash
Avenue, Chesterton, Indiana 46304 ("Ammcorp"), IMAGEMAX OF DELAWARE, INC., a
Delaware corporation having its principal place of business at 900 Market
Street, Suite 200, Wilmington, Delaware 19801 ("ImageMax of Delaware"), IMAGEMAX
OF OHIO, INC., an Ohio corporation having its principal place of business at
6000 Webster Street, Dayton, Ohio 45414 ("ImageMax of Ohio"), and IMAGEMAX OF
VIRGINIA, INC., a Virginia corporation having its principal place of business at
110 Vista Centre Drive, Forest, Virginia 24551 ("ImageMax of Virginia")
(ImageMax of Arizona, Ammcorp, ImageMax of Delaware, ImageMax of Ohio and
ImageMax of Virginia individually a "Subsidiary" and collectively the
"Subsidiaries") hereby jointly and severally promise to pay to the order of
[__________] (the "Holder"), at the place
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designated by the Holder, the principal amount of [_________________ Dollars
($__________)] in lawful money of the United States of America, and to pay
interest in like money on the terms set forth below. This Convertible
Subordinated Promissory Note (the Convertible Subordinated Promissory Note, as
the same may hereafter be amended and/or restated and any notes issued in
substitution or exchange for any of the foregoing, the "Note") is being
delivered pursuant to the terms and conditions of that certain Subordinated Loan
and Warrant Purchase Agreement dated February 15, 2000 among the Company and
several investors one of which is the Holder (the "Investors") (such
Subordinated Loan and Warrant Purchase Agreement, as the same may hereafter be
amended and/or restated, the "Loan Agreement") pursuant to which the Investors
have loaned the Company and the Subsidiaries an aggregate of Six Million Dollars
($6,000,000), and the Holder's rights under this Note are subject to the terms
and conditions of the Loan Agreement. This Note is one of several Notes issued
under and as defined in the Loan Agreement. All capitalized terms used herein
but not otherwise defined herein shall have the meanings ascribed to them in the
Loan Agreement.
1. Payments of Interest and Principal. Payments of all amounts
outstanding hereunder including principal plus accrued and unpaid interest shall
be payable in a single payment on the earlier of (a) February 15, 2004 or (b) if
the Holder hereof so elects, upon a Change of Control (the "Termination Date").
Interest shall accrue on the unpaid principal balance hereof at a rate equal to
nine percent (9%) per annum and shall be paid semi-annually beginning July 1,
2000 and continuing each December 31 and June 30 thereafter until the principal
balance hereof is paid in full. Such interest shall be calculated on the basis
of actual days elapsed over a 365-day year and shall be payable until the
Termination Date or until this Note is prepaid in full pursuant to the terms set
forth below. All payments of principal, interest, fees and other amounts due
hereunder shall be made by the Company in lawful money of the United States of
America, by wire transfer or by any other method approved in advance by the
Holder at the office of the Holder set forth in Section 10 hereof or at such
other place designated by the Holder in writing to the Company in immediately
available and freely transferrable funds at such place of payment.
The Company and the Subsidiaries jointly and severally agree to pay
interest (computed on the same basis as set forth above) on overdue principal
and (to the extent legally enforceable) on any overdue installment of interest,
at the stated rate plus four and one-half percent (4.5%) per annum (or, in each
case, at the highest rate permitted by applicable law, whichever is less) until
paid.
It is the intention of the Company and all individuals and entities to
whom Notes are being issued under the Loan Agreement, that all payments on
account of the Notes be made on a pro rata basis to all Holders of Notes in
proportion to the outstanding principal balance of such Notes (except under
circumstances where the holders of some but not all Notes have required payment
upon the occurrence of a Change of Control). Should any holder of this Note
receive a payment in excess of the amount to which such holder is entitled based
on the foregoing understanding, such
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holder shall hold such excess payment in trust for the benefit of the holders of
other Notes who received less than the amount they were entitled to receive and
shall pay the amount of such excess to such other holders. The Company
acknowledges that the principal balance of this Note shall not be reduced by
such excess payments that are paid out by the holder of this Note to the holders
of other Notes as provided herein.
2. Default and Remedies. (a) The occurrence of any one of the following
shall constitute an "Event of Default" under this Note:
(i) Default shall occur in the payment of interest on this
Note or any of the other Notes when the same shall have become due; or
(ii) Default shall occur in the making of any payment of the
principal of this Note or any of the other Notes at the expressed or any
accelerated maturity date; or
(iii) Default shall be made in the payment of the principal of
or interest on any Indebtedness (other than this Note or any of the other Notes)
of the Company or any of its Subsidiaries in excess of $2,000,000 and such
default shall continue beyond the period of grace, if any, allowed with respect
thereto; or
(iv) Default or the happening of any event shall occur under
any contract, agreement, lease, indenture or other instrument under which any
Indebtedness (other than this Note) of Company or any of its Subsidiaries may be
issued and such default or event shall not have been waived and shall (i) result
in liability of more than $2,000,000 and (ii) continue for a period of time
sufficient to permit the acceleration of the maturity of any such Indebtedness
of the Company or any of its Subsidiaries outstanding thereunder; or
(v) Default shall occur in the observance or performance of
any covenant or agreement contained in the Loan Agreement or any Warrant and
such default is not remedied within twenty (20) business days after the earlier
of (i) the date on which the Company first obtains knowledge of such Default and
(ii) the date on which written notice thereof is given to the Company by any
Holder; or
(vi) Any representation or warranty made by the Company in the
Loan Agreement, or made by the Company in any statement or certificate furnished
by the Company in connection with the consummation of the issuance and delivery
of this Note and the Warrants or furnished by the Company pursuant hereto or
pursuant to the Loan Agreement, is untrue in any material respect as of the date
of the issuance or making thereof; or
(vii) Final judgment or judgments for the payment of money
aggregating in excess of $2,000,000 or providing non-monetary relief resulting
in a Material Adverse Effect, is
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or are outstanding against the Company and/or any of its Subsidiaries and/or
against any property or assets of any of the foregoing and any one of such
judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or
otherwise for a period of ninety (90) days from the date of its entry; or
(viii) The Company or any of its Subsidiaries becomes
insolvent or bankrupt, is generally not paying its debts as they become due or
makes an assignment for the benefit of creditors, or the Company or any of its
Subsidiaries applies for or consents to the appointment of a custodian, trustee,
liquidator, or receiver for the Company or for the major part of its property;
or
(ix) A custodian, trustee, liquidator, or receiver is
appointed for the Company or any of its Subsidiaries or for the major part of
the property of the Company or any of its Subsidiaries and is not discharged
within ninety (90) days after such appointment; or
(x) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company or
any of its Subsidiaries and, if instituted against the Company or any of its
Subsidiaries, are consented to or are not dismissed within ninety (90) days
after such institution.
(b) When any Event of Default described in paragraph (i) through (vii),
inclusive, of Section 2(a) above has happened and is continuing, any holder of
this Note may, by notice to the Company, declare the entire principal and all
interest accrued on this Note to be, and this Note shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived; provided, however,
that so long as the Institutional Investors both hold Notes, no Holder of this
Note may exercise the foregoing remedy without the prior written consent of a
Required Interest of Institutional Investors as defined in Section 1.36 of the
Loan Agreement. When any Event of Default described in paragraph (viii), (ix) or
(x) of Section 2(a) has occurred, then this Note shall immediately become due
and payable without presentment, demand or notice of any kind, all of which are
hereby expressly waived. Upon this Note becoming due and payable as a result of
any Event of Default as aforesaid, the Company and the Subsidiaries will
forthwith pay to the Holder of this Note the entire principal and interest
accrued on this Note. No course of dealing on the part of any Note holder nor
any delay or failure on the part of any Note holder to exercise any right shall
operate as a waiver of such right or otherwise prejudice such Holder's rights,
powers and remedies. The Company and the Subsidiaries further agree, to the
extent permitted by law, to pay to the Holder or Holders of the Note all costs
and expenses, including reasonable attorneys' fees, incurred by them in the
collection of any Note upon any default hereunder or thereon.
3. Change of Control. Upon the occurrence of a Change of Control, the
balance of the principal sum due hereunder, with all accrued interest thereon
and all other amounts, if any
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required to be paid under the Loan Agreement by reason of such Change of
Control, shall, if the holder of this Note so elects by written notice to the
Company, become and be due and payable immediately.
4. Restriction on Transfer.
(a) Subject to the provisions of Section 14, this Note and the
rights granted to the Holder are transferable, in whole or in part, upon
surrender of this Note, together with a properly executed assignment in the form
attached hereto as Exhibit A, at the office or agency of the Company referred to
in Section 10 hereof, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Section 4(b) hereof and Section 11 of
the Loan Agreement. Until due presentment for registration of transfer on the
books of the Company, the Company and the Subsidiaries may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
and the Subsidiaries shall not be affected by any notice to the con trary.
(b) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Note in connection with any conversion, transfer, or
exchange of this Note, this Note (or, in the case of any conversion, the
Conversion Shares (as defined in Section 6(a)(i) issuable hereunder) shall not
be registered under the Act and under applicable state securities or blue sky
laws, the Company may require, as a condition of allowing such conversion,
transfer, or exchange, that the holder or transferee of this Note, as the case
may be, furnish to the Company a written opinion of counsel, in form, substance
and scope customary to opinions typically delivered in transactions of this
nature, to the effect that such conversion, transfer, or exchange may be made
without registration under the Act and under applicable state securities or blue
sky laws.
5. Prepayment. This Note may not be prepaid by the Company at any time,
in whole or in part.
6. Conversion.
(a) Optional Conversion.
(i) The Holder shall have the right, at the Holder's
option, at any time and from time to time prior to repayment of all amounts due
under this Note, to convert all or any portion of the outstanding principal
balance due under this Note into duly authorized, validly issued, fully paid and
nonassessable shares (the "Conversion Shares") of the Company's common stock, no
par value (the "Common Stock") at a conversion price equal to $3.50 per share
(the "Conversion Price"), subject to adjustment as set forth in Section 7.
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(b) Mandatory Conversion. The Company shall have the right at
any time prior to repayment of all amounts due under this Note, to convert all
or any portion of the outstanding principal balance due under this Note and, if
the Holder so elects, all accrued unpaid interest, into Conversion Shares at the
Conversion Price in the event that (a) the average Market Price of the Common
Stock for any ninety (90) day period reaches or exceeds an amount equal to $6.00
per share (subject to adjustment under circumstances described in Section 7(b),
(c) and (d)), and (b) the average weekly trading volume of the Company's Common
Stock during the preceding four (4) calendar weeks reaches or exceeds 350,000
shares (subject to adjustment under circumstances described in Sections 7(b),
(c) and (d)); provided, however, that the Company shall have no right to convert
pursuant to this Section 6(a) if the Company's Common Stock is not then listed
on either The Nasdaq Small Cap Exchange, The Nasdaq National Market, The New
York Stock Market or any other national securities exchange satisfactory to the
Holder.
For purposes of this Section 6(b), "Market Price" shall mean, per share
of Common Stock, as of the date of determination, the closing price per share of
Common Stock on such date published in The Wall Street Journal or, if no such
closing price on such date is published in The Wall Street Journal, then the
average of the reported closing bid and asked prices on such date, as officially
reported on the principal national securities exchange (including for this
purpose, without limitation, The Nasdaq Stock Market, Inc.) on which the Common
Stock is then listed or admitted to trading.
(c) Conversion Procedure.
(i) In order to exercise the conversion rights set
forth in Section 6(a) herein, the Holder shall surrender this Note, duly
endorsed (or, in the event that such Note has been lost, stolen or destroyed,
the Holder shall execute an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it resulting from the fact that
such Note has been lost, stolen or destroyed), to the Company's address set
forth in Section 10 hereof, together with written notice of conversion to the
Company that the Holder elects to convert this Note or the portion thereof
(including the number of full shares issuable upon conversion of any accrued
interest if the Holder so elects under Section 6(f) hereof) specified in said
notice. As promptly as practicable after the surrender of this Note as
aforesaid, in full or in part, and in any event within ten (10) days thereafter,
the Company, at its expense, shall issue and deliver to the Holder a certificate
or certificates for the number of full shares of Common Stock issuable upon the
conversion of this Note or portion thereof registered in the name of the Holder
in accordance with the provisions of this Section 6 and a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided below. In case this Note shall be surrendered
for partial conversion, the Company shall execute and deliver to the Holder,
without charge, a new Note in an aggregate principal amount equal to the
unconverted portion of the surrendered Note, provided that, except for the
amount of shares into which the new Note may be converted, the new Note shall
have all of the same terms and conditions as this Note.
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<PAGE>
(ii) In the event that the Company elects to convert
all or any portion of the outstanding principal balance due under this Note into
Common Stock in accordance with Section 6(b) hereof, the Company shall send to
the Holder, at the Holder's address set forth in Section 10 hereof, prior
written notice that the Company elects to convert this Note or the portion
thereof specified in said notice ("Mandatory Conversion Notice"). As promptly as
practicable after the receipt of such notice, and in any event within ten (10)
days thereafter, the Holder shall surrender this Note, duly endorsed (or, in the
event that such Note has been lost, stolen or destroyed, the Holder shall
execute an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it resulting from the fact that such Note has
been lost, stolen or destroyed), to the Company's address set forth in Section
10 hereof. As promptly as practicable after the surrender of this Note as
aforesaid, in full or in part, and in any event within ten (10) days thereafter,
the Company, at its expense, shall issue and deliver to the Holder a certificate
or certificates for the number of full shares of Common Stock issuable upon the
conversion of this Note or portion thereof (including the number of full shares
issuable upon conversion of any accrued interest if the Holder so elects under
Section 6(f) hereof) registered in the name of the Holder in accordance with the
provisions of this Section 6 and a check or cash in respect of any fractional
interest in respect of a share of Common Stock arising upon such conversion, as
provided below; provided, however, that once the Mandatory Conversion Notice is
delivered to the Holder, all of the rights with respect to the portion of the
outstanding principal balance of this Note that is so converted shall cease and
terminate, except that the Holder shall have the right to receive Common Stock
as provided in this Section 6, whether or not this Note has been surrendered by
the Holder. In case this Note shall be surrendered for partial conversion, the
Company shall execute and deliver to the Holder, without charge, a new Note in
an aggregate principal amount equal to the unconverted portion of the
surrendered Note, provided that, except for the amount of shares into which the
new Note may be converted, the new Note shall have all of the same terms and
conditions as this Note.
(d) Effective Date of Conversion. Each conversion pursuant to
Section 6(a) hereof shall be deemed to have been effected immediately prior to
the close of business on the day on which this Note shall have been surrendered,
as aforesaid and the Holder shall be deemed to have become on said date the
holder of record of the shares of Common Stock issuable upon such conversion.
Each conversion pursuant to Section 6(b) shall be deemed to have been effected
upon delivery of the Mandatory Conversion Notice and the Holder shall be deemed
to have become on said date the holder of record of the shares of Common Stock
issuable upon such conversion.
(e) No Fractional Shares. No fractional shares of Common Stock
or scrip representing fractional shares shall be issued upon conversion of this
Note. If any fractional share of Common Stock would be issuable upon the
conversion of this Note, then the Company shall make an adjustment therefor in
cash at the Conversion Price.
(f) Accrued Interest. Upon any conversion of this Note, or any
portion hereof, appropriate cash adjustment shall be made, for or on account of
any interest accrued hereon
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<PAGE>
on such portion. Such accrued interest shall be paid in cash, or at the option
of the Holder in shares of Common Stock based on the Conversion Price. Upon
conversion of all or any portion of the unpaid principal balance hereof, the
principal obligation due hereunder shall be deemed reduced to the extent of the
value of the aggregate conversion price of the Common Stock acquired thereby.
7. Adjustments. The Conversion Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) Anti-Dilution.
(i) Subject to Section 7(a)(v) below, in the event
the Company shall hereafter issue additional shares of Common Stock, options or
other securities convertible into or exchangeable for Common Stock at a price or
conversion or exercise price (as the case may be) which is less than the
Conversion Price (as adjusted) of this Note (the "Additional Shares"), the
Conversion Price shall be automatically lowered to a price equal to the price or
conversion or exercise price (as the case may be) for such Additional Shares.
(ii) If the Company at any time and in any manner
issues or sells any stock, warrants, rights or options pursuant to which the
recipient may subscribe for or purchase Common Stock ("Options") the "price or
the conversion or exercise price (as the case may be)" in accordance with
Section 7(a)(i) shall be determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or
granting of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional consideration
payable upon the exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Options.
(iii) (A) If the Company at any time and in any
manner issues or sells any securities which are exercisable for, convertible
into or exchangeable for, Common Stock ("Convertible Securities"), whether or
not immediately convertible (other than where such Convertible Securities are
issuable upon the exercise of Options), the "price or the conversion or exercise
price (as the case may be)" in accordance with Section 7(a)(i) shall be
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii)
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<PAGE>
the maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities. No further adjustment
to the Conversion Price will be made upon the actual issuance of such Common
Stock upon exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a variable conversion or exercise price or exchange
ratio, then the price per share for which Common Stock is issuable upon such
exercise, conversion or exchange for purposes of the calculation contemplated by
Section 7(a)(iii)(A) shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Convertible Security have been satisfied).
(iv) If the total number of shares of Common Stock
issuable upon exercise of Options or upon exercise, conversion or exchange of
Convertible Securities, in each case for which an adjustment was made pursuant
to Section 7(a), is not, in fact issued and the rights to exercise such Options
or to exercise, convert or exchange such Convertible Securities shall have
expired or terminated, the Conversion Price then in effect shall be readjusted
to the Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise, conversion or exchange thereof), never been issued.
(v) No adjustment to the Conversion Price will be
made under Section 7(a) upon (i) the exercise of any of the Options for 465,000
shares of Common Stock outstanding prior to the date this Note was originally
issued; (ii) the issuance, grant or exercise of any stock or Options, which are
contemporaneously herewith being, or may hereafter be issued, granted or
exercised under the plan in existence on the date this Note was originally
issued relating to employees, directors or independent contractors of the
Company, provided that the maximum number of shares of Common Stock so issued or
issuable upon the exercise of such Options shall not exceed one million one
hundred thirty-five thousand (1,135,000) shares (135,000 shares under the
existing plan plus an additional one million shares); (ii) upon conversion of
this Note or the exercise of any of the Warrants issued pursuant to the Loan
Agreement; or (iii) upon the issuance of any securities in an underwritten
public offering.
(vi) Upon each adjustment of the Conversion Price
pursuant to the provisions of Section 7(a), the number of shares of Common Stock
issuable upon conversion of this Note shall be adjusted by multiplying a number
equal to the Conversion Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable upon conversion of this Note
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Conversion Price.
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(b) Stock Dividend, Split or Subdivision of Shares. If the
number of shares of Common Stock outstanding at anytime after the date hereof is
increased or deemed increased by a stock dividend payable in shares of Common
Stock or other securities convertible into or exchangeable for shares of Common
Stock ("Equivalents") or by a subdivision or split-up of shares of Common Stock
or Equivalents (other than a change in par value, from par value to no par value
or from no par value to par value), then, following the effective date fixed for
the determination of holders of Common Stock or Equivalents entitled to receive
such stock dividend, subdivision or split-up, the Conversion Price shall be
appropriately decreased and the number of shares of Common Stock issuable on
conversion of this Note shall be increased in proportion to such increase in
outstanding shares (on a fully diluted basis if the dividend is payable in
Equivalents).
(c) Combination of Shares. If, at any time after the date
hereof, the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock (other than a change in
par value, from par value to no par value or from no par value to par value),
then, following the effective date for such combination, the Conversion Price
shall be appropriately increased and the number of shares of Common Stock
issuable on conversion of this Note shall be decreased in proportion to such
decrease in outstanding shares.
(d) Reorganizations, Consolidations, etc. In the event, at any
time after the date hereof, of any capital reorganization, or any
reclassification of the capital stock of the Company (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Company with or into another person (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any change in the powers, designations,
preferences and rights, or the qualifications, limitations or restrictions, if
any, of the capital stock of the Company as amended from time to time) or of the
sale or other disposition of all or substantially all the properties and assets
of the Company in its entirety to any other person (any such transaction, an
"Extraordinary Transaction"), then this Note shall be exercisable for the kind
and number of shares of stock or other securities or property of the Company, or
of the corporation resulting from or surviving such Extraordinary Transaction,
that a holder of the number of shares of Common Stock deliverable (immediately
prior to the effectiveness of the Extraordinary Transaction) upon conversion of
this Note would have been entitled to receive upon such Extraordinary
Transaction. The provisions of this Section 7(d) shall similarly apply to
successive Extraordinary Transactions.
(e) Calculations. All calculations under this Section 7 shall
be made to the nearest cent ($.01) or to the nearest share, as the case may be.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 7, the Company at its own
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each the holder
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hereof a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request, at any time, of any such holder,
furnish or cause to be furnished to such holder a like certificate setting
forth: (i) such adjustments and readjustments; (ii) the Conversion Price at the
time in effect; and (iii) the number of shares and the amount, if any, of other
property that at the time would be received upon the conversion of the Note.
8. Subordination. This Note is and shall be subordinated to certain
bank and other commercial lending obligations of the Company and its
Subsidiaries as provided in the Loan Agreement, but shall be senior to all other
debt of the Company and its Subsidiaries except debt secured by a purchase money
security interest arising in connection with the purchase of equipment in the
ordinary course of business.
9. Notices. In case at any time:
(a) the Company shall declare any cash dividend upon its
Common Stock;
(b) the Company shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other distribution (other
than regular cash dividends) to the holders of Common Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation; or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Note at the address of
such holder as shown on the books of the Company, (i) at least 10 days prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 10
days prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice in
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accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
10. Communications. All notices or requests provided for or permitted
to be given pursuant to this Agreement must be in writing and may be given or
served by (i) depositing the same in the United States mail, addressed to the
party to be notified, postage paid, and registered or certified with return
receipt requested, or (ii) by delivering such notice in person to such party.
Notices so deposited in the mail shall be deemed to have been given or served on
the date on which the party actually received or refused such written notice, as
shown by the date or postmark of any return receipt indicating the date of
delivery or attempted delivery to such receiving party. The addresses of the
parties hereto for all purposes of this Note are:
The Company:
ImageMax, Inc.
1100 East Hector Street, Suite 396
Conshohoken, PA 19428
Attention: David C. Carney
Mark P. Glassman
Andrew R. Bacas
Telephone: (610) 832-2111
with a copy to:
Pepper Hamilton LLP
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
Attention: Michael P. Gallagher
Telephone: (610) 640-7807
If to the Holder:
TDH III, L.P.
919 Conestoga Road
Building One
Suite 301
Rosemont, PA 19010
Attention: J.B. Doherty
Telephone: (610) 526-9970
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with a copy to:
McCausland, Keen & Buckman
Radnor Court
259 North Radnor-Chester Road
Suite 160
Radnor, PA 19087
Attention: Robert H. Young Jr.
Telephone: (610) 341-1050
11. Company's Waivers. The Company, to the extent permitted by law,
waives and agrees not to assert or take advantage of any of the following: (a)
acceptance or notice of acceptance of this Note by the Company; (b) presentment
and/or demand for payment of this Note or any indebtedness or obligations hereby
promised; and (c) protest and notice of dishonor with respect to this Note or
any indebtedness or performance of obligations arising hereunder.
12. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
conflicts of laws principles.
13. Headings. The headings of the sections of this Note are inserted
for convenience only and do not constitute a part of this Note.
14. Assignments. This Note may not be assigned in whole or in part
without the consent of the Company; provided, however, that no such consent
shall be required (i) in connection with an assignment of this Note to one or
more partners of the Holder or to a trust established for the benefit of one or
more of such partners or (ii) to an assignment occurring after February 15,
2003.
15. Waiver of Trial by Jury. THE COMPANY, THE SUBSIDIARIES AND HOLDER
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDINGS, CLAIMS OR COUNTERCLAIMS,
WHETHER IN CONTRACT OR TORT, AT LAW OR IN ANY WAY RELATING TO THIS NOTE.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, IMAGEMAX, INC. has caused this Note to be signed
and to be dated the day and year first above written.
IMAGEMAX, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
IMAGEMAX OF ARIZONA, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
AMMCORP ACQUISITION CORP.
By:___________________________________
Name:_________________________________
Title:________________________________
IMAGEMAX OF DELAWARE, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE>
IMAGEMAX OF OHIO, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
IMAGEMAX OF VIRGINIA, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
-15-
Exhibit 10.3
FORM OF WARRANT
This Warrant and the shares of Common Stock (as defined below) issuable
upon exercise of this Warrant are subject to the terms and conditions of a
Subordinated Loan and Warrant Purchase Agreement, dated as of the date hereof
among ImageMax, Inc. (the "Company") and holders of certain shares or holders
having rights to acquire shares of the outstanding capital stock of the Company.
Copies of such agreement may be obtained at no cost by written request made by
the holder of record of this Warrant to the Company.
Neither this Warrant nor the shares of Common Stock (as defined below)
issuable upon exercise of this Warrant have been registered under the Securities
Act of 1933, as amended (the "Act"), and neither may be offered, sold or
otherwise transferred, pledged or hypothecated unless and until registered under
the Act or unless the Company has received an opinion of counsel or other
evidence satisfactory to the Company and its counsel that such registration is
not required.
No.: 2000- Warrant to Subscribe
Date of Issuance: February 15, 2000 for [_________] Shares
of Common Stock
STOCK SUBSCRIPTION WARRANT
To Subscribe for and Purchase Common Stock
IMAGEMAX, INC.
IMAGEMAX, INC., a Pennsylvania corporation (the "Company"), for value
received, hereby certifies and agrees that [_____________] ("Holder") or its
registered assigns, is entitled to subscribe for, at any time and from time to
time during the Exercise Period (as defined in Section 2 below)
[________________] duly authorized, validly issued, fully paid and nonassessable
shares of the Company's common stock, no par value ("Common Stock") subject to
adjustment as set forth in Section 4 and Section 5 hereof (the "Warrant
Shares"), at the Exercise Price (as defined, and subject to adjustment as set
forth in Section 1(b) below), as provided herein. This Warrant was originally
issued in connection with a loan transaction (the "Loan") among the Company and
several investors (the "Investors") pursuant to which the Investors have loaned
the Company an aggregate of Six Million Dollars ($6,000,000) pursuant to a
Subordinated Loan and Warrant Purchase Agreement as of the date hereof, among
the Company and the Investors (the Subordinated Loan and Warrant Purchase
Agreement, as the same may hereafter be amended and/or restated the "Loan
Agreement"),
<PAGE>
and several convertible subordinated promissory notes dated the date hereof, in
the aggregate original principal amount of $6,000,000, delivered by the Company
and its Subsidiaries to the Investors in connection therewith (the convertible
subordinated promissory notes, as the same may hereafter be amended and/or
restated and any notes issued in substitution or exchange for any of the
foregoing, the "Notes").
This Warrant is subject to the following provisions, terms and
conditions.
1. Exercise of Warrant.
(a) Optional Exercise; Issuance of Certificates; Payment for
Shares; Additional Warrants. The rights represented by this Warrant may be
exercised by the Holder hereof, in whole or in part (but not as to a fractional
share of Common Stock), by the surrender of this Warrant (properly endorsed if
required) (or, in the event that such Warrant has been lost, stolen or
destroyed, the Holder shall execute an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it resulting from the
fact that such Warrant has been lost, stolen or destroyed), together with a
completed Exercise Agreement in the form attached hereto as Exhibit A (the
"Exercise Agreement") at the office of the Company at 1100 Hector Street, Suite
396, Conshohoken, PA 19428 (or such other office or agency of the Company as it
may designate by notice in writing to the Holder hereof at the address of such
Holder appearing on the books of the Company at any time within the Exercise
Period) and upon (i) payment to the Company of the purchase price for such
shares in cash, check or wire transfer of immediately available funds or (ii) by
delivery to the Company of a completed Exercise Agreement indicating the
Holder's intention to effect a Cashless Exercise (as defined in, and in
accordance with the provisions of, Section 1(c) below), for the number of
Warrant Shares indicated in the Exercise Agreement. The Company agrees that the
Warrant Shares so purchased shall be and are deemed to be issued to the Holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. Certificates for the shares of stock so purchased shall be
delivered to the Holder hereof at the address specified by the Holder within a
reasonable time, not exceeding ten days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered to the
Holder hereof within such time.
(b) Exercise Price; Adjustments to Exercise Price.
(1) The exercise price of the Warrant Shares pursuant
to this Warrant shall be $3.50 per share, subject to adjustments as set forth in
Section 1(b)(2) and Section 5 below (the "Exercise Price").
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<PAGE>
(2) Notwithstanding the foregoing, the Exercise Price
shall be subject to adjustment as follows:
(A) if on the fourth anniversary of the date
of issuance set forth on the first page of this Warrant (the "Date of
Issuance"), the average Market Price (as defined below) of the Company's Common
Stock has been at or below $4.00 (subject to adjustment under circumstances set
forth in Sections 5(b) -(d) hereof) per share for a period of twenty (20)
consecutive trading days, then the Exercise Price shall be reduced to the lesser
of (i) $2.20 (subject to adjustment under the circumstances set forth in
Sections 5(b) - (d) hereof) per share or (ii) eighty percent (80%) of the
average Market Price for such twenty (20) trading day period; and
(B) if on the fourth (4th) anniversary of
the Date of Issuance, the Company's Common Stock has no Market Price (as defined
below), then the Exercise Price shall be reduced to the lesser of (i) $2.20 per
share or (ii) eighty percent (80%) of the Appraised Value (as defined below) on
such fourth (4th) anniversary (the "Appraised Value Measurement Date");
provided, however that:
(C) if, at any time during the period after
the fourth (4th) anniversary of the Date of Issuance the Company receives a bona
fide offer, which the Company intends to accept, to engage in an Exit Event (as
defined in the Loan Agreement) which reflects a value per share of Common Stock
of the Company of $4.80 or more (subject to adjustment under the circumstances
set forth in Sections 5(b) - (d) hereof), upon its receipt of written notice
from the Company with respect thereto, the Holder may not exercise any portion
of this Warrant except concurrently with and as part of such Exit Event and, if
the Exit Event closes prior to that date which is 180 days after the fourth
(4th) anniversary of the Date of Issuance, the reductions in the exercise price
provided for in Section 1(b)(2)(A) and (B) shall be reversed and the Exercise
Price shall again be $3.50 per share (subject to adjustment under the
circumstances set forth in Sections 5(b) - (d) hereof). If no Exit Event closes
prior to that date which is 180 days after the fourth (4th) anniversary of the
Date of Issuance, this Section 1(b)(2)(C) shall be of no further force or
effect.
"Market Price" shall mean, per share of Common Stock, as of
the date of determination, the closing price per share of Common Stock on such
date published in The Wall Street Journal or, if no such closing price on such
date is published in The Wall Street Journal, then the average of the reported
closing bid and asked prices on such date, as officially reported on the
principal national securities exchange (including for this purpose, without
limitation, The Nasdaq Stock Market, Inc.) on which the Common Stock is then
listed or admitted to trading. If the Common Stock is not then listed or
admitted to trading on any such national securities exchange, then the Common
Stock shall be deemed to have no "Market Price".
"Appraised Value" shall mean the value of a share of the
Company's Common Stock on the Appraised Value Measurement Date as determined, at
the Company's expense, by an investment banker satisfactory to the Company and
the Holder.
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<PAGE>
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, this Warrant may be exercised by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a completed Exercise Agreement, indicating the Holder's
intention to effect a cashless exercise, including a calculation (to the extent
then calculable) of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise", and the
date of such presentation and surrender being herein referred to as the
"Cashless Exercise Date"). In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, check or immediately available funds, the
Holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number Warrant Shares by a fraction, the numerator
of which shall be the difference, if any, of the average Market Price for the
twenty (20) trading day period preceding the date of the Exercise Agreement (or,
if there is no such Market Price, the Appraised Value on the date of the
Exercise Agreement), less the Exercise Price in effect as of such date, and the
denominator of which shall be such average Market Price for such twenty (20)
trading day period (or, if there is no such Market Price, the Appraised Value on
the date of the Exercise Agreement).
2. Exercise Period; Governmental Approvals.
(a) Except as provided in Section 4(c), this Warrant shall be
exercisable at any time and from time to time during the period commencing upon
after the later to occur of (i) the first anniversary of the Date of Issuance,
and (ii) repayment in full of the Note originally issued to the original Holder
of this Warrant or conversion of such Note into Common Stock, and continuing
until the fifth anniversary of the Date of Issuance (such period shall herein be
referred to as the "Exercise Period").
(b) The Company covenants that if any registrations, filings
or approvals are required pursuant to United States or state law or applicable
governing rules ("Government Approvals") before any Warrant Shares may be issued
upon exercise, the Company will in good faith and as expeditiously as possible
endeavor to cause such Government Approvals to be obtained; provided, however,
that in no event shall such Warrant Shares be issued, and the Company is hereby
authorized to suspend the exercise of all Warrants, for the period during which
such Government Approvals are required but not in effect. If the Exercise Period
of the Warrants expires during any time that the exercise of the Warrants has
been suspended, the right to exercise the Warrants shall not expire until thirty
(30) days after the Company has notified the Holder thereof (by first class
mail, postage prepaid) that the required Government Approvals are in effect, and
that the aforementioned suspension is no longer in effect.
3. No Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon exercise of this Warrant. If
any fractional share of Common
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<PAGE>
Stock would be issuable upon the exercise of this Warrant, then the Company
shall make an adjustment therefor in cash at the Exercise Price.
4. Adjustments to Number of Warrant Shares.
(a) If at any time prior to the exercise of this Warrant, (i)
the average Market Price for any ninety (90) trading day period (the "Ninety Day
Average") equals or exceeds $8.00 (subject to adjustment under circumstances set
forth in Sections 5(b) - (d) hereof) per share, the number of Warrant Shares
shall be decreased to 1,600,000; (ii) the Ninety Day Average equals or exceeds
$9.00 (subject to adjustment under circumstances set forth in Sections 5(b) -(d)
hereof) per share, the number Warrant Shares shall decrease to 1,472,727; or
(iii) the Ninety Day Average equals or exceeds $10.00 (subject to adjustment
under circumstances set forth in Sections 5(b) - (d) hereof) per share, the
number of Warrant Shares shall decrease to 1,384,615; provided, however, in the
event the number of Warrant Shares is decreased in accordance with this Section
4(a) and subsequently thereto the Exercise Price is adjusted in accordance with
the terms of Section 1(b)(2) hereof, the number of Warrant Shares shall
immediately be increased as follows: (i) in the event this Warrant has not been
exercised, the number of Warrant Shares shall increase to the Original Number Of
Warrant Shares (as defined below); and (ii) in the event there has been a
partial exercise of this Warrant, the number of Warrant Shares shall be
increased on a pro rata basis, determined by multiplying the number of remaining
unexercised Warrant Shares by a fraction the numerator of which is the Original
Number Of Warrant Shares and the denominator of which is the applicable
"Adjusted Number Of Warrant Shares" (as defined below).
For these purposes, the original number of Warrant
Shares set forth on the first page of the Warrant is referred to as the
"Original Number Of Warrant Shares" and each of the adjusted number of Warrant
Shares derived under Section 4(a)(i)-(iii) is referred to herein as the
"Adjusted Number Of Warrant Shares".
(b) Exercise Protocol. In the event that the Market Price of
the Company's Common Stock reaches the $8.00, $9.00 or $10.00 thresholds
described in Section 4(a), respectively, the Company shall in each case give the
Holder notice of such event. In the event that the Ninety Day Average reaches
the $8.00, $9.00 or $10.00 thresholds, respectively, described in Section 4(a),
the Company shall give the Holder prompt written notice and the Holder shall
have the right for a period of ten (10) days from the date of such notice to
exercise this Warrant for the number of shares of Common Stock as in effect
prior to any adjustment that would take place pursuant to Section 4(a) as a
result of such increase in the Market Price. If the Holder should fail to
exercise this Warrant prior to the end of such ten (10) day period, the number
of Warrant Shares shall immediately be reduced in accordance with Section 4(a)
hereof.
(c) In the event of an Exit Event(as defined in the Loan
Agreement), the Company shall give the Holder written notice of its receipt of a
bona fide offer to the Company, which the
-5-
<PAGE>
Company intends to accept, to engage in an Exit Event within ten (10) days of
receipt of such offer. In the event of an Exit Event (as defined below) in which
the Exit Event Price is greater than $8.00, $9.00 or $10.00, respectively,
(subject in each case to adjustment under circumstances set forth in Sections
5(b) - (d)) per share, then (i) the number of Warrant Shares shall be
immediately reduced in accordance with Section 4(a) above as if the Exit Event
Price were the corresponding Ninety Day Average, and (ii) from the time of the
receipt of such notice until the effective date of the Exit Event, the Holder
may not exercise any portion this Warrant except concurrently with and as part
of such Exit Event.
(d) In the event the consideration received in an Exit Event
consists of securities of the surviving Person of such Liquidating Event that do
not constitute "restricted securities," as such term is defined in Rule
144(a)(3) promulgated under the Act, consideration shall be deemed to be the
Market Price for the twenty (20) trading day period ending three (3) days prior
to the consummation of the Liquidating Event.
5. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
(a) Anti-Dilution.
(i) Subject to Section 5(a)(v) below, in the event
the Company shall hereafter issue additional shares of Common Stock, options or
other securities convertible into or exchangeable for Common Stock at a price or
conversion or exercise price (as the case may be) which is less than the
Exercise Price (the "Additional Shares"), the Exercise Price shall be
automatically lowered to a price equal to the price or conversion price or
exercise price (as the case may be) for such Additional Shares.
(ii) If the Company at any time and in any manner
issues or sells any stock, warrants, rights or options pursuant to which the
recipient may subscribe for or purchase Common Stock ("Options") the "price or
the conversion or exercise price (as the case may be)" in accordance with
Section 5(a)(i) shall be determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or
granting of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional consideration
payable upon the exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Options.
-6-
<PAGE>
(iii) (A) If the Company at any time and in any
manner issues or sells any securities which are exercisable for, convertible
into or exchangeable for, Common Stock ("Convertible Securities"), whether or
not immediately convertible (other than where such Convertible Securities are
issuable upon the exercise of Options), the "price or the conversion or exercise
price (as the case may be)" in accordance with Section 5(a)(i) shall be
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or
sells any Convertible Securities with a variable conversion or exercise price or
exchange ratio, then the price per share for which Common Stock is issuable upon
such exercise, conversion or exchange for purposes of the calculation
contemplated by Section 5(a)(iii)(A) shall be deemed to be the lowest price per
share which would be applicable (assuming all holding period and other
conditions to any discounts contained in such Convertible Security have been
satisfied).
(iv) If the total number of shares of Common Stock
issuable upon exercise of Options or upon exercise, conversion or exchange of
Convertible Securities, in each case for which an adjustment was made pursuant
to Section 5(a), is not, in fact issued and the rights to exercise such Options
or to exercise, convert or exchange such Convertible Securities shall have
expired or terminated, the Exercise Price then in effect shall be readjusted to
the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise, conversion or exchange thereof), never been issued.
(v) No adjustment to the Exercise Price will be made
under this Section 5(a) upon (i) the exercise of any of the Options for 465,000
shares of Common Stock outstanding prior to the date this Warrant was originally
issued; (ii) the issuance, grant or exercise of any stock or Options, which are
contemporaneously herewith being, or may hereafter be issued, granted or
exercised under the plan in existence on the date this Warrant was originally
issued relating to employees, directors or independent contractors of the
Company; provided that the maximum number of shares of Common Stock so issued or
issuable upon the exercise of such Options shall not exceed one million one
hundred thirty-five thousand (1,135,000) shares (135,000
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<PAGE>
shares under the existing plan plus an additional one million shares); or (iii)
the exercise of any of the Warrants or conversion of any of the Notes.
(vi) Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section 5(a), the number of shares of Common
Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(b) Stock Dividend, Split or Subdivision of Shares. If the
number of shares of Common Stock outstanding at anytime after the date hereof is
increased or deemed increased by a stock dividend payable in shares of Common
Stock or other securities convertible into or exchangeable for shares of Common
Stock ("Equivalents") or by a subdivision or split-up of shares of Common Stock
or Equivalents (other than a change in par value, from par value to no par value
or from no par value to par value), then, following the effective date fixed for
the determination of holders of Common Stock or Equivalents entitled to receive
such stock dividend, subdivision or split-up, the Exercise Price shall be
appropriately decreased and the number of Warrant Shares shall be increased in
proportion to such increase in outstanding shares (on a fully diluted basis if
the dividend is payable in Equivalents).
(c) Combination of Shares. If, at any time after the date
hereof, the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock (other than a change in
par value, from par value to no par value or from no par value to par value),
then, following the effective date for such combination, the Exercise Price
shall be appropriately increased and the number of Warrant Shares shall be
decreased in proportion to such decrease in outstanding shares.
(d) Reorganizations, Consolidations, etc. In the event, at any
time after the date hereof, of any capital reorganization, or any
reclassification of the capital stock of the Company (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Company with or into another person (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any change in the powers, designations,
preferences and rights, or the qualifications, limitations or restrictions, if
any, of the capital stock of the Company as amended from time to time) or of the
sale or other disposition of all or substantially all the properties and assets
of the Company in its entirety to any other person (any such transaction, an
"Extraordinary Transaction"), then this Warrant shall be exercisable for the
kind and number of shares of stock or other securities or property of the
Company, or of the corporation resulting from or surviving such Extraordinary
Transaction, that a Holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness
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<PAGE>
of the Extraordinary Transaction) upon exercise of this Warrant would have been
entitled to receive upon such Extraordinary Transaction. The provisions of this
Section 5(d) shall similarly apply to successive Extraordinary Transactions.
(e) Calculations. All calculations under this Section 5 shall
be made to the nearest cent ($.01) or to the nearest share, as the case may be.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 5, the Company at its own
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each the Holder hereof a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
6. Shares to be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all of the Warrant Shares, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
its Common Stock to provide for the exercise of the rights represented by this
Warrant.
7. Notices. In case at any time:
(a) the Company shall declare any cash dividend upon its
Common Stock;
(b) the Company shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other distribution (other
than regular cash dividends) to the holders of Common Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation; or
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<PAGE>
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (i) at least 10 days prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 10
days prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
8. Restriction on Transfer.
(a) This Warrant and the rights granted to the Holder are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed assignment in the form attached hereto as Exhibit B, at the
office or agency of the Company referred to Section 1 above, pro vided, however,
that any transfer or assignment shall be subject to the conditions set forth in
Section 8(b) hereof and Section 11.2 of the Loan Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary.
(b) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder) shall not be registered under the Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such exercise, transfer, or exchange, that the holder or
transferee of this Warrant, as the case may be, furnish to the Company a written
opinion of counsel, in form, substance and scope customary to opinions typically
delivered in transactions of this nature, to the effect that such exercise,
transfer, or exchange may be made without registration under the Act and under
applicable state securities or blue sky laws.
9. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant,
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<PAGE>
in the absence of affirmative action by the Holder to purchase Warrant Shares,
and no mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
10. Issue Tax. The issuance of certificates for Warrant Shares shall be
made without charge to the holders of the Warrant for any issuance tax in
respect thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the Holder of the
Warrant exercised.
11. Closing of Books. The Company will at no time close its transfer
books against the transfer of any Warrant or of any Warrant Shares in any manner
which interferes with the timely exercise of this Warrant.
12. Descriptive Headings and Governing Law. The descriptive headings of
the several paragraphs of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant. This Warrant is being delivered and is
intended to be performed in the Commonwealth of Pennsylvania and shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of such Commonwealth.
13. Waiver of Trial by Jury. THE COMPANY AND HOLDER HEREBY WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING, CLAIMS OR COUNTERCLAIMS, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
WARRANT.
[SIGNATURE PAGE FOLLOWS]
-11-
<PAGE>
IN WITNESS WHEREOF, IMAGEMAX, INC. has caused this Warrant to
be signed by its duly authorized officers and dated the day and year first above
written.
IMAGEMAX INC.
By:_________________________________
-12-
AMENDMENT TO FORBEARANCE AGREEMENT
This Amendment to Forbearance Agreement (this "Amendment"), dated this 15th
day of February, 2000, is by and among ImageMax, Inc. ("Borrower"), a
Pennsylvania corporation, the undersigned subsidiaries of Borrower
(collectively, along with Borrower, the "Company Affiliates"), First Union
National Bank ("First Union"), successor by merger to CoreStates Bank, N.A., a
national bank, for itself and as agent pursuant to the Credit Agreement
described below (in such capacity, the "Agent"), and Commerce Bank, N.A.
("Commerce"), a national bank and one of the "Banks" under the Credit Agreement
described below.
BACKGROUND
A. Pursuant to the terms and subject to the conditions set forth in that
certain Credit Agreement, dated as of March 30, 1998, among Borrower, the
undersigned subsidiaries of Borrower, Agent, for itself and in such capacity,
Commerce Bank, N.A. and any other banks becoming a party thereto, as amended
pursuant to that certain Amendment No. 1 to Credit Agreement dated as of June 9,
1998 among Company Affiliates, First Union and Agent, and that certain Amendment
No. 2 to Credit Agreement dated as of November 16, 1998 among Company
Affiliates, First Union, Agent and Commerce (as amended, the "Credit
Agreement"), Banks established a revolving credit facility for Company
Affiliates pursuant to which Banks severally agreed, subject to and in reliance
on all of the provisions of the Credit Agreement and the other Loan Documents
referred to therein, to provide a revolving credit facility up to Thirty Million
($30,000,000.00) Dollars (which revolving credit facility has been decreased
pursuant to, inter alia, the Second Amendment (as decreased and amended, the
"Revolving Credit"), pursuant to which Banks made various loans, advances and
extensions of credit (including extensions of credit in the form of the issuance
for the account of Borrower and/or other Company Affiliates of various letters
of credit), which indebtedness is further evidenced by (i) a certain Revolving
Credit Note dated as of March 30, 1998 in the principal sum of Twenty-Five
Million ($25,000,000.00) Dollars (in respect of the Acquisition Facility)
executed and delivered by Borrower to Agent for the rateable benefit of each of
the Banks and (ii) a certain Revolving Credit Note dated as of March 30, 1998 in
the principal sum of Five Million ($5,000,000.00) Dollars (in respect of the
Working Capital Facility) executed and delivered by Borrower to Agent for the
rateable benefit of each of the Banks (collectively, the "Revolving Credit
Note").
B. As collateral security for the Obligations (as defined in the Credit
Agreement), pursuant to the terms and subject to the conditions set forth in (i)
that certain Security and Pledge Agreement, dated as of March 30, 1998, executed
and delivered by Company Affiliates to Agent, (ii) that certain Trademark
Collateral Agreement, dated as of March 30, 1998, executed and delivered by
Borrower to Agent and (iii) that certain Copyright Collateral Agreement, dated
as of March 30, 1998, executed and delivered by Borrower to Agent (collectively,
along with each of the instruments, agreements and documents referred to in such
documents and the Chesterton Mortgage described below, the "Loan Documents"),
Company Affiliates granted to Agent for the rateable benefit of Banks, and Agent
holds liens on and security interests in, to and under all of Company
Affiliates' respective existing and future goods, equipment, furniture,
inventory, machinery, money, accounts, contracts, contract rights, general
intangibles, fixtures, instruments,
<PAGE>
documents and chattel paper, whether now owned or hereafter acquired or arising,
together with all replacements and substitutions therefor and additions thereto
and cash and noncash proceeds thereof (the "Collateral").
C. To induce Banks to enter into the Credit Agreement, establish the
Revolving Credit and make various loans, advances and extensions of credit to or
for the benefit of Company Affiliates, pursuant to the terms and subject to the
conditions of that certain Surety Agreement dated as of March 30, 1998, by each
Company Affiliate (other than Borrower) to Agent (the "Surety Agreement"), each
such Company Affiliate guaranteed, as a surety, the Obligations.
D. Prior to March 29, 1999, Borrower and the other Company Affiliates
defaulted in their financing arrangements with Agent and Banks. A list of the
defaults under the Credit Agreement and the other Loan Documents (collectively,
the "Existing Defaults") is attached to this Amendment as Exhibit "A" and hereby
made a part hereof. At the request of Company Affiliates, Agent and Banks
executed and exchanged with Company Affiliates that certain Forbearance
Agreement dated March 29, 1999 (the "First Forbearance Agreement"), pursuant to
which Agent and Banks agreed to forbear from exercising their rights and
remedies under the Loan Documents and applicable law. The First Forbearance
Agreement terminated, with the Obligations remaining outstanding, and Company
Affiliates again requested that Agent and Banks forbear from exercising their
rights and remedies under the Loan Documents and applicable law, pending the
refinancing by Company Affiliates of the Obligations and, solely as an
accommodation to Company Affiliates, Agent and Banks executed and exchanged with
Company Affiliates that certain Forbearance Agreement dated September 30, 1999
(the "Forbearance Agreement"), pursuant to which Agent and Banks agreed to
continue to forbear from exercising their rights and remedies under the Loan
Documents and applicable law in accordance with the terms of the Forbearance
Agreement.
E. Borrower and the other Company Affiliates have requested that Agent and
Banks (i) consent to Company Affiliates issuing one or more convertible
subordinated notes in the aggregate principal sum of Six Million ($6,000,000.00)
Dollars to TDH III, L.P., Dime Capital Partners and Robert E. Drury
(collectively, the "TDH Investors") (such subordinated indebtedness being
hereinafter referred to as the "TDH Subordinated Indebtedness"), (ii) extend the
Forbearance Period through June 30, 2000 and (iii) modify certain covenants set
forth in the Forbearance Agreement. Agent and Banks agree to accommodate Company
Affiliates' requests under the terms and subject to the conditions set forth in
this Amendment.
NOW, THEREFORE, with the foregoing Background deemed incorporated
hereinafter by this reference and hereby made a part hereof, the parties hereto,
intending to be legally bound, hereby further covenant and agree as follows:
2
<PAGE>
SECTION 1. DEFINITIONS.
1.1 Accounting Terms. All accounting terms not otherwise defined in this
Amendment or the Forbearance Agreement shall have the meanings ascribed to such
terms in accordance with GAAP.
1.2 Capitalized Terms. All capitalized terms not otherwise defined in shall
have the meanings ascribed to such terms in the Forbearance Agreement.
SECTION 2. AMENDMENT TO FORBEARANCE AGREEMENT.
Under the terms and subject to the conditions set forth in this Amendment,
the Forbearance Agreement is hereby amended as follows:
2.1 Forbearance Period; Terminating Events. The Forbearance Period is
hereby extended through the earlier of (i) June 30, 2000 or (ii) the date on
which any Terminating Event occurs, and the "Forbearance Termination Date" is
hereby amended to be such earlier date.
2.2 Amortization of Obligations. Interest on the outstanding principal
balance of the Obligations shall continue to be payable monthly, in arrears, on
the first day of each month. The principal of the Obligations shall be payable
in consecutive monthly installments as follows:
Payment Date Amount of Payment
------------ -----------------
February 15, 2000 $50,000
March 1, 2000 $125,000
April 1, 2000 $150,000
May 1, 2000 $250,000
June 1, 2000 $300,000
June 30, 2000 All principal, interest, fees and
reimbursable expenses in connection
with the Obligations shall be paid
and satisfied in full
In addition to the foregoing amortization, Banks shall receive a payment on
account of the principal of the Obligations in the amount of Five Million
($5,000,000.00) Dollars on the earlier of the date of funding of the TDH
Subordinated Indebtedness or February 15, 2000.
2.3 Accommodations with Respect to Covenants.
(A) Subsection 4.1(B) of the Forbearance Agreement is hereby deleted.
Company Affiliates shall not longer be required to submit a monthly,
written status report of activities undertaken by Blair; provided, however,
that Agent and Banks hereby reserve the right, at their option, to require
such data and information (financial or otherwise) as Agent and Banks
3
<PAGE>
may reasonably request including, without limitation, information as to the
activities of Blair and others in connection with the sale of stock and/or
assets of Company Affiliates.
(B) Subsection 4.1(D)(2) is hereby deleted in its entirety and
replaced with the following:
Company Affiliates minimum stockholders equity, together with
the TDH Subordinated Indebtedness, shall at all times be not
less than Forty-Two Million ($42,000,000.00) Dollars, and
shall increase by the amount of net income of Company
Affiliates and investments in Company Affiliates, but shall
not be reduced by losses incurred by Company Affiliates.
(C) Subsection 4.1(D)(3) is hereby deleted in its entirety and
replaced with the following:
Capital Expenditures of Company Affiliates shall not exceed in
the aggregate the sum of Two Hundred Fifty Thousand
($250,000.00) Dollars for the calendar quarter ending March
31, 2000 and shall not exceed in the aggregate the sum of Five
Hundred Thousand ($500,000.00) Dollars for the calendar
quarter ending June 30, 2000, in each case determined on a
non-cumulative basis.
(D) Subsection 4.1(D)(6) is hereby deleted in its entirety and
replaced with the following:
Without the prior written consent of Banks, which consent may
be withheld by Banks in their sole and absolute discretion,
Company Affiliates shall not incur any additional indebtedness
including, without limitation, "off-balance sheet"
indebtedness in excess of the aggregate sum of Ten Thousand
($10,000.00) Dollars, except for (i) the TDH Subordinated
Indebtedness, which TDH Subordinated Indebtedness shall be in
the amount of Six Million ($6,000,000.00) Dollars, shall
accrue interest at not more than nine (9%) percent per annum,
with interest payable semi-annually, in arrears, commencing on
or after July 1, 2000 and, so long as any part of the
Obligations remain outstanding, no principal amortization
(whether by voluntary prepayment, acceleration or otherwise).
The TDH Subordinated Indebtedness shall otherwise be in form
and substance satisfactory to Agent, Banks and their counsel,
and (ii) a contingent indebtedness in the amount of up to Two
Hundred Fifty Thousand ($250,000.00) Dollars in favor of TDH
Investors in the event of the breakup of the TDH Subordinated
Indebtedness and otherwise under the terms and subject to the
conditions set forth in a certain Memorandum dated
4
<PAGE>
November 9, 1999 from Jim Buck and J.B. Doherty of TDH
Investors to Andy Bacas and Mark Glassman of Company
Affiliates and acceptable to Agent, Banks and their counsel.
(E) Subsection 4.1(E) is hereby deleted in its entirety; provided, however,
that nothing herein contained shall be deemed to impair the right of Agent and
Banks after the occurrence of any Terminating Event to require the concentration
or disposition of remittances (or other proceeds) on account of accounts
receivable and other proceeds from the sale or other disposition of Collateral
in such manner as Agent and Banks may determine in their sole and absolute
discretion.
SECTION 3. ADDITIONAL COVENANTS.
3.1 In addition to all covenants set forth in the Loan Documents and the
Forbearance Agreement, Company Affiliates covenant and agree with Agent and
Banks that, so long as any of the Obligations remain unsatisfied and
outstanding, they will comply with the following covenants:
(A) On or before February 15, 2000, from the proceeds of the TDH
Subordinated Indebtedness, Banks shall receive on account of the principal
of the Obligations the sum of Five Million ($5,000,000.00) Dollars.
(B) On or before February 15, 2000, Company Affiliates shall obtain
and furnish to Agent and Banks a commitment for the refinancing of the
Obligations in an amount not less than Fifteen Million ($15,000,000.00)
Dollars (the "Refinancing Commitment"). The Refinancing Commitment shall be
subject only to such terms, covenants, conditions and contingencies as
Agent and Banks may accept in their sole and absolute discretion; provided,
however, that the Refinancing Commitment may be subject to the financial
institution issuing such commitment obtaining a participant to purchase and
fund a participation interest in not less than Six Million ($6,000,000.00)
Dollars of such Fifteen Million ($15,000,000.00) Dollar credit facility.
(C) On or before May 15, 2000, Company Affiliates shall obtain and
furnish to Bank a revised Refinancing Commitment for a Fifteen Million
($15,000,000.00) Dollar credit facility pursuant to which Company
Affiliates will be able to refinance the Obligations on or before June 30,
1999. The revised Refinancing Commitment shall be in form and substance
satisfactory to Agent, Banks and their counsel in their sole and absolute
discretion. Without limiting the generality of the foregoing, the
Refinancing Commitment may not be subject to the condition that the issuer
of such commitment obtain a participant in such financing arrangements.
SECTION 4. WARRANTIES AND REPRESENTATIONS.
4.1 Reaffirmation of Warranties and Representations. Except as qualified in
Schedule 4.1 attached hereto and hereby made a part hereof, Company Affiliates
hereby severally and collectively reaffirm and restate each of the warranties
and representations set forth in the Credit
5
<PAGE>
Agreement and the other Loan Documents as if each such warranty and
representation were set forth at length herein.
4.2 Additional Warranties and Representations. To induce Agent and Banks to
enter into, in addition to the representations and warranties set forth in the
Loan Documents and the other instruments, agreements and documents otherwise
referred to herein, Company Affiliates severally and collectively represent and
warrant to Agent and Banks that:
(A) Each Company Affiliate has the corporate power, authority and
capacity to enter into and perform its liabilities and obligations under
and all related instruments, agreements and documents, and to incur the
indebtedness herein and therein provided for, and has taken all proper and
necessary corporate action to authorize the execution, delivery and
performance of and related instruments, agreements and documents;
(B) This Amendment is valid, binding and enforceable against Company
Affiliates in accordance with its terms; and
(C) No consent, approval or authorization of, or filing, registration
or qualification with, any person or entity (including, without limitation,
any shareholder or creditor of any Company Affiliates) is required to be
obtained by any Company Affiliate in connection with the execution and
delivery of or any related instrument, agreement or document, or
undertaking or performance of any obligation hereunder or thereunder.
SECTION 5. CONDITIONS PRECEDENT.
This Amendment is subject to the following conditions precedent (all
instruments, agreements and documents to be in form and substance satisfactory
to Banks and their counsel):
5.1 Documents Required for Closing. Borrower shall have duly executed
and/or delivered (or caused to be duly executed and/or delivered) to Banks the
following:
(A) A secretary's certificate (as of the date of this Amendment)
attaching a copy of resolutions of each Company Affiliate's Board of
Directors authorizing the execution, delivery and performance of this
Amendment and each other document to be executed and/or delivered pursuant
hereto and any other instrument, agreement or document referred to herein
and confirming that the articles or certificate of incorporation and
by-laws of each Company Affiliate have not changed since last delivered to
Agent;
(B) A certificate (dated the date of) of each Company Affiliate's
corporate secretary as to the incumbency and specimen signatures of the
officers of Borrower executing and each other document to be executed
and/or delivered pursuant hereto or thereto;
(C) TDH Investors and Agent on behalf of Banks shall execute and
exchange a subordination agreement in respect of the TDH Subordinated
Indebtedness in form and substance satisfactory to Agent, Banks and their
counsel;
6
<PAGE>
(D) Copies of all instruments, agreements and documents evidencing the
TDH Subordinated Indebtedness;
(E) In consideration of the agreement of Banks to continue to forbear
pursuant to this Amendment, Company Affiliates shall pay to Agent for the
ratable benefit of Banks a forbearance extension fee in the amount of Fifty
Thousand ($50,000.00) Dollars (which fee shall be deemed part of the
Obligations secured by the Collateral) upon execution and exchange of this
Amendment; and
(F) Such other instruments, agreements and documents as may be
required by Banks and/or their counsel.
5.2 No Terminating Event. No Terminating Event shall have occurred and be
continuing.
SECTION 6. CONFIRMATION OF EXISTING INDEBTEDNESS AND RATIFICATION OF LOAN
DOCUMENTS.
6.1 Confirmation of Obligations. Company Affiliates hereby unconditionally
acknowledge and confirm that: the unpaid principal indebtedness of Company
Affiliates to Banks evidenced by the Loan Documents is as set forth on Exhibit
"B"; interest on such principal obligations has been paid through the date(s)
set forth on Exhibit B; and the foregoing indebtedness, together with
continually accruing interest and related costs, fees and expenses is, as of the
date hereof, owing without claim, counterclaim, right of recoupment, defense or
set-off of any kind or of any nature whatsoever.
6.2 Ratification of Financing Agreements. Company Affiliates hereby
unconditionally ratify and confirm and reaffirm in all respect and without
condition, all of the terms, covenants and conditions set forth in the Loan
Documents and agree that they remain unconditionally liable to Banks in
accordance with the respective terms, covenants and conditions of such
instruments, agreements and documents, and that all liens and security interests
and pledges encumbering the Collateral created pursuant to and/or referred to in
the Loan Documents continue unimpaired and in full force and effect, and secure
and shall continue to secure all of the Obligations, as the same may be modified
by the terms of . As part of the Collateral, each Obligor hereby reaffirms its
prior grant and grants to Agent a lien on and a security interest in and to all
of such Obligor's existing and future investment property.
SECTION 7. MISCELLANEOUS.
7.1 Integrated Agreement. This Amendment and all of the instruments,
agreements and documents executed and/or delivered in conjunction with shall be
effective upon the date of execution hereof and thereof by all parties hereto
and thereto, and shall be deemed incorporated into and made a part of the Loan
Documents. All such instruments, agreements and documents, and, shall be
construed as integrated and complementary of each other, and as augmenting and
7
<PAGE>
not restricting Agent's and Banks' rights, remedies, benefits and security. If,
after applying the foregoing, an inconsistency still exists, the provisions of
shall constitute an amendment thereto and shall govern and control.
7.2 Release. In consideration of the accommodations being made available by
Banks to or for the benefit of Company Affiliates under, including, without
limitation, the continued forbearance on the part of Banks, Company Affiliates,
for themselves and their respective heirs, personal representatives, agents,
employees, successors and assigns, do hereby remise, release and forever
discharge Agent, Banks and their respective agents, employees, representatives,
officers, successors and assigns of and from any and all claims, counterclaims,
demands, actions and causes of action of any nature whatsoever, whether at law
or in equity, including, without limitation, any of the foregoing arising out of
or relating to the transactions described in, which against Agent, Banks or
their respective agents, employees, representatives, officers, successors or
assigns, or any of them, any Obligor has or hereafter can or may have for or by
reason of any cause, matter or thing whatsoever, from the beginning of the world
to the date of; provided, however, that this provision shall not release claims
resulting from acts of gross negligence or wilful misconduct of Banks.
7.3 No Coercion. Company Affiliates hereby represent and warrant that they
are fully aware of the terms set forth in and have voluntarily, and without
coercion or duress of any kind, entered into intending to be legally bound by
its terms.
7.4 Banks Reliance. Company Affiliates expressly understand and further
agree that Agent and Banks are relying on all terms, covenants, conditions,
warranties and representations set forth in including, without limitation,
Agent's and Banks' right to terminate the Forbearance Period at any time upon
the occurrence of a Terminating Event, as a material inducement to Agent and
Banks to enter into.
7.5 Debit Authorization. Each Company Affiliate hereby irrevocably
authorizes Agent and Banks to charge any deposit account of any Company
Affiliate maintained at any Bank for all or any part of any amount due under the
Loan Documents and including, without limitation, principal, interest, late
charges, fees and expenses reimbursable to Agent and Banks (including reasonable
legal fees) and the forbearance extension fee.
7.6 Expenses of Agent and Banks. Company Affiliates will pay all expenses,
including the reasonable fees and expenses of legal counsel for Agent and Banks,
incurred in connection with the preparation, negotiation, administration,
amendment, modification or enforcement of, the Credit Agreement, the other Loan
Documents, the collection or attempted collection of the Obligations and Agent's
and Banks' rights hereunder and under the instruments, agreements and documents
referred to herein, and in any proceedings (including, without limitation,
bankruptcy or other insolvency proceedings) brought or threatened to enforce
payment of any of the Obligations.
7.7 Applicable Law. This Amendment shall be governed by the laws of the
Commonwealth of Pennsylvania, without giving effect to principles of conflicts
of laws.
8
<PAGE>
7.8 Jury Trial Waiver. COMPANY AFFILIATES HEREBY IRREVOCABLY WAIVE TRIAL BY
JURY AND ANY RIGHT THERETO, AND CONSENT TO THE JURISDICTION OF THE COURTS OF
PHILADELPHIA COUNTY, PENNSYLVANIA, AND AGREE NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION, OR TO THE LAYING OF THE VENUE IN SUCH COMMONWEALTH, AND FURTHER
AGREE THAT SERVICE OF PROCESS MAY BE DULY EFFECTED UPON THEM BY SERVICE IN
ACCORDANCE WITH THE PROVISIONS OF THE UNIFORM INTERSTATE AND INTERNATIONAL
PROCEDURE ACT.
7.9 Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same writing.
IN WITNESS WHEREOF, the parties hereto have caused this Forbearance
Agreement to be duly executed and exchanged as of the day and year first above
written.
IMAGEMAX, INC.
IMAGEMAX OF INDIANA, INC.
IMAGEMAX OF SOUTH CAROLINA, INC.
IMAGEMAX OF TENNESSEE, INC.
IMAGEMAX OF ARIZONA, INC.
IMAGEMAX OF OHIO, INC.
IMAGEMAX OF VIRGINIA, INC.
AMMCORP ACQUISITION CORP.
Attest: IMAGEMAX OF DELAWARE, INC.
By: By: /s/ Andrew R. Bacas
------------------------------ ---------------------------------
Name: Name: Andrew R. Bacas
Title: Title: Acting CEO and Secretary
(Corporate Seal) Address: 1100 Hector Street
Suite 396
Conshohocken, PA 19428
Attn: President
FIRST UNION NATIONAL BANK, successor
by merger to CORESTATES BANK, N.A. for
itself and as Agent
By: /s/ unintelligible
---------------------------------
Name:
Title:
Address: 123 S. Broad Street
Philadelphia, PA 19109
9
<PAGE>
[Signature Lines Continued]
With a copy to: Klehr, Harrison, Harvey,
Branzburg & Ellers LLP
260 S. Broad Street
Philadelphia, PA 19102
Attn: Donald M. Harrison
Richard S. Roisman
COMMERCE BANK, N.A.
By: /s/ Joseph Tommaro, Jr.
---------------------------------
Name: Joseph Tommaro, Jr.
Title: Assistant Vice President
Address: 1701 Route 70 East
Cherry Hill, NJ 08034
10
<PAGE>
EXHIBIT A
Existing Defaults
11
<PAGE>
EXHIBIT B
Acquisition loan outstanding as of 2/15/00:
Bank Amount
- ------------------------- --------------
First Union National Bank $ 9,780,000.00
Commerce Bank, NA $ 4,890,000.00
--------------
Total Outstanding: $14,670,000.00
Working Capital loan outstanding as of 2/15/00:
Bank Amount
- ------------------------- --------------
First Union National Bank $ 2,477,333.32
Commerce Bank, NA $ 1,238,666.68
--------------
Total Outstanding: $ 3,716,000.00
12
Exhibit 99
FOR IMMEDIATE RELEASE PR-0001
Contact: David C. Carney, Chairman 610-832-2111, x114
Andrew R. Bacas, Acting Chief Executive Officer 610-832-2111, x101
Mark P. Glassman, Chief Financial Officer 610-832-2111, x104
ImageMax Announces Convertible Subordinated Debt Financing; J.B. Doherty to Join
Board of Directors; Lewis E. Hatch and Andrew R. Bacas re-elected to Board
- --------------------------------------------------------------------------------
Conshohocken, PA, February 15, 2000 - ImageMax, Inc. (OTCBB: IMAG)
announced today it had completed a $6 million financing transaction involving
the sale of convertible subordinated notes (the "Notes") with warrants to an
investor group headed by TDH III, L.P. of Rosemont, PA. Also participating in
the financing were Dime Capital Partners, Inc., a wholly owned subsidiary of
Dime Savings Bank of New York (Nasdaq: DIME), along with Robert E. Drury, former
Senior Vice President and Corporate Treasurer of Sodexho Marriott. The proceeds
of the financing will be used primarily to repay senior bank debt and provide
working capital for the Company. Simultaneously, the Company signed an agreement
with its banks giving it the right to extend the current interim bank agreement
until June 30, 2000. Additionally, the Company announced that it has signed a
commitment letter with a bank to lead a refinancing of the remaining portion of
the Company's senior bank debt. The Company and the bank expect to close the
refinancing prior to June 30, 2000.
The Notes carry a four year term and a 9% coupon payable semi-annually
and are convertible into common stock of the Company at a price of $3.50 per
share. The Notes cannot be voluntarily pre-paid and certain penalties may apply
under certain circumstances if the Notes are converted prior to the Notes' third
anniversary. The investors were also issued warrants to purchase an additional
1.8 million shares of common stock at $3.50 per share.
Simultaneous with this investment, J.B. Doherty, the managing general
partner of TDH III, L.P. has joined the Company's board. Mr. Doherty has been
active with TDH as a private equity investor since 1978. Mr. Doherty currently
serves on the boards of Monitoring Technology Corporation (where he is the
chairman) and O-Cedar Brands, Inc., both private companies. He is a past and
founding director of Airgas, Inc. and XLConnect Solutions. Prior TDH private
equity investments include Airgas, Inc. (NYSE: ARG), the nation's largest
independent distributor of industrial gases and welding equipment; ESPN, The
Entertainment Sports Programming Network, now a subsidiary of the Walt Disney
Company (NYSE: DIS); and Staples, Inc. (Nasdaq: SPLS), the originator of the
large format, discount office supply "superstore". Dime Capital has over $30
million in capital invested in a portfolio of over 22 companies and in
conjunction with this investment, Stephen B. Lane, President of Dime Capital,
will participate actively as an observer to the board.
"We are delighted to have TDH, Dime Capital, and Bob Drury as our
financing partners and to have J.B. Doherty join our board," said David Carney,
Chairman of ImageMax.
"We view this transaction as an important step toward successfully
refinancing the remaining portion of our senior bank debt," said Andy Bacas, the
Company's Acting CEO. "With the momentum of a healthy year of operations behind
us, we are positioned to move forward with an improved balance sheet, a
strengthened commitment to our growing digital and Internet services, and the
confidence of knowing we have institutional investors supporting our strategy.
The investors also have a network of relationships that should be of benefit to
the Company in a number of areas," Bacas continued.
This transaction represents the completion of the Company's exploration
of strategic and financial alternatives which was previously announced in 1999.
The board unanimously approved the investment.
In other news, at the Company's annual meeting of shareholders on
December 8, 1999, the shareholders re-elected Lewis E. Hatch, Jr. and Andrew R.
Bacas as directors and approved an increase of one million shares in the number
of shares that can be granted under the Company's 1997 Incentive Compensation
Plan.
Page 1 of 2
<PAGE>
Concurrent with the investment transaction, to assure management
continuity and to align management incentives with shareholder interests,
options to purchase up to 700,000 shares of common stock at $ 1.6875 (the
closing price as of the closing date of the investment transaction) were granted
to certain officers, directors, and other employees in accordance with the above
mentioned Amendment to the 1997 Incentive Compensation Plan.
Statements in this press release which are not historical fact,
including expectations about future benefits of the financing, potential
refinancing and the Company's future operating results and cash flows, are
forward-looking statements that involve risk and uncertainty, including those
set forth in "Business-Risk Factors" in ImageMax' 1998 Annual Report on Form
10-K and other ImageMax filings with the Securities and Exchange Commission, and
risks associated with the results of the continuing operations of ImageMax.
Accordingly, there is no assurance that the results in the forward-looking
statements will be achieved.
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