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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8342
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PICO PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 15-0624701
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12500 Foothill Blvd.
Lakeview Terrace, California 91342
- ---------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(818) 897-0028
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of December 6, 1996.
Common Stock, $0.01 par value 4,065,246
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Class Number of Shares
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PICO PRODUCTS, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
October 31, 1996 and July 31, 1996 3-4
Condensed Consolidated Statements
of Income - Three Months
Ended October 31, 1996 and 1995 5
Condensed Consolidated Statements
of Cash Flows - Three Months
Ended October 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial
Statements 7-10
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 11-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 6. Exhibits and Reports on Form 8-K 15-18
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PICO PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 31, July 31,
1996 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 185,355 $ 159,669
Accounts receivable (less allowance
for doubtful accounts: October 31,
1996, $225,000; July 31, 1996,
$200,000) 5,749,419 5,289,288
Inventories (Note 2) 12,662,868 10,933,244
Prepaid expenses and other current
assets 272,892 191,215
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TOTAL CURRENT ASSETS 18,870,534 16,573,416
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PROPERTY, PLANT AND EQUIPMENT:
Buildings 217,255 217,255
Leasehold improvements 345,136 345,136
Machinery and equipment 2,785,474 2,637,609
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3,347,865 3,200,000
Less accumulated depreciation
and amortization 2,441,541 2,393,995
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906,324 806,005
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OTHER ASSETS:
Patents and licenses (less accumulated
amortization: October 31, 1996,
$63,674; July 31, 1996, $62,180) 157,536 159,030
Excess of cost over net assets of
businesses acquired (less accumulated
amortization: October 31, 1996,
$374,190; July 31, 1996, $366,930) 203,245 210,505
Deposits and other noncurrent assets 231,155 195,582
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591,936 565,117
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$20,368,794 $17,944,538
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See notes to condensed consolidated financial statements.
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PICO PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
(Unaudited)
October 31, July 31,
1996 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Notes 5 & 6) $ 9,213,364 $ 8,227,776
Current portion of long-term debt 316,889 311,086
Accounts payable 5,122,653 3,921,081
Accrued expenses:
Legal and accounting 162,574 170,497
Payroll and payroll taxes 602,226 506,742
Other accrued expenses 304,925 312,193
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TOTAL CURRENT LIABILITIES 15,722,631 13,449,375
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LONG-TERM DEBT (Note 6) 84,678 39,414
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COMMITMENTS AND CONTINGENCIES (Note 4) - -
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value;
authorized 500,000 shares;
no shares issued - -
Common shares, $.01 par value;
authorized 15,000,000 shares;
issued and outstanding 4,055,246
shares at October 31, 1996 and
4,052,246 shares at July 31, 1996 40,552 40,522
Additional paid-in capital 22,037,398 22,035,178
Stock subscriptions receivable (115,000) (115,000)
Accumulated deficit (17,309,071) (17,409,924)
Cumulative translation adjustment (92,394) (95,027)
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TOTAL SHAREHOLDERS' EQUITY 4,561,485 4,455,749
----------- -----------
$20,368,794 $17,944,538
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----------- -----------
See notes to condensed consolidated financial statements.
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PICO PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
October 31,
-----------------------------
1996 1995
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SALES $ 9,698,188 $ 8,373,962
COSTS AND EXPENSES:
Cost of sales 7,330,072 6,245,265
Selling and administrative expenses 2,025,788 1,900,762
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TOTAL COSTS AND EXPENSES 9,355,860 8,146,027
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INCOME FROM OPERATIONS 342,328 227,935
INTEREST INCOME 3,834 1,809
INTEREST EXPENSE (241,075) (227,687)
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INCOME BEFORE INCOME TAXES 105,087 2,057
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INCOME TAX PROVISION (Note 3) 4,234 -
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NET INCOME $ 100,853 $ 2,057
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NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary $ 0.02 $ 0.00
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Fully diluted $ 0.02 $ 0.00
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WEIGHTED AVERAGE COMMON AND
EQUIVALENT SHARES OUTSTANDING:
Primary 4,249,724 4,136,917
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Fully diluted 4,249,724 4,136,917
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See notes to condensed consolidated financial statements.
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PICO PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
October 31,
-----------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 100,853 $ 2,057
Adjustments to reconcile net income
to net cash used in
operating activities:
Depreciation and amortization 86,378 82,675
Changes in operating assets
and liabilities (1,022,057) (229,907)
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NET CASH USED IN
OPERATING ACTIVITIES (834,826) (145,175)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (90,971) (132,313)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under a
line of credit agreement 985,588 43,693
Principal payments on long-term debt (35,905) (30,729)
Proceeds from exercise of stock options 1,800 14,125
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NET CASH PROVIDED BY FINANCING
ACTIVITIES 951,483 27,089
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 25,686 (250,399)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 159,669 501,525
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 185,355 $ 251,126
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 240,856 $ 229,428
Income taxes 634 22,050
During the fiscal quarters ended October 31, 1996 and 1995 the Company financed
the purchase of office and test lab equipment totaling approximately $87,000 and
$31,000, respectively.
See notes to condensed consolidated financial statements.
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PICO PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
Pico Products, Inc. and its subsidiaries (the "Company") design,
manufacture and distribute products and systems for the pay TV and cable TV
industry (CATV), broadband communications and other signal distribution markets.
These other distribution markets include "private" cable TV systems such as
those found in hotels, schools, hospitals and large apartment complexes.
Private cable systems are referred to in the industry as master antenna (MATV)
or satellite master antenna (SMATV) systems. These systems receive satellite
and "off-air" (or broadcast) signals at a single source known as the "headend".
The signals are processed and then distributed by coaxial or fiber optic cable
to the consumer. Also included in other signal distribution markets are
wireless cable or MMDS (multichannel multipoint distribution systems) and
business to business or direct-to-home (DTH) communications by satellite. The
Company also sells pay TV security products and home satellite market products.
Finally, the Company is pursuing development and introduction of broadband
communications products that will support high speed internet transmissions.
The accompanying unaudited condensed consolidated financial statements include
the accounts of Pico Products, Inc. and its wholly owned subsidiaries, and
include all adjustments which are, in the opinion of the Company's management,
necessary to present fairly the Company's financial position as of October 31,
1996, and the results of its operations and its cash flows for the three-month
periods ended October 31, 1996 and 1995. All such adjustments are of a normal
recurring nature. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
(GAAP) have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). The preparation of interim
financial statements in conformity with GAAP, as modified by SEC rules and
regulations, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
related
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notes contained in the Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1996.
The results of operations for the interim periods shown in this Report are not
necessarily indicative of the results to be expected for the fiscal year.
(2) INVENTORIES
The composition of inventories was as follows:
October 31, July 31,
1996 1996
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Raw materials $ 2,796,622 $ 3,485,548
Work in process 796,147 636,072
Finished goods 9,070,099 6,811,624
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$12,662,868 $10,933,244
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(3) INCOME TAXES
No provision for U.S. Federal and state regular income taxes or foreign income
taxes has been recorded for the three-month periods ended October 31, 1996 and
1995 due to the Company's U.S. Federal, state, and foreign net operating loss
carryforward positions and a tax holiday granted to one of the Company's foreign
subsidiaries. However, a provision for U.S. Federal and state alternative
minimum tax has been recorded for the three month period ended October 31, 1996.
(4) LITIGATION AND CONTINGENCIES
INFORMATION REQUEST
On March 6, 1995, a subsidiary of the Company received a Joint Request for
Information (the "Information Request") from the United States Environmental
Protection Agency, Region II (the "EPA"), under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), with
respect to the release and/or threatened release of hazardous substances,
hazardous wastes, pollutants or contaminants into the environment at the
Onondaga Lake Site, Syracuse, Onondaga County, New York. The Company has
learned that the EPA added the Onondaga Lake Site to the Superfund National
Priorities List on December 6, 1994, and has completed an onsite assessment of
the degree of hazard. The EPA has indicated that the Company is only one of 26
companies located in the vicinity of Onondaga Lake or its tributaries that have
received a similar Information Request.
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The Information Request related to the activities of the Company's Printed
Circuit Board Division, which was sold to a third party in 1992, and which
conducted operations within the specified area. Under the Agreement of Sale
with the buyer, the Company retained liability for environmental obligations
which occurred prior to the sale.
The Company has provided all information requested by the EPA. The Information
Request does not designate the Company as a potentially responsible party, nor
has the EPA indicated the basis upon which it would designate the Company as a
potentially responsible party. The Company is therefore unable to state whether
there is any material likelihood for liability on its part, and, if there were
to be any such liability, the basis of any sharing of such liability with
others.
OTHER
The Company is involved, from time to time, in certain other legal actions
arising in the normal course of business. Management believes that the outcome
of other litigation will not have a material adverse affect on the Company's
consolidated financial statements.
(5) DEBT COVENANT VIOLATION
At October 31, 1996, the Company was in technical violation of several financial
covenants relating to Pico Macom's bank revolving line of credit. These
covenants restrict the maximum advances to affiliates by Pico Macom and limit
certain financial ratios. Pico Macom's bank has issued a waiver of these
violations effective October 31, 1996. All other covenants relating to this
line of credit were met as of October 31, 1996.
As described below, subsequent to October 31, 1996, the Company completed a
private placement financing. On a pro forma basis, after giving effect to the
private placement, Pico Macom's financial covenants were in compliance with the
line of credit agreement.
(6) SUBSEQUENT EVENT
On November 21, 1996 the Company completed a private placement financing
totaling $6 million with two institutional investors. The private placement
consisted of $5 million of seven-year 12 percent subordinated debentures and $1
million of seven-year 12 percent redeemable preferred stock. In connection with
the financing, the Company issued warrants to the investors and to the Company's
investment banker for 955,176 shares of its common stock.
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Additionally, the Company issued warrants to the investors providing for the
purchase, in the aggregate, of up to 18% of the number of shares of the
Company's common stock resulting from the exercise from time to time by holders
of options and warrants previously granted by the Company. These warrants are
exercisable no later than 10 years from the date of issuance, at a price of
$1.81 per share.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion compares the operations of the Company for the
three-month period ended October 31, 1996 with the operations for the
three-month period ended October 31, 1995, as shown by the unaudited condensed
consolidated statements of income included in this quarterly report.
RESULTS OF OPERATIONS
Sales increased by approximately $1,324,000, or 16%, for the fiscal quarter
ended October 31, 1996 compared to the fiscal quarter ended October 31, 1995.
The Company's Pico Macom subsidiary recorded a sales increase of approximately
$958,000, or 15%, in the quarter primarily due to increased demand for Satellite
Master Antenna Television (SMATV) products in South America and the Middle East.
The Company's CATV division recorded a sales increase of approximately $219,000,
or 14%, in the quarter primarily due to continued strong domestic and
international demand for pay TV encoders and decoders. The Company's Hong Kong
subsidiary recorded a sales increase of approximately $184,000, or 103%, in the
quarter primarily due to increased sales and marketing efforts in China, Hong
Kong and Southeast Asia. Management believes that the Company's overall sales
growth will continue during the remainder of fiscal year 1997 due to increased
availability of existing products, the introduction of new products and
increased sales to customers in Asia and in South America.
Cost of sales increased by approximately $1,085,000, or 17%, for the fiscal
quarter ended October 31, 1996 compared with the fiscal quarter ended October
31, 1995. Cost of sales as a percentage of sales increased by 1% (from 75% to
76%) for the fiscal quarter ended October 31, 1996 versus the same fiscal
quarter in the previous year. The dollar increase in cost of sales was
primarily attributable to the increase in sales volume. The 1% increase in cost
of sales as a percentage of sales was primarily due to a shift in the sales mix
of products sold by the Company's Hong Kong subsidiary, and startup costs
related to initial manufacturing of some of the Company's new products.
Selling and administrative expenses increased by approximately $125,000, or 7%,
for the fiscal quarter ended October 31, 1996 compared to the fiscal quarter
ended October 31, 1995. The primary reason for the increase in selling and
administrative expenses was the continuing expenditures related to development
of new markets in Asia. Management anticipates that this current level of
selling and administrative expenses will continue throughout fiscal year 1997.
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Interest expense increased by approximately $13,000, or 6%, for the fiscal
quarter ended October 31, 1996 compared with the fiscal quarter ended October
31, 1995. The increase was primarily due to higher borrowing levels on the
Company's bank line of credit to support the Company's working capital
requirements partially offset by a decrease in the prime rate for the
three-month period ended October 31, 1996.
No provision for U.S. Federal and state regular income taxes or foreign income
taxes has been recorded for the three-month periods ended October 31, 1996 and
1995 due to the Company's U.S. Federal, state, and foreign net operating loss
carryforward positions and a tax holiday granted to one of the Company's foreign
subsidiaries. However, a provision for U.S. Federal and state alternative
minimum tax has been recorded for the three-month period ended October 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1996, the Company had working capital of approximately
$3,148,000 and a ratio of current assets to current liabilities of approximately
1.20:1, compared with working capital of approximately $3,124,000 and a ratio of
1.23:1 as of July 31, 1996. During the fiscal quarter ended October 31, 1996,
the Company recorded negative cash flow from operating activities primarily as a
result of increased inventory purchases to support the current and anticipated
future sales levels.
Inventories at October 31, 1996, were at a higher level due, in part, to delays
in sales and shipments of finished goods in the first quarter of fiscal 1997.
These delays resulted in lower sales in the first quarter of fiscal 1997 than
would have otherwise been attained, and were caused by the limited availability
under the Company's line of credit (as discussed below). The limited
availability under the line of credit delayed the Company's ability to obtain
finished goods inventory shipped from foreign vendors, which goods were required
to complete customer orders.
During the fiscal quarters ended October 31, 1996 and 1995, cash used for
capital expenditures was approximately $91,000 and $132,000 respectively.
Capital expenditures for the remainder of fiscal year 1997 are expected to be
under $500,000.
Pico Macom has an $11,000,000 revolving bank line of credit which is secured by
substantially all of Pico Macom's assets, including all trade accounts
receivable and inventories. The line provides for interest at the prime rate
(8.25% at October 31, 1996) plus 1.25%. The revolving line of credit is used to
fund operating expenses, product purchases and letters of credit for import
purchases. The
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line has a $1,500,000 sublimit for outstanding letters of credit. The amount
available to borrow at any one time is based upon various percentages of
eligible accounts receivable and eligible inventories as defined in the
agreement, which is subject to review and renewal on December 31, 1997. The
credit facility is subject to certain financial tests and covenants. At October
31, 1996, Pico Macom had approximately $9,213,000 in revolving loans outstanding
and approximately $43,000 in letters of credit outstanding, and the unused
portion of the borrowing base was approximately $585,000.
At October 31, 1996, the Company was in technical violation of certain financial
covenants relating to Pico Macom's bank line of credit. These covenants
restrict the maximum advances to affiliates by Pico Macom and establish certain
minimum and maximum financial ratios. Pico Macom's bank has issued a waiver of
these violations effective October 31, 1996. All other covenants relating to
this line of credit were met as of October 31, 1996.
As described below, subsequent to October 31, 1996, the Company completed a
private placement financing. On a pro forma basis, after giving effect to the
private placement, Pico Macom's financial covenants were in compliance with the
line of credit agreement.
During the second half of fiscal year 1996, Management determined that the
Company's credit arrangements, along with an inventory reduction program
implemented by the Company, would not provide sufficient cash to fund growth in
the Company's sales and planned operations for fiscal year 1997 and beyond.
Consequently, on November 21, 1996, the Company completed a private placement
financing totaling $6 million with two institutional investors to provide funds
for general working capital requirements and investment in new product
development, market development, and upgrade of facilities. The private
placement consisted of $5 million of seven-year 12 percent subordinated
debentures sold to Allied Capital Corporation of Washington, D.C. and certain of
its affiliates, and $1 million of seven-year 12 percent redeemable preferred
stock sold to The Sinkler Corporation of Wilmington, Delaware. In connection
with the financing, Allied Capital Corporation and affiliates received warrants
to purchase 779,313 shares of the Company's common stock, The Sinkler
Corporation received warrants to purchase 155,863 shares of the Company's common
stock, and Shipley Raidy Capital Partners, LP, the Company's investment banker,
received warrants to purchase 20,000 shares of the Company's common stock.
Additionally, Allied Capital Corporation and affiliates, and The Sinkler
Corporation, received warrants to purchase, in the aggregate, up to 18% of the
number of shares of the Company's common stock resulting from the exercise from
time to time by holders of options and warrants previously granted by the
Company. The warrants are exercisable at a price of
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$1.81 per share, the average closing price of the Company's common stock for the
30 trading days prior to November 21, 1996.
Profitability of operations is subject to various uncertainties including
general economic conditions and the actions of actual or potential competitors
and customers. The Company's future depends on the growth of the cable TV
market in the United States and internationally. In the United States, a number
of factors could affect the future profitability of the Company, including
changes in the regulatory climate for cable TV, changes in the competitive
structure of the cable and telecommunications industries or changes in the
technology base of the industry. Internationally, the Company's profitability
depends on its ability to penetrate new markets in the face of competition from
other United States and foreign companies.
FORWARD LOOKING STATEMENTS
Statements which are not historical facts, including statements about our
confidence, strategies and expectations, technologies and opportunities,
industry and market segment growth, demand and acceptance of new and existing
products, and return on investments in products and markets, are forward looking
statements that involve risks and uncertainties, including without limitation,
the effect of general economic and market conditions, industry market conditions
caused by changes in the supply and demand for our products, the continuing
strength of the markets we serve, competitor pricing, maintenance of our current
momentum and other factors.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Incorporated by reference from financial statement footnote number 4 of Part I.
ITEM 2. CHANGES IN SECURITIES
As discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company and certain of its subsidiaries issued
subordinated debentures and preferred stock in the face amounts of $5 million
and $1 million, respectively, on November 21, 1996. The debentures and the
preferred stock were issued pursuant to the terms of agreements which contain
various financial and other covenants. These agreements prohibit the
distribution of cash, stock or other property to shareholders (whether
characterized as dividends or otherwise) or the redemption or repurchase of the
Company's capital stock or similar securities, subject to limited exceptions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3(a) Complete copy of the Certificate of Incorporation of the Company,
as amended on November 19, 1996.
3(b)c By-Laws of the Company, as amended on December 17, 1987.
4(a)b 1981 Non-Qualified Stock Option Plan
4(b)a 1982 Incentive Stock Option Plan
4(c)d 1992 Incentive Stock Plan
4(d)e Warrant Certificates issued to Scimitar Development Capital Fund
and Scimitar Development Capital "B" Fund, dated February 10,
1993.
4(e)f Warrant Certificate issued to City National Bank, dated February
10, 1993.
4(f)g Amendment to 1992 Incentive Stock Plan.
Note: Key to Index of Exhibits Incorporated by Reference follows this
List of Exhibits.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED).
4(g)h Amendment to 1981 Non-Qualified Stock Option Plan.
4(h) Investment Agreement between the Company and certain of its
subsidiaries, and Allied Capital Corporation and certain of its
affiliated companies, dated November 21, 1996.
4(i) Subordinated Secured Debenture issued by the Company and certain
of its subsidiaries, payable to Allied Capital Corporation, dated
November 21, 1996. The Company has issued subordinated secured
debentures in substantially the same form as this debenture to
the following parties for the following amounts:
Holder Amount
-------------------------------- ----------
Allied Investment Corporation $2,300,000
Allied Investment Corporation II $1,450,000
Allied Capital Corporation II $ 550,000
4(j) Letter Agreement covering the issuance and sale by the Company of
Preferred Stock to The Sinkler Corporation, dated November 21,
1996.
4(k) Stock Purchase Warrant issued by the Company to Allied Capital
Corporation, dated November 21, 1996. The Company has issued
warrants in substantially the same form as this warrant to the
following parties for the following number of shares:
Holder Shares
-------------------------------- ----------
Allied Investment Corporation 358,484
Allied Investment Corporation II 226,001
Allied Capital Corporation II 85,724
The Sinkler Corporation 155,863
Shipley Raidy Capital Partners, LP 20,000
Note: Key to Index of Exhibits Incorporated by Reference follows this
List of Exhibits.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED).
4(l) Stock Purchase Warrant issued by the Company to Allied Capital
Corporation, dated November 21, 1996. The Company has issued
warrants in substantially the same form as this warrant to the
following parties for the following percentage of shares:
Percentage of
Holder Shares
-------------------------------- --------------
Allied Investment Corporation 6.9%
Allied Investment Corporation II 4.35%
Allied Capital Corporation II 1.65%
The Sinkler Corporation 3.0%
4(m) Registration Rights Agreement between the Company, Allied Capital
Corporation and certain of its affiliated companies, Scimitar
Development Capital Fund and Scimitar Development Capital "B"
Fund, Shipley Raidy Capital Partners, LP, and The Sinkler
Corporation, dated November 21,1996.
10(r) Amendment No. 4 to the Loan and Security Agreement between Pico
Macom, Inc. and HSBC Business Loans, Inc., as successor to Marine
Midland Business Loans, Inc. (original agreement dated May 25,
1994) - amendment dated November 25, 1996.
11.1 Computation of Per Share Earnings.
27 Financial Data Schedule (included only in the EDGAR filing).
See next page for Key to Index of Exhibits Incorporated by Reference.
(b) Reports on Form 8-K:
None.
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KEY TO INDEX OF EXHIBITS INCORPORATED BY REFERENCE
a Previously filed by the Company as an exhibit to the Company's Registration
Statement on Form S-1, File No. 2-77439 and incorporated by reference.
b Previously filed by the Company as an exhibit to the Company's Registration
Statement on Form S-18, File No. 2-72318 and incorporated by reference.
c Previously filed by the Company as an exhibit to the Company's Form 10-K
for the fiscal year ended July 31, 1988 and incorporated by reference.
d Previously filed by the Company as an exhibit to the Company's Form 10-Q
for the fiscal quarter ended January 31, 1993 and incorporated by
reference.
e Previously filed as exhibits to Schedule 13D, dated February 16, 1993,
filed by Standard Chartered Equitor Trustee CI Limited, Scimitar
Development Capital Fund and Scimitar Development Capital "B" Fund, and
incorporated by reference.
f Previously filed by the Company as an exhibit to the Company's Form 10-K
for the fiscal year ended July 31, 1993 and incorporated by reference.
g Previously filed by the Company as an exhibit to the Company's Form 10-K
for the fiscal year ended July 31, 1994 and incorporated by reference.
h Previously filed by the Company as an exhibit to the Company's Form 10-Q
for the fiscal quarter ended January 31, 1996 and incorporated by
reference.
Copies of all exhibits incorporated by reference are available at no charge
by written request to Assistant Corporate Secretary, Pico Products, Inc.,
12500 Foothill Blvd., Lakeview Terrace, California 91342.
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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.
PICO PRODUCTS, INC.
REGISTRANT
DATE: December 9, 1996 /s/ Joseph T. Kingsley
-------------------------------------
Senior Vice President of Finance
Chief Financial Officer
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FORM 10-Q
QUARTER ENDED OCTOBER 31, 1996
LIST OF NEW EXHIBITS
3(a) Complete copy of the Certificate of Incorporation of the Company,
as amended on November 19, 1996.
4(h) Investment Agreement between the Company and certain of its
subsidiaries, and Allied Capital Corporation and certain of its
affiliated companies, dated November 21, 1996.
4(i) Subordinated Secured Debenture issued by the Company and certain
of its subsidiaries, payable to Allied Capital Corporation, dated
November 21, 1996. The Company has issued subordinated secured
debentures in substantially the same form as this debenture to
the following parties for the following amounts:
Holder Amount
-------------------------------- ----------
Allied Investment Corporation $2,300,000
Allied Investment Corporation II $1,450,000
Allied Capital Corporation II $ 550,000
4(j) Letter Agreement covering the issuance and sale by the Company of
Preferred Stock to The Sinkler Corporation, dated November 21,
1996.
4(k) Stock Purchase Warrant issued by the Company to Allied Capital
Corporation, dated November 21, 1996. The Company has issued
warrants in substantially the same form as this warrant to the
following parties for the following number of shares:
Holder Shares
-------------------------------- ----------
Allied Investment Corporation 358,484
Allied Investment Corporation II 226,001
Allied Capital Corporation II 85,724
The Sinkler Corporation 155,863
Shipley Raidy Capital Partners, LP 20,000
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LIST OF NEW EXHIBITS (CONTINUED)
4(l) Stock Purchase Warrant issued by the Company to Allied Capital
Corporation, dated November 21, 1996. The Company has issued
warrants in substantially the same form as this warrant to the
following parties for the following percentage of shares:
Percentage of
Holder Shares
-------------------------------- --------------
Allied Investment Corporation 6.9%
Allied Investment Corporation II 4.35%
Allied Capital Corporation II 1.65%
The Sinkler Corporation 3.0%
4(m) Registration Rights Agreement between the Company, Allied Capital
Corporation and certain of its affiliated companies, Scimitar
Development Capital Fund and Scimitar Development Capital "B"
Fund, Shipley Raidy Capital Partners, LP, and The Sinkler
Corporation, dated November 21,1996.
10(r) Amendment No. 4 to the Loan and Security Agreement between Pico
Macom, Inc. and HSBC Business Loans, Inc., as successor to Marine
Midland Business Loans, Inc. (original agreement dated May 25,
1994) - amendment dated November 25, 1996.
11.1 Computation of Per Share Earnings.
27 Financial Data Schedule (included only in the EDGAR filing).
21
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EXHIBIT 3(a)
CERTIFICATE OF INCORPORATION
OF
PICO PRODUCTS, INC.
(As Amended on November 19, 1996)
Under Section 807 of the
BUSINESS CORPORATION LAW
FIRST: The name of the Corporation is Pico Products, Inc. (the
"Corporation").
SECOND: The purposes for which it is to be formed are as follows:
2.1 To conduct the business of manufacturing, buying, selling,
servicing, assembling, preparing for market, importing, exporting, leasing,
renting, distributing, advertising, promoting, owning, acquiring, developing,
inventing, patenting, and generally dealing in every sort of electrical, printed
circuit, cable television, radio, telecommunication, and other devices,
machinery, appliances, equipment and the purchasing, selling, pledging,
mortgaging, granting of security interests in licensing, leasing, and otherwise
acquiring, using and disposing of patents, patent rights, inventions,
trademarks, tradenames, trade secrets, copyrights, research, ideas and systems;
and to acquire all real estate and plant or plants necessary to carry out the
above objects.
2.2 To manufacture, patent, buy, sell and generally deal in metal
name plates, alkali, acid and photo etched and any and all other kinds or types
of identification items, including tapes and labels for hard goods, hardware,
transportation, military, amusement, electrical, electronic and any other type,
kind or nature of item requiring product identification and all other kinds and
types of product identification, machinery and machinery for the manufacture
thereof. To acquire all real estate and plant or plants necessary to carry out
the above objects.
2.3 To borrow money, with or without pledge of, or security
interest in or mortgage on, all or any of its property, real or personal, as
security, and to loan and advance money upon mortgage on real and personal
property, or either of them.
2.4 To sell, manage, improve, develop, assign, transfer, convey,
lease, sublease, pledge, grant a security interest in or otherwise alienate or
dispose of and to mortgage or otherwise encumber the lands, buildings, real
property, chattels, real and other property of the Corporation, wheresoever
situate, and any and all legal and equitable rights therein.
2.5 To buy, sell, and deal in, with or without guarantee of
payment thereof, notes, stocks, bonds and mortgages and other like securities
and other kinds of property, whether real or personal, not prohibited or
especially excepted by law, and to do and prosecute any acts and thing
incidental to or proper in connection with the carrying out of its business.
2.6 To subscribe for, purchase, invest in, hold, own, pledge, grant
a security interest in, assign, or otherwise dispose of, shares of capital
stock, bonds, mortgages, debentures, notes or other securities, obligations,
contracts, and evidences of indebtedness of corporations organized under the law
of the State of New York, and any other state of the United States, and of any
foreign government, and the bonds and other evidences of indebtedness of the
United States and foreign governments, and the stocks, bonds and indebtedness of
foreign corporations and municipalities. To exercise in respect to any such
shares of stock, bonds, and other securities of corporations, municipalities,
foreign or domestic governments, any and all rights, powers, privileges of
individual ownership, including the right to vote, to issue bonds and other
obligations, and to secure the same by pledging or mortgaging the whole or any
part of the property of the Corporation, and to sell
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or pledge such bonds and other obligations for proper corporate purposes, and to
do any and all acts and things tending to increase the value of the property at
any time held by it. The Corporation shall be and hereby is authorized to
purchase, hold, acquire and dispose of the stocks, bonds and other evidences of
indebtedness of any corporation, domestic or foreign, and to issue and exchange
therefor its stock, bonds or other obligations.
2.7 To purchase or otherwise acquire, undertake, carry on, improve
or develop all or any of the business, goodwill, rights, assets or liabilities
of any person, firm, association or corporation carrying on any kind of business
the same as, or of a similar nature to that which the Corporation is authorized
to carry on, pursuant to the provisions of this Certificate.
2.8 To use its surplus earnings or accumulated profits in the
purchase or acquisition of its own capital shares from time to time as its Board
of Directors shall determine, and any capital shares purchased may, if the
Directors so determine, be held in the treasury of the Corporation as treasury
shares, or be thereafter reissued or disposed of in such manner as the
Directors, subject to the provisions of law, shall deem proper.
2.9 To issue in exchange for stocks, bonds, contracts, mortgages or
other obligations of individuals, co-partners or corporations, the shares of the
Corporation therefor.
2.10 To do all and everything necessary, suitable, useful or proper
for the accomplishment of any of the purposes or the attainment of any of the
objects or the furtherance of any of the powers hereinbefore set forth, as
principal or agent, either alone or in association with other corporations,
firms, or individuals, and to do every act or acts, thing or things incidental
or appurtenant to or growing out of or connected with any of the aforesaid
purposes, objects and powers, or any parts or part thereof, and to do any such
act or thing to the same extent and as fully as natural persons might or could
do in any part of the world.
2.11 To buy, sell, manage and generally deal in goods, wares,
merchandise, and property of any and every class and description, and generally
do any and all things and exercise any and all powers which may now or hereafter
be lawful for a corporation to do or exercise under and pursuant to the Business
Corporation Law of the State of New York, or any other law that may be nor or
hereafter applicable to the Corporation.
THIRD: The total number of shares of all classes which the Corporation
shall have the authority to issue is fifteen million five hundred thousand
(15,500,000) shares, of which fifteen million (15,000,000) shall be common
shares, having a par value of $0.01 per share ("Common Shares"), and five
hundred thousand (500,000) shall be series preferred shares, having a par value
of $0.01 per share ("Preferred Shares").
3.1 The designations, powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of the shares of each class
shall be governed by the following provisions:
3.1.1 The Board of Directors of the Corporation has
authority, subject to the provisions of this Article THIRD and the limitations
prescribed by law, to authorize the issue of one or more series of Preferred
Shares and with respect to each such series to execute, deliver and file any
certificate which the Board of Directors may deem to be necessary or appropriate
under the Business Corporation Law of New York. The authority of the Board of
Directors with respect to each of the series shall include, but not be limited
to, the fixing of the following by resolutions providing for the issue of that
series:
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(a) The designation of the series and the number of
Preferred Shares which shall constitute the series.
(b) The dividend rate of the series, the conditions
and dates upon which dividends shall be payable, the
relation which the dividends shall bear to the dividends
payable on any other series or class of shares, and
whether such dividends shall be cumulative or non-
cumulative.
(c) Whether the shares of the series shall be subject
to redemption by the Corporation and, if made subject to
redemption, the times, prices and other terms and
conditions of redemption.
(d) Whether the shares of the series shall be
convertible into or exchangeable for shares of any other
series or class of shares of the Corporation, and, if
provision is made for conversion or exchange, the times,
prices, rates, adjustments, and other terms and conditions
of conversion or exchange.
(e) The extent, if any, to which the holders of the
shares of the series shall be entitled to vote with
respect to the election of Directors or otherwise.
(f) The restrictions, if any, on the issue or reissue
of any additional Preferred Shares of the series.
(g) The rights of the holders of the shares of the
series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets, or
dissolution or winding up, of the Corporation.
(h) Such other designations, preferences and relative
participatory, optional or other special rights of the
shares of the series, and all other restrictions on the
Corporation in connection with the Preferred Shares
(subject to this Restated Certificate of Incorporation or
the laws of the State of New York).
3.1.2. Except as otherwise required by law and except for such
voting powers with respect to the election of Directors or other matters as may
be stated in the resolution or resolutions of the Board of Directors providing
for the issue of any series of Preferred Shares, the holder of any such series
shall have no voting power whatsoever, and all voting rights shall be vested
exclusively in the holders of the outstanding Common Share and each such holder
shall be entitled to one vote per share for all purposes for each Common Share
held of record by such holder.
3.1.3 When dividends shall have been paid (or declared and
set aside for payment) on the Preferred Shares to the full extent of the
preferences, if any, dividends on the Common Shares and on any Preferred Shares
participating in dividends in addition to fixed dividends may then be paid out
of the funds of the Corporation which are legally available therefor. Subject
to the limitations prescribed in this Article THIRD and any further limitations
which may from time to time be prescribed by the Board of Directors in
accordance
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herewith, the holders of Common Shares shall be entitled to receive dividends on
the Common Shares when, as and if declared by the Board of Directors, out of the
funds of the Corporation which are legally available therefor.
3.1.4 No holder of shares of any class of shares of the
Corporation shall as such holder have any preemptive or preferential right of
subscription to any shares of any class of the Corporation or to any obligations
convertible into shares of the Corporation, issued or sold, or to any right of
subscription to, or to any warrant or option for the purchase of any thereof,
other than such (if any) as the Board of Directors of the Corporation, in its
discretion, may determine, from time to time.
3.2. Pursuant to this Paragraph THIRD of the Certificate of
Incorporation of the Corporation, there be and hereby is created a series of
Preferred Shares hereby designated as Series A Redeemable Preferred Shares, to
consist of one thousand (1,000) shares having a par value of $0.01 per share,
which series shall have the voting rights, designations, powers, preferences,
relative and other special rights, and qualifications, limitations and
restrictions set forth below:
3.2.1. DESIGNATION. The designation of the series of
Preferred Shares created hereby is Series A Redeemable Preferred Shares and the
number of shares constituting such series is one thousand (1,000) (the "Series A
Shares").
3.2.2. RANK. The Series A Shares shall, with respect to
dividend rights, rights on redemption and rights on liquidation, winding up and
dissolution, rank prior to all classes of common shares of the Corporation and
to each other class of capital shares or series of Preferred Shares of the
Corporation hereafter created which does not expressly provide that it ranks
senior to or on a parity with the Series A Shares.
3.2.3. VOTING RIGHTS. Except as otherwise provided by law,
the holder of the Series A Shares shall not be entitled to vote on any matters
with the holders of other voting capital shares.
3.2.4. DIVIDENDS. Except as otherwise provided in this
Paragraph 3.2.4, the holder of the Series A Shares shall not be entitled to
receive dividends.
(a) GENERAL DIVIDEND OBLIGATIONS. When and as
declared by the Board of Directors of the Corporation, the
Corporation shall pay to the holders of the Series A
Shares, out of the assets of the Corporation available for
such payment of dividends under the New York Business
Corporation Law, payable in preference and priority to any
payment of any dividend on common shares of the
Corporation, dividends at the times and in the amounts
provided in this Paragraph 3.2.4. The Board of Directors
of the Corporation shall declare and pay to the holder of
Series A Shares dividends at the Dividend Rate described
in Paragraph 3.2.4(c) below on a quarterly basis; provided
that the Board of Directors may in its discretion postpone
the declaration and payment of one or more quarterly
dividends so long as dividends are declared and paid on at
least an annual basis.
(b) CALCULATION OF DIVIDENDS. Dividends for each
Series A Share will be calculated cumulatively on a
quarterly basis at the rate and in the manner
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prescribed herein from and including the "Commencement Date"
with respect to such Series A Shares to, but excluding, the
date on which the Series A Shares are redeemed or the
Liquidation Price has been received with respect to the Series
A Shares, whether or not such dividends have been declared and
whether or not there are (at the time such dividends are
calculated or become payable or at any other time) profits,
surplus or other funds of the Corporation legally available for
the payment of dividends.
For the purposes of this Subparagraph 3.2.4(b), the
"Commencement Date" with respect to any Series A Share
shall be deemed to be the date of issuance regardless of
the number of times transfer of such Series A Share is
made on the share records maintained by or for the
Corporation and regardless of the number of certificates
which may be issued to evidence such Series A Share
(whether by reason of transfer of such Series A Share or
for any other reason.)
(c) DIVIDEND RATE. Dividends payable on the Series A
Shares shall be calculated cumulatively with respect to
each quarter in which dividends are due on each Series A
Share at a rate of 12% of the Liquidation Value per annum
("Dividend Rate"). To the extent not paid on the first
day of each January, April, July, and October (each a
"Dividend Reference Date"), an amount equal to all
dividends which have been calculated on Series A Shares
then outstanding during the quarterly period (pro rated
for a shorter period as appropriate) ending on the day
immediately preceding such Dividend Reference Date shall
be added to the Redemption Price (as described in
Paragraph 3.2.7 hereof) of such Series A Share and will
remain a part thereof until (but only until) such
dividends are paid. Any subsequent dividends which are
paid to the holder of the Series A Shares in respect
thereof shall, in all instances, be applied first to the
payment of amounts of dividends which have been added on
previous Dividend Reference Dates to the Redemption Price
until the Redemption Price of all Series A Shares shall be
equal to the original Redemption Price, as adjusted,
herein stated.
(d) FORM OF PAYMENT. The Dividend Rate shall be
payable quarterly in cash or in common shares of the
Corporation, as determined by the holders of a majority of
the outstanding Series A Shares, by notice to the
Corporation at least thirty (30) days prior to the
applicable Dividend Reference Date. In the absence of
such notice, it shall be presumed that the dividend for
the applicable quarter shall be payable in cash. In the
event that payment in the form of common shares is elected
by the holders of the Series A Shares, the number of
common shares issuable shall be determined by dividing the
amount of the dividend by the average Market Value (as
hereinafter defined) of the Corporation's common shares
over the ten consecutive trading days ending on the
trading day immediately prior to the Dividend Reference
Date. "Market Value" shall mean the average of the high
and low prices of the common shares, as reported in The
Wall Street Journal, on the American Stock Exchange (or a
similar consolidated transactions report for the exchange
or other market on which the common shares
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is then trading, if not the American Stock Exchange) for the
relevant date, or if no sales of common shares were made on
such exchange on such date, the average of the high and low
prices of such shares as reported in such composite transaction
report for the preceding day on which sales of shares were made
on such exchange. If the common shares are not listed on a
national securities exchange at the time Market Value is to be
determined, then Market Value shall be determined by the Board
of Directors of the Corporation in good faith pursuant to such
method as the Board of Directors deems appropriate and
equitable. Under no circumstances shall the Market Value of a
common share be less than its par value. All fractional shares
shall be paid in cash. All unpaid cash dividends shall be
cumulative.
(e) PRIORITY. So long as any Series A Shares shall be
outstanding, without the consent of the holders of a
majority of the outstanding Series A Shares, the
Corporation shall not declare or pay on the common shares
of the Corporation any dividend whatsoever, whether in
cash, property or otherwise, nor shall the Corporation
make any distribution on the common shares, nor shall any
common shares be purchased or redeemed by the Corporation
or any subsidiary thereof, unless (1) all dividends to
which the holders of Series A Shares have been entitled
for all previous dividend periods shall have been paid or
declared and a sum of money sufficient for the payment
thereof set apart, and (2) all Series A Shares which the
Corporation was theretofore obligated to redeem in
accordance with Paragraph 3.2.7 hereof shall have been
redeemed.
3.2.5. LIQUIDATION. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of Series A Shares then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its shareholders an amount equal to one thousand dollars ($1,000.00) for each
Series A Share outstanding (such amount, as it may be adjusted from time to time
to give effect to any share splits or combinations, recapitalizations or other
similar events, the "Liquidation Value") plus an amount equal to all accumulated
but unpaid dividends thereon to the date fixed for the liquidation, dissolution
or winding up, before any payment shall be made or any assets distributed to the
holders of common shares. Except as provided in the preceding sentence, holders
of Series A Shares shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation. If
the assets of the Corporation are not sufficient to pay in full the liquidation
payments payable to the holders of the Series A Shares, then the holders of all
such shares shall share ratably in accordance with the respective amounts to
which the holders of outstanding Series A Shares would be entitled if all
amounts payable thereon were paid in full. The liquidation payment with respect
to each outstanding fractional Series A Share (if any) shall be equal to a
ratably proportionate amount of the liquidation payment with respect to each
outstanding Series A Share.
3.2.6. CONVERSION. The Series A Shares shall not be
convertible into or exchangeable for shares of any other series or class of
shares of the Corporation.
3.2.7. REDEMPTION. The Series A Shares shall be redeemable as
follows:
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(a) OPTIONAL REDEMPTION. The Series A Shares shall be
redeemable, at the option of the Corporation, in whole or
in part, at any time without penalty, at a redemption
price equal to one thousand dollars ($1,000.00) per share
(the "Redemption Price") plus an amount equal to all
accumulated but unpaid dividends thereon to the date fixed
for redemption.
(b) MANDATORY REDEMPTION. The Series A Shares shall
be redeemed, out of funds legally available therefor, at
the Redemption Price plus an amount equal to all
accumulated but unpaid dividends thereon to the date fixed
for redemption on the following dates and in the following
amounts:
(i) One hundred (100) shares (less any shares
previously redeemed pursuant to Paragraph 3.2.7(a) or
3.2.7(b)) on or before November 30, 2000;
(ii) Two hundred (200) shares (less any shares
previously redeemed pursuant to Paragraph 3.2.7(a) or
3.2.7(b)) on or before November 30, 2001;
(iii) Four hundred (400) shares (less any shares
previously redeemed pursuant to Paragraph 3.2.7(a) or
3.2.7(b)) on or before November 30, 2002; and
(iv) All outstanding shares on or before November 30,
2003.
(c) REDEMPTION PROCEDURES. When the Corporation
redeems the Series A Shares, the following procedures
shall apply:
(i) When less than all of the outstanding Series A
Shares are being redeemed, the shares subject to redemption
shall be determined in the sole discretion of the
Corporation.
(ii) Notice of redemption shall be given by first
class mail, postage prepaid, mailed not less than 30 days
nor more than 60 days prior to the date on which Series A
Shares are to be redeemed (any such date, a "redemption
date"), to the holder of record of the shares to be redeemed
at such holder's address as the same appears on the share
register of the Corporation. Such notice shall state: (a)
the redemption date; (b) the redemption price; (c) the
number of shares subject to redemption; and (d) the place or
places where certificates for such shares are to be
surrendered for payment of the redemption price.
(iii) Notice having been mailed as aforesaid, from and
after the redemption date (unless default shall be made by
the Corporation in providing money for the payment of the
redemption price of the shares called for redemption) said
shares shall no longer be deemed to be outstanding and shall
have the status of authorized but unissued Series A Shares,
and shall not be reissued as Series A Shares, and all rights
of the holder thereof as a shareholder of the Corporation
(except the right to receive from the Corporation the
redemption price) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the
Board of Directors of the Corporation shall so require and
the notice shall so state), such shares shall be redeemed by
the Corporation at the redemption price aforesaid.
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FOURTH: The office of the Corporation shall be located in the City of
Liverpool, county of Onondaga, State of New York, and the address to which the
Secretary of State shall mail a copy of process in any action or proceeding
against the Corporation which may be served upon him is 1001 Vine Street,
Liverpool, New York 13088.
FIFTH: The Secretary of State of the State of New York is designated
as the agent of the Corporation upon whom process in any action or proceeding
against it may be served.
SIXTH: The duration of the Corporation shall be perpetual.
SEVENTH: No Director shall be personally liable to the Corporation or
any of its shareholders for monetary damages for breach of duty as a Director,
except for liability if a judgment or other final adjudication adverse to such
Director establishes that such Director's acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law or that such
Director personally gained in fact a financial profit or other advantage to
which such Director was not legally entitled or that such Director's acts
violated Section 719 of the New York Business Corporation Law. If the
Corporation hereafter may by law be permitted to further eliminate or limit the
personal liability of Directors, then pursuant hereto the liability of a
Director shall, at such time, automatically be further eliminated or limited to
the fullest extent permitted by law. Any repeal or modification of this Article
SEVENTH by the shareholders of the Corporation shall not adversely affect any
right or protection of a Director of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
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EXHIBIT 4(h)
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement") is made as of the 21st
day of November, 1996 by and among: (i) PICO PRODUCTS, INC., a New York
corporation (the "Parent"); (ii) PICO MACOM, INC., a Delaware corporation
("PMI"), PICO MACOM TAIWAN CO., LTD., a Taiwan corporation ("Taiwan"), PICO
(ST. KITTS) LTD., a St. Christopher and Nevis corporation ("St. Kitts"), PICO
(BERMUDA) LTD., a Bermuda corporation ("Bermuda"), PICO PRODUCTS ASIA
LIMITED, a Hong Kong corporation ("Asia") and PICOMACOM PRODUTOS DE
TELECOMMUNICACAO LTDA., a Brazil limited liability company ("Brazil") (PMI,
Taiwan, St. Kitts, Bermuda, Asia and Brazil are hereinafter collectively
referred to as "Subsidiaries") (the Parent and the Subsidiaries are
hereinafter collectively referred to as "Borrowers"); and (iii) ALLIED
CAPITAL CORPORATION, ALLIED INVESTMENT CORPORATION, ALLIED INVESTMENT
CORPORATION II, and ALLIED CAPITAL CORPORATION II, each a Maryland
corporation (collectively, "Allied").
RECITALS:
A. Allied wishes to invest the aggregate sum of Five Million Dollars
in Borrowers, in exchange for certain secured subordinated debentures and
warrants to purchase shares of the Common Stock of the Parent.
B. The parties desire to set forth herein their understandings and
agreements pertaining to this transaction.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Allied and the
respective successors and assigns of Allied with respect to any of the
Debentures or any of the Equity Interest (as these terms are hereinafter
defined) (individually, a "Holder" and collectively, the "Holders") and the
Borrowers hereby agree as follows:
ARTICLE I: DEFINITIONS
1.01 DEFINITIONS. In addition to the terms defined elsewhere herein,
when used herein, the following capitalized terms shall have the meanings
indicated:
"ACT OF BANKRUPTCY," when used in reference to any Person, shall mean
the occurrence of any of the following with respect to such Person: (i) such
Person shall have made an assignment for the benefit of his or its creditors;
(ii) such Person shall have admitted in writing his or its inability to pay his
or its debts as they become due; (iii) such Person shall have filed a voluntary
petition in bankruptcy; (iv) such Person shall have been adjudicated a bankrupt
or insolvent; (v) such Person shall have filed any petition or answer seeking
for himself or itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future Applicable Law pertinent to such circumstances; (vi) such Person shall
have filed or shall file any answer admitting or not contesting the material
allegations of a bankruptcy, insolvency or similar petition filed against such
Person; (vii) such Person shall have sought or consented to, or acquiesced in,
the appointment of any trustee, receiver, or liquidator of such Person or of all
or any substantial part (20% or more) of the properties of such Person;
(viii) 60 days shall have elapsed after the commencement of an action against
such Person seeking reorganization, arrangement, composition, readjustment or
similar relief under any present or future Applicable Law without such action
having been dismissed or without all orders or proceedings thereunder affecting
the operations or the business of such Person having been stayed, or if a stay
of
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any such order or proceedings shall thereafter be set aside and the action
setting it aside shall not be timely appealed; or (ix) 60 days shall have
expired after the appointment, without the consent or acquiescence of such
Person of any trustee, receiver or liquidator of such Person or of all or any
substantial part of the assets and properties of such Person without such
appointment having been vacated.
"ACT OF DISSOLUTION," when used in reference to any Person (other than
an individual) shall mean the occurrence of any action initiating, or any event
that results in, the dissolution, liquidation, winding-up or termination of such
Person.
"AFFILIATE," when used in reference to any Person, shall mean any
Person that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person in
question.
"APPLICABLE LAW(S)," when used in the singular, shall mean any
applicable federal, state or local law, ordinance, order, regulation, rule or
requirement of any governmental or quasi-governmental agency, instrumentality,
board, commission, bureau or other authority having jurisdiction, and, when used
in the plural, shall mean all such applicable federal, state and local laws,
ordinances, orders, regulations, rules and requirements.
"APPLICABLE UCC" shall mean the Uniform Commercial Code, as enacted in
the State of Maryland, as amended through the date hereof.
"BASIC WARRANTS" shall mean, collectively, all those separate and
detachable stock purchase warrants described in Section 2.08(a) hereof.
"BUSINESS" shall mean the design, manufacture and distribution of
products that receive, distribute, process and secure satellite, broadcast and
cable television signals, the business currently operated by Borrowers.
"CHATTEL PAPER" shall mean, collectively, all of the Parent's and
PMI's now owned and hereafter acquired "chattel paper," as that term is defined
in Section 9-105(1)(b) of the Applicable UCC.
"COLLATERAL" shall mean, collectively, all of the now-owned and
hereafter acquired tangible and intangible property of the Parent and PMI,
including all of the following: (i) all Receivables; (ii) all Chattel Paper,
(iii) all Equipment; (iv) all Goods; (v) all Instruments; (vi) all Inventory;
(vii) all General Intangibles; (viii) all Proceeds; (ix) all Real Property; (x)
all books and records of the Parent and PMI, including those relating to any of
the foregoing; (xi) all monies, deposit accounts, and rights to money of any
kind; (xii) all additions or accessions to any of the foregoing; (xiii) all
substitutions for any of the foregoing; and (xiv) all replacements, products and
proceeds of the foregoing.
"COMMON STOCK" shall mean any or all (as the context may require) of
the shares of the authorized common stock of the Parent.
"CONTINGENT WARRANTS" shall mean, collectively, all those separate and
detachable stock purchase warrants described in Section 2.08(b) hereof.
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"ELIGIBLE INVENTORY" shall mean all Inventory of PMI consisting of raw
materials and finished goods reduced by (i) any Inventory of PMI as to which a
representation or warranty with respect thereto set forth in the Senior Loan
Agreement is not, or does not continue to be, true and accurate, and (ii) any
Inventory of PMI which is otherwise unacceptable to Senior Holder in its
reasonable credit judgment.
"EQUIPMENT" shall mean all of Parent's and PMI's now owned and
hereafter acquired equipment and fixtures, and all replacements and
substitutions therefor and thereof, and all accessions thereto, including,
without limitation, every item which is or may be necessary or convenient in
relation to the operation of the Business.
"EQUITY INTEREST" shall mean, collectively, all of the Warrants and
all of the Warrant Shares.
"GAAP" shall mean generally accepted accounting principles, for the
period or periods in question.
"GOODS" shall mean, collectively, all of the Parent's and PMI's now
owned and hereafter acquired "goods," as that term is defined in Section
9-105(1)(h) of the Applicable UCC.
"GENERAL INTANGIBLES" shall mean, collectively, all of the Parent's
and PMI's now owned and hereafter acquired general intangibles, including
without limitation, all of the Licenses; all rights under governmental
ordinances or agreements with Governmental Authorities; things in action;
contractual rights; goodwill; literary rights; rights to performance; and all of
the Intellectual Property.
"GOVERNMENTAL AUTHORITY(IES)," when used in the singular, shall mean
any federal, state or local governmental or quasi-governmental instrumentality,
agency, board, commission or department or any regulatory agency, bureau,
commission or authority and, when used in the plural, shall mean all such
entities.
"INELIGIBLE RECEIVABLES" shall mean any Receivable of PMI that does
not meet the eligibility requirements as set forth in the Senior Loan Agreement
from time to time and any other Receivables which the Senior Holder has
determined to be unsatisfactory, but shall in any event include the following
Receivables: (i) any Receivable which has remained unpaid for more than 90
days; (ii) any Receivable as to which any one or more of the following events
occurs: any party directly or indirectly liable for the payment of a Receivable
shall die or be judicially declared incompetent; any such party is the subject
of an Act of Dissolution or an Act of Bankruptcy; (iii) all Receivables owed by
an account debtor if PMI or Parent either owns in whole or material part, or
directly or indirectly controls, such account debtor; and (iv) any Receivable
which is unenforceable against the account debtor for any reason.
"INSTRUMENTS" shall mean, collectively, all of the Parent's and PMI's
now owned or hereafter acquired instruments, notes, items of payment, negotiable
documents, and documents of title.
"INTELLECTUAL PROPERTY" shall mean, collectively, all of the Parent's
or PMI's now owned and hereafter acquired intellectual property, including,
without limitation the following: (a) all patents (including all rights
corresponding thereto throughout the world, and all improvements thereon);
(b) all trademarks (including service marks, trade names and trade secrets, and
all goodwill associated therewith), (c) all
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copyrights (including all renewals, extensions and continuations thereof); (d)
all applications for patents, trademarks or copyrights and all applications
otherwise relating in any way to the subject matter of such patents, copyrights
and trademarks; (e) all patents, copyrights, trademarks or applications therefor
arising after the date of this Agreement; (f) all reissues, continuations,
continuations-in-part and divisions of the property described in the preceding
clauses (a), (b), (c), (d), and (e), including, without limitation, any claims
by the Parent or PMI against third parties for infringement thereof; and (g) all
rights to sue for past, present and future infringements or violations of any
such patents, trademarks, and copyrights.
"INVENTORY" shall mean, collectively, all of the Parent's and PMI's
now owned and hereafter acquired inventory and all products, replacements, and
substitutions therefor and thereof, and all accessions thereto, and all books,
records, computer software and logs relating to and necessary or appropriate to
the conduct of the Business.
"INVENTORY BORROWING BASE" shall mean, the lesser of: (i) $5,500,000
or (ii) at the time of computation, 65% of the dollar value of Eligible
Inventory, such dollar value to be calculated at the lower of actual cost or
market value and accounted for on a "first in, first out" basis, less the amount
of any reserves established by the Senior Holder with respect thereto.
"INVESTMENT DOCUMENTS" shall mean, collectively, this Agreement, the
Debentures, the Security Documents, the Warrants, and all other instruments and
documents executed and delivered in connection with the Investment.
"LICENSES" shall mean, collectively, all rights, licenses, permits and
authorizations now or hereafter issued by any Governmental Authority in
connection with the operation or conduct of the Business.
"OBLIGATIONS" shall mean, collectively, all of the Borrowers'
indebtedness, liabilities and obligations arising under this Agreement, each of
the Security Documents and each of the other Investment Documents and any
renewals, modifications, and extensions thereof, including, but not limited to,
the principal, interest, late charges and other sums due and owing under the
Debentures and the Security Documents, and any other obligations of the
Borrowers to any of the Holders, including such other or additional financing
that any of the Holders may extend to the Borrowers at any time in the Holders'
sole discretion.
"PERMITTED ENCUMBRANCES" shall mean any lien, mortgage, security
interest or other encumbrance that results from any of the following: (i) this
Agreement and the other Investment Documents; (ii) taxes and assessments not
delinquent or actively being contested in good faith by any Borrower and for
which such Borrower has adequate reserves; (iii) deposits or pledges for goods
or services made in the ordinary course of the Business; (iv) a lease with a
bona fide lessor of tangible personal property to any Borrower or an agreement
with a bona fide seller of tangible personal property to any Borrower (where the
lease or sale is not made in contravention of the terms of this Agreement);
(v) purchase money obligations (where the purchase money obligation is not
undertaken in contravention of the terms of this Agreement); (vi) the Senior
Debt, but any such lien, mortgage, security interest or other encumbrance may
exist only against the assets and capital stock of PMI; (vii) obligations
resulting from the upgrade of the Borrowers' computer system in an amount not to
exceed $250,000; and (viii) other obligations in an amount not to exceed
$100,000 per year.
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"PERSON" shall mean any individual, corporation, partnership, joint
venture, limited liability company, unincorporated association, trust, or other
legal entity.
"PROCEEDS" shall mean all cash and noncash proceeds (including
insurance proceeds) resulting from any complete or partial Transfer of the
Collateral or any portion thereof or otherwise relating to or generated by, any
of the Collateral.
"REAL PROPERTY" shall mean, collectively, all real property owned by
the Parent or PMI or in which the Parent or PMI has a leasehold interest and all
real property hereafter acquired by the Parent or PMI in fee or by means of a
leasehold interest, including all real property on which the Business is now or
hereafter conducted, together with all goods located on any such real property
that are or may become "fixtures" under the law of the jurisdiction in which
such real property is located.
"RECEIVABLE" shall mean all of Parent's and PMI's now owned and
hereafter acquired rights to payment for goods sold or leased or for services
rendered.
"RECEIVABLES BORROWING BASE" shall mean, at the time of its
computation, an amount up to 85% the aggregate amount of the outstanding
Receivables of PMI (adjusted with respect to any discounts, allowances, credits,
rebates, or adjustments granted by PMI with respect to such Receivables) less
the amount of Ineligible Receivables and any reserves established by Senior
Holder with respect thereto.
"SECURITY DOCUMENTS" shall have the meaning given to it in Section
2.02 below.
"SENIOR DEBT" shall have the meaning given to it in Section 2.03
below.
"SENIOR HOLDER" shall have the meaning given to it in Section 2.03
below.
"SENIOR LOAN" shall have the meaning given to it in Section 2.03
below.
"SENIOR LOAN AGREEMENT" shall mean that certain Loan and Security
Agreement dated as of May 25, 1994, by and between PMI and HSBC Business Loans,
Inc., as amended from time to time, or any another agreement with respect to the
Senior Loan in effect from time to time.
"TRANSFER" shall mean the sale, assignment, lease, transfer,
mortgaging, encumbering or other disposition, whether voluntary or involuntary,
and whether or not consideration is received therefor.
"TRANSFER OF THE BUSINESS" shall mean one or a series of transactions
undertaken by the Borrowers resulting in either: (i) the Transfer of all or
substantially all of the assets of all of the Borrowers to any other Person,
other than transfers between or among Borrowers; (ii) a merger or consolidation
of the Parent with another Person where the Parent is not the surviving or
successor entity (other than a merger or consolidation of the Parent into or
with another Borrower, or a merger the primary purpose of which is the change in
state of incorporation of a Borrower); or (iii) the acquisition in one or a
series of transactions which results in one or more Persons either beneficially
owning in excess of 50% of the outstanding capital stock of the Parent or any
successor, or being able to elect a majority of the board of directors of the
Parent or any successor.
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"WARRANTS" shall mean, collectively, all those separate and detachable
stock purchase warrants being issued to Allied pursuant to the terms hereof.
"WARRANT SHARE(S)," when used in the singular, shall mean any share of
Common Stock acquired by a Holder pursuant to such Holder's exercise of its
rights under any of the Warrants, and, when used in the plural, shall mean,
collectively, all such shares.
ARTICLE II: TERMS OF INVESTMENT
2.01 FUNDING. At the closing under this Agreement (the
"Closing"), the Borrowers will borrow, and the Holders will invest in the
Borrowers, the aggregate sum of FIVE MILLION AND 00/100 DOLLARS ($5,000,000)
(the "Investment"), such indebtedness to be evidenced by, and to be repaid
according to the terms of, four Subordinated-Secured Debentures
(collectively, the "Debentures") in form and substance acceptable to Holders.
The entire principal sum will be advanced at Closing. The principal
indebtedness under the Debentures will be advanced by, and allocated among,
the Holders as follows:
Allied Capital Corporation $700,000
Allied Investment Corporation 2,300,000
Allied Investment Corporation II 1,450,000
Allied Capital Corporation II 550,000
TOTAL: $5,000,000
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2.02 COLLATERAL. Repayment of the Debentures and other Obligations
shall be secured ratably by second priority liens on, and security interests in,
all of the Collateral. To evidence and create the above-described liens and
security interests, the Borrowers, as appropriate, shall execute and deliver to
Allied at Closing all of the following documents and such additional documents
as Allied or its counsel may reasonably deem to be necessary or appropriate
(collectively, the "Security Documents"):
(a) A security agreement in form and substance acceptable to
Holders covering all of the Collateral, except as specifically covered by the
other Security Documents;
(b) UCC-1 Financing Statements in form and substance acceptable
to Holders to be filed in each of offices in each of the jurisdictions described
in the Security Agreement;
(c) A collateral assignment of the lease for premises in
Lakeview Terrace, California held by PMI and any renewals or extensions thereof
or substitutions or replacements therefor, pursuant to an instrument in form and
substance acceptable to Holders, with the consent of the lessor thereto as set
forth therein;
(d) A collateral assignment of a life insurance policy in the
initial amount of One Million Dollars ($1,000,000) insuring the life of Everett
Keech, which policy shall name the Holders jointly as beneficiaries (to the
extent of net proceeds required to satisfy the Obligations), together with a
binder for an additional policy in the amount of One Million Five Hundred
Thousand Dollars ($1,500,000);
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(e) Stock pledge agreements, pledging all shares of capital
stock of the Subsidiaries; and
(f) a Guaranty of the Obligations by Pico (St. Vincent) Ltd.
The liens and security interests in the Collateral created by the Security
Documents shall be continuing in nature, and shall attach when: (i) each
Borrower has executed and delivered the Security Documents; (ii) any Borrower
has acquired rights in the Collateral; and (iii) any of the Holders has made a
complete or partial disbursement of proceeds under the Debentures to the
Borrowers, the Borrowers' designated payee, or an escrow agent.
2.03 SENIOR DEBT. The Allied Investment and Allied's rights under
the Debentures and this Investment Agreement and the Security Documents shall be
subordinate, as to lien priority and right of payment with respect to Collateral
common to both, only to the following senior debt (the "Senior Debt"): (a) that
certain senior loan (as such loan may be modified, renewed, extended and
refinanced, the "Senior Loan") from HSBC Business Loans, Inc. ("HSBC") in an
outstanding principal amount not to exceed the sum of (A) the Receivables
Borrowing Base, plus (B) the Inventory Borrowing Base. (HSBC or any bank or
other lender which assumes or refinances the Senior Loan being referred to
herein as the "Senior Holder"); and (b) those certain capitalized lease
obligations not to exceed Five Hundred Thousand Dollars ($500,000) in the
aggregate, as more fully described in EXHIBIT 2.03 attached hereto. In
connection with the Senior Loan, the Senior Holder and Allied shall enter into,
at or prior to Closing, a subordination agreement in form and substance
acceptable to Holders (the "Senior Loan Subordination Agreement").
2.04 PRIORITY OF LIEN AND SECURITY INTERESTS. Allied's liens on, and
security interests in, the Collateral shall be prior to all other liens,
security interests or encumbrances, except for the liens, security interests and
encumbrances against the assets and capital stock of PMI, securing the rights of
the holders of the Senior Debt.
2.05 PREPAYMENT. The Debentures may be prepaid at any time, in whole
or in part, without premium or penalty.
2.06 DUE ON SALE. The Borrowers' obligations under the Debentures
and this Agreement are not assumable, and the Debentures and all of the other
Obligations are payable in full immediately upon a Transfer of the Business.
2.07 ATTORNEY-IN-FACT. Each Borrower hereby appoints Allied Capital
International Corporation as its attorney-in-fact, in the name of such Borrower
and on its behalf, for the sole purpose of signing financing statements,
continuation statements or other recordable documents reasonably necessary to
provide notice of the security interest granted herein in the applicable public
records. This power is coupled with an interest and is irrevocable so long as
any Obligations remain outstanding. This appointment may be discharged by any
officer or attorney of Allied Capital International Corporation.
2.08 WARRANTS.
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(a) BASIC WARRANTS. At Closing, the Parent will issue and sell
to Allied warrants entitling the Holders to purchase, in the aggregate, up to
779,313 shares of Common Stock, subject to adjustment as provided therein (the
"Basic Warrants"). The Basic Warrants shall be in form and substance acceptable
to Allied. The aggregate purchase price for the Basic Warrants shall be Fifty
Dollars ($50.00), and the exercise price for the Basic Warrants shall be $1.81
per share, subject to adjustment as set forth in the Basic Warrant.
(b) CONTINGENT WARRANTS. At Closing, the Parent will issue and
sell to Allied warrants entitling the Holders to purchase, in the aggregate, up
to 15% of the number of shares of Common Stock (i) resulting from the exercise
from time to time by employees of options heretofore granted (including all
options approved by the stockholders in December 1996), and (ii) into which the
"Second Warrants" (as such term is defined in the Investment Agreement dated as
of February 10, 1993, by and among the Parent and the Investors named therein)
are convertible, in the event the Second Warrants are issued, subject to
adjustment as provided therein (the "Contingent Warrants"). The Contingent
Warrants shall be in form and substance acceptable to Allied. The aggregate
purchase price for the Contingent Warrants shall be Fifty Dollars ($50.00), and
the exercise price for the Contingent Warrants shall be $1.81 per share, subject
to adjustment as set forth in the Contingent Warrant.
(c) EXPIRATION. The Warrants shall expire on that date which is
the later of: (i) three years from the date on which all Obligations with
respect to the Debentures are satisfied in full; or (ii) six years from the date
hereof.
2.09 REGISTRATION RIGHTS. The Parent shall grant certain
registration rights to the Holders on the terms and conditions of a Registration
Rights Agreement, dated as of the date hereof, by and among the Parent, Allied
and the other parties named therein (the "Registration Rights Agreement"). The
Registration Rights Agreement shall be in form and substance acceptable to
Allied.
2.10 CLOSING. Closing must occur on or before the close of business
on the date hereof, unless extended in writing by Allied, in Allied's sole
discretion.
2.11 CONDITIONS PRECEDENT TO HOLDERS' OBLIGATIONS. The obligation of
Allied to make the Investment is subject to the satisfaction of the following
conditions precedent at or prior to the Closing (unless waived in writing by
Allied prior to Closing):
(a) Each of the representations and warranties contained in this
Agreement must be true and accurate in all material respects as of the date of
Closing, and each Borrower must have performed all of its respective obligations
hereunder, including execution and delivery of all of the documents,
instruments, opinions and certificates required by this Agreement in such forms
as are satisfactory to Allied and its counsel;
(b) Allied shall have completed a due diligence report that
reflects favorably on the Borrowers, its management, and the market for the
Business generally. In this regard, each Borrower covenants and agrees to
furnish to Allied such information as Allied may request in order to enable
Allied to complete the required due diligence;
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(c) Allied shall have received written evidence satisfactory to
it that The Sinkler Corporation has made an investment in the Borrowers
evidenced by the purchase of shares of the Parent's Series A Redeemable
Preferred Stock for a purchase price of not less than $1,000,000 (the "Junior
Investment"); and
(d) Allied shall have received each of the following items:
(i) the Debentures, duly executed by each Borrower;
(ii) each of the Security Documents, duly executed by
each Borrower, as appropriate;
(iii) an opinion of counsel, duly executed by counsel to
the Borrowers, in form and substance acceptable to Allied;
(iv) the Senior Loan Subordination Agreement, duly
executed by the Senior Holder;
(v) the Basic Warrants, duly executed by the Parent;
(vi) the Contingent Warrants, duly executed by the
Parent;
(vii) the Registration Rights Agreement, duly executed by
the Parent and each of the other parties named therein; and
(viii) an Officer's Certificate, certifying as to (a) the
Borrowers' Constituent Documents, as defined in Section 3.01, (b) the
resolutions of each Borrower authorizing the transactions contemplated in this
Agreement and the other Investment Documents, and (c) the incumbency and
specimen signatures of certain officers of the Borrowers.
ARTICLE III: REPRESENTATIONS AND WARRANTIES
To induce Holders to enter into this transaction, the Borrowers,
jointly and severally, represent and warrant to Holders as follows, except as
disclosed in the Parent's Form 10-K for the fiscal year ended July 31, 1996 (the
"Form 10-K"), which representations and warranties shall survive the execution
and delivery of this Agreement and the funding of the Investment:
3.01 ORGANIZATION; SUBSISTENCE. Each Borrower is a corporation duly
formed, validly organized and subsisting in the jurisdiction of its formation.
True, correct and complete copies of the articles of incorporation, by-laws, all
other constituent documents of each Borrower, and all amendments and supplements
to any of the foregoing (collectively, the "Borrowers' Constituent Documents")
have been previously delivered to Allied, and all of the Borrowers' Constituent
Documents are in full force and effect as of the date hereof.
3.02 QUALIFICATION. Each Borrower is duly qualified to conduct
business as it is currently being conducted and is subsisting as a foreign
corporation in all jurisdictions in which the nature of its business or
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location of its owned and leased property and assets requires such qualification
(evidence of which has been previously delivered), except where the failure to
so qualify or subsist would not have a material adverse effect on such Borrower,
its business, or its prospects.
3.03 POWER AND AUTHORITY. Each Borrower has full power and authority
to enter into this Agreement and each of the other Investment Documents, to
incur the Obligations as contemplated hereby and to carry out the provisions of
this Agreement and each of the other Investment Documents. The Parent has full
power and authority to issue the Warrants and Warrant Shares. Each of the
Parent and PMI have taken all corporate action necessary for the execution and
delivery of this Agreement and each of the other Investment Documents and for
the performance by such Borrower of each of its obligations hereunder and
thereunder, as evidenced by corporate resolution(s) or other authorization
previously delivered.
3.04 ENFORCEABILITY. Upon execution and delivery by each of the
parties thereto, this Agreement and each of the other Investment Documents shall
be the legal, valid and binding obligations of each Borrower, to the extent such
Borrower is a party thereto, and shall be enforceable against such Borrower in
accordance with their respective terms.
3.05 LITIGATION. No Borrower is currently a party to or, to its
knowledge, threatened by any suits, actions, claims, investigations by
Governmental Authorities or legal, administrative, arbitration or mediation
proceedings, except as set forth in the schedule of litigation attached hereto
as EXHIBIT 3.05 (the "Litigation Schedule"). No Borrower knows of any basis or
grounds for any such suit, action, claim, investigation or proceeding. No
Borrower has initiated any litigation against any third parties (other than
where a Borrower is a creditor seeking collection of one or more Receivables),
except as set forth on EXHIBIT 3.05.
3.06 ORDERS; DECREES; JUDGMENTS. There are no outstanding orders,
judgments, writs, injunctions or decrees of any court, Governmental Authority or
arbitration or mediation panel or tribunal against or affecting any Borrower,
any of the Collateral, or any of the other properties, assets or business of the
Borrowers.
3.07 NON-CONTRAVENTION. Except for matters set out in the Litigation
Schedule, no Borrower is in breach of, default under, or in violation of: (a)
any Applicable Law, decree, or order which may materially and adversely affect
them; or (b) any deed, lease, loan agreement, commitment, bond, note, deed of
trust, restrictive covenant, license, indenture, contract, or other agreement,
instrument or obligation to which any of them is a party or by which any of them
is bound or to which any of their respective assets (including, but not limited
to, the Collateral) are subject. Neither the execution and delivery of this
Agreement and the Investment Documents nor the performance by any Borrower of
its respective obligations hereunder and thereunder will cause any such breach,
default or violation or will require the consent or approval of any court or
Governmental Authority, except as expressly contemplated by the terms of this
Agreement.
3.08 BORROWERS' BUSINESS. [INTENTIONALLY DELETED]
3.09 TITLE. Each Borrower has good, complete, indefeasible and
marketable title to, and ownership of, all of the Collateral and to all other
real or personal property it purports to own (if any), free and clear of all
liens, defects, claims, security interests and encumbrances other than the
Permitted Encumbrances.
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3.10 TAXES. Except as set forth on EXHIBIT 3.10 attached hereto,
each Borrower has filed all federal, state and local tax returns which are
required to be filed, and each Borrower has duly paid or fully reserved for all
taxes or installments thereof (including any interest or penalties) as and when
due pursuant to the filed returns or pursuant to any levy or assessment received
by such Borrower.
3.11 FINANCIAL CONDITION. A true and complete copy of the Form 10-K,
including the audited consolidated financial statements summarizing the
financial condition and results of operations of the Parent, as consolidated,
for the fiscal year ended July 31, 1996 (the "Audited Financials"), has been
provided to Allied by the Borrowers. The Audited Financials were prepared in
accordance with GAAP, are true and correct in all material respects, and fairly
present the Parent's financial condition and results of operations of the
Parent, as consolidated, at such dates and for the periods then ended. The
auditors have issued an unqualified opinion to the Parent concerning the Audited
Financials, a copy of which is included with the Audited Financials.
3.12 SOLVENCY. As of the date hereof, giving effect to the
transactions contemplated by this Agreement, the present fair saleable value of
the Borrowers' assets is greater than the amount required to pay the Borrowers'
total indebtedness (contingent or otherwise), and is greater than the amount
that will be required to pay such indebtedness as it matures and as it becomes
absolute and matured. The transactions contemplated hereby were effectuated
without actual intent to hinder, delay or defraud present or future creditors of
the Borrowers; it is the Borrowers' express intention that they will maintain a
solvent financial condition on a consolidated basis, giving effect to the
Obligations incurred hereunder, as long as any of the Obligations remain
outstanding or any Borrower is obligated to the Holders in any other manner
whatsoever. Upon consummation of the Investment, each Borrower will have
sufficient capital to carry on its business and transactions as planned to be
conducted in the future.
3.13 MATERIAL LEASES. Attached hereto as EXHIBIT 3.13 is an accurate
and complete list of all leases of Real Property and all other material leases
to which any Borrower is a party or by which any Borrower or any of the assets
of any Borrower is bound, together with all amendments or supplements thereto
(collectively, the "Leases"). True and complete copies of each of the Leases
have been provided or made available to Allied prior to the date hereof. Each
of the Leases is valid, binding and enforceable in accordance with its terms and
remains in full force and effect. No Borrower is in default or alleged to be in
default with respect to any of its obligations under any of the Leases (nor
would be in default or alleged to be in default with the giving of notice,
passage of time, or both), and, to the best of the Borrowers' knowledge, no
party other than a Borrower is in default with respect to such party's
obligations under any of the Leases (or would be in default or alleged to be in
default with the giving of notice, passage of time, or both). No Borrower's
possession of any property leased by it has been disturbed, nor has any claim
been asserted against any Borrower that is or could be adverse to such
Borrower's interests under any of the Leases. None of the Leases is subject to
any rights of set-off, recoupment or similar deduction or offset and, except as
noted on EXHIBIT 3.13 attached hereto, the collateral assignment of the
Borrowers' rights under each of the Leases will not impair or conflict with the
validity or enforceability of any of the Leases. No Borrower has assigned or
encumbered any of its rights, title or interest in or under any of the Leases
nor agreed to any oral modifications of any of the provisions of any of the
Leases.
3.14 MATERIAL CONTRACTS. Attached hereto as EXHIBIT 3.14 is an
accurate and complete list of all material contracts (including all those
representing 20% or more of the Borrowers' total revenue, profit or volume) to
which any Borrower is a party or by which any Borrower or the
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assets of any Borrower is bound (collectively, the "Contracts"). True and
complete copies of each of the Contracts have been provided or made available to
Allied prior to the date hereof. Each of the Contracts is valid, binding and
enforceable in accordance with its terms and remains in full force and effect.
No Borrower is in default or alleged to be in default with respect to any of its
obligations under any of the Contracts (nor would be in default or alleged to be
in default with the giving of notice, passage of time, or both), and, to the
best of the Borrowers' knowledge, no party other than the Borrowers is in
default with respect to such party's obligations under any of the Contracts (or
would be in default or alleged to be in default with the giving of notice,
passage of time, or both). No claim has been asserted against any Borrower that
is or could be adverse to such Borrower's interests under any of the Contracts.
None of the Contracts is subject to any rights of set-off, recoupment or similar
deduction or offset and, except as noted on EXHIBIT 3.14 attached hereto, the
collateral assignment of the Borrowers' rights under each of the Contracts will
not impair or conflict with the validity or enforceability of any of the
Contracts. No Borrower has assigned or encumbered any of its rights, title or
interest in or under any of the Contracts nor agreed to any oral modifications
of any of the provisions of any of the Contracts.
3.15 INFORMATION MEMORANDUM; DUE DILIGENCE QUESTIONNAIRES. The
Borrowers have previously provided true, correct and complete copies of the
Borrowers' Information Memorandum dated July 16, 1996, as updated and
supplemented by information provided through the Closing Date (the "Information
Memorandum") and completed due diligence questionnaires (collectively, the "Due
Diligence Questionnaires").
3.16 PROJECTIONS. The Borrowers have previously provided five-year
projections for the Borrowers and have made certain projections for the
Borrowers in the Information Memorandum and in certain reports filed pursuant to
the Securities Exchange Act of 1934 (collectively, the "Projections"). All
Projections are based upon assumptions which the Borrowers believe to be
reasonable under the circumstances.
3.17 DISCLOSURE. Excluding Projections, which are subject to Section
3.16 above, neither (i) the Information Memorandum; (ii) this Agreement and all
Exhibits hereto; nor (iii) any reports or information filed by the Borrowers
pursuant to the Securities Exchange Act of 1934 during the 18 months preceding
the Closing Date (upon which Allied is entitled to rely in making the investment
pursuant to this Investment Agreement), contains any untrue statement of
material fact or omits to state a material fact necessary to make the statements
therein not misleading.
3.18 OTHER DEBTS. Except for the liabilities included in the Audited
Financials, no Borrower has any indebtedness, liabilities or obligations of any
nature (whether liquidated or unliquidated, mature or not yet mature, absolute
or contingent, secured or unsecured), arising out of any transaction entered
into or any state of facts existing prior hereto, including, without limitation,
liabilities or obligations on account of taxes or government charges, penalties,
interest or fines thereon or in respect thereof, and no Borrower knows, or has
reasonable grounds to know, of any basis for any claim against any Borrower as
of the date of this Agreement or of any debt, liability or obligation.
3.19 NO MATERIAL CHANGE. Since the ending date of the Annual
Financials, no Borrower has: (i) suffered any material change in its condition
(financial or otherwise) or its overall business prospects; (ii) entered into
any material transactions or incurred any debt, obligation or liability (whether
liquidated or unliquidated, mature or not yet mature, absolute or contingent,
secured or unsecured) other than the Obligations; (iii) sustained any material
loss or damage to its Real Property or personal property, whether or not
insured; (iv) suffered any material interference with its business or
operations, present or proposed; and (v) made any
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Transfer, abandonment or other disposition of any of its Real Property or
personal property or any interest therein or relating thereto, that is material
to the financial position or prospects of such Borrower.
3.20 NO SIDE AGREEMENTS. No Borrower, nor any of the officers,
directors, shareholders or managers of such Borrower are party to any agreement,
either written or oral, with any Person (including any of the Holders) whereby
such Borrower, or any of the officers, directors, shareholders or managers of
such Borrower, acting in such capacities, have agreed to do anything beyond the
requirements of formal, written contracts executed by such Borrower. Other than
this Agreement, the other Investment Documents, and any documents relating to
the Permitted Encumbrances, no Borrower, nor any of the officers, directors,
shareholders or managers of such Borrower is a party to any agreement calling
for any action by any Borrower or such party outside the ordinary course of
their respective businesses. To the best of the Borrowers' knowledge, there
exists no agreement or understanding calling for any payment or consideration
from a customer or supplier of any Borrower to an officer, director, shareholder
or manager of such Borrower with respect to any transaction between such
Borrower and such supplier or customer. No Affiliate of any Borrower, directly
or indirectly, transacts any business with any Borrower, except for employment
arrangements as disclosed on EXHIBIT 3.27 below and arrangements disclosed in
reports filed pursuant to the Securities Exchange Act of 1934.
3.21 SBA FORMS AND REPRESENTATIONS. The Parent has previously
delivered accurate and complete copies of the Size Status Declaration (SBA Form
480), the Assurance of Compliance for Non-Discrimination (SBA Form 652), the
Portfolio Financing Report (SBA Form 1031), and the Economic Impact Assessment
(collectively, the "SBA Forms"). Each of the representations, statements and
certifications made in each of the SBA Forms is accurate and complete and does
not fail to state a material fact necessary to make such representations,
statements and certifications not misleading. The Parent is a "small business
concern" as defined in the Small Business Investment Act of l958, as amended
(the "SBA Act"), and the rules and regulations of the U.S. Small Business
Administration (the "SBA") issued or promulgated thereunder. There exists no
agreement, expressed or implied, no condition, state of facts or relationship
between the Parent and any other entity or entities which would prevent it from
qualifying as a "small business concern" under the SBA Act.
3.22 INVESTMENT COMPANY ACT REPRESENTATIONS. No Borrower is, or
intends to become, an "investment company", as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), and no Borrower,
nor any of the respective officers, directors, partners or controlling persons
of any of them is an "associate" of any Holder, as such terms are defined in
Section 107.3 of the amended Regulations promulgated under the SBA Act, nor an
"affiliated person" of any Holder, as such term is defined in Section 2(a)(3) of
the 1940 Act.
3.23 GENERAL LEGAL COMPLIANCE. No Borrower is in violation of any
Applicable Law that would apply to it or to its business, the violation of which
would have a material adverse effect either individually or in the aggregate on
any Borrower, its business, or its prospects.
3.24 ENVIRONMENTAL LEGAL COMPLIANCE. Without limiting the generality
of the representation and warranty made in Section 3.23 above, no Borrower is in
violation of any applicable Environmental Law (as defined below), which
violation would have a material adverse effect either individually or in the
aggregate on any Borrower or its business or prospects, and no Borrower has been
notified of any action, suit, proceeding or investigation which calls into
question compliance by any Borrower with any Environmental Laws or which
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seeks to suspend, revoke or terminate any license, permit or approval necessary
for the generation, handling, storage, treatment or disposal of any Hazardous
Material, in each case, except as set forth in EXHIBIT 3.24 attached hereto. As
used in this Agreement, the term "Environmental Law" shall mean, collectively,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"); the Solid Waste
Disposal Act, as amended, 42 U.S.C. Section 6901 ET SEQ.("SWDA") including the
Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section
6901 ET SEQ. ("RCRA"); the Clean Water Act, as amended, 42 U.S.C. Section 1251
ET SEQ.("CWA"); the Clean Air Act, as amended, 42 U.S.C. Section 7401 ET SEQ.;
any "superfund" or "superlien" law; and any other Applicable Law regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material, and the term
"Hazardous Material" shall mean and include any hazardous, toxic or dangerous
waste, substance or material, the generation, handling, storage, disposal,
treatment or emission of which is subject to any Environmental Law.
3.25 EMPLOYEE BENEFIT MATTERS. Except as set forth on EXHIBIT 3.25
attached hereto, there is no existing single-employer plan defined in Section
4021(a) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") as to which any Borrower is an "employer" or a "substantial employer"
as defined in Sections 3(5) and 4001(a)(2) of ERISA, respectively. EXHIBIT 3.25
is an accurate and complete list of each plan described in Section 4021(a) of
ERISA as to which any Borrower is liable to make contributions or for the
payment of benefits. Each Borrower has delivered or made available to Allied
true and complete copies of each of the plans listed on EXHIBIT 3.25. To the
best knowledge of the Borrowers, there have been no "reportable events" as set
forth in Section 4043(b) of ERISA with respect to any such plan, and no
termination of any such plan since the effective date of ERISA which could
result in any tax, penalty or liability being imposed upon any Borrower. No
Borrower has participated in, and the execution and delivery of this Agreement
by each Borrower will not involve, any "prohibited transaction" (as defined in
Section 4975 of the Internal Revenue Code of 1986, as amended) that could
subject any Borrower to any tax or penalty imposed by Section 4975 of the
Internal Revenue Code of 1986, as amended. To the best knowledge of the
Borrowers, no predecessor-in-interest to any Borrower has participated in any
"prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code of 1986, as amended) that could subject any Borrower to any tax or penalty
imposed by Section 4975 of the Internal Revenue Code of 1986, as amended. Since
the effective date of ERISA, no Borrower, nor any predecessor-in-interest to any
Borrower, has incurred any "accumulated funding deficiency", as such term is
defined in Section 302 of ERISA, to which any Borrower could be subject or for
which it might be liable. No Borrower is a party to, and none of the operations
of any Borrower is covered by, a "multi-employer plan", as defined in Section
3(37) of ERISA.
3.26 COLLECTIVE BARGAINING. No Borrower is a party to or subject to
any collective bargaining agreements or union contracts. There are no labor
disputes pending or threatened against any Borrower or, to the best knowledge of
the Borrowers, between any Borrower and its employees which have affected, or so
far as the Borrowers can reasonably foresee may affect, materially and adversely
the business or condition of the Borrowers or the Business.
3.27 EMPLOYEES. Attached hereto as EXHIBIT 3.27 is an accurate and
complete list of all employment and compensation contracts, including all
retirement benefit agreements not disclosed on EXHIBIT 3.25, between the
Borrowers and officers and executives of the Borrowers. The Borrowers have
delivered to the Holders accurate and complete copies of all such contracts. No
officer, executive or other key employee of any
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Borrower has advised such Borrower (orally or in writing) that he or she intends
to terminate employment with such Borrower.
3.28 INSURANCE. Attached hereto as EXHIBIT 3.28 is an accurate and
complete list of all insurance policies and binders presently providing coverage
to any Borrower or any assets of any Borrower, including all insurance providing
coverage with respect to any of the Collateral. The Borrowers have furnished or
made available to Allied appropriate insurance certificates and accurate and
complete copies of the insurance binders or policies for all of the insurance
listed in EXHIBIT 3.28. The coverage provided by such insurance is adequate for
the conduct of the Business.
3.29 LICENSES. Attached hereto as EXHIBIT 3.29 is an accurate and
complete list of the Licenses held by the Borrowers. The Licenses held by the
Borrowers constitute all licenses, permits, approval and authorizations needed
to properly operate the Business. No Borrower is in default or in noncompliance
with respect to any License.
3.30 BROKERS. No Borrower has any knowledge of any investment
banking, brokerage, or finders fees due for the transactions contemplated
hereby, except for (i) the fees due Shipley Raidy Capital Partners, LP (all of
which shall be paid by the Parent) and (ii) the fees due Mitchell Capital (all
of which shall be paid by Allied). Each Borrower will indemnify the Holders for
any claims with respect to any such fees, other than claims relating to the fees
due Mitchell Capital.
3.31 SUBSIDIARIES. Attached hereto as EXHIBIT 3.31 is an accurate
and complete list of all direct or indirect subsidiaries of any Borrower,
designating certain subsidiaries as inactive (collectively, the "Inactive
Entities"). Except for director-qualifying shares, all shares of subsidiaries
are owned by a Borrower and are validly issued, fully paid and non-assessable.
The Inactive Entities have no material assets and conduct no business
operations, and Borrowers have no intention of causing any Inactive Entity to
obtain any material assets or conduct any business operations.
3.32 EQUITY. No Borrower has granted any pre-emptive rights relating
to any of its securities. The shares issuable upon exercise of the Warrants
have been duly authorized and reserved and, upon exercise, will be fully paid
and non-assessable.
3.33 SECURITIES LAWS. The issuance and sale of the Warrants and the
Debentures hereunder, and the issuance of shares issuable under the Warrants,
complies and will comply, as the case may be, with all federal and state
securities laws and regulations.
3.34 CAPITALIZATION. Set forth on EXHIBIT 3.34 attached hereto is an
accurate and complete list of the following information for each Borrower: (i)
the authorized capitalization of such Borrower as of the date hereof; (ii) the
number of shares of each class of such Borrower's issued capital stock and the
number of outstanding shares thereof; and (iii) a description of all convertible
securities and all options, warrants and similar rights held with respect to
such Borrower's capital stock. All shares of capital stock of each Borrower and
all convertible securities, options, warrants and similar rights held with
respect to such Borrower's capital stock have been duly authorized and validly
issued, and are fully paid and nonassessable (in the case of capital stock).
Except as listed in EXHIBIT 3.34 attached hereto, there are no outstanding
options, warrants, convertible securities or other stock purchase rights issued
by any of the Borrowers as of the date hereof.
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B. To induce the Borrowers to enter into this transaction, Allied
represents and warrants to the Borrowers as set forth below (which
representations and warranties shall survive the execution and delivery of this
Agreement and the funding of this transaction).
B-3.01 INVESTMENT INTENT. Allied: (i) is acquiring the Warrants and
Debentures being purchased by it hereunder and will, upon conversion of the
Warrants, acquire the Warrant Shares, for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof; (ii) understands that the Warrants, the Debentures and the
Warrant Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and may not be offered or sold
except pursuant to an effective registration statement or an available exemption
from the registration requirements under the Securities Act; and (iii) is an
"accredited investor" as defined in Regulation D as promulgated under the
Securities Act. Allied agrees that the certificates representing the
Debentures, the Warrants and the Warrant Shares will bear restrictive legends to
the effect of clause (ii) of the preceding sentence and that the Parent may
require an opinion of counsel, in form and substance reasonably satisfactory to
the Parent, to the effect that any proposed transfer will not result in any
violation of the Securities Act and the rules and regulations thereunder.
ARTICLE IV: AFFIRMATIVE COVENANTS
Until the Debentures are repaid in full and each of the other
Obligations has been satisfied in full and discharged (other than those
Obligations arising from the Warrants), and until the Warrants expire (with
respect to Sections 4.18 and 4.19 only), each Borrower covenants and agrees with
the Holders to do all of the following:
4.01 MONTHLY FINANCIALS. The Borrowers shall forward, or cause to be
forwarded to Holders, the Parent's consolidated monthly and year-to-date
financial statements, comparing actual to budgeted performance, prepared in
accordance with GAAP (including a monthly and year-to-date balance sheet, profit
and loss statement and cash flow statement) within 45 days following the end of
each month (other than a month marking the Borrowers' fiscal year end), together
with a monthly one-page management summary description of operations.
4.02 CERTIFICATION OF NON-DEFAULT. The Borrowers shall provide to
the Holders in writing each fiscal quarter an officer's certificate, signed by
the President or Chief Financial Officer, certifying that no Event of Default
has occurred under this Agreement, or if any such Event of Default exists,
stating the nature of such Event of Default.
4.03 CERTIFICATION OF OPTIONS EXERCISED BY EMPLOYEES. The Borrowers
shall provide to the Holders in writing each fiscal quarter an officer's
certificate, signed by the President or Chief Financial Officer, certifying the
number of shares of Common Stock issued during such quarter upon the exercise of
options held by employees.
4.04 ANNUAL AUDIT. The Borrowers shall forward, or cause to be
forwarded, to Holders the Parent's consolidated audited year-end balance sheet,
profit and loss statement and cash flow statement, without
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qualification thereof, within 90 days of such fiscal year-end, which shall be
prepared at the Borrowers' sole expense by an independent accounting firm
acceptable to the Holders according to GAAP. For purpose of this Agreement,
unless notice is expressly given to the contrary by Holders, all national and
regional firms shall be considered acceptable to the Holders.
4.05 PROJECTED FINANCIALS. Prior to each fiscal year-end, the
Borrowers shall provide the Holders with projected financial statements for the
Borrowers for the coming three years and monthly projections for the Borrowers
for the coming year, in the same format as used for the financial statements
required pursuant to Section 4.01 above.
4.06 NOTICE OF FILINGS. Within 30 days of filing, the Borrowers
shall provide the Holders with copies of all material returns and documents
filed by any Borrower with any Governmental Authority, including, without
limitation, the U.S. Internal Revenue Service, the U.S. Environmental Protection
Agency, the U.S. Occupational Safety and Health Administration, the SBA, and the
U.S. Securities and Exchange Commission (the "SEC").
4.07 NOTICE OF LITIGATION. The Borrowers shall notify the Holders of
any litigation involving a claim for damages in excess of $100,000 to which any
Borrower is a party by mailing to the Holders, by U.S. registered mail, within
30 days of receipt thereof, a copy of the Complaint, Motion for Judgment or
other such pleadings served on or by any Borrower; PROVIDED, HOWEVER, that the
Borrowers shall not be obliged by this Section 4.07 to give notice of suits
where a Borrower is a creditor seeking collection of one or more Receivables.
Borrowers shall also notify the Holders of any litigation of which the Borrower
has knowledge and to which any Borrower is not a party but which could
substantially affect the Collateral or the operation of the Business, by mailing
to the Holders, by U.S. registered mail, a copy of all pleadings obtained by the
Borrowers in regard to such litigation, or if no pleadings are obtained, a
letter setting out the facts known about the litigation within 30 days of
receipt thereof.
4.08 NOTICE OF DEFAULTS OR JUDGMENTS. The Borrowers shall give the
Holders notice of any default declared with respect to any Lease, Contract, or
loan of any Borrower or any judgment entered against any Borrower, by mailing an
accurate and complete copy thereof to Holders within 10 days of receipt thereof
by such Borrower.
4.09 FINANCIAL COVENANTS.
(a) PMI shall maintain each of the following levels of financial
performance, measured in accordance with GAAP:
(i) Net Working Capital of not less than $3,500,000, determined
at the end of each fiscal quarter;
(ii) Working Capital Ratio of not less than 1.30:1, determined
at the end of each fiscal quarter;
(iii) Tangible Net Worth of not less than $7,500,000, determined
at the end of each fiscal quarter;
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(iv) Debt to Tangible Net Worth ratio of not more than 2.25:1,
determined at the end of each fiscal quarter;
(v) Net Income After Taxes of not less than $900,000, for each
fiscal year;
As used in this Section 4.09(a), the following terms shall have the
meanings indicated with respect to PMI:
(1) "NET WORKING CAPITAL" shall mean the amount by which current assets
(excluding any Intangible Assets, as defined below) exceed current liabilities;
(2) "WORKING CAPITAL RATIO" shall mean the ratio of current assets
(excluding any Intangible Assets) to current liabilities;
(3) "TANGIBLE NET WORTH" shall mean the (i) the sum of stockholders' equity
and the principal balance of any debt subordinate to the Senior Debt, less (ii)
the book value of Intangible Assets;
(4) "DEBT TO TANGIBLE NET WORTH" shall mean the ratio of total liabilities,
excluding the principal balance of any debt that is subordinate to the Senior
Debt, to Tangible Net Worth;
(5) "NET INCOME AFTER TAXES" shall mean, with respect to any fiscal year,
net income after provisions for taxes for such fiscal year; and
(6) "INTANGIBLE ASSETS" shall mean (i) all loans or advances to, and other
receivables owing from, any officers, employees, subsidiaries and other
affiliates, (ii) all investments, whether in a subsidiary, a joint venture or
otherwise, (iii) goodwill, (iv) any other assets deemed intangible under GAAP;
and (v) any other assets determined to be intangible by Holders in its
reasonable credit judgment.
(b) Parent shall maintain each of the following levels of
financial performance, measured on a consolidated basis in accordance with GAAP:
(i) The ratio of EBITDA to Total Interest Expense shall be equal
to or greater than 1.0:1, determined for the quarter ending on July
31, 1997; the ratio of EBITDA to Total Interest Expense shall be equal
to or greater than 1.3:1, determined for the quarter ending on January
31, 1998, and semi-annually thereafter for the immediately preceding
quarter; and
(ii) The ratio of Total Long Term Debt to EBITDA shall be less
than or equal to 4.5:1, determined for the four-quarter period ending
January 31, 1998, and semi-annually thereafter for the immediately
preceding four-quarter period.
As used in this Section 4.09(b), the following terms shall have the
meanings indicated with respect to the Parent, on a consolidated basis:
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(1) "EBITDA" shall mean earnings before interest expense (excluding
interest on any trade debt incurred as permitted under Section 5.08), tax
expense on federal and state income taxes, depreciation expense, and
amortization expense;
(2) "TOTAL INTEREST EXPENSE" shall mean the aggregate amount of installment
interest payments paid or payable in respect of the Debentures and the
instruments evidencing the Senior Debt; and
(3) "Total Long-Term Debt" shall mean total long-term liabilities.
4.10 INSURANCE. At all times until all of the Obligations have been
satisfied in full, the Borrowers shall maintain all insurance listed in EXHIBIT
3.28 or equivalent replacement insurance in full force and effect.
4.11 USE OF PROCEEDS. The Borrowers shall use the proceeds of the
Investment for the purposes set forth below:
Working Capital for U.S. operations $1,700,000
Investment in St. Kitts operations 300,000
Working Capital for Asian operations 200,000
Investment in Brazil operations 100,000
Investment in Taiwan operations 200,000
Technology Development for U.S. operations 1,800,000
U.S. Infrastructure Upgrade 400,000
Estimated Transaction Costs 300,000
Total: $5,000,000
From time to time following the Closing, upon the request of Allied,
the Borrowers shall furnish to Allied a written certification of the Borrowers,
signed by the President or Chief Financial Officer, certifying that the net
proceeds of the Investment either (i) have been used for the purposes permitted
by the terms of this Section 4.11, or (ii) pending application of such funds as
set forth above, are being used as working capital for the U.S. operations.
Each Borrower hereby authorizes Allied and its designated representatives to
conduct a review of such Borrower's books and records sufficient to satisfy
Allied, in the exercise of Allied's reasonable discretion, that the proceeds of
the Investment are being used for the purposes permitted by the terms of this
Section 4.11.
4.12 PAYMENTS AND OBLIGATIONS. The Borrowers shall make all payments
of principal, interest and other charges as and when due under the Debentures,
shall timely make all payments of any other monetary Obligations, shall perform
or comply with, as the case may be, all of the other Obligations, and shall
perform and comply in all respects with all applicable terms, conditions and
covenants of all this Agreement and the other Investment Documents.
4.13 INFORMATION REQUESTS. The Borrowers shall furnish from time to
time to Holders all information Holders may reasonably request to enable Holders
to prepare and file any form required of Holders by the SEC or any other
Governmental Authority.
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4.14 CREDIT CHECKS; ACCESS TO RECORDS. The Borrowers shall permit
any authorized representative(s) of Holders and their attorney(s) and
accountant(s) to obtain credit and other background information on each Borrower
and its management, and to inspect, examine and make copies and abstracts of the
books of account and records of such Borrower at reasonable times during normal
business hours. The Borrowers shall allow Holders or their agent(s) to
interview the Borrowers' outside accountants, who, by this covenant, are hereby
irrevocably instructed to respond to such inquiries as fully as if made by the
Borrowers themselves.
4.15 MAINTAIN COPIES; FINANCING STATEMENTS. The Borrowers shall
maintain an original or a true copy of this Agreement and any modifications
hereof, which shall be available for inspection as called for herein or in the
Debentures. The Borrowers agree that a photographic or other reproduction of
this Agreement or of a financing statement is sufficient as a financing
statement.
4.16 MAINTAIN EXISTENCE. The Borrowers shall take or cause to be
taken all steps and perform or cause to be performed all actions necessary or
appropriate to preserve and keep in full force and effect their existence as
corporations and their right to conduct their business in a prudent and lawful
manner in all jurisdictions in which they currently conduct business, other than
in connection with a merger the primary purpose of which is the change in state
of incorporation of a Borrower.
4.17 PROTECT THE COLLATERAL. The Borrowers shall take or cause to be
taken all steps and perform or cause to be performed all actions necessary and
appropriate to administer, supervise, preserve and protect the Collateral and to
maintain the Holders' perfected security interest in the Collateral.
4.18 COMMON STOCK RESERVES. The Parent shall maintain such shares of
Common Stock as authorized but unissued, as may be necessary to permit the
Holders of the Warrants to acquire all of the Warrant Shares at any time.
4.19 REPLACEMENT OF WARRANTS. The Parent shall perform all acts
required under the Warrants, including the re-issuance or replacement of
Warrants to any of the Holders upon transfer, exchange, loss or destruction
thereof.
4.20 BOARD MEETINGS; BOARD REPRESENTATIVE; BOARD OBSERVATION RIGHTS.
(a) The Parent shall hold meetings of its board of directors at
its offices or another designated location on an as-needed basis, but not less
frequently than four times per fiscal year. Holders shall be notified in
writing of the date and time for each board meeting at least two weeks prior
thereto. If the Parent schedules a board meeting without two weeks notice,
Holders shall be notified of the date and time for such board meeting as soon
after the scheduling as possible.
(b) The Holders, as a group, shall be entitled to have one
designated representative attend and observe each board meeting at the Parent's
expense.
4.21 LIFE INSURANCE. Within 30 days of Closing, the Borrowers shall
deliver a life insurance policy in the amount of $1,500,000 insuring the life of
Everett Keech, which policy shall name the Holders jointly as beneficiaries (to
the extent of net proceeds required to satisfy the Obligations, together with a
fully
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executed collateral assignment of such policy. Allied hereby acknowledges that
the aggregate amount of life insurance collaterally assigned to Holders may be
decreased from time to time to an amount not less than 50% of the aggregate
principal amount outstanding under the Debentures.
4.22 DELIVERY OF SECURITY DOCUMENTS. In the event Allied waives the
condition precedent set forth in Section 2.11(d)(ii) with respect to the
delivery of certain Security Documents, the Borrowers shall deliver to Allied
such Security Documents, fully executed, within 30 days of Closing.
4.23 RATIFICATION OF ACTION. Within 30 days of Closing, each
Borrower (other than the Parent and PMI) shall take all corporate action
necessary for the ratification of the execution and delivery of this Agreement
and each of the other Investment Documents and for the performance by such
Borrower of each of its obligations hereunder and thereunder.
4.24 BORROWERS' BUSINESS. From and after the Closing, the Borrowers
will be primarily engaged in the operation of the Business and no other business
or businesses.
ARTICLE V: NEGATIVE COVENANTS
Until the Debentures are repaid in full and each of the other
Obligations has been satisfied in full and discharged (other than those
Obligations arising from the Warrants), and (solely with respect to Section 5.03
below) until each of the Holders no longer holds any Warrants or has the right
to receive any Warrants, each Borrower jointly and severally covenants and
agrees with the Holders NOT to do any of the following, without the prior
written consent of the Holders (which consent may be withheld by Holders in
Holders' discretion for any reason whatsoever):
5.01 CONSOLIDATION, MERGER AND SALE OF ALL ASSETS. The Parent will
not, nor will it permit any of its Subsidiaries to, merge or consolidate into or
with any other Person or convey, sell, lease or otherwise dispose of all or
substantially all of its assets to another Person, or permit any Person to merge
or consolidate into or with the Parent or any Subsidiary or convey, sell, lease
or otherwise dispose of all or substantially all of its assets to the Parent or
any Subsidiary; provided that (i) any Subsidiary may merge into, or convey,
sell, lease or dispose of its assets to the Parent or another Subsidiary, (ii)
the Parent may merge into any Subsidiary or any subsidiary formed solely for the
purpose of changing the Parent's state of incorporation, (iii) a Person other
than a Subsidiary may merge into, or convey, sell, lease or dispose of its
assets to, the Parent, if the Parent is the surviving or acquiring corporation,
and (iv) a Person other than the Parent or a Subsidiary may merge into, or
convey, sell, lease or dispose of its assets to, a Subsidiary if (A) such
Subsidiary is the surviving or acquiring corporation or (B) the surviving or
acquiring entity, if not such Subsidiary, becomes a wholly-owned subsidiary of
the Parent (so long as such surviving or acquiring entity becomes a party to
this Agreement and the Parent pledges the stock of such entity); in each case,
so long as in any such transaction the rights and powers of the Holders will
not, in their reasonable discretion, be adversely affected thereby and
immediately after such transaction no Event of Default shall exist hereunder.
For the purposes of this Section 5.01, the failure of Holders to object within
10 business days following the receipt of notice of any such proposed
transaction shall be deemed an acknowledgment that Holders are not adversely
affected thereby.
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5.02 SALE OF ASSETS; LIQUIDATION.
(a) The Parent will not, nor will it permit any of its subsidiaries
to, convey, sell, lease or otherwise dispose of any assets, directly or
indirectly, in a single transaction or in a series of transactions occurring
during any one fiscal year of the Parent, except (i) as permitted under Section
5.01 hereof, or (ii) for sales or other dispositions of property in the ordinary
course of business.
(b) The Parent will not, nor will it permit any of its subsidiaries
to, liquidate, dissolve or wind up its affairs nor institute, consent to or fail
promptly to contest proceedings for any such purpose, provided however, that any
such subsidiary may be liquidated into the Parent or into a wholly-owned
subsidiary of the Parent in a transaction permitted by Section 5.01 or by this
Section 5.02, and any Inactive Entity may be liquidated or dissolved.
5.03 DISTRIBUTIONS. No Borrower shall make or cause to be made any
redemption or repurchase of any capital stock or rights with respect thereto or
securities exchangeable for any capital stock or any distribution of cash,
capital stock or other property of such Borrower to any of its shareholders
(whether such distribution would be characterized as a dividend or otherwise),
other than (i) to another Borrower in such Borrower's capacity as a shareholder
of a Subsidiary; (ii) to the holder of the Junior Investment in order to redeem
the Parent's Series A Redeemable Preferred Stock or in the form of dividends, in
accordance with the terms thereof, provided that (A) only scheduled redemptions
and dividends shall be permitted and (B) in no event shall any redemption or
dividend occur if an Event of Default has occurred or would occur as a result of
such action; and (iii) in any transaction in which Holders may participate pro
rata in such transaction based upon the number of Warrant Shares held or
eligible to be acquired upon exercise of the Warrants, and such Borrower has
provided Holders with 10 business days' notice of such transaction.
5.04 NO ENCUMBRANCES. No Borrower shall permit to exist against any
of the Collateral or any of its other material assets (if any) any lien,
mortgage, pledge, security interest, title retention device, or other
encumbrance junior or senior to the liens and security interests of Holders
under the Security Documents, except for the Permitted Encumbrances.
5.05 INSIDE TRANSACTIONS. No Borrower shall purchase or sell any
property or services, or borrow or lend money or property from or to, or co-
invest in, any transaction with any officer, director, shareholder, employee or
Affiliate of any Borrower, except on terms no more favorable than a Borrower
would offer to a third party.
5.06 CHANGE OF BUSINESS. No Borrower shall: (i) change the primary
nature of its business operations; (ii) expend or invest any funds in any manner
not related to such Borrower's business operations; (iii) establish any
subsidiary or invest in or transfer assets to an "inactive" subsidiary (unless
such subsidiary becomes a party to this Agreement and such Borrower pledges the
stock of such subsidiary); or (iv) make any investment in any Affiliate which
would, in the reasonable discretion of Holders, adversely affect the rights and
powers of Holders. No provision of this Section 5.06 shall be interpreted as
limiting the ability of the Parent to make investments in the Subsidiaries in
the ordinary course of business. For the purposes of this Section 5.06, the
failure of Holders to object within 10 business days following the receipt of
notice of any such proposed investment under clause (iv) shall be deemed an
acknowledgment that Holders are not adversely affected thereby.
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5.07 JUDGMENTS. No Borrower shall permit any judgment in excess of
$100,000, or any series of judgments aggregating in excess of $100,000, obtained
against such Borrower to remain unpaid for over 20 days without obtaining a stay
of execution or appropriate surety bond.
5.08 ADDITIONAL DEBTS AND LIABILITIES. No Borrower shall incur any
additional indebtedness or liabilities, purchase any additional life insurance
from business income or assets (other than in connection with the compensation
of employees, as approved by the board of directors), or create or incur any
contingent liability (including guaranties or endorsements) other than: (i)
trade debt incurred in the normal and ordinary course of such Borrower's
business; (ii) depositing checks and other instruments for the payment of money
acquired in the ordinary course of business; and (iii) indebtedness relating to
the Permitted Encumbrances. For the purposes of this Section 5.08, the term
"indebtedness" shall include all obligations for borrowed money, obligations
arising from installment purchases of property or services, capitalized lease
obligations, and the face amount of letters of credit and all drafts drawn
thereunder.
5.09 NO ADVERSE ACTIONS. No Borrower shall, by amendment to such
Borrower's Constituent Documents or through any reorganization,
reclassification, consolidation, merger, sale of assets, Act of Dissolution,
issuance or Transfer of securities or any other action, avoid or seek to avoid
the observance or performance of any of the terms, covenants and conditions of
this Agreement or any of the other Investment Documents, but shall at all times
carry out in good faith all such terms and take all such actions as may be
necessary or appropriate to protect the rights of the Holders hereunder and
under each of the Investment Documents.
ARTICLE VI: FEES, EXPENSES AND INDEMNIFICATION
6.01 FEES AND EXPENSES OF ALLIED. The Borrowers shall pay:
(a) A commitment fee to Holders, shared ratably among the
Holders, of One Hundred Thousand Dollars ($100,000);
(b) All reasonable fees and disbursements for work done for the
Holders by the Holders' attorneys and legal staff, not to exceed Fifty Thousand
Dollars ($50,000); and
(c) A processing fee equal to all out-of-pocket costs and
expenses incurred by the Holders or Allied Capital Advisers, Inc. in connection
with performing a due diligence examination of the Borrowers and the Business.
All amounts described in this Section 6.01 shall be due and payable in
full by the Borrowers at the Closing. Allied acknowledges receipt of a deposit
of Twenty-Five Thousand Dollars ($25,000) from the Borrowers, which will be
applied at Closing to the fees and expenses described in this Section 6.01.
6.02 OTHER FEES AND EXPENSES. The Borrowers shall pay, as and when
due, all of the following fees and expenses: (a) the fees and expenses of their
own counsel; (b) any recordation, transfer, documentary or other taxes or costs
of, or incidental to, any recording or filing of any of the Security Documents
(including any financing statements) concerning the Collateral; and (c) any
income, excise, franchise or other taxes incident to the transactions described
herein.
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6.03 INDEMNIFICATION. In addition to its indemnification provisions
contained elsewhere herein and in the other Investment Documents, the Borrowers
agree to indemnify, defend and hold harmless each of the Holders and each of
their respective officers, directors, partners, employees, agents and
controlling persons (collectively, the "Indemnified Parties") from and against
any and all losses, claims, damages, liabilities and related expenses, including
attorneys' fees and expenses, asserted by any third parties unaffiliated with
the Holders against any of the Indemnified Parties arising out of, in any way in
connection with, or as a result of: (i) this Agreement and the other Investment
Documents, (ii) the performance by the Holders of their obligations hereunder
and thereunder and consummation of the transactions contemplated hereby and
thereby; (iii) the occurrence of any Event of Default hereunder or any event
that would constitute an Event of Default but for the giving of notice and/or
passage of time; (iv) any federal, state or local transfer or recording taxes or
filing fees which may become payable in connection with this transaction; (v)
the spilling, leaking, pumping, pouring, unsettling, discharging, leaching or
releasing of any Hazardous Materials on any of the Real Property or any other
property owned by any Borrower; (vi) any violations by the Borrowers of any
other Environmental Law, regulation or ordinance; or (vii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any of the Indemnified Parties is a party thereto; PROVIDED,
HOWEVER, any such indemnity shall not apply to any such losses, claims, damages,
liabilities or related expenses arising from (i) the gross negligence or willful
misconduct of any of the Holders, or (ii) the violation by any of the Holders of
any Applicable Law or contractual restriction with any third party governing the
Investment.
6.04 SURVIVAL; TIMING OF PAYMENTS. The provisions of this Article VI
and any other indemnification provisions contained in this Agreement and the
other Investment Documents shall survive and remain operative and in full force
and effect regardless of the termination of this Agreement or expiration of the
term of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of the Debentures and satisfaction and discharge of the
other Obligations, the invalidity or unenforceability of any term or provision
of this Agreement, the Debentures or any Security Documents, or any
investigation made by or on behalf of any of the Holders. Except as provided to
the contrary, all amounts due under this Article VI shall be payable on written
demand therefor.
ARTICLE VII: DEFAULT PROVISIONS
The occurrence of any of the events specified below in this Article
VII (any such, an "Event of Default") shall constitute an immediate breach of,
and default under, this Agreement entitling the Holders to exercise all of the
rights and remedies specified in this Agreement, in the Security Documents, in
any other Investment Document, and under all Applicable Laws, without the
obligation to furnish any further notice or opportunity to cure (beyond that
specified in the applicable sections of this Article VII), all of which are
hereby expressly waived by each Borrower:
7.01 MONETARY DEFAULTS. Any installment payment of principal,
interest or other charge under any of the Debentures is not received by the
Holders when due, or any other monetary Obligation is not fully paid and
discharged when due.
7.02 OTHER BREACHES. Any Borrower shall fail to comply with its
affirmative or negative covenants, agreements and undertakings in this
Agreement, the Debentures or any of the Security Documents
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and (i) if such failure relates to a financial covenant, such failure shall
continue for a period of 10 calendar days from the date of the delivery of
written notice thereof from Holders, or (ii) if such failure relates to a non-
financial covenant, such failure shall continue for a period of 30 calendar days
from the date of the delivery of written notice thereof from Holders.
7.03 MISREPRESENTATION. Any representation or warranty made by any
Borrower in this Agreement, in any of the Security Documents, any of the other
Investment Documents, or in any other writing supplied to Holders by the
Borrowers or on the Borrowers' behalf shall be untrue in any material respect
when made.
7.04 ACT OF BANKRUPTCY OR DISSOLUTION. Any Act of Bankruptcy shall
have occurred with respect to any Borrower, or any Act of Dissolution shall have
occurred without the Holders' prior written consent to any Borrower.
7.05 OTHER INVESTMENT DOCUMENT DEFAULTS. Any Borrower shall be in
default under any of the other Investment Documents (after taking into account
the giving of any notice and the expiration of the applicable cure period (if
any) required pursuant to the applicable terms of such other Investment Document
or Investment Documents).
7.06 SPECIFIED CROSS DEFAULTS. Any default shall have been declared
or shall have otherwise occurred (after giving effect to any applicable notice
and/or grace periods) under the Senior Loan Agreement.
7.07 OTHER CROSS-DEFAULTS GENERALLY. Any default shall have been
declared under any loan, Lease, debt, Contract or obligation of any of the
Borrowers (other than the Obligations and the debts and obligations specified in
Section 7.06 above) and the failure to cure such default could be expected to
have a material adverse effect on the financial condition, operations or
prospects of the Borrowers taken as a whole.
ARTICLE VIII: CERTAIN REMEDIES
Upon the occurrence of an Event of Default under this Agreement,
Holders shall be entitled to exercise any or all of the following rights and
remedies, in addition to such other rights and remedies as may be provided for
in the other Investment Documents or as may be available at law or in equity,
subject to the provisions of the Senior Loan Subordination Agreement:
8.01 ACCELERATION. Following the occurrence of an Event of Default,
Holders may, at their option, accelerate the maturity of each of the Debentures
and all other Obligations and demand immediate payment in full of all amounts
payable under the Debentures and all of the Obligations, without presentment,
demand, protest, or further notice by Holders to the Borrowers, all of which are
hereby expressly waived by each Borrower.
8.02 SALE OF COLLATERAL. Following the occurrence of an Event of
Default, Holders may sell, assign, and deliver the whole or any part of the
Collateral, as more fully described in the Security Agreement or other documents
related thereto.
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8.03 COLLECTIONS, COMPROMISES, ETC. Following the occurrence of an
Event of Default, Holders are empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the Collateral, by suit
or otherwise, and to surrender, compromise, release, renew, extend, exchange or
substitute any item of the Collateral in transactions with any Borrower or any
third party, irrespective of any assignment thereof by such Borrower, and
without prior notice to or consent of such Borrower or any assignee.
8.04 COSTS. The Borrowers shall pay all reasonable expenses of any
nature, whether incurred in or out of court, and whether incurred before or
after the Debentures shall become due at their maturity date or otherwise
(including, but not limited to, reasonable attorneys' fees and costs) which
Holders may deem necessary or proper in connection with the collection of any of
the Obligations or the administration, supervision, preservation, protection of
(including, but not limited to, the maintenance of adequate insurance) or the
realization upon, any of the Collateral. The Holders are authorized to pay at
any time and from time to time any or all of such expenses, to add the amount of
such payment to the amount of principal outstanding under the Debentures, and to
charge interest thereon at the rate specified in the Debentures.
8.05 REMEDIES NON-EXCLUSIVE. None of the rights, remedies,
privileges or powers of the Holders expressly provided for herein shall be
exclusive, but each of them shall be cumulative with, and in addition to, every
other right, remedy, privilege and power now or hereafter existing in favor of
the Holders, whether pursuant to the other Investment Documents, at law or in
equity, by statute or otherwise.
ARTICLE IX: MISCELLANEOUS
9.01 NON-WAIVER. No course of dealing between a Holder and any other
party hereto or any failure or delay on the part of Holders in exercising any
rights or remedies hereunder shall operate as a waiver of any rights or remedies
of Holders under this or any other applicable instrument. No single or partial
exercise of any rights or remedies hereunder shall operate as a waiver or
preclude the exercise of any other rights or remedies hereunder.
9.02 SECURITY INTEREST NOT IMPAIRED. The security interest of the
Holders and their assigns shall not be impaired by Holders' sale, hypothecation
or re-hypothecation of a Debenture or any item of the Collateral, or by any
indulgence, including, but not limited to:
(a) Any renewal, extension, or modification which Holders may
grant with respect to the Obligations or any part thereof;
(b) Any surrender, compromise, release, renewal, extension,
exchange, or substitution which Holders may grant with respect to the Collateral
or any portion thereof; or
(c) Any indulgence granted in respect of any endorser, guarantor
or surety.
The purchaser, assignee, transferee or pledgee of the any Debenture,
Collateral, or other Investment Document sold, assigned, transferred, pledged or
repledged shall forthwith become vested with, and entitled to exercise, all
powers and rights given by this Agreement to Holders, as if said purchaser,
assignee, transferee or pledgee were originally named in this Agreement in place
of the Holders.
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9.03 NOTICES. All notices or communications under this Agreement or
the Debentures shall be mailed, postage prepaid, or delivered to the following
addresses (or to such other address as shall at any time be designated by any
party in writing to the other parties):
To Holders: Allied Capital Corporation
- and -
Allied Investment Corporation
- and -
Allied Investment Corporation II
- and -
Allied Capital Corporation II
c/o Allied Capital Corporation
1666 K Street, N.W., Ninth Floor
Washington, D.C. 20006
Attention: Carr T. Preston, Senior Vice President
With a copy to Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Anthony H. Rickert, Esquire
To the Borrowers: Pico Products, Inc.
12500 Foothill Blvd.
Lakeview Terrace, California 91342
Attention: Everett Keech, Chief Executive Officer
with a copy to: Saul, Ewing, Remick & Saul
3800 Centre Square West
Philadelphia, PA 19102
Attention: Spencer W. Franck, Jr., Esquire
Rejection or other refusal to accept, or the inability to deliver because
of a changed address of which no notice was given, shall not affect the
effectiveness or the date of delivery for any notice sent in accordance with the
foregoing provisions. Each such notice, request or other communication shall be
deemed sufficiently given, served, sent and received for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, the affidavit of the messenger or the answer back being deemed
conclusive (but not exclusive) evidence of such delivery) or at such time as
delivery is refused by addressee upon presentation.
9.04 BINDING AGREEMENT. This Agreement shall bind and inure to the
benefit of each of the Holders, the Borrowers and, except as otherwise expressly
provided to the contrary herein, their respective heirs, successors and assigns.
9.05 ENTIRE AGREEMENT; INTEGRATION CLAUSE. This Agreement, the
Exhibits hereto, and the other Investment Documents set forth the entire
agreements and understandings of the parties hereto with respect to this
transaction, and any prior agreements are hereby merged herein and terminated.
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9.06 NO ORAL MODIFICATION OR WAIVERS. The terms herein may not be
modified or waived orally, but only by an instrument in writing signed by the
party against which enforcement of the modification or waiver (as the case may
be) is sought.
9.07 RELATIONSHIP OF THE PARTIES; ADVICE OF COUNSEL. This Agreement
provides for the making of an investment by Holders, in their capacity as
investors, to the Borrowers, and for the payment of interest and repayment of
principal by the Borrowers to Holders. The provisions herein for compliance
with financial covenants and delivery of financial statements are intended
solely for the benefit of the Holders to protect their interests as lenders in
assuring payments of interest and repayment of principal, and nothing contained
in this Agreement shall be construed as permitting or obligating the Holders to
act as financial or business advisors or consultants to the Borrowers, as
permitting or obligating Holders to control the Borrowers or to conduct the
Borrowers' operations, as creating any fiduciary obligation on the part of the
Holders to the Borrowers, or as creating any joint venture, agency or other
relationship between the parties other than as explicitly and specifically
stated in this Agreement. A Holder is not (and shall not be construed as) a
partner, joint venturer, alter-ego, manager, controlling person, operator or
other business participant of any kind of any Borrower; neither Holders nor the
Borrowers intend that the Holders assume such status, and, accordingly, the
Holders shall not be deemed responsible for (or a participant in) any acts or
omissions of any of the Borrowers. Each Borrower represents and warrants to the
Holders that it has had the advice of experienced counsel of its own choosing in
connection with the negotiation and execution of this Agreement and with respect
to all matters contained herein.
9.08 CONTROLLING LAW. This Agreement and each of the other
Investment Documents shall be governed by, and interpreted and construed in
accordance with, the internal laws of the State of Maryland (without regard to
its conflicts of law principles).
9.09 VENUE; PERSONAL JURISDICTION; FULL FAITH AND CREDIT; PERSONAL
SERVICE.
(a) Venue for the adjudication of any claim or dispute arising
out of this Agreement or any of the other Investment Documents shall be proper
only in the state or federal courts of the State of Maryland, and all parties to
this Agreement and the other Investment Documents hereby consent to such venue
and agree that it shall not be not inconvenient and not subject to review by any
court other than such courts in Maryland;
(b) Each Borrower intends and agrees that the courts of the
jurisdictions in which such Borrower is formed and in which such Borrower
conducts its business should afford full faith and credit to any judgment
rendered by a court of the State of Maryland against such Borrower under this
Agreement and the other Investment Documents, and each Borrower under this
Agreement and the other Investment Documents intends and agrees that such courts
should hold that the Maryland courts have jurisdiction to enter a valid, IN
PERSONAM judgment against such Borrower;
(c) Each Borrower agrees that service of any summons and
complaint, and other process which may be served in any suit, action or other
proceeding, may be made by mailing via U.S. certified or registered mail or by
hand-delivering a copy of such process to the Parent at its address specified
above; and
(d) Each Borrower expressly acknowledges and agrees that the
provisions of this Section 9.09 are reasonable and made for the express benefit
of each of the Holders.
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9.10 WAIVER OF TRIAL BY JURY. Each party to this Agreement agrees
that any suit, action or proceeding, whether claim, defense or counterclaim,
brought or instituted by any party hereto or any successor or assign of any
party on or with respect to this Agreement or any other Investment Document or
which in any way relates, directly or indirectly, to the Debentures or any
event, transaction or occurrence arising out of or in any way connected with
this Agreement, the other Investment Documents or the dealings of the parties
with respect thereto, shall be tried only by a court and not by a jury. EACH
PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT,
ACTION OR PROCEEDING, AND ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL RIGHT
AND THAT IT MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH,
OR THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE.
9.11 COSTS AND FEES RELATED TO ENFORCEMENT OR A SUCCESSFUL DEFENSE.
Without limiting the Holders' entitlements under Section 8.04 above or under the
terms of any of the other Investment Documents, each Borrower (each, a
"Reimbursing Party"), hereby agrees to reimburse the Holders for any and all
costs and fees, including reasonable attorneys' fees and expenses, incurred by
any of the Holders or their Affiliates in connection with: (i) any suit,
action, claim or other activity of the Holders to collect the Obligations or any
portion thereof or to enforce any of the provisions of this Agreement or any
other Investment Document against such Reimbursing Party; and (ii) any suit,
action, claim or other liability asserted against any of the Holders or their
Affiliates by such Reimbursing Party in any case in which such Reimbursing Party
does not prevail with respect to substantially all of its or his claim.
9.12 INDEPENDENT COVENANT TO MAKE PAYMENTS. The payment and
performance by each Borrower of all of the Obligations shall be absolute and
unconditional, irrespective of any defense or any rights of set-off, recoupment
or counterclaim such Borrower might otherwise have against any of the Holders,
and each Borrower shall pay and perform all of the Obligations (to the extent
applicable to it), free of any deductions and without abatement, diminution,
recoupment, counterclaim or set-off. Until payment in full of all of the
Obligations, no Borrower shall: (a) suspend or discontinue any payments
required pursuant to the Debentures, this Agreement or any other Investment
Documents; or (b) fail to perform and observe all of the other terms and
provisions of all of the Investment Documents.
9.13 NOTICE OF CLAIM; WAIVER. To allow the Holders to mitigate any
alleged breach of this Agreement, the other Investment Documents, or Holders'
other duties to the Borrowers, each Borrower hereby agrees to give the Holders
written notice of any claim or defense any of them has against the Holders,
whether in tort, contract or otherwise, relating to any act or omission by any
of the Holders under this Agreement, the other Investment Documents or the
transactions related thereto, or of any defense to the payment or performance of
any of the Obligations for any reason. Each Borrower hereby agrees to provide
such notice to Holders within 60 days after such Borrower first has knowledge of
such defense.
9.14 HEADINGS. The headings of the paragraphs and sub-paragraphs of
this Agreement and the other Investment Documents are inserted for convenience
only and shall not be deemed to constitute a part of this Agreement or the other
Investment Documents.
9.15 SEVERABILITY. To the extent any provision herein violates any
applicable law, that provision shall be considered void and the balance of this
Agreement shall remain unchanged and in full force and effect.
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9.16 COUNTERPARTS. This Agreement may be executed in as many
counterpart copies as may be required. It shall not be necessary that the
signature of, or on behalf of, each party appear on each counterpart, but it
shall be sufficient that the signature of, or on behalf of, each party appear on
one or more of the counterparts. All counterparts shall collectively constitute
a single agreement. It shall not be necessary in any proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties.
9.17 DELIVERIES TO HOLDERS. To the extent the terms of this
Agreement or any of the other Investment Documents requires any Borrower to
deliver any documents or other materials to any or all of the Holders, then,
until such time as Allied (or one or more Affiliates of Allied) shall no longer
hold complete title to each of the Debentures, the Borrowers may fully satisfy
and discharge such requirement by delivering a single copy of the document(s) or
other material(s) in question to the Holders' notice party identified in Section
9.03 above in lieu of separate deliveries to each of the Holders. Following a
complete or partial Transfer by Allied of any its right, title or interest in
and to any of the Debentures to one or more Persons that is not an Affiliate of
Allied, then the Borrowers shall be required to deliver copies of the
document(s) or other material(s) in question to each of the Holders separately.
9.18 CONSENT AND APPROVAL OF HOLDERS. To the extent the terms of
this Agreement or any of the other Investment Documents requires the Borrowers
to obtain the consent or approval of each of the Holders, then, until such time
as Allied (or one or more Affiliates of Allied) shall no longer hold complete
title to each of the Debentures and to each of the Warrants (or if exercised,
the Common Stock purchaseable thereunder), the Borrowers may fully satisfy and
discharge such requirement by obtaining the consent or approval (in writing if
necessary) of the holder of not less than 55% of the outstanding principal
balance of the Debentures in lieu of the separate consent or approval of each of
the Holders, or if the Debentures have been repaid, the consent or approval of
the holder of not less than 55% of the Warrants or 55% of the Common Stock
purchaseable thereunder (as the case may be). Following a complete or partial
Transfer by Allied of any its right, title or interest in and to any of the
Debentures, to any of the Warrants, or to any of the Common Stock purchaseable
thereunder to one or more Persons that is not an Affiliate of Allied, then the
Borrowers shall be required to obtain the consent or approval (in writing if
necessary) of 55% of the interests held by Allied, as a group, and 55% of the
interests held by the transferees, as a group.
9.19 ENFORCEMENT ACTION BY HOLDERS. To the extent the terms of this
Agreement or any of the other Investment Documents permit the Holders to
exercise any right or remedy, then, until such time as Allied (or one or more
Affiliates of Allied) shall no longer hold complete title to each of the
Debentures and to each of the Warrants (or if exercised, the Common Stock
purchaseable thereunder), the Holders shall take any such action only upon the
approval of not less than 55% of the outstanding principal balance of the
Debentures, or if the Debentures have been repaid, the approval of the holder of
not less than 55% of the Warrants or 55% of the Common Stock purchaseable
thereunder (as the case may be). Following a complete or partial Transfer by
Allied of any its right, title or interest in and to any of the Debentures, to
any of the Warrants, or to any of the Common Stock purchaseable thereunder to
one or more Persons that is not an Affiliate of Allied, then Allied, as a group,
may take any such action only upon the approval of not less than 55% of the
interests held by Allied, and the transferees, as a group, may take any such
action only upon the approval of not less than 55% of the interests held by the
transferees.
{SIGNATURES NEXT PAGE}
30
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
WITNESS/ATTEST: "BORROWERS":
PICO PRODUCTS, INC.
a New York corporation
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
----------------------------------- ----------------------------------------
Joseph T. Kingsley, Asst Secretary Everett Keech, Chief Executive Officer
PICO MACOM, INC.
a Delaware corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
----------------------------------- ----------------------------------------
Joseph T. Kingsley, Secretary Everett Keech, President
PICO MACOM TAIWAN CO., LTD.
a Taiwan corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
----------------------------------- ----------------------------------------
Joseph T. Kingsley, Secretary Everett Keech, President
PICO (ST. KITTS) LTD.
a St. Christopher and Nevis corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
----------------------------------- ----------------------------------------
Joseph T. Kingsley, Asst. Secretary Everett Keech, President
PICO (BERMUDA) LTD.
a Bermuda corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
----------------------------------- ----------------------------------------
Joseph T. Kingsley, Asst. Secretary Everett Keech, President
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PICO PRODUCTS ASIA LIMITED
a Hong Kong corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
----------------------------------- ----------------------------------------
Joseph T. Kingsley, Asst. Secretary Everett Keech, President
PICOMACOM PRODUTOS DE
TELECOMMUNICACAO LTDA.
a Brazil limited liability company
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
----------------------------------- ----------------------------------------
Joseph T. Kingsley, Secretary Everett Keech, President
"ALLIED":
ALLIED CAPITAL CORPORATION,
a Maryland corporation
By: /s/ Tricia Daniels By: /s/ Carr T. Preston (SEAL)
----------------------------------- ----------------------------------------
Tricia Daniels, Under Power of Attorney Carr T. Preston, Senior Vice President
ALLIED INVESTMENT CORPORATION,
a Maryland corporation
By: /s/ Tricia Daniels By: /s/ Carr T. Preston (SEAL)
----------------------------------- ----------------------------------------
Tricia Daniels, Under Power of Attorney Carr T. Preston, Senior Vice President
ALLIED INVESTMENT CORPORATION II,
a Maryland corporation
By: /s/ Tricia Daniels By: /s/ Carr T. Preston (SEAL)
----------------------------------- ----------------------------------------
Tricia Daniels, Under Power of Attorney Carr T. Preston, Senior Vice President
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ALLIED CAPITAL CORPORATION II,
a Maryland corporation
By: /s/ Tricia Daniels By: /s/ Carr T. Preston (SEAL)
----------------------------------- ----------------------------------------
Tricia Daniels, Under Power of Attorney Carr T. Preston, Senior Vice President
</TABLE>
33
<PAGE>
EXHIBIT 4(i)
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE SECURITIES LAWS. THIS DEBENTURE MAY NOT BE OFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OF THE DEBENTURE UNDER SUCH
ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR UPON SATISFACTION BY THE
ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
THIS DEBENTURE IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT (AS FROM
TIME TO TIME AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED), DATED AS OF
NOVEMBER 21, 1996, BY AND BETWEEN HSBC BUSINESS LOANS, INC., HOLDER, AND THE
OTHER PARTIES NAMED THEREIN.
SUBORDINATED SECURED DEBENTURE
$700,000 November 21, 1996
FOR VALUE RECEIVED, the undersigned, PICO PRODUCTS, INC., a New York
corporation ("Parent"), PICO MACOM, INC., a Delaware corporation ("PMI"), a PICO
MACOM TAIWAN CO., LTD., a Taiwan corporation ("Taiwan"), PICO (ST. KITTS) LTD.,
a St. Christopher and Nevis corporation ("St. Kitts"), PICO (BERMUDA) LTD., a
Bermuda corporation ("Bermuda"), PICO PRODUCTS ASIA LIMITED, a Hong Kong
corporation ("Asia") and PICOMACOM PRODUTOS DE TELECOMMUNICACAO LTDA., a Brazil
limited liability company ("Brazil") (collectively, Parent, PMI, Taiwan, St.
Kitts, Bermuda, Asia and Brazil shall be referred to herein as the "Borrowers"),
jointly and severally promise to pay ALLIED CAPITAL CORPORATION, a Maryland
corporation (the "Holder") or its registered assigns the principal sum of SEVEN
HUNDRED THOUSAND AND 00/100 DOLLARS ($700,000), together with interest thereon
as set forth below, at its offices or such other place as the Holder may
designate in writing.
1. INVESTMENT AGREEMENT. This Subordinated Secured Debenture (the
"Debenture") is one of four subordinated secured debentures to be executed
and delivered by the Borrowers in connection with an investment (the
"Investment") being made by the Holder and three affiliates of the Holder in
the Borrowers in the aggregate original principal amount of Five Million
Dollars ($5,000,000) pursuant to the terms and conditions of an Investment
Agreement between the Borrowers, the Holder and certain other parties, dated
of even date herewith (the "Investment Agreement"). This Subordinated
Secured Debenture and the other three subordinated secured debentures
evidencing the Investment (collectively, the "Other Debentures") are each
subject to the terms and conditions of the Investment Agreement. A copy of
the Investment Agreement may be examined during normal business hours at the
Parent's offices. Any capitalized term used herein and not otherwise defined
herein shall have the meaning given to it in the Investment Agreement.
1
<PAGE>
2. INTEREST RATE PROVISIONS.
2.1 INITIAL INTEREST RATE. Except as provided in Section 2.2, from
the date hereof and thereafter until repayment of this Debenture, interest shall
accrue hereunder at the rate of twelve percent (12%) per annum (the "Initial
Interest Rate"). Interest shall be calculated on the basis of a 360-day year
and shall be computed for each payment period on the principal balance for the
actual number of days outstanding.
2.2 DEFAULT INTEREST RATE. Upon the occurrence of a Non-Payment
Event, as defined below, interest shall accrue and be payable hereunder at the
rate of fifteen percent (15%) per annum (the "Default Interest Rate") until the
earlier of repayment or the curing of such Non-Payment Event. A Non-Payment
Event shall be deemed to have occurred under this Debenture if any installment
payments due under the terms of this Debenture or any of the Other Debentures
are not received by the Holder on or before that date which is 10 days following
the due date thereof, or if any default interest or other sums payable to Holder
hereunder, under the terms of the Other Debentures, under the terms of the
Investment Agreement, or under the terms of any of the Security Documents are
not paid on or before that date which is 10 days following the due date thereof.
3. PAYMENT PROVISIONS.
3.1 INTEREST PAYMENTS. Commencing on December 1, 1996 and continuing
on the first day of each calendar month thereafter up to and including
November 1, 2003, the Borrowers shall pay to Holder monthly installments of
interest only at the Initial Interest Rate on the principal balance of this
Debenture then outstanding.
3.2 PRINCIPAL PAYMENTS; MATURITY DATE.
A. On each of November 21, 2000 and November 21, 2001, the
Borrowers shall pay to Holder an installment in the amount of Seventy Thousand
and 00/100 Dollars ($70,000).
B. On November 21, 2002, the Borrowers shall pay to Holder an
installment in the amount of One Hundred Forty Thousand and 00/100 Dollars
($140,000).
C. The entire unpaid principal balance of this Debenture,
together with all accrued, but unpaid interest, and all other sums owed
hereunder shall be due and payable in full without further notice or demand on
that date (the "Maturity Date") which is seven years from the date hereof.
3.3 PREPAYMENTS; APPLICATION OF PAYMENTS. The Borrowers may prepay
this Debenture in whole or in part at any time without premium or penalty. All
prepayments shall be
-2-
<PAGE>
applied as follows: (a) first, to accrued, but unpaid, interest; and (b)
second, to principal installments, in inverse order of maturity.
3.4 DUE ON SALE. The entire indebtedness hereunder shall become due
and payable upon the earlier of the Maturity Date or the "Transfer of the
Business", as defined in the Investment Agreement.
4. COLLATERAL. Pursuant to the terms and conditions of the Investment
Agreement and of the various Security Documents, this Debenture is secured by
perfected liens and security interests in favor of the Holder and the holders of
the Other Debentures in and to certain Collateral.
5. SUBORDINATION. The indebtedness represented by this Debenture is
subordinate to the Senior Debt of the Borrowers in accordance with the terms of
the Investment Agreement and the Senior Loan Subordination Agreement.
6. ASSIGNMENT. This Debenture and the obligations hereunder may not be
assigned by any Borrower without the prior written consent of Holder. Holder
may freely assign all or any portion of its right, title and interest in and to
the Debenture.
7. JOINT AND SEVERAL LIABILITY. If more than one party signs this
instrument, then all signatories shall be jointly and severally liable
hereunder.
8. DEFAULT AND REMEDIES. The occurrence of an Event of Default under the
Investment Agreement shall constitute a default hereunder and shall entitle the
Holder to exercise the rights and remedies specified in the Investment Agreement
and the various Security Documents, as well as those available at law or in
equity. These rights and remedies include, but are not limited to, the right of
the Holder to accelerate the maturity of this Debenture and all other
Obligations (as defined in the Investment Agreement) and to sell or otherwise
dispose of any or all of the Collateral by public or private sale.
9. WAIVERS. Each Borrower hereby waives presentment, demand, protest, or
further notice of any kind (except such notices as may be specifically required
by the express terms of the Investment Agreement).
10. CONFESSION OF JUDGMENT. IN ADDITION TO ALL OTHER RIGHTS AND REMEDIES
AFFORDED HOLDER HEREUNDER AND UNDER THE INVESTMENT AGREEMENT AND SECURITY
DOCUMENTS, EACH BORROWER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY, OR THE
CLERK OF ANY COURT IN THE STATE OF MARYLAND, TO APPEAR FOR SUCH BORROWER AT ANY
TIME FOLLOWING THE OCCURRENCE OF A DEFAULT UNDER THE INVESTMENT AGREEMENT, IN
ANY SUCH COURT IN AN APPROPRIATE ACTION THERE OR ELSEWHERE BROUGHT OR TO BE
BROUGHT AGAINST ANY BORROWER BY HOLDER ON THIS NOTE, WITH OR WITHOUT
DECLARATIONS FILED, AS OF ANY TERMS OR TIME OF COURT THERE OR
-3-
<PAGE>
ELSEWHERE TO BE HELD AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST SUCH
BORROWER FOR ALL SUMS DUE BY SUCH BORROWER TO HOLDER UNDER THIS NOTE AND THE
INVESTMENT AGREEMENT, TOGETHER WITH THE COSTS OF SUIT AND ATTORNEYS' FEES EQUAL
TO FIFTEEN PERCENT (15%) OF THE OUTSTANDING BALANCE, AND FOR SO DOING, THIS NOTE
OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. EACH
BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW
AND EXECUTION OF THE INVESTMENT AGREEMENT AND THIS NOTE AND THE MEANING AND
SIGNIFICANCE OF THE CONFESSION OF JUDGMENT CONTAINED IN THIS PARAGRAPH HAS BEEN
EXPLAINED TO SUCH BORROWER BY SUCH COUNSEL.
11. CONTROLLING LAW. This Debenture and all matters related hereto shall
be governed, construed and interpreted strictly in accordance with the laws of
the State of Maryland, without regard to its principles of conflicts of law.
12. PURPOSE OF INVESTMENT. Each Borrower represents and warrants that
this Debenture evidences an investment made in the Borrowers for the purpose of
carrying on a business or commercial enterprise pursuant to Section 12-103(e) of
the Commercial Law Article, Annotated Code of Maryland, as amended.
13. NO USURY. This Debenture is subject to the express condition that at
no time shall any Borrower be obligated or required to pay interest hereunder at
a rate which could subject the Holder to either civil or criminal liability as a
result of being in excess of the maximum rate which such Borrower is permitted
by law to contract or agree to pay. If, by the terms of this Debenture, such
Borrower is at any time required or obligated to pay interest at a rate in
excess of such maximum rate, the rate of interest under this Debenture shall be
deemed to be immediately reduced to such maximum rate, and interest payable
hereunder shall be computed at such maximum rate and the portion of all prior
interest payments in excess of such maximum rate shall be applied and shall be
deemed to have been payments in reduction of the principal balance of this
Debenture.
IN WITNESS WHEREOF, the undersigned has caused this Debenture to be
executed and its seal affixed on the day and year first above written.
ATTEST: PICO PRODUCTS, INC.
a New York corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
------------------------------------ --------------------------
Joseph T. Kingsley, Assistant Secretary Everett Keech,
Chief Executive Officer
-4-
<PAGE>
ATTEST: PICO MACOM, INC.
a Delaware corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
------------------------------ -------------------------------
Joseph T. Kingsley, Secretary Everett Keech, President
PICO MACOM TAIWAN CO., LTD.
a Taiwan corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
------------------------------ -------------------------------
Joseph T. Kingsley, Secretary Everett Keech, President
PICO (ST. KITTS) LTD.
a St. Christopher and Nevis corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
------------------------------ -------------------------------
Joseph T. Kingsley, Secretary Everett Keech, President
PICO (BERMUDA) LTD.
a Bermuda corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
------------------------------ -------------------------------
Joseph T. Kingsley, Secretary Everett Keech, President
PICO PRODUCTS ASIA LIMITED
a Hong Kong corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
------------------------------ -------------------------------
-5-
<PAGE>
Joseph T. Kingsley, Secretary Everett Keech, President
PICOMACOM PRODUTOS DE
TELECOMMUNICACAO LTDA.
a Brazil limited liability company
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech (SEAL)
------------------------------ -------------------------------
Joseph T. Kingsley, Secretary Everett Keech, President
-6-
<PAGE>
EXHIBIT 4(j)
November 21, 1996
Mr. Everett T. Keech
Chief Executive Officer
One Tower Bridge, Suite 501
West Conshohocken, PA 19428
RE: THE SINKLER CORPORATION - PICO PRODUCTS, INC.
Dear Everett:
The purpose of this letter is to confirm our agreement with respect to
the issuance and sale by Pico Products, Inc., a New York corporation
(hereinafter "Pico"), of 1,000 Series A Redeemable Preferred Shares (the
"Stock") to The Sinkler Corporation, a Delaware Corporation ("Sinkler"), and I
am writing you as Vice-President of Sinkler pursuant to the authority of its
Board of Directors, evidence of which will be delivered at or prior to Closing
(as hereinafter defined). A substantial reason for the willingness of Sinkler
to make this investment in the Stock of Pico is the willingness of Allied
Capital to make an equity/debt investment in Pico (the "Allied Transaction") on
substantially the terms and in the amounts set forth in a certain letter dated
October 9, 1996 (the "Allied Letter") from Allied to you, and, therefore, the
affirmative covenants and undertakings that Sinkler will require of Pico are
intended to be equivalent to those provided to Allied by Pico, thereby reducing
the administrative burden of the transaction to Pico.
Subject to the foregoing and the mutual covenants herein contained and
for and in consideration of their mutual obligations herein set forth, Sinkler
and Pico, intending to be legally bound, agree as follows:
1. THE PURCHASE. Sinkler agrees at Closing to deliver to Pico the
sum of one million dollars ($1,000,000.00) in the form of a cashier's check made
payable to Pico's order or wire transfer to an account designated by Pico. Pico
at Closing will deliver to Sinkler one or more certificates representing in the
aggregate 1,000 shares of the Stock issued in the name of Sinkler. Sinkler
further agrees to deliver to Pico at Closing the sum of ten dollars ($10.00) in
the form of a check payable to Pico's order or wire transfer to an account
designated by Pico as consideration for the purchase by Sinkler of warrants (the
"Warrants") to purchase 155,863 Pico common shares from Pico together with
certain contingent warrants to purchase Pico common shares under certain
circumstances. The designations, powers, preferences and rights, and the
qualifications, limitations and restrictions of the Stock are set forth in the
Designation Statement attached to this letter as Exhibit "A" and are generally
described below in this letter. It is
1
<PAGE>
understood that in the event there shall be any inconsistency between the
Designation Statement and this letter, the provisions of the Designation
Statement shall be controlling.
(a) The Stock will impose on Pico the obligation to declare
quarterly dividends, payable at a rate of 12 percent per annum, with the option
of Sinkler to receive Pico common shares (the "Dividend Shares") in lieu of the
payment of any cash dividend otherwise payable, upon written notification by
Sinkler to Pico thirty days prior to the scheduled dividend payment date. If
Sinkler exercises the option to take Dividend Shares, the number of such
Dividend Shares shall be determined in the manner set forth in the Designation
Statement. All unpaid cash dividends shall be cumulative. In the event that
Pico exercises its option to delay payment of a quarterly dividend (as provided
in the Designation Statement), Pico will pay Sinkler interest on the amount of
the delayed dividend payment at an annual rate equal to First Union Bank's prime
rate as in effect from time to time during the delay in payment. The Stock will
be redeemable according to the following schedule:
$100,000.00 due at the end of the 48th month following Closing;
$100,000.00 due at the end of the 60th month following Closing;
$200,000.00 due at the end of the 72nd month following Closing; and
$600,000.00 due at the end of the 84th month following Closing.
Notwithstanding the foregoing, Pico may call all or any portion of the Stock for
redemption at any time without penalty. The Stock will have preference in
liquidation or in any bankruptcy or reorganization proceeding ahead of the
common stock. Sinkler acknowledges that Pico will not make any payment of any
dividend or any amount on account of a redemption of the Stock during any period
of time when there shall exist an event of default under the Allied Agreement,
as defined in Section 3(a).
(b) The Warrants will be separate and detachable, and
exercisable for a period of six (6) years after Closing or 36 months from the
final payment on the subordinated debentures issued by Pico pursuant to the
Allied Transaction, whichever is later. The exercise price will be $1.81 per
share. The Warrants will give Sinkler the same registration rights, rights to
obtain additional warrants and anti-dilution protection as given to Allied under
the Allied Transaction, provided that Sinkler shall only exercise its demand
registration rights in conjunction with Allied.
2. CONDITION PRECEDENT TO SINKLER'S OBLIGATIONS. Sinkler's
obligations under this Agreement shall depend and be conditioned upon Pico's
completion of the Allied Transaction on substantially the terms and conditions
set forth in the Allied Letter.
3. REPRESENTATIONS AND WARRANTIES.
(a) Pico hereby makes the same representations and warranties to
and for the benefit of Sinkler as are contained in Article III of the Investment
Agreement, dated
-2-
<PAGE>
today, between Allied Capital International Corporation and certain affiliates,
as the investors, and Pico and certain affiliates (the "Allied Agreement"). In
addition Pico represents and warrants to Sinkler that (i) this agreement and the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Pico; and (ii) this Agreement and the Warrants
constitute the valid and binding obligations of Pico, enforceable in accordance
with their respective terms.
(b) Sinkler hereby represents and warrants to Pico that it (i)
is acquiring the Stock and the Warrants (and the common shares to be received
upon exercise of the Warrants, hereinafter referred to as the "Warrant Shares")
for its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof; (ii) understands that the
Stock, the Warrants, and the Warrant Shares have not been registered under the
Securities Act of 1933 (the "Act"), as amended, by reason of their issuance in a
transaction exempt from the registration requirements of the Act pursuant to
Section 4(2) thereof and may not be offered or sold except pursuant to an
effective registration statement or an available exemption from the registration
requirements under the Act; and (iii) is an "accredited investor" as defined in
Regulation D as promulgated under the Act. Sinkler agrees that certificates
representing the Stock, the Warrants, and the Warrant Shares will bear
restrictive legends to the effect of clause (ii) of the preceding sentence and
that Pico may require an opinion of counsel, in form and substance reasonably
satisfactory to Pico, to the effect that any proposed transfer will not result
in any violation of the Act and the rules and regulations thereunder.
4. AFFIRMATIVE COVENANTS. As long as the Stock has not been
redeemed, Pico will make the following covenants:
(a) PROJECTIONS. Pico agrees to supply the same projections to
Sinkler it has agreed to supply under section 4.05 of the Allied Agreement.
(b) MATERIAL FILINGS; MATERIAL LITIGATIONS; DEFAULT NOTICES.
Pico agrees to supply Sinkler with the same information it has agreed to supply
under Sections 4.06, 4.07 and 4.08 of the Allied Agreement.
5. NEGATIVE COVENANTS.
(a) As long as any of the Stock remains unredeemed, Pico agrees
to the same negative covenants for the benefit of Sinkler that it has provided
under sections 5.01, 5.02 and 5.05 of the Allied Agreement.
(b) As long as any of the Stock remains unredeemed and Sinkler
has any unexercised Warrants, Pico agrees not to make any redemptions of common
shares or dividend payments on the common shares unless Sinkler is given an
opportunity to exercise its Warrants.
-3-
<PAGE>
(c) As long as any of the Stock remains unredeemed, Pico agrees
not to issue any preferred shares senior to, or of equal parity with, the Stock,
or to make any cash payment of dividends on any preferred shares which are
junior to the Stock if the amount of such cash dividends paid in any fiscal year
is greater than the Equivalent Rate multiplied by the purchase price of such
junior preferred shares. The term "Equivalent Rate" shall mean the prime rate
of First Union Bank on the date of issuance of any such junior preferred shares
plus 3.5%.
6. DEFAULT.
(a) The following shall constitute events of default:
(i) Failure to declare or pay any dividend on the Stock
as required by this Agreement or the provisions of the Designation Statement.
(ii) Breach of any affirmative or negative covenant; Pico
will have 10 days to cure any violation of a financial covenant after notice of
default from Sinkler and will have 30 days to cure any violation of a
non-financial covenant after notice of default from Sinkler. Pico agrees to
provide Sinkler with any notice of default which it provides under the Allied
Agreement.
(iii) Any representation or warranty made by Pico pursuant
to Section 3(a) shall prove to have been untrue when made in any material
respect.
(iv) The occurrence of an event described in Section 7.04,
7.05, 7.06, or 7.07 of the Allied Agreement.
(b) In addition to all other remedies it may have at law or in
equity in the event of a Default as set forth above, which is not cured as
herein provided, Sinkler shall have the unqualified right to demand the
immediate redemption of the Stock, with which demand Pico agrees to immediately
comply.
7. LEGAL OPINIONS.
(a) Pico agrees to supply Sinkler with an opinion of the
counsel, Messrs. Saul, Ewing, Remick and Saul, to the effect that:
(i) Pico is a corporation duly incorporated and validly
existing under the laws of the State of New York.
(ii) The transaction set forth in this letter agreement
and the execution of this Agreement have been duly authorized by the Board of
Directors of Pico and do not violate any law or statute, by-law, agreement,
covenant or understanding by which Pico is bound.
-4-
<PAGE>
(b) Sinkler agrees to supply Pico with the opinion of its
counsel, Messrs. Montgomery, McCracken, Walker & Rhoads, to the effect that:
(i) The transaction set forth in this letter agreement
and the execution of this letter agreement have been duly authorized by the
Board of Directors of Sinkler; and the borrowing necessary to fund this
transaction has likewise been duly authorized by the Board of Directors of
Sinkler.
8. CLOSING. Closing hereunder will take place simultaneously with
Pico's closing of the Allied Transaction and simultaneously with the execution
and delivery of this Agreement, at the offices of Messrs. Saul, Ewing, Remick &
Saul, 3800 Centre Square West, Philadelphia, Pennsylvania.
Sincerely,
By: /s/ Howard Lewis
-------------------------------
Vice President
Accepted and Agreed to:
PICO PRODUCTS, INC.
By: /S/ Everett Keech
-------------------------------
Everett T. Keech,
Chief Executive Officer
Date: November 21, 1996
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<PAGE>
EXHIBIT A
PICO PRODUCTS, INC.
RESOLUTION OF THE BOARD OF DIRECTORS
APPROVING
THE DESIGNATION STATEMENT
RELATING TO SERIES A REDEEMABLE PREFERRED SHARES
WHEREAS, the Certificate of Incorporation of the Corporation authorizes the
Corporation to issue a total of 500,000 series preferred shares, par value $.01
per share ("Preferred Shares"), which may be divided into one or more series as
the Board of Directors may determine;
WHEREAS, the Certificate of Incorporation of the Corporation expressly
vests in the Board of Directors the authority to fix and determine the
designations, powers, preferences, and rights, and the qualifications,
limitations and restrictions thereof, of the Preferred Shares;
WHEREAS, the Board of Directors has not designated any series of the
Corporation's Preferred Shares, and Preferred Shares have been issued by the
Corporation;
WHEREAS, it is deemed advisable to designate a series of Preferred Shares
consisting of one thousand (1,000) shares designated as Series A Redeemable
Preferred Shares;
NOW, THEREFORE, IT IS HEREBY RESOLVED, that pursuant to Paragraph THIRD of
the Certificate of Incorporation of the Corporation, there be and hereby is
authorized and created a series of Preferred Shares hereby designated as Series
A Redeemable Preferred Shares, to consist of one thousand (1,000) shares having
a par value of $0.01 per share, which series shall have the voting rights,
designations, powers, preferences, relative and other special rights, and
qualifications, limitations and restrictions set forth below:
1. DESIGNATION. The designation of the series of Preferred Shares
created hereby is Series A Redeemable Preferred Shares and the number of shares
constituting such series is one thousand (1,000) (the "Series A Shares").
2. RANK. The Series A Shares shall, with respect to dividend rights,
rights on redemption and rights on liquidation, winding up and dissolution, rank
prior to all classes of common shares of the Corporation and to each other class
of capital shares or series of Preferred Shares of the Corporation hereafter
created which does not expressly provide that it ranks senior to or on a parity
with the Series A Shares.
3. VOTING RIGHTS. Except as otherwise provided by law, the holder of the
Series A Shares shall not be entitled to vote on any matters with the holders of
other voting capital shares.
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<PAGE>
4. DIVIDENDS. Except as otherwise provided in this Paragraph 4, the
holder of the Series A Shares shall not be entitled to receive dividends.
(a) GENERAL DIVIDEND OBLIGATIONS. When and as declared by the Board
of Directors of the Corporation, the Corporation shall pay to the holders of the
Series A Shares, out of the assets of the Corporation available for such payment
of dividends under the New York Business Corporation Law, payable in preference
and priority to any payment of any dividend on common shares of the Corporation,
dividends at the times and in the amounts provided in this Paragraph 4. The
Board of Directors of the Corporation shall declare and pay to the holder of
Series A Shares dividends at the Dividend Rate described in Paragraph 4.C. below
on a quarterly basis; provided that the Board of Directors may in its discretion
postpone the declaration and payment of one or more quarterly dividends so long
as dividends are declared and paid on at least an annual basis.
(b) CALCULATION OF DIVIDENDS. Dividends for each Series A Share will
be calculated cumulatively on a quarterly basis at the rate and in the manner
prescribed herein from and including the "Commencement Date" with respect to
such Series A Shares to, but excluding, the date on which the Series A Shares
are redeemed or the Liquidation Price has been received with respect to the
Series A Shares, whether or not such dividends have been declared and whether or
not there are (at the time such dividends are calculated or become payable or at
any other time) profits, surplus or other funds of the Corporation legally
available for the payment of dividends.
For the purposes of this Subparagraph 4.B., the "Commencement Date" with
respect to any Series A Share shall be deemed to be the date of issuance
regardless of the number of times transfer of such Series A Share is made on the
share records maintained by or for the Corporation and regardless of the number
of certificates which may be issued to evidence such Series A Share (whether by
reason of transfer of such Series A Share or for any other reason.)
(c) DIVIDEND RATE. Dividends payable on the Series A Shares shall be
calculated cumulatively with respect to each quarter in which dividends are due
on each Series A Share at a rate of 12% of the Liquidation Value per annum
("Dividend Rate"). To the extent not paid on the first day of each January,
April, July, and October (each a "Dividend Reference Date"), an amount equal to
all dividends which have been calculated on Series A Shares then outstanding
during the quarterly period (pro rated for a shorter period as appropriate)
ending on the day immediately preceding such Dividend Reference Date shall be
added to the Redemption Price (as described in Paragraph 7 hereof) of such
Series A Share and will remain a part thereof until (but only until) such
dividends are paid. Any subsequent dividends which are paid to the holder of
the Series A Shares in respect thereof shall, in all instances, be applied first
to the payment of amounts of dividends which have been added on previous
Dividend Reference Dates to the Redemption Price until the Redemption Price of
all Series A Shares shall be equal to the original Redemption Price, as
adjusted, herein stated.
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d. FORM OF PAYMENT. The Dividend Rate shall be payable quarterly in
cash or in common shares of the Corporation, as determined by the holders of a
majority of the outstanding Series A Shares, by notice to the Corporation at
least thirty (30) days prior to the applicable Dividend Reference Date. In the
absence of such notice, it shall be presumed that the dividend for the
applicable quarter shall be payable in cash. In the event that payment in the
form of common shares is elected by the holders of the Series A Shares, the
number of common shares issuable shall be determined by dividing the amount of
the dividend by the average Market Value (as hereinafter defined) of the
Corporation's common shares over the ten consecutive trading days ending on the
trading day immediately prior to the Dividend Reference Date. "Market Value"
shall mean the average of the high and low prices of the common shares, as
reported in The Wall Street Journal, on the American Stock Exchange (or a
similar consolidated transactions report for the exchange or other market on
which the common shares is then trading, if not the American Stock Exchange) for
the relevant date, or if no sales of common shares were made on such exchange on
such date, the average of the high and low prices of such shares as reported in
such composite transaction report for the preceding day on which sales of shares
were made on such exchange. If the common shares are not listed on a national
securities exchange at the time Market Value is to be determined, then Market
Value shall be determined by the Board of Directors of the Corporation in good
faith pursuant to such method as the Board of Directors deems appropriate and
equitable. Under no circumstances shall the Market Value of a common share be
less than its par value. All fractional shares shall be paid in cash. All
unpaid cash dividends shall be cumulative.
e. PRIORITY. So long as any Series A Shares shall be outstanding,
without the consent of the holders of a majority of the outstanding Series A
Shares, the Corporation shall not declare or pay on the common shares of the
Corporation any dividend whatsoever, whether in cash, property or otherwise, nor
shall the Corporation make any distribution on the common shares, nor shall any
common shares be purchased or redeemed by the Corporation or any subsidiary
thereof, unless (i) all dividends to which the holders of Series A Shares have
been entitled for all previous dividend periods shall have been paid or declared
and a sum of money sufficient for the payment thereof set apart, and (ii) all
Series A Shares which the Corporation was theretofore obligated to redeem in
accordance with Paragraph 7 hereof shall have been redeemed.
5. LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Series A Shares then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its shareholders an
amount equal to one thousand dollars ($1,000.00) for each Series A Share
outstanding (such amount, as it may be adjusted from time to time to give effect
to any share splits or combinations, recapitalizations or other similar events,
the "Liquidation Value") plus an amount equal to all accumulated but unpaid
dividends thereon to the date fixed for the liquidation, dissolution or winding
up, before any payment shall be made or any assets distributed to the holders of
common shares. Except as provided in the preceding sentence,
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holders of Series A Shares shall not be entitled to any distribution in the
event of liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in full
the liquidation payments payable to the holders of the Series A Shares, then the
holders of all such shares shall share ratably in accordance with the respective
amounts to which the holders of outstanding Series A Shares would be entitled if
all amounts payable thereon were paid in full. The liquidation payment with
respect to each outstanding fractional Series A Share (if any) shall be equal to
a ratably proportionate amount of the liquidation payment with respect to each
outstanding Series A Share.
6. CONVERSION. The Series A Shares shall not be convertible into or
exchangeable for shares of any other series or class of shares of the
Corporation.
7. REDEMPTION. The Series A Shares shall be redeemable as follows:
A. OPTIONAL REDEMPTION. The Series A Shares shall be redeemable, at
the option of the Corporation, in whole or in part, at any time without penalty,
at a redemption price equal to one thousand dollars ($1,000.00) per share (the
"Redemption Price") plus an amount equal to all accumulated but unpaid dividends
thereon to the date fixed for redemption.
B. MANDATORY REDEMPTION. The Series A Shares shall be redeemed, out
of funds legally available therefor, at the Redemption Price plus an amount
equal to all accumulated but unpaid dividends thereon to the date fixed for
redemption on the following dates and in the following amounts:
(i) One hundred (100) shares (less any shares previously redeemed
pursuant to Paragraph 7.A. or 7.B.) on or before November 30, 2000;
(ii) Two hundred (200) shares (less any shares previously redeemed
pursuant to Paragraph 7.A. or 7.B.) on or before November 30, 2001;
(iii) Four hundred (400) shares (less any shares previously redeemed
pursuant to Paragraph 7.A. or 7.B.) on or before November 30, 2002; and
(iv) All outstanding shares on or before November 30, 2003.
C. REDEMPTION PROCEDURES. When the Corporation redeems the Series A
Shares, the following procedures shall apply:
(i) When less than all of the outstanding Series A Shares are being
redeemed, the shares subject to redemption shall be determined in the sole
discretion of the Corporation.
(ii) Notice of redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the date on
which Series A Shares are
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to be redeemed (any such date, a "redemption date"), to the holder of record of
the shares to be redeemed at such holder's address as the same appears on the
share register of the Corporation. Such notice shall state: (a) the redemption
date; (b) the redemption price; (c) the number of shares subject to redemption;
and (d) the place or places where certificates for such shares are to be
surrendered for payment of the redemption price.
(iii) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in providing
money for the payment of the redemption price of the shares called for
redemption) said shares shall no longer be deemed to be outstanding and shall
have the status of authorized but unissued Series A Shares, and shall not be
reissued as Series A Shares, and all rights of the holder thereof as a
shareholder of the Corporation (except the right to receive from the Corporation
the redemption price) shall cease. Upon surrender in accordance with said
notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid.
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EXHIBIT 4(k)
THIS SECURITY HAS BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY PUBLIC
OFFERING AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE ACT.
PICO PRODUCTS, INC.
------------------------------
STOCK PURCHASE WARRANT
------------------------------
Right to Purchase Certificate No. 1
109,104 shares of Common Stock Dated as of November 21, 1996
1. GRANT. For consideration of $7.00 and other value received, PICO
PRODUCTS, INC., a New York corporation (the "Company"), hereby grants to ALLIED
CAPITAL CORPORATION or its registered assigns (the "Holder"), at the exercise
price set forth in Section 3 below, the right to purchase up to 109,104 shares
(the "Warrant Shares") of the Company's Common Stock, par value $.01 per share
(the "Common Stock"). The number of Warrant Shares to be received upon the
exercise of this Warrant is subject to adjustment from time to time as
hereinafter set forth.
2. EXERCISE PERIOD. The right to exercise this Warrant, in whole or
in part, shall commence as of the date hereof, and shall expire on that date
(the "Expiration Date") which is the later of: (i) three years from the date on
which all Obligations with respect to the Debentures are satisfied in full; or
(ii) six years from the date hereof.
3. EXERCISE PRICE. The aggregate exercise price of this Warrant (the
"Exercise Price") shall be equal to the product of (i) $1.81 and (ii) the number
of Warrant Shares to be acquired pursuant to the exercise of this Warrant.
4. ANTI-DILUTION ADJUSTMENTS. The number of Warrant Shares to be
received by the Holder upon exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time as follows:
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(a) If the Company shall issue, or be deemed to have issued (pursuant
to subsection (3) of Section 4(b)), any shares of Common Stock, (other than
"Excluded Stock" as defined below) for a consideration (determined in the manner
provided in subsections (1), (2) and (3) of Section 4(b)) per share less than
the Exercise Price, the Exercise Price to be in effect following such issuance
shall be adjusted to a price (calculated to the nearest cent) determined by
dividing:
(I) an amount equal to the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such issue (including as
outstanding all shares of Common Stock issuable upon exercise of the
Warrants) multiplied by the then existing Exercise Price, and (y) the
consideration, if any, received by the Company upon such issue; by
(II) the total number of shares of Common Stock outstanding
immediately after such issue (including as outstanding all shares of
Common Stock issuable upon exercise of the Warrants).
No adjustment of the Exercise Price however shall be made in an amount
less than $.001 per share, and any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.001 per share or more.
(b) For the purposes of Section 4(a), the following provisions shall
be applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts, commissions or expenses paid or incurred by the Company
in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Board of Directors; provided, however, that if, at the time of such
determination, the Common Stock is traded in the over-the-counter market or on a
national or regional securities exchange, such fair market value as determined
by the Board of Directors shall be the "fair market value" (as defined in
Section 9(b) below) of the shares of Common Stock being issued.
(3) In the case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock (other than Excluded Stock), (ii)
securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock):
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(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for consideration equal to the aggregate consideration
(determined in the manner provided in subsections (1) and (2) of this Section
4(b)), if any, received (or to be received) by the Company upon the issuance of
such options or rights and upon exercise thereof for the Common Stock covered
thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for
consideration equal to the aggregate consideration received (or to be received)
by the Company for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), and upon
the conversion or exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be determined in the manner
provided in subsections (1) and (2) of this Section 4(b)); and
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion of or
exchange for such convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or securities (other than a
change resulting from the anti-dilution provisions, if any, of such options,
rights or securities, unless the event giving rise to such adjustment does not
also give rise to an adjustment in the Exercise Price pursuant to the terms of
this Section 4), then the Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been obtained had the adjustment made upon (x) the
issuance of such options, rights or securities not exercised, converted or
exchanged prior to such change, as the case may be, been made upon the basis of
such change or (y) the options or rights related to such securities not
converted or exchanged prior to such change, as the case may be, been made upon
the basis of such change.
(c) "Excluded Stock" shall mean:
(1) all shares of Common Stock issued and outstanding on the
effective date hereof;
(2) all shares of Common Stock into which securities issued and
outstanding on the date hereof are convertible (including shares issuable to
each of City National Bank, Scimitar Development Capital Fund, Scimitar
Development Capital "B" Fund, Shipley Raidy Capital Partners, LP and The Sinkler
Corporation, in each case pursuant to warrants issued either prior to or on the
date hereof);
(3) subject to adjustment pursuant to stock splits, stock
dividends and the like, all shares of Common Stock or other securities issued to
employees of the Company
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under any agreement, arrangement or plan, including any stock incentive plan,
approved by the Board of Directors and the stockholders of the Company and
outstanding as of the date hereof (including all options approved by the
stockholders in December 1996); and
(4) all shares of Common Stock distributed as to holders of the
Company's Series A Redeemable Preferred Stock as payment in kind of dividends,
as permitted by the terms thereof.
(d) If the number of shares of Common Stock outstanding at any time
after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the Exercise Price in
effect immediately prior to such event shall be proportionately decreased, and
the number of Warrant Shares shall be proportionately increased.
(e) If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, on the effective date of such combination, the Exercise
Price in effect immediately prior to such event shall be proportionately
increased, and the number of Warrant Shares shall be proportionately decreased.
(f) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the Common Stock of the Company
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or of the consolidation or
merger of the Company with or into another person, or of the sale or other
disposition of all or substantially all the properties and assets of the Company
as an entirety to any other person, the Holder shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, receive upon
exercise of the Warrant, the kind and number of shares of stock, or other
securities or property or cash of the Company or of the entity resulting from
such consolidation or surviving such merger or to which such properties and
assets shall have been sold or otherwise disposed, to which a holder of the
number of shares of Common Stock deliverable upon exercise of this Warrant would
have been entitled on such reorganization, reclassification, consolidation,
merger, sale or other disposition had this Warrant been exercised immediately
prior to such event. The provisions of this Section 4(f) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers, sales
or other dispositions.
(g) Upon any adjustment of the Exercise Price, then and in each such
case the Company shall give written notice thereof, by first class mail, postage
prepaid, addressed to the holder of this Warrant at the last registered address
of such holder as shown on the books of the Company, which notice shall state
the facts leading to, and the Exercise Price resulting from, such adjustment.
5. PRIOR NOTICE AS TO CERTAIN EVENTS. If at any time:
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(a) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(b) the Company shall offer for subscription PRO RATA to the
holders of its Common Stock any additional shares of stock of any class or any
other rights;
(c) there shall be any reorganization or reclassification of the
capital stock of the Company, or a consolidation or merger of the Company with,
or a sale of all or substantially all its assets to, another entity; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in each such case, the Company shall give prior written notice,
by first class mail, postage prepaid, addressed to the Holder at its address
shown on the books of the Company, of the date on which (i) the books of the
Company shall close or a record shall be taken for such stock dividend,
distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of the Common Stock of record shall participate
in said dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, dissolution, liquidation or winding up,
as the case may be. Such written notice shall be given at least 10 days prior
to the action in question.
6. RESERVATION OF COMMON STOCK. The Company shall, at all times, reserve
and keep available for issuance and delivery upon the exercise of this Warrant
such number of its authorized but unissued shares of Common Stock or other
securities of the Company as will be sufficient to permit the exercise in full
of this Warrant. Upon such issuance, all such shares will be validly issued,
fully paid and nonassessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free and clear of all
preemptive rights.
7. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. Prior to exercise, this
Warrant will not entitle the Holder to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration in
this Warrant of the rights or privileges of the Holder, will give rise to any
liability of such Holder for the Exercise Price.
8. EXERCISE PROCEDURE. (a) This Warrant may be exercised prior to the
Expiration Date, by presenting it and tendering the Exercise Price, at the
option of the Holder (i) in legal tender, or (ii) by bank cashier's or certified
check, at the principal office of the Company along with written subscription
substantially in the form of Exhibit "A" attached hereto. The date on which
this Warrant is thus surrendered, accompanied by tender or payment as
hereinbefore or
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hereinafter provided, is referred to herein as the "Exercise Date." The Company
shall forthwith at its sole expense (including the payment of issue taxes),
issue and deliver to Holder certificates for the proper number of Warrant Shares
upon exercise of this Warrant within 10 days after the Exercise Date, and such
Warrant Shares shall be deemed issued and the Holder deemed the holder of record
of such Warrant Shares, for all purposes as of the opening of business on the
Exercise Date, notwithstanding any delay in the actual issuance.
(b) The Company shall pay any and all documentary, stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of the Warrant
Shares.
(c) In the event this Warrant is partially exercised, the Company shall
forthwith issue and deliver to Holder a new Warrant of like tenor to purchase
that number of shares with respect to which such partial exercise did not apply.
9. CASHLESS EXERCISE.
(a) RIGHT TO CONVERT. Notwithstanding anything herein to the
contrary, in lieu of payment of the applicable Exercise Price, the Holder may
elect to receive upon exercise of this Warrant, the number of Warrant Shares
reduced by a number of shares of Common Stock having the aggregate Fair Market
Value equal to the aggregate Exercise Price for the Warrant Shares.
(b) FAIR MARKET VALUE. For purposes hereof, the Fair Market Value of
a share of Common Stock is determined as follows:
(i) If the Common Stock of the Company is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq Stock Market (National Market), the Fair
Market Value shall be the last reported sale price of the Common Stock on such
exchange or system on the last trading day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing bid and
asked prices for such day on such exchange or system.
(ii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges, the Fair Market Value shall be the mean
of the last reported bid and asked prices reported by the National Quotation
Bureau, Inc., on the last trading day prior to the date of the exercise of this
Warrant.
(iii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be an amount reasonably determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company.
(c) METHOD OF EXERCISE. This Warrant may be exercised in
accordance with the provisions of this Section 9 by the surrender of this
Warrant at the principal office of the
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Company together with a written statement specifying that the Holder thereby
intends to so exercise the Warrant. With the exception of the payment of the
Exercise Price, the provisions of Section 8 hereof shall apply to any such
exercise.
10. SALE OF WARRANT OR SHARES. Neither this Warrant nor any of the
Warrant Shares have been registered under the Act or under the securities laws
of any state. Neither this Warrant nor any of the Warrant Shares (when issued)
may be sold, assigned, transferred, pledged or hypothecated or otherwise
disposed of in the absence of: (a) an effective registration statement for this
Warrant or the Warrant Shares, as the case may be, under the Act and such
registration or qualification as may be necessary under the securities laws of
any state, or (b) an opinion of counsel reasonably satisfactory to the Company
that such registration or qualification is not required. The Company shall
cause a certificate or certificates evidencing all or any of the Warrant Shares
issued upon exercise of the purchase rights herein prior to said registration
and qualification of such shares to bear the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE. THE SHARES MAY NOT BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND SUCH REGISTRATION OR
QUALIFICATION AS MAY BE NECESSARY UNDER THE SECURITIES LAWS OF ANY
STATE, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
11. TRANSFER. This Warrant shall be registered on the books of the
Company which shall be kept at the offices of the Company for that purpose, and
shall be transferable in whole or in part, but only on such books by the Holder
in person or by duly authorized attorney with written notice substantially in
the form of Exhibit "B" attached hereto, and only in compliance with the
preceding paragraph. The Company may issue appropriate stop orders to its
transfer agent to prevent a transfer in violation of the preceding paragraph.
12. REPLACEMENT OF WARRANT. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and (in the case of loss, theft
or destruction) if required by the Company, upon reasonably satisfactory
indemnification, the Company, at Holder's expense, will issue in lieu thereof a
new Warrant of like tenor.
13. INVESTMENT COVENANT. By its acceptance hereof, the Holder
represents and warrants that this Warrant is, and any Warrant Shares issued
hereunder will be, acquired for its
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own account for investment purposes, and the Holder covenants that it will not
distribute the same in violation of any state or federal law or regulation.
14. GOVERNING LAW. This Warrant shall be construed according to the
laws of New York (other than its conflict of law rules).
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
on its behalf, in its corporate name, by its Chief Executive Officer, and its
corporate seal to be hereunto affixed and the said seal to be attested by its
Secretary, as of the 21st day of November, 1996.
ATTEST: PICO PRODUCTS, INC.
a New York corporation
By: /s/ Spencer W. Franck, Jr. By: /s/ Everett Keech [Seal]
--------------------------------- -------------------------------
Spencer W. Franck, Jr., Secretary Everett Keech, Chief Executive
Officer
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EXHIBIT A
IRREVOCABLE SUBSCRIPTION
To: PICO PRODUCTS, INC.
The undersigned hereby elects to exercise its right under the attached
Warrant by purchasing ________________ shares of the Common Stock of PICO
PRODUCTS, INC., and hereby irrevocably subscribes to such issue. The
certificates for such shares shall be issued in the name of:
______________________________
(Name)
______________________________
(Address)
______________________________
(Taxpayer Number)
and delivered to:
______________________________
(Name)
______________________________
(Address)
The Exercise Price of $1.81 per share is enclosed.
OR
In lieu of payment of the Exercise Price, the undersigned hereby invokes
the provisions of Section 9 of the Warrant.
Date:_______________
Signed: ________________________________________
(Name of Holder, Please Print)
________________________________________
(Address)
________________________________________
(Signature)
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EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
_______________________________
(Name)
_______________________________
(Address)
the attached Warrant, together with all right, title and interest therein
to purchase _____________ shares of the Common Stock of PICO PRODUCTS, INC., and
does hereby irrevocably appoint _______________________ as attorney-in-fact to
transfer said Warrant on the books of PICO PRODUCTS, INC., with full power of
substitution in the premises.
Done this ______ day of ____________ 19____.
______________________________
(Signature)
______________________________
(Name and title)
______________________________
______________________________
(Address)
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EXHIBIT 4(l)
THIS SECURITY HAS BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY PUBLIC
OFFERING AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE ACT.
PICO PRODUCTS, INC.
______________________________
STOCK PURCHASE WARRANT
______________________________
Certificate No. 5
Dated as of November 21, 1996
1. GRANT. For consideration of $7.00 and other value received, PICO
PRODUCTS, INC., a New York corporation (the "Company"), hereby grants to ALLIED
CAPITAL CORPORATION or its registered assigns (the "Holder"), at the exercise
price set forth in Section 3 below, the right to purchase up to that number of
shares (the "Available Number of Shares") (subject to adjustment from time to
time as hereinafter set forth) equal to 2.1% of the number of shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock") (i)
resulting from the exercise from time to time during the Exercise Period, as
defined below, by employees of options heretofore granted (including all options
approved by the stockholders in December 1996), and (ii) into which the "Second
Warrants" (as such term is defined in the Investment Agreement dated as of
February 10, 1993, by and among the Company and the Investors named therein) are
convertible, in the event the Second Warrants are issued.
2. EXERCISE PERIOD. The right to exercise this Warrant, from time to
time, for the full amount of the Available Number of Shares at such time or for
some lesser amount, shall commence as of the date hereof, and shall expire on
that date (the "Expiration Date") which is the later of: (i) three years from
the date on which all Obligations with respect to the Debentures are satisfied
in full; or (ii) six years from the date hereof. Such period shall be referred
to herein as the "Exercise Period". No exercise of this Warrant shall result in
its termination; it shall remain in full force and effect until the termination
of the Exercise Period.
3. EXERCISE PRICE. The aggregate exercise price of this Warrant (the
"Exercise Price") shall be equal to the product of (i) $1.81 and (ii) the number
of shares of Common Stock
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to be acquired pursuant to the exercise of this Warrant (such shares are
hereinafter referred to as the "Warrant Shares").
4. ANTI-DILUTION ADJUSTMENTS. The Available Number of Shares and the
Exercise Price of this Warrant shall be subject to adjustment from time to time
as follows:
(a) If the Company shall issue, or be deemed to have issued (pursuant
to subsection (3) of Section 4(b)), any shares of Common Stock, (other than
"Excluded Stock" as defined below) for a consideration (determined in the manner
provided in subsections (1), (2) and (3) of Section 4(b)) per share less than
the Exercise Price, the Exercise Price to be in effect following such issuance
shall be adjusted to a price (calculated to the nearest cent) determined by
dividing:
(I) an amount equal to the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such issue (including as
outstanding all shares of Common Stock issuable upon exercise of the
Warrants) multiplied by the then existing Exercise Price, and (y) the
consideration, if any, received by the Company upon such issue; by
(II) the total number of shares of Common Stock outstanding
immediately after such issue (including as outstanding all shares of
Common Stock issuable upon exercise of the Warrants).
No adjustment of the Exercise Price however shall be made in an amount
less than $.001 per share, and any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.001 per share or more.
(b) For the purposes of Section 4(a), the following provisions shall
be applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts, commissions or expenses paid or incurred by the Company
in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Board of Directors; provided, however, that if, at the time of such
determination, the Common Stock is traded in the over-the-counter market or on a
national or regional securities exchange, such fair market value as determined
by the Board of Directors shall be the "fair market value" (as defined in
Section 9(b) below) of the shares of Common Stock being issued.
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(3) In the case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock (other than Excluded Stock), (ii)
securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for consideration equal to the aggregate consideration
(determined in the manner provided in subsections (1) and (2) of this Section
4(b)), if any, received (or to be received) by the Company upon the issuance of
such options or rights and upon exercise thereof for the Common Stock covered
thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for
consideration equal to the aggregate consideration received (or to be received)
by the Company for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), and upon
the conversion or exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be determined in the manner
provided in subsections (1) and (2) of this Section 4(b)); and
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion of or
exchange for such convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or securities (other than a
change resulting from the anti-dilution provisions, if any, of such options,
rights or securities, unless the event giving rise to such adjustment does not
also give rise to an adjustment in the Exercise Price pursuant to the terms of
this Section 4), then the Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been obtained had the adjustment made upon (x) the
issuance of such options, rights or securities not exercised, converted or
exchanged prior to such change, as the case may be, been made upon the basis of
such change or (y) the options or rights related to such securities not
converted or exchanged prior to such change, as the case may be, been made upon
the basis of such change.
(c) "Excluded Stock" shall mean:
(1) all shares of Common Stock issued and outstanding on the
effective date hereof;
(2) all shares of Common Stock into which securities issued and
outstanding on the date hereof are convertible (including shares issuable to
each of City National
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Bank, Scimitar Development Capital Fund, Scimitar Development Capital "B" Fund,
Shipley Raidy Capital Partners, LP and The Sinkler Corporation, in each case
pursuant to warrants issued either prior to or on the date hereof);
(3) subject to adjustment pursuant to stock splits, stock
dividends and the like, all shares of Common Stock or other securities issued to
employees of the Company under any agreement, arrangement or plan, including any
stock incentive plan, approved by the Board of Directors and the stockholders of
the Company and outstanding as of the date hereof (including all options
approved by the stockholders in December 1996); and
(4) all shares of Common Stock distributed as to holders of the
Company's Series A Redeemable Preferred Stock as payment in kind of dividends,
as permitted by the terms thereof.
(d) If the number of shares of Common Stock outstanding at any time
after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the Exercise Price in
effect immediately prior to such event shall be proportionately decreased, and
the Available Number of Shares shall be proportionately increased.
(e) If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, on the effective date of such combination, the Exercise
Price in effect immediately prior to such event shall be proportionately
increased, and the number of Available Number of Shares shall be proportionately
decreased.
(f) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the Common Stock of the Company
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or of the consolidation or
merger of the Company with or into another person, or of the sale or other
disposition of all or substantially all the properties and assets of the Company
as an entirety to any other person, the Holder shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, receive upon
exercise of the Warrant, the kind and number of shares of stock, or other
securities or property or cash of the Company or of the entity resulting from
such consolidation or surviving such merger or to which such properties and
assets shall have been sold or otherwise disposed, to which a holder of the
Available Number of Shares would have been entitled on such reorganization,
reclassification, consolidation, merger, sale or other disposition had this
Warrant been exercised immediately prior to such event. The provisions of this
Section 4(f) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other dispositions.
(g) Upon any adjustment of the Exercise Price, then and in each such
case the Company shall give written notice thereof, by first class mail, postage
prepaid, addressed to the
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holder of this Warrant at the last registered address of such holder as shown on
the books of the Company, which notice shall state the facts leading to, and the
Exercise Price resulting from, such adjustment.
5. PRIOR NOTICE AS TO CERTAIN EVENTS. If at any time:
(a) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(b) the Company shall offer for subscription PRO RATA to the
holders of its Common Stock any additional shares of stock of any class or any
other rights;
(c) there shall be any reorganization or reclassification of the
capital stock of the Company, or a consolidation or merger of the Company with,
or a sale of all or substantially all its assets to, another entity; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in each such case, the Company shall give prior written notice,
by first class mail, postage prepaid, addressed to the Holder at its address
shown on the books of the Company, of the date on which (i) the books of the
Company shall close or a record shall be taken for such stock dividend,
distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of the Common Stock of record shall participate
in said dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, dissolution, liquidation or winding up,
as the case may be. Such written notice shall be given at least 10 days prior
to the action in question.
6. RESERVATION OF COMMON STOCK. The Company shall, at all times, reserve
and keep available for issuance and delivery upon the exercise of this Warrant
such number of its authorized but unissued shares of Common Stock or other
securities of the Company as will be sufficient to permit exercise for the full
amount of the Available Number of Shares. Upon such issuance, all of the
Warrant Shares will be validly issued, fully paid and nonassessable, free and
clear of all liens, security interests, charges and other encumbrances or
restrictions on sale and free and clear of all preemptive rights.
7. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. Prior to exercise, this
Warrant will not entitle the Holder to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration in
this Warrant of the rights or privileges of the Holder, will give rise to any
liability of such Holder for the Exercise Price.
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8. RECORD OF AVAILABLE NUMBER OF SHARES; NOTICE. At all times during
the Exercise Period, the Company shall maintain a complete and accurate record
of the aggregate number of options exercised by employees from and after the
date hereof. If at any time an employee shall exercise an option to purchase
Common Stock, then, in each such case, the Company shall give prompt written
notice, by first class mail, postage prepaid, addressed to the Holder at its
address shown on the books of the Company, of the date of issuance of the
resulting shares of Common Stock and the number of such shares.
9. EXERCISE PROCEDURE. (a) This Warrant may be exercised from time
to time prior to the Expiration Date, by presenting it and tendering the
Exercise Price, at the option of the Holder (i) in legal tender, or (ii) by bank
cashier's or certified check, at the principal office of the Company along with
written subscription substantially in the form of Exhibit "A" attached hereto.
The date on which this Warrant is thus presented, accompanied by tender or
payment as hereinbefore or hereinafter provided, is referred to herein as the
"Exercise Date." The Company shall forthwith at its sole expense (including the
payment of issue taxes), issue and deliver to Holder certificates for the proper
number of Warrant Shares upon exercise of this Warrant within 10 days after the
Exercise Date, and such Warrant Shares shall be deemed issued and the Holder
deemed the holder of record of such Warrant Shares, for all purposes as of the
opening of business on the Exercise Date, notwithstanding any delay in the
actual issuance.
(b) The Company shall pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of the
Warrant Shares.
10. CASHLESS EXERCISE.
(a) RIGHT TO CONVERT. Notwithstanding anything herein to the
contrary, in lieu of payment of the applicable Exercise Price, the Holder may
elect to receive upon exercise of this Warrant, the number of Warrant Shares
reduced by a number of shares of Common Stock having the aggregate Fair Market
Value equal to the aggregate Exercise Price for the Warrant Shares.
(b) FAIR MARKET VALUE. For purposes hereof, the Fair Market Value of
a share of Common Stock is determined as follows:
(i) If the Common Stock of the Company is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq Stock Market (National Market), the Fair
Market Value shall be the last reported sale price of the Common Stock on such
exchange or system on the last trading day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing bid and
asked prices for such day on such exchange or system.
(ii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges, the Fair Market Value shall be the mean
of the last reported bid and
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asked prices reported by the National Quotation Bureau, Inc., on the last
trading day prior to the date of the exercise of this Warrant.
(iii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be an amount reasonably determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company.
(c) METHOD OF EXERCISE. This Warrant may be exercised in
accordance with the provisions of this Section 9 by the surrender of this
Warrant at the principal office of the Company together with a written statement
specifying that the Holder thereby intends to so exercise the Warrant. With the
exception of the payment of the Exercise Price, the provisions of Section 8
hereof shall apply to any such exercise.
11. SALE OF WARRANT OR SHARES. Neither this Warrant nor any of the
Warrant Shares have been registered under the Act or under the securities laws
of any state. Neither this Warrant nor any of the Warrant Shares (when issued)
may be sold, assigned, transferred, pledged or hypothecated or otherwise
disposed of in the absence of: (a) an effective registration statement for this
Warrant or the Warrant Shares, as the case may be, under the Act and such
registration or qualification as may be necessary under the securities laws of
any state, or (b) an opinion of counsel reasonably satisfactory to the Company
that such registration or qualification is not required. The Company shall
cause a certificate or certificates evidencing all or any of the Warrant Shares
issued upon exercise of the purchase rights herein prior to said registration
and qualification of such shares to bear the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE. THE SHARES MAY NOT BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND SUCH REGISTRATION OR
QUALIFICATION AS MAY BE NECESSARY UNDER THE SECURITIES LAWS OF ANY
STATE, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
12. TRANSFER. This Warrant shall be registered on the books of the
Company which shall be kept at the offices of the Company for that purpose, and
shall be transferable in whole or in part, but only on such books by the Holder
in person or by duly authorized attorney with written notice substantially in
the form of Exhibit "B" attached hereto, and only in compliance with the
preceding paragraph. The Company may issue appropriate stop orders to its
transfer agent to prevent a transfer in violation of the preceding paragraph.
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13. REPLACEMENT OF WARRANT. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and (in the case of loss, theft
or destruction) if required by the Company, upon reasonably satisfactory
indemnification, the Company, at Holder's expense, will issue in lieu thereof a
new Warrant of like tenor.
14. INVESTMENT COVENANT. By its acceptance hereof, the Holder
represents and warrants that this Warrant is, and any Warrant Shares issued
hereunder will be, acquired for its own account for investment purposes, and the
Holder covenants that it will not distribute the same in violation of any state
or federal law or regulation.
15. GOVERNING LAW. This Warrant shall be construed according to the
laws of New York (other than its conflict of law rules).
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
on its behalf, in its corporate name, by its Chief Executive Officer, and its
corporate seal to be hereunto affixed and the said seal to be attested by its
Secretary, as of the 21st day of November, 1996.
ATTEST: PICO PRODUCTS, INC.
a New York corporation
By: /s/ Spencer W. Franck, Jr. By: /s/ Everett Keech [Seal]
------------------------------ -------------------------------
Spencer W. Franck, Jr., Secretary Everett Keech, Chief Executive Officer
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EXHIBIT A
IRREVOCABLE SUBSCRIPTION
To: PICO PRODUCTS, INC.
The undersigned hereby elects to exercise its right under the attached
Warrant by purchasing ________________ shares of the Common Stock of PICO
PRODUCTS, INC., and hereby irrevocably subscribes to such issue. The
certificates for such shares shall be issued in the name of:
______________________________
(Name)
______________________________
(Address)
______________________________
(Taxpayer Number)
and delivered to:
______________________________
(Name)
______________________________
(Address)
The Exercise Price of $1.81 per share is enclosed.
OR
In lieu of payment of the Exercise Price, the undersigned hereby invokes
the provisions of Section 9 of the Warrant.
Date:_______________
Signed: ________________________________________
(Name of Holder, Please Print)
________________________________________
(Address)
________________________________________
(Signature)
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EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
_______________________________
(Name)
_______________________________
(Address)
the attached Warrant, together with all right, title and interest therein
to purchase _____________ shares of the Common Stock of PICO PRODUCTS, INC., and
does hereby irrevocably appoint _______________________ as attorney-in-fact to
transfer said Warrant on the books of PICO PRODUCTS, INC., with full power of
substitution in the premises.
Done this ______ day of ____________ 19____.
______________________________
(Signature)
______________________________
(Name and title)
______________________________
______________________________
(Address)
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EXHIBIT 4(m)
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of November 21, 1996, by and
among (i) Pico Products, Inc., a New York corporation (the "Company"), (ii)
Allied Capital Corporation, Allied Investment Corporation, Allied Investment
Corporation II, Allied Capital Corporation II (collectively, "Allied") (iii)
Scimitar Development Capital Fund and Scimitar Development Capital "B" Fund
(collectively, "Scimitar"), (iv) Shipley Raidy Capital Partners, LP ("SRCP") and
(v) The Sinkler Corporation ("Sinkler").
A. Allied, SRCP and Sinkler are concurrently with the execution of this
Agreement acquiring either shares of the capital stock of the Company or
warrants to acquire such shares.
B. Scimitar holds shares of the capital stock of the Company and warrants
to acquire such shares, and Scimitar acknowledges that it will benefit from the
additional capital raised by the Company in connection with the acquisition by
each of Allied, SRCP and Sinkler of either shares of the capital stock of the
Company or warrants to acquire such shares.
C. In order to induce Allied, SRCP and Sinkler to acquire shares of the
capital stock of the Company or warrants to acquire such shares, as the case may
be, and in order to induce Scimitar to terminate its existing registration
rights, the Company has agreed to provide the registration rights set forth in
this Agreement.
D. Unless otherwise provided in this Agreement, capitalized terms used
herein shall have the meanings set forth in Section 8 of this Agreement.
The parties hereto agree as follows:
1. DEMAND REGISTRATIONS.
1.1. REQUESTS FOR REGISTRATION.
Subject to the provisions of Section 3 below, any of Scimitar, Allied or
Sinkler may request at any time registration under the Securities Act of all or
part of their Registrable Securities on Form S-1 or any similar long-form
registration ("Long-Form Registrations") or on Form S-2 or S-3 or any similar
short-form registration ("Short-Form Registrations") if available. Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. Each request for a Demand Registration shall
specify the approximate number of Registrable Securities requested to be
registered and the anticipated per share price range for such offering. Within
10 days after receipt of any such request, the Company shall give written notice
of such requested registration to all other holders of Registrable Securities
and shall include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein within
15 days after the receipt of the Company's notice. All registrations requested
pursuant to this Section 1.1 are referred to herein as "Demand Registrations".
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1.2. NO LIMIT ON NUMBER OF DEMAND REGISTRATIONS.
The holders of Registrable Securities shall not be limited to a maximum
number of Demand Registrations under this Section 1.
1.3. SHORT-FORM REGISTRATIONS.
The holders of Registrable Securities shall be entitled to request Short-
Form Registrations, provided that either (i) the offering value of Registrable
Securities requested to be registered in any Short-Form Registration must equal
at least $500,000, or (ii) the number of Registrable Securities requested to be
registered in any Short-Form Registration must be all of the Registrable
Securities held by such holder.
1.4. LONG-FORM REGISTRATIONS.
In the event the Company is not permitted to use any applicable short form
registration, the holders of Registrable Securities shall be entitled to request
a Long-Form Registration, provided that the aggregate offering value of the
Registrable Securities requested to be registered in any Long-Form Registration
must equal at least $2,000,000.
1.5. PRIORITY ON DEMAND REGISTRATIONS.
The Company shall not include in any Demand Registration any securities
which are not Registrable Securities without the prior written consent of the
holders of at least 66-2/3% of the Registrable Securities included in such
registration. If a Demand Registration is an underwritten offering and the
managing underwriters advise the Company in writing that in their opinion the
number of Registrable Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of Registrable
Securities and other securities, if any, which can be sold therein without
adversely affecting the marketability of the offering, the Company shall include
in such registration (i) first, the Registrable Securities requested to be
included which in the opinion of such underwriters can be sold without adversely
affecting the marketability of the offering, pro rata among the respective
holders thereof on the basis of the amount of Registrable Securities requested
to be registered by each such holder and (ii) second, other securities requested
to be included in such registration pro rata among the holders thereof.
1.6. RESTRICTIONS ON DEMAND REGISTRATIONS.
The Company shall not be obligated to effect any Demand Registration within
twelve months after the effective date of a previous Demand Registration or a
registration in which the holders of Registrable Securities were given piggyback
rights pursuant to Section 2 below and in which there was no reduction in the
number of Registrable Securities requested to be included. The Company may
postpone for up to six months the filing or the effectiveness of a registration
statement for a Demand Registration if the Company and the holders of at least
66-2/3% of the Registrable Securities agree that such Demand Registration would
reasonably be expected to have an adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer or similar transaction.
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1.7. SELECTION OF UNDERWRITERS.
The holders of a majority of the Registrable Securities included in any
Demand Registration shall have the right to select the investment banker(s) and
manager(s) to administer the offering, subject to the Company's approval which
shall not be unreasonably withheld.
1.8. OTHER REGISTRATION RIGHTS.
The Company shall not grant to any Persons the right to request the Company
to register any equity securities of the Company, or any securities convertible
or exchangeable into or exercisable for such securities, which rights have
priority over, or are equivalent to, the rights of the holders of Registrable
Securities under this Agreement without the prior written approval of the
holders of at least 66-2/3% of the Registrable Securities. Other than the
registration rights contemplated herein and the registration rights granted to
City National Bank pursuant to the terms of a Warrant dated as of February 10,
1993 (the "City National Warrant"), no registration rights have been granted by
the Company. The rights granted herein are subject to the rights granted to
City National Bank under the City National Warrant.
2. PIGGYBACK REGISTRATIONS.
2.1. RIGHT TO PIGGYBACK.
Whenever the Company proposes to register any of its securities under the
Securities Act (other than pursuant to a Demand Registration) and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Company shall give prompt written
notice to all holders of Registrable Securities of its intention to effect such
a registration and shall include in such registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 15 days after the receipt of the Company's notice. Subject to
the provisions of Section 2.2 below, the Company shall also be entitled to
include in such registration any other securities requested to be included in
such registration.
2.2. PRIORITY ON PRIMARY REGISTRATIONS.
If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the Company shall
include in such registration (i) first, the securities the Company proposes to
sell, (ii) second, the Registrable Securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the number of shares requested to be registered by each such holder,
and (iii) third, other securities requested to be included in such registration.
2.3. PRIORITY ON SECONDARY REGISTRATIONS.
If a Piggyback Registration is an underwritten secondary registration on
behalf of holders of the Company's securities, and the managing underwriters
advise the Company in writing that in their opinion the
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number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such registration
(i) first, the Registrable Securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the number of shares requested to be registered by each such holder,
and (ii) second, other securities requested to be included in such registration.
3. REGISTRATION PROCEDURES.
3.1. COMPANY OBLIGATIONS.
Whenever the holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to this Agreement, the Company
shall use its best efforts to effect the registration and the sale of such
Registrable Securities under the Securities Act, and pursuant thereto the
Company shall as expeditiously as possible:
(i) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed);
(ii) prepare and file with the Securities and Exchange 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 for a period of not less than six months, or such shorter
period during which all Registrable Securities requested to be registered have
been sold, and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
the managing underwriter reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such seller (provided that the Company shall not be required to (a)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection, (b) subject itself to
taxation in any such jurisdiction or (c) consent to general service of process
in any such jurisdiction);
(v) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the
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<PAGE>
Company shall prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(vi) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASDAQ national market system;
(vii) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(viii) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(ix) make available for inspection by any seller of Registrable
Securities, any underwriter participating in such registration statement and any
attorney, accountant or other agent retained by any such seller or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement;
(xi) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(xii) obtain a cold comfort letter from the Company's independent
public accountants in customary form covering such matters of the type
customarily covered by such cold comfort letters addressed to the sellers of
Registrable Securities; and
(xiii) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its reasonable best efforts promptly to
obtain the withdrawal of such order.
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<PAGE>
3.2. CONTROLLING STOCKHOLDERS RIGHTS.
If any such registration statement refers to any holder by name or
otherwise as the holder of any securities of the Company and if in its sole and
exclusive judgment, such holder is or might be deemed to be a controlling person
of the Company, such holder shall have the right to require (i) the insertion
therein of language, in form and substance satisfactory to such holder and
presented to the Company in writing, to the effect that the holding by such
holder of such securities is not to be construed as a recommendation by such
holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such holder shall assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such holder by name or otherwise is not required by the Securities
Act or any similar Federal statute then in force, the deletion of the reference
to such holder; provided that with respect to this clause (ii) such holder shall
furnish to the Company an opinion of counsel to such effect, which opinion and
counsel shall be reasonably satisfactory to the Company.
4. REGISTRATION EXPENSES.
4.1. COMPANY EXPENSES.
All expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other Persons retained by the Company
(all such expenses being herein called "Registration Expenses"), shall be borne
by the Company. The Company shall also pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the NASDAQ
national market system.
4.2. COUNSEL FEES.
In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of
counsel chosen by the holders of Registrable Securities participating in such
registration subject to the following:
(i) Allied shall be entitled to reimbursement (A) in an amount not to
exceed $20,000 with respect to any Piggyback Registration, (B) in an amount
equal to 50% of its legal fees with respect to any Long Form Registration, and
(C) in an amount equal to 100% of its legal fees with respect to any Short Form
Registration;
(ii) Sinkler shall be entitled to reimbursement (A) in an amount not
to exceed $10,000 with respect to any Demand Registration, and (B) in an amount
not to exceed $2,500 with respect to any Piggyback Registration; and
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<PAGE>
(iii) Scimitar shall be entitled to reimbursement (A) in an amount not
to exceed $10,000 with respect to any Demand Registration, and (B) in an amount
not to exceed $2,500 with respect to any Piggyback Registration.
Notwithstanding the foregoing, the Company shall not be required to pay for
any expenses of any registration if such registration is subsequently withdrawn
at any time at the request of the holders of 66-2/3% of the Registrable
Securities to be registered (in which case all participant holders shall bear
such expenses on a pro rata basis).
4.3. UNDERWRITING DISCOUNTS AND COMMISSIONS.
Each holder of Registrable Securities participating in any registration
shall bear its proportionate share (in relation to the number of shares included
in such registered offering as compared to the number of Registrable Securities
of such holder included in such registered offering) of all underwriting
discounts and commissions.
5. INDEMNIFICATION.
5.1. COMPANY INDEMNIFICATION.
The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers and directors and each Person who
controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with any underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
5.2. HOLDER INDEMNIFICATION.
In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any
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<PAGE>
information or affidavit so furnished in writing by such holder; provided that
the obligation to indemnify shall be individual to each holder and shall be
limited to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
5.3. INDEMNIFICATION PROCEDURES.
Any Person entitled to indemnification under this Section 6 shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which such Person seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
5.4. SURVIVAL AND CONTRIBUTION.
The indemnification provided for under this Section 6 shall remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company
also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any registration hereunder which is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
7. RULE 144 COVENANTS.
The Company agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144;
(ii) use its best efforts to file with the Securities and Exchange
Commission in a timely manner all reports and other documents required of the
Company to be filed under the Securities Exchange Act; and
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<PAGE>
(iii) furnish to any holder of Registrable Securities, upon request, a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144, and of the Securities Act and the Securities Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents of the Company as such holder may reasonably
request to avail itself of any similar rule or regulation of the Securities and
Exchange Commission allowing it to sell any such securities without
registration.
8. DEFINITIONS.
"Common Stock" means the Company's common stock, par value $.01 per share.
"Investors" means, collectively, Allied, Scimitar, Sinkler and SRCP.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency, or political subdivision
thereof.
"Registrable Securities" means (i) any shares of Common Stock issued to the
Investors, (ii) any shares of Common Stock issuable or issued upon the exercise
of any warrants issued to the Investors, (iii) any Common Stock issued or
issuable with respect to the securities referred to in clauses (i) through (ii)
by way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization, and
(iv) any other shares of Common Stock held by Persons holding securities
described in clauses (i) to (iii), inclusive, above.
As to any particular Registrable Securities, such securities shall
cease to be Registrable Securities:
(i) when they have been distributed to the public pursuant to an offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force), or
(ii) upon the earlier of (A) that date (the "Expiration Date") which is
three years and six months following the date when the holder thereof may sell
such securities free from any restrictions under Rule 144 or otherwise (the
"Unrestricted Date"), and (B) the completion of a Demand Registration by Allied
at any time after the Unrestricted Date (with respect to securities held by
Allied, SRCP and Sinkler), and the completion of a Demand Registration by
Scimitar at any time after the Unrestricted Date (with respect to securities
held by Scimitar).
For purposes of this Agreement, a Person shall be deemed to be a
holder of Registrable Securities whenever such Person has the right to acquire
directly or indirectly such Registrable Securities (upon conversion or exercise,
in connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected. Notwithstanding the foregoing,
prior to effectiveness of any registration of any Registrable Securities in any
registered offering, the holder thereof, if requested or required by the
managing underwriter shall exercise all conversion rights or rights under
warrants so that the Registrable Securities included in such offering include
only shares of Common Stock.
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<PAGE>
"Rule 144" means Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Securities and Exchange Commission" means the United States Securities and
Exchange Commission or any governmental body or agency succeeding to the
functions thereof.
9. MISCELLANEOUS.
9.1. NO INCONSISTENT AGREEMENTS.
The Company shall not hereafter enter into any agreement with respect
to its securities which is inconsistent with or violates the rights granted to
the holders of Registrable Securities in this Agreement.
9.2. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES.
The Company shall not take any action, or permit any change to occur,
with respect to its securities which would materially and adversely affect the
ability of the holders of Registrable Securities to include such Registrable
Securities in a registration undertaken pursuant to this Agreement or which
would materially and adversely affect the marketability of such Registrable
Securities in any such registration (including, without limitation, effecting a
stock split or a combination of shares).
9.3. REMEDIES.
Any Person having rights under any provision of this Agreement shall be
entitled to enforce such rights specifically to recover damages caused by reason
of any breach of any provision of this Agreement and to exercise all other
rights granted by law. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or other
security) for specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
9.4. AMENDMENTS AND WAIVERS.
Except as otherwise provided herein, the provisions of this Agreement
may be amended or waived only upon the prior written consent of the Company and
holders of at least 75% of the Registrable Securities.
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<PAGE>
9.5. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not. In
addition, whether or not any express assignment has been made, the provisions of
this Agreement which are for the benefit of purchasers or holders of Registrable
Securities are also for the benefit of, and enforceable by, any subsequent
holder of Registrable Securities.
9.6. SEVERABILITY.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
9.7. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
9.8. DESCRIPTIVE HEADINGS.
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
9.9. GOVERNING LAW.
The corporate law of New York shall govern all issues concerning the
relative rights of the Company and its stockholders and all other questions
concerning the construction, validity and interpretation of this Agreement.
9.10. NOTICES.
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given when delivered personally to the recipient,
sent to the recipient by reputable express courier service (charges prepaid) or
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the parties at the address indicated below:
COMPANY: MR. EVERETT KEECH, FAX: (610) 825-6255
CHIEF EXECUTIVE OFFICER
PICO PRODUCTS, INC.
ONE TOWER BRIDGE, SUITE 501
WEST CONSHOHOCKEN, PA 19428
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<PAGE>
WITH A COPY TO: SPENCER W. FRANCK, JR. FAX: (215) 972-7725
SAUL, EWING, REMICK & SAUL
3000 CENTRE SQUARE WEST
PHILADELPHIA, PA 19102
SRCP: SHIPLEY RAIDY CAPITAL PARTNERS, LP FAX: (610) 828-4131
MR. SAMUEL R. SHIPLEY
ONE TOWER BRIDGE, SUITE 1370
WEST CONSHOHOCKEN, PA 19428
ALLIED: MR. CARR T. PRESTON FAX: (202) 659-2053
VICE PRESIDENT
ALLIED CAPITAL CORPORATION
1666 K STREET, N.W.
SUITE 901
WASHINGTON, D.C. 20006
WITH A COPY TO: ANTHONY H. RICKERT FAX: (202) 223-2085
PIPER & MARBURY L.L.P
1200 NINETEENTH STREET, N.W.
WASHINGTON, D.C. 20036-2430
SCIMITAR: MR. PETER J. DALE FAX:011-44-171-629-4623
COMPASS INVESTMENT MANAGEMENT
LIMITED
17-18 DOVER STREET
LONDON W1X 4DQ, ENGLAND
WITH A COPY TO: ANDREW J. BECK FAX: (212) 682-0200
HAYTHE & CURLEY
237 PARK AVENUE
NEW YORK, NEW YORK 10017
SINKLER: C/O HOWARD H. LEWIS FAX: (215) 772-7620
MONTGOMERY, MCCRACKEN,
WALKER & RHOADS
123 S. BROAD STREET
PHILADELPHIA, PA 19103
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9.11. ENTIRE AGREEMENT; TERMINATION OF PRIOR RIGHTS.
This Agreement terminates, restates and supersedes in their entirety all
rights of Scimitar with respect to the registration of, or conduct of an
offering with respect to, any securities of the Company including but not
limited to all such rights arising under Section VIII of that certain Investment
Agreement by and among the Company and Scimitar dated February 10, 1993.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ATTEST: "COMPANY":
PICO PRODUCTS, INC.
a New York corporation
By: /s/ Joseph T. Kingsley By: /s/ Everett Keech
------------------------------- ----------------------------(SEAL)
Joseph T. Kingsley, Chief Executive
Assistant Secretary Everett Keech, Officer
"ALLIED":
ALLIED CAPITAL CORPORATION,
a Maryland corporation
By: /s/ Tricia Daniels By: /s/ Carr T. Preston
------------------------------- ----------------------------(SEAL)
Tricia Daniels, Carr T. Preston,
Under Power of Attorney Senior Vice President
ALLIED INVESTMENT CORPORATION,
a Maryland corporation
By: /s/ Tricia Daniels By: /s/ Carr T. Preston
------------------------------- ----------------------------(SEAL)
Tricia Daniels, Carr T. Preston,
Under Power of Attorney Senior Vice President
ALLIED INVESTMENT CORPORATION II,
a Maryland corporation
By: /s/ Tricia Daniels By: /s/ Carr T. Preston
------------------------------- ----------------------------(SEAL)
Tricia Daniels, Carr T. Preston,
Under Power of Attorney Senior Vice President
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<PAGE>
ALLIED CAPITAL CORPORATION II,
a Maryland corporation
By: /s/ Tricia Daniels By: /s/ Carr T. Preston
------------------------------- ------------------------------(SEAL)
Tricia Daniels, Carr T. Preston,
Under Power of Attorney Senior Vice President
"SCIMITAR":
SCIMITAR DEVELOPMENT CAPITAL FUND,
a Bermuda Trust
By: /s/ Timothy W. Hewlett By: /s/ Judith A. Scott
------------------------------- ------------------------------(SEAL)
Timothy W. Hewlett, Name: Judith A. Scott
Executive Officer -----------------------
Title: Authorised Signatory
----------------------
SCIMITAR DEVELOPMENT CAPITAL "B"
FUND,
a Jersey Trust
By: /s/ Timothy W. Hewlett By: /s/ Judith A. Scott
------------------------------- ------------------------------(SEAL)
Timothy W. Hewlett, Name: Judith A. Scott
Executive Officer -----------------------
Title: Authorised Signatory
----------------------
"SRCP":
SHIPLEY RAIDY CAPITAL PARTNERS,
By: By: /s/ Samuel R. Shipley
------------------------------- ----------------------------(SEAL)
Samuel R. Shipley
Title: Managing Director and
Partner
-------------------------
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"SINKLER":
THE SINKLER CORPORATION,
By: By: /s/ Howard H. Lewis
------------------------------- ----------------------------(SEAL)
Howard H. Lewis
Title: Vice President
----------------------------
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EXHIBIT 10(r)
CONSENT AND
AMENDMENT NO. 4
TO LOAN AND SECURITY AGREEMENT
This Consent and Amendment (this "Amendment") dated as of November 25,
1996, is entered into by and between Pico Macom, Inc., a Delaware corporation
("Debtor"), and HSBC Business Loans, Inc., a Delaware corporation, as successor
to Marine Midland Business Loans, Inc., ("Secured Party"), with reference to the
following facts:
RECITALS
A. Secured Party is extending various secured financial accommodations to
Debtor upon the terms of that certain Loan and Security Agreement dated as of
May 25, 1994, as amended (the "Loan Agreement").
B. Pico Products, Inc. a New York corporation ("Pico Products") desires
to issue new capital stock and/or subordinated debt in the aggregate amount of
approximately $5,000,000, and has requested Secured Party to consent to such
issuance.
C. Secured Party is willing to consent to such issuance subject to the
terms and conditions set forth below.
AMENDMENT
NOW THEREFORE, in consideration of the foregoing and for the other good and
valuable consideration, the receipt and adequacy of which is hereby acknowledged
by each party hereto, Debtor and Secured Party hereby agree as follows:
1. DEFINED TERMS. Unless otherwise specified herein, any capitalized
terms defined in the Loan Agreement shall have the same respective meanings as
used herein.
2. CONSENT. Subject to the terms and conditions of this Amendment, and
for the purposes of Sections 10.2 and 10.6 of the Loan Agreement, Secured Party
consents to the issuance by Pico Products of new capital stock and/or
subordinated debt in the aggregate amount of approximately $5,000,000, provided
that the terms of any such subordinated debt shall be satisfactory to Secured
Party. The amendments set forth in Paragraphs 3, 4, 5 and 6 below shall become
effective only upon the issuance of such capital stock and/or subordinated debt,
and until Pico Products issues such capital stock and/or subordinated debt, the
existing provisions of the Sections of the Loan Agreement and the Items of the
Schedule referenced in those Paragraphs shall remain in full force and effect.
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<PAGE>
3. MINIMUM TANGIBLE NET WORTH. With respect to Item 26(C) of the
Schedule, Debtor shall maintain Tangible Net Worth of not less than $7,500,000
as of the end of each fiscal quarter.
4. MAXIMUM DEBT TO TANGIBLE NET WORTH. With respect to Item 26 (D) of
the Schedule, Debtor shall maintain a ratio of Debt to Tangible Net Worth of not
more than 2.25:1 as of the end of each fiscal quarter.
5. MINIMUM NET INCOME BEFORE TAXES. With respect to Item 26(E) of the
Schedule, Debtor shall earn Net Income Before Taxes of not less than $900,000
during each fiscal year. "Net Income Before Taxes" means, for the period of
determination, net income before provision for taxes for such period, determined
in accordance with generally accepted accounting principles consistently
applied.
6. PERMITTED INVESTMENTS AND ADVANCES. With respect to Item 28 of the
Schedule, the loans by Debtor to its affiliates shall not exceed $1,000,000 in
the aggregate outstanding as of the end of any fiscal quarter.
7. REPRESENTATIONS AND WARRANTIES. Debtor reaffirms that the
representations and warranties made to Secured Party in the Loan Agreement and
other Transaction Documents are true and correct in all material respects as of
the date of this Amendment as though made as of such date and after giving
effect to this Amendment. In addition, Debtor makes the following
representations and warranties to Secured Party, which shall survive the
execution of this Amendment:
(a) The execution, delivery and performance of this Amendment are
within Debtor's powers, have been duly authorized by all necessary actions, have
received all necessary governmental approvals, if any, and do not contravene any
law or any contractual restrictions binding on Debtor.
(b) This Amendment is the legal, valid and binding obligation of
Debtor, enforceable against Debtor in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium and other
similar laws affecting the rights of creditors generally.
(c) No event has occurred and is continuing, or would result from the
execution, delivery and/or performance of this Amendment, which constitutes an
Event of Default under the Loan Agreement or any other of the Transaction
Documents, or would constitute such an Event of Default but for the requirement
that notice be given or time elapse or both.
8. CONTINUING EFFECT OF LOAN DOCUMENTS. To the extent of any
inconsistencies between the terms of this Amendment and the Loan Agreement, this
Amendment shall govern. In all other respects, the Loan Agreement and other
Transaction Documents shall remain in full force and effect and are hereby
ratified and confirmed.
9. REFERENCES. Upon the effectiveness of this Amendment, each reference
in any Transaction Document to "the Agreement", "hereunder," "herein," "hereof,"
or of like import referring to the Loan Agreement shall mean and be a reference
to the Loan Agreement as amended hereby.
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<PAGE>
10. GOVERNING LAWS. This Amendment, upon becoming effective, shall be
deemed to be a contract made under, governed by, and subject to, and shall be
construed in accordance with, the internal laws of the State of California.
11. CONDITIONS PRECEDENT. This Amendment shall become effective if, and
only if, Secured Party shall have received a counterpart of this Amendment duly
executed by Debtor and acknowledged by the guarantor indicated hereinbelow,
together with such other documents, instruments or agreements as Secured Party
or its legal counsel may reasonably request, all on or before November 27, 1996.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Amendment as of the date first set forth above, to
become effective in the manner set forth above.
PICO MACOM, INC.
By /s/ J.T. Kingsley
--------------------------------
Name J.T. Kingsley
------------------------------
Title Senior Vice President, Finance
-----------------------------
HSBC BUSINESS LOANS, INC.
By /s/ William Field
---------------------------------
Name William Field
-------------------------------
Title Vice President
------------------------------
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CONSENT OF GUARANTOR
The undersigned, as guarantor of the Indebtedness of Pico Macom, Inc. to
HSBC Business Loans, Inc. pursuant to that certain Unlimited Continuing Guaranty
dated as of May 25, 1994 (the "Guaranty"), hereby acknowledges receipt of a copy
of the foregoing Amendment No. 4 and acknowledges, consents and agrees that (i)
the Guaranty remains in full force and effect, and (ii) the execution and
delivery of the foregoing Amendment No. 4 and any and all documents executed in
connection therewith shall not alter, amend, reduce or modify its obligations
and liabilities under the Guaranty.
Dated: November 25, 1996
PICO PRODUCTS, INC.
By: /s/ J. T. Kingsley
-------------------------------------
Name: J.T. Kingsley
-----------------------------------
Title: Senior Vice President & CFO
-----------------------------------
-4-
<PAGE>
EXHIBIT 11.1
PICO PRODUCTS, INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months
Ended October 31,
-----------------------
1996 1995
-------- --------
NET INCOME ATTRIBUTABLE
TO COMMON STOCK $ 101 $ 2
-------- --------
-------- --------
PRIMARY EARNINGS PER SHARE:
Weighted average number
of common shares outstanding 4,055 3,652
Dilutive effect of stock options
and warrants after application
of treasury stock method 195 485
-------- --------
Number of shares used to compute
primary earnings per share 4,250 4,137
Primary earnings per share $ 0.02 $ 0.00
-------- --------
-------- --------
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number
of common share outstanding 4,055 3,652
Dilutive effect of stock options
and warrants after application
of treasury stock method 195 485
-------- --------
Number of shares used to compute
fully diluted earnings per share 4,250 4,137
Fully diluted earnings per share $ 0.02 $ 0.00
-------- --------
-------- --------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<CASH> 185
<SECURITIES> 0
<RECEIVABLES> 5,974
<ALLOWANCES> 225
<INVENTORY> 12,663
<CURRENT-ASSETS> 18,871
<PP&E> 3,348
<DEPRECIATION> 2,442
<TOTAL-ASSETS> 20,369
<CURRENT-LIABILITIES> 15,723
<BONDS> 85
0
0
<COMMON> 41
<OTHER-SE> 4,520
<TOTAL-LIABILITY-AND-EQUITY> 20,369
<SALES> 9,698
<TOTAL-REVENUES> 9,702
<CGS> 7,330
<TOTAL-COSTS> 9,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 241
<INCOME-PRETAX> 105
<INCOME-TAX> 4
<INCOME-CONTINUING> 101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
