SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
e transition period from ____________ to ____________
Commission File Number 0-12362
Berger Holdings, Ltd.
ct Name of Registrant as Specified in its Charter)
Pennsylvania 23-2160077
(State or Other Jurisdiction (I.R.S. Employer
corporation or Organization) Identification Number)
5 Pennsylvania Boulevard, Feasterville, PA 19053
ddress of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 355-1200
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months or for such shorter period
that the Registrant was required to file such reports, and (2) has been
subject to such filing requirements for the past ninety days.
YES X NO _____
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
YES X NO _____
As of May 11, 1999, the Registrant had outstanding 5,404,515 shares
of its common stock, par value $0.01 per share (the "Common Stock").
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BERGER HOLDINGS, LTD.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance
Sheets at March 31, 1999 and
December 31, 1998 3
Condensed Consolidated Statements of
Operations for the three month periods
ended March 31, 1999 and 1998 5
Condensed Consolidated Statements
of Cash Flows for the three month periods
ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
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<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS March 31, December 31,
1999 1998
(unaudited) (audited)
<S> ------------ -------------
Current Assets
<C> <C>
Cash ....................................... $ 262,522 $ 149,885
Trade accounts receivable, net of
allowance for doubtful accounts of
$30,000 in 1999 & 1998 3,786,756 3,928,858
Inventories (Note 2) 6,322,610 6,552,420
Prepaid and other assets 417,674 283,744
Deferred income taxes 510,000 484,000
Total current assets 11,299,562 11,398,907
Property and equipment, net (Note 3) 10,912,116 9,789,015
Deferred income taxes 1,731,201 1,731,201
Other assets 3,451,253 4,342,283
Goodwill, net 7,011,939 7,325,798
Total Assets ............................... $34,406,071 $34,587,204
</TABLE>
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<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
1999 1998
(unaudited) (audited)
<S> ------------- --------------
Current Liabilities
<C> <C>
Current maturities of long term debt $ 2,016,717 $ 2,062,286
Accounts payable 1,617,116 960,953
Accrued expenses 944,445 1,141,933
Total current liabilities 4,578,277 4,165,172
Long term debt (Note 5) 18,012,567 14,560,307
Redeemable common stock, 125,000 shares 500,000 500,000
Commitments and contingencies - -
Stockholders' Equity
Series A convertible preferred stock,
$.01 par value
$4,000,000 liquidation value in 1998
Authorized 5,000,000 shares
Issued and outstanding 40,000 shares in 1998 -- 400
Common stock $.01 par value
Authorized 20,000,000 shares
Issued and outstanding
5,404,515 shares in 1999
5,301,330 shares in 1998 54,045 53,013
Additional paid-in-capital 17,113,582 21,114,214
Deficit (5,369,483) (5,322,986)
11,798,144 15,844,641
Less common stock subscribed (482,916) (482,916)
Total shareholders' equity 11,315,228 15,361,725
Total liabilities and stockholders' equity $ 34,406,071 $ 34,587,203
</TABLE>
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<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended March 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Net sales $ 8,207,982 $ 7,014,455
Cost of sales 6,608,654 5,789,081
Gross profit 1,599,327 1,225,374
Selling, general and administrative expenses 1,201,479 1,090,081
Income from operations 397,849 135,293
Other (expenses) income
Interest expense (473,773) (308,094)
Interest income 3,427 589
Proceeds from insurance recovery -- 118,701
(470,346) (188,804)
Loss before provision for
income tax benefit and preferred stock dividend (72,497) (53,511)
Tax benefit (Note 4) 26,000 --
Loss before preferred stock dividend (46,497) (53,511)
Preferred stock dividend -- 100,000
Net loss available to common stockholders $ (46,497) $ (153,511)
Basic earnings per share $ (0.01) $ (0.03)
Weighted average common shares outstanding 5,507,705 5,356,561
Diluted earnings per share $ (0.01) $ (0.03)
Weighted average common shares outstanding 5,507,705 5,356,561
Add: effect of vested and non-vested dilutive securities 1,148,160 1,390,240
Add: effect of convertible debt and preferred stock 941,177 941,177
Diluted weighted average common shares outstanding 7,597,042 7,687,978
</TABLE>
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<TABLE>
BERGER HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended March 31,
1999 1998
(unaudited) (unaudited)
<S> ------------ -----------
Cash flows from operating activities
<C> <C>
Net income $ (46,497) (53,511)
Adjustments to reconcile net income to net cash
provided by operating activities
Deferred income tax (26,000) --
Depreciation and amortization 472,181 380,105
Decrease in accounts receivable allowance -- (13,000)
Decrease (increase) in assets, net of the effects of an acquisition
Accounts receivable 142,102 (1,219,010)
Inventories 229,810 327,533
Other current and long-term assets (179,461) (888,183)
Increase in liabilities
Accounts payable and accrued expenses 458,675 1,536,700
Net cash provided by (used in) operating activities 1,050,810 (39,366)
Cash flows from investing activities
Acquisition of property and equipment (344,863) (212,203)
Payment for acquisitions -- (10,000,000)
Net cash used in investing activities (344,863) (10,212,203)
Cash flows from financing activities
Dividends paid -- (100,000)
Net proceeds (repayment) working capital line (48,230) 3,612,390
Net proceeds (repayment) equipment term loan (132,999) 648,668
Proceeds from long term debt 9,028 339,527
Repayments of long term debt (421,109) (19,135)
Net proceeds from issuance of stock -- 1,455,250
Net cash provided by (used in) financing activities (593,310) 5,936,700
Net increase (decrease) in cash 112,637 (4,314,869)
Cash, beginning of period 149,885 4,411,347
Cash, end of period $ 262,522 $ 96,478
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 473,773 $ 308,094
------------ -------------
</TABLE>
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BERGER HOLDINGS, LTD. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) considered necessary for a fair
presentation have been included.
Note 2. Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method ("FIFO").
Components of inventories at March 31, 1999 and December 31, 1998
consist of the following:
March 31, December 31,
1999 1998
------------- -------------
<TABLE>
<S> <C> <C>
Raw materials $ 3,559,637 $ 3,951,194
Finished goods 2,788,475 2,624,451
Packaging material and supplies 120,498
122,775
Less provision for obsolescence (146,000)
(146,000)
----------- -----------
Total inventories $ 6,322,610 $ 6,552,420
=========== ===========
</TABLE>
All inventory is currently used in the business of the Company's
subsidiary, Berger Bros Company.
Note 3. Property, Plant and Equipment:
Property, plant and equipment is recorded at cost. Costs of major
additions and betterments are capitalized; maintenance and repair costs, which
do not improve or extend the life of the respective assets, are charged to
operations as incurred.
Leasehold improvements are amortized over the shorter of the lease term or
useful life.
When an asset is sold, retired, or otherwise disposed of, the cost of
the property and the related accumulated depreciation is removed from the
respective accounts, and any resulting gains or losses are included in income.
For financial reporting purposes, depreciation is computed on the
straight-line method over the estimated useful lives of the assets. For income
tax purposes, depreciation is computed on accelerated methods.
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Note 4. Income Taxes:
Consolidated income tax (benefit) for the three month periods ended
March 31, 1999 and 1998 are ($26,000) and zero, which result in an effective tax
rate of 36% and 0%, respectively. The rate of tax benefit in relation to pre-tax
loss in 1999 is consistent with the year end effective rate prior to the change
in the valuation allowance. The absence of a tax benefit in 1998 is due to the
recognition of a valuation allowance for the tax benefit related to the net
operating loss.
Note 5. Long Term Debt:
During the first quarter of 1999, and effective as of January 1, 1999,
the Company converted 40,000 shares of its Series A Convertible Preferred Stock
(the "Series A Preferred Stock") to 10% Subordinated Convertible Debentures due
December 31, 2003 ("10% debentures"). The 10% debentures are convertible at any
time into shares of the Company's common stock, $0.01 par value, at $4.25 a
share, or 23.53 shares of common stock for each $100 principal amount of 10%
debentures outstanding on the conversion date, subject to specified
anti-dilution adjustments.
Simultaneously with the conversion of the Series A Preferred Stock, the
Company extended the exercise date on 300,000 common stock warrants from January
2, 2003 to December 31, 2003; and extended the maturity date on its 12.25%
debentures from January 2, 2003, to December 31, 2003. The increase in interest
rates to 20% and 19.25%, respectively, on the 12.25% debentures were extended
from January 2, 2001 for $2,000,00 of the 12.25% debenture to January 2, 2002;
and were extended from January 3, 2001 for $500,000 of the 12.25% debenture to
January 2, 2002. The interest rate decrease from 19.25% to 14% on $500,000 of
the 12.25% debenture will be extended to January 2, 2003 rather than the
original date of January 3, 2002.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Results of Operations
The financial statements include the accounts of the Company and its
wholly-owned subsidiary, Berger Financial Corporation ("Financial") and
Financial's wholly-owned subsidiary, Berger Bros Company. All intercompany
transactions and balances have been eliminated.
Sales for the three month period ended March 31, 1999 (the "Current
Quarter") were $8,207,982, an increase of 17.0%, or $1,193,527, as compared to
$7,014,455 for the three month period ended March 31, 1998 (the "Comparable
Quarter"). This increase was primarily due to the acquisition of the assets of
Sheet Metal Manufacturing Co., Inc. (the "Sheet Metal Acquisition") on December
7, 1998. This is the fifth consecutive quarter in which the Company has posted
record sales versus the Comparable Quarter.
During the Current Quarter, the Company reported a net loss of $46,497
on net sales of $8,207,982 as compared to a net loss of $153,511 (which included
a one time insurance recovery of $118,701) on net sales of $7,014,455 for the
Comparable Quarter. The net loss for the Comparable Quarter, adjusted to exclude
the effect to an insurance gain recognized in 1998, was $272,212; so for
comparative purposes, the Company actually reported a 73.4% improvement in net
results.
Income from operations in the Current Quarter is $397,849 versus
$135,293 in the Comparable Quarter, an increase of 194.1%. This substantial
increase can be attributed to a larger concentration of higher margin products
such as the growth in copper sales generated both internally and from the Sheet
Metal Acquisition.
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Cost of Sales was $6,608,654 in the Current Quarter as compared to
$5,789,081 in the Comparable Quarter. As a percentage of net sales, Cost of
Sales decreased to 80.5% in the Current Quarter from 82.5% in the Comparable
Quarter. This decrease is attributable to a change in product sales mix
generated by the Sheet Metal Acquisition and accretive economies of scale now
being realized by the Company, even during the Company's historically slowest
quarter of the year.
Selling, general and administrative expenses were $1,201,479 in the
Current Quarter as compared to $1,090,081 in the Comparable Quarter. This
increase in expenses was primarily due to additional costs incurred to support
business growth and the Sheet Metal Acquisition, including the hiring of key
support personnel. As a percentage of net sales, selling, general and
administrative expenses decreased to 14.6% in the Current Quarter, compared to
15.5% in the Comparable Quarter, which reflects the accretive economies of scale
resulting from the Sheet Metal Acquisition. This improvement in Selling, general
and administrative expenses as a percentage of sales represents the fifth
consecutive quarter that the Company has improved over Comparable Quarters.
Liquidity and Capital Resources
During the first quarter of 1999, and effective as of January 1, 1999,
the Company converted 40,000 shares of Series A Preferred Stock to 10%
Debentures. The 10% debentures are convertible at any time into shares of the
Company's Common Stock, $0.01 par value, at $4.25 a share, or into 23.53 shares
of Common Stock for each $100 principal amount of 10% debentures outstanding on
the conversion date, subject to specified anti-dilution adjustments.
Simultaneously with the conversion of the Series A Preferred Stock, the
Company extended the exercise date on 300,000 common stock warrants from January
2, 2003 to December 31, 2003; and extended the maturity date on its 12.25%
debentures from January 2, 2003, to December 31, 2003. The increase in interest
rates to 20% and 19.25%, respectively, on the 12.25% debentures were extended
from January 2, 2001 for $2,000,00 of the 12.25% debenture to January 2, 2002;
and were extended from January 3, 2001 for $500,000 of the 12.25% debenture to
January 2, 2002. The interest rate decrease from 19.25% to 14% on $500,000 of
the 12.25% debenture will be extended to January 2, 2003 rather than the
original date of January 3, 2002.
At March 31, 1999, working capital was $6,721,285, resulting in a ratio
of current assets to current liabilities of 2.47 to 1, as compared to working
capital of $7,233,735 and a ratio of 2.74 to 1 at December 31, 1998.
Current liabilities at March 31, 1999 totaled $4,578,277, consisting
primarily of $2,561,561 in accounts payable and accrued expenses and $2,016,717
in current maturities of long-term debt. At December 31, 1998, total current
liabilities were $4,165,172, consisting primarily of $2,102,886 in accounts
payable and accrued expenses and $2,062,286 in current maturities of long-term
debt. This increase is primarily due to the Company's investments in inventory
through accounts payable to support the upcoming busy season.
At March 31, 1999, the Company had shareholders' equity of $11,315,228,
as compared to $15,361,725 at December 31, 1998. This decrease is primarily
attributable to the conversion of 40,000 shares of Series A Preferred Stock into
subordinated convertible debentures.
Cash provided by operating activities in the Current Quarter was
$1,050,810 as compared to $39,366 used in the Comparable Quarter. The difference
between periods is primarily due to Accounts Receivable decreasing and Other
Assets not increasing as drastically as the Comparable Quarter. Increases to
both of these assets in the Comparable Quarter were due to the acquisition of
the Roof Drainage Division of the Company's main competitor, Benjamin Obdyke,
Inc. (the "Obdyke Acquisition") and the construction of new office space in
1998.
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Net cash used in investing activities totaled $344,863 in the Current
Quarter, as compared to $10,212,203 used in the Comparable Quarter. This
decrease is primarily attributable to the cash used for the Obdyke Acquisition
in 1998.
Net cash used in financing activities was $593,310 in the Current
Quarter, as compared to $5,936,700 provided in the Comparable Quarter. This
difference is due to the increased borrowing needed to support the Obdyke
Acquisition. Availability under the Working Capital Loan as of March 31, 1999
was $2,923,937.
Year 2000 Readiness Disclosure
The Company is aware of the issues with the Year 2000 problem. The
"Year 2000" matter relates to whether computer hardware, software and equipment
will properly recognize date sensitive information referring to the Year 2000.
Potential computer system and equipment failures arising from years beginning
with "20' rather than "19" are a known risk.
The Company currently has a program underway to remediate by the end of the
second quarter of 1999 all of the Company's significant computer systems that
are not Year 2000 compliant. The program to ensure its Year 2000 readiness
includes the following: identifying all systems which may not be Year 2000
compliant; correcting or replacing those systems which are not Year 2000 ready;
testing the new or corrected systems to make sure they will operate according to
Year 2000 requirements; and inquiring of vendors and customers of the Company to
assess their Year 2000 readiness. The Company has identified certain critical
software and hardware systems that need to be replaced or updated in order to be
Year 2000 compliant. The Company has replaced or is in the process of replacing
such systems and intends to complete the replacement during the third quarter of
1999.
The Company has been inquiring of certain key suppliers and business
partners about their Year 2000 readiness. While no assurances can be given that
key suppliers and business partners will remedy their own Year 2000 issues, the
Company to date has not identified any material impact on its ability to
continue normal business operations with suppliers or other third parties who
fail to address the Year 2000 issue.
Actual costs associated with implementation of the Company's Year 2000
program are not expected to be material to the Company's operations and
financial condition. Costs of approximately $300,000, primarily for software
have been or are expected to be incurred and capitalized. As of March 31, 1999,
approximately $275,000 of costs have been expended.
The Company will continue to monitor and evaluate the impact of the
Year 2000 issue on its operations. Until the Company has completed the final
testing part of its program, the risks from potential Year 2000 failures cannot
be fully assessed. Due to this situation, the Company cannot now begin final
contingency plans. These plans will be developed as potential Year 2000 failures
are identified in the final testing stages. Nevertheless, if remediation is not
accomplished successfully in a timely fashion and successful contingency plans
are not implemented, the Company believes the Year 2000 issue could have a
material adverse effect on the Company.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
For information regarding the company's exposure to certain market
risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk,
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998. There have been no significant changes since December 31, 1998 in the
Company's portfolio of financial instruments or market risk exposures.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities and Use of Proceeds.
None.
Item 3 - Defaults Upon Senior Securities.
None.
Item 4 - Submission of Matters to a Vote of Securities Holders.
None.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) 10.1 Exchange Agreement, entered into as of January 1, 1999,
by and between Sirrom Capital Corporation d/b/a Tandem
Capital, a Tennessee corporation, Argosy Investment Partners,
L.P., a Pennsylvania partnership, and the Company. (Pursuant
to Item 601 (b)(2) of Regulation S-K of the Securities and
Exchange Commission, Schedule 5.1 to this Agreement, the only
schedule to this Agreement, is not filed herewith and will be
furnished to the Commission on request.)
27 Financial Data Schedule (EDGAR only).
(b) Form 8-K/A, filed February 22, 1999, containing Items 2 and 7
(amends Form 8-K filed December 22, 1998, containing Items
2 and 7).
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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.
BERGER HOLDINGS, LTD.
By:/s/ JOSEPH F. WEIDERMAN
Joseph F. Weiderman
President and
Chief Operating Officer
By:/s/ FRANCIS E. WELLOCK, JR.
Francis E. Wellock, Jr.
Chief Financial Officer
Date: May 14, 1999
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Exhibit 10.1
EXCHANGE AGREEMENT
Between
SIRROM CAPITAL CORPORATION,
d/b/a TANDEM CAPITAL
ARGOSY INVESTMENT PARTNERS, L.P.,
AS INVESTORS
And
BERGER HOLDINGS, LTD.
Dated as of January 1, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I - EXCHANGE -1-
Section 1.1 Items to be Exchanged -1-
Section 1.2 Registration Rights; Closing. -2-
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY -3- Section 2.1
Corporate Status -3- Section 2.2 Authorization, Absence of Conflicts-3-
Section 2.3 Validity and Binding Effect -4- Section 2.4 Survival -4-
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE INVESTOR -4- Section 3.1
Corporate Status; Residence -4- Section 3.2 Authorization -4- Section
3.3 Validity and Binding Effect -5- Section 3.4 Accredited Investor;
Investment Intent -5- Section 3.5 Survival -5-
ARTICLE IV - COVENANTS OF THE COMPANY -5-
Section 4.1 Prior Covenants -5-
Section 4.2 No Dividends -5-
Section 4.3 Limitation on Activities -6-
ARTICLE V - SUBORDINATION OF DEBENTURES -7-
Section 5.1 Subordination -7-
Section 5.2 Liquidation, etc -7-
Section 5.3 Default on Senior Indebtedness or Outstanding
Debentures -8-
Section 5.4 Subrogation -8-
Section 5.5 Company's Obligations Not Impaired -8-
ARTICLE VI - RESTRICTIONS ON TRANSFER -9- Section 6.1 Legends, Restrictions on
Transfer -9- Section 6.2 Notice of Intention to Transfer; Opinions of
Counsel -9-
ARTICLE VII - EVENTS OF DEFAULT; REMEDIES -10-
Section 7.1 Events of Default-10-
Section 7.2 Acceleration of Maturities-11-
ARTICLE VIII - AMENDMENTS, WAIVERS AND CONSENTS -12-
Section 8.1 Consent Required -12-
Section 8.2 Solicitation of Debenture Holders -12-
Section 8.3 Effect of Amendment or Waiver -12-
i
ARTICLE IX - INTERPRETATION OF AGREEMENT; DEFINITIONS -13-
Section 9.1 Definitions -13-
Section 9.2 Accounting Principles -14-
ARTICLE X - MISCELLANEOUS -15-
Section 10.1 Expenses; Stamp Tax Indemnity -15-
Section 10.2 Powers and Rights Not Waived; Remedies Cumulative-15-
Section 10.3 Notices -15-
Section 10.4 Successors and Assigns -17-
Section 10.5 Survival of Covenants and Representation -17-
Section 10.6 Severability -17-
Section 10.7 Governing Law -18-
Section 10.8 Captions, Counterparts -18-
Section 10.9 Continuing Obligations -18-
Section 10.10 Entire Agreement -18-
ii
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EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (the "Agreement") entered into as of the 1st
day of January, 1999, is by and between SIRROM CAPITAL CORPORATION d/b/a TANDEM
CAPITAL, a Tennessee corporation, ("Tandem"), and ARGOSY INVESTMENT PARTNERS,
L.P., a Pennsylvania limited partnership ("Argosy"), (each of Tandem and Argosy
being referred to as, individually, an "Investor" and collectively, the
"Investors"), and BERGER HOLDINGS, LTD., a Pennsylvania corporation (the
"Company").
WITNESSETH:
WHEREAS, the Company and the Investors are parties to that certain
Preferred Stock Purchase Agreement dated as of December 17, 1997 (the "Preferred
Stock Purchase Agreement") pursuant to which the Company issued and sold to the
Investors an aggregate of 40,000 shares of the authorized but unissued Series A
Convertible Preferred Stock (the "Preferred Stock") for a purchase price of
$100.00 per share, or an aggregate purchase price of $4,000,000;
WHEREAS, the Company and the Investors have agreed to exchange the
Preferred Stock for the Debentures (as defined below); and
WHEREAS, contemporaneously with such exchange (i) certain stock
purchase warrants dated as of December 31, 1997 and January 2, 1998 are being
amended and restated solely to extend the exercise dates thereof from January 2,
2003 to December 31, 2003 and (ii) the Investors are surrendering debentures
originally issued on December 31, 1997 and January 2, 1998 in exchange for
amended and restated debentures (as more fully defined in Section 5.1, the
"Original Debentures") which (x) extend the maturity dates thereof from January
2, 2003 to December 31, 2003 and (y) provide for the interest rates to change in
accordance with Section 1.2(d) of this Agreement.
NOW, THEREFORE, in mutual consideration of the premises and the
respective representations, warranties, covenants and agreements contained
herein, the parties agree as follows:
ARTICLE I - EXCHANGE
Section 1.1 Items to be Exchanged .
The Company and the Investors hereby agree that the Preferred Stock
shall be exchanged for Four Million and no/100ths Dollars ($4,000,000.00)
aggregate principal amount of the Company's Subordinated Convertible Debentures
(the "Debentures") due on the date (the "Maturity Date") which is the earlier
of: (1) December 31, 2003; or (2) the end of business on the date immediately
preceding the effectiveness of a Sale Event.
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The Debentures shall be dated as of January 1, 1999 (the "Issuance
Date") and bear interest from the Issuance Date until the Maturity Date, at the
rate of 10% per annum, subject to increase upon the failure to occur of certain
events described therein. Interest is payable quarterly by automatic debit on
the first day of each February, May, August and November in each year
(commencing February 1, 1999) and on the Maturity Date, to bear such other terms
and to be substantially in the form attached hereto as Exhibit A. Interest on
the Debentures shall be computed on the basis of a 360-day year of twelve 30-day
months. The term "Debentures" as used herein shall include each Debenture
delivered pursuant to this Agreement. The terms which are capitalized herein
shall have the meanings set forth in Section 9.1 hereof unless the context shall
otherwise require.
Section 1.2 Registration Rights; Closing.
(a) The term "Conversion Shares" as it is used in the Registration
Rights Agreement is hereby amended to mean shares of the common stock of the
Company (the "Common Stock") issuable upon conversion of the Debentures as
provided in Section 1 of the Debentures.
(b) Subject to the terms and conditions hereof and on the basis of the
representations and warranties hereinafter set forth, the Company is
contemporaneously herewith issuing and delivering (i) to Tandem, and Tandem is
hereby accepting from the Company, Debentures in the aggregate principal amount
of $2,500,000 in exchange for the 25,000 shares of the Preferred Stock held by
Tandem and (ii) to Argosy, and Argosy is hereby accepting from the Company,
Debentures in the aggregate principal amount of $1,500,000 in exchange for the
15,000 shares of the Preferred Stock held by Argosy. The Investors, in their
capacity as holders of Outstanding Debentures, consent to the transactions
contemplated by this Agreement and by the Debentures.
(c) Delivery of the Debentures in exchange for the surrender of the
certificates evidencing the Preferred Stock together with executed blank stock
powers attached thereto (the "Closing") is being made contemporaneously with the
execution hereof at the offices of Wolf, Block, Schorr and Solis-Cohen LLP, 111
South 15th Street, Philadelphia, Pennsylvania 19102 at 10:00 A.M., Philadelphia
time, on March __, 1999 (the "Closing Date"). The certificates evidencing the
Preferred Stock shall be canceled. The Debentures delivered to the Investors on
the Closing Date are being delivered to the Investors in the form of a single
Debenture as to each Investor for the full amount set forth in Section 1.2(b),
registered in the respective Investor's name and, in the form attached hereto as
Exhibit A.
(d) Contemporaneously with the Closing: (i) the Company is exchanging
certain stock purchase warrants dated as of December 31, 1997 and January 2,
1998 for amended and restated stock purchase warrants substantially in the form
of Exhibit B attached hereto extending the exercise dates thereof from January
2, 2003 to December 31, 2003 and (ii) the Investors are surrendering debentures
originally issued on December 31, 1997 and January 2, 1998 in exchange for
amended and restated debentures substantially in the forms of Exhibits C and D
which (x) extend the maturity dates thereof from January 2, 2003 to December 31,
2003 and (y) provide for the interest rates to change (A) as to Tandem, from
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12.25% to 20% as of January 2, 2003 rather than as of January 2, 2001 and (B) as
to Argosy, from 12.25% to 19.25% as of January 2, 2002 rather than as of January
3, 2001 and from 19.25% to 14% as of January 2, 2003 rather than as of January
3, 2002. The warrants and debentures being exchanged and surrendered pursuant to
this subsection 1.2(d) shall be canceled.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Investor as follows:
Section 2.1 Corporate Status .
The Company is a corporation duly organized, validly existing and
subsisting under the laws of the Commonwealth of Pennsylvania and has the
corporate power to own and operate its properties, to carry on its business as
now conducted and to enter into and to perform its obligations under this
Agreement, the Debentures, the Registration Rights Agreement and any other
document executed and delivered by the Company in connection herewith or
therewith (collectively, the "Operative Documents"). The Company is qualified to
do business and is in good standing in each state or other jurisdiction in which
such qualification is necessary under applicable provisions of law, except where
the failure to so qualify would not have a Materially Adverse Effect on the
financial condition or results of operations of the Company.
Section 2.2 Authorization, Absence of Conflicts .
The Company has full legal right, power and authority to enter into and
perform its obligations under this Agreement and any of the other Operative
Documents without the consent or approval of any other person, firm,
governmental agency or other legal entity. The execution and delivery of this
Agreement, the issuance of the Debentures hereunder, the execution and delivery
of each other document in connection herewith or therewith to which the Company
is a party, and the performance by the Company of its obligations hereunder
and/or thereunder are within the corporate powers of the Company and have been
duly authorized by all necessary corporate action properly taken, have received
all necessary governmental approvals, if any were required, and do not and will
not contravene or conflict with (a) the Articles of Incorporation or Bylaws of
the Company, as amended, (b) any material agreement to which the Company or any
of its Subsidiaries is a party or by which any of them or their properties is
bound, or constitute a default thereunder, or result in the creation or
imposition of any lien, charge, security interest, or encumbrance of any nature
upon any of the property or assets of the Company or any of its subsidiaries
pursuant to the terms of any such agreement or instrument, or (c) violate any
provision of law or any applicable judgment, ordinance, regulation or order of
any court or governmental agency. The officer(s) executing this Agreement, the
Debentures and the Operative Documents, is duly authorized to act on behalf of
the Company.
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Section 2.3 Validity and Binding Effect .
Each of the Operative Documents is the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by the effect of
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
by general principles of equity.
Section 2.4 Survival .
The representations and warranties of the Company contained in this
Agreement shall survive the Closing in accordance with Section 10.5 hereof.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor, severally and not jointly, hereby represents to the
Company as follows:
Section 3.1 Corporate Status; Residence .
The Investor is a corporation or partnership duly organized and validly
existing under the laws of its respective jurisdiction and has the corporate
power to own and operate its properties, to carry on its business as now
conducted and to enter into and to perform its obligations under this Agreement
and any other document executed or delivered by the Investor in connection
herewith.
Section 3.2 Authorization .
The Investor has full legal right, power and authority to enter into
and perform its obligations under this Agreement and any other document executed
and delivered by the Investor in connection herewith, without the consent or
approval of any other person, firm, governmental agency or other legal entity.
The execution and delivery of this Agreement and any other document executed and
delivered by the Investor in connection herewith, and the performance by the
Investor of its obligations hereunder and/or thereunder are within the corporate
powers of the Investor, have received all necessary governmental approvals, if
any were required, and do not and will not contravene or conflict with (a) the
organizational documents of the Investor, (b) any material agreement to which
the Investor is a party or by which it or any of its properties is bound, or
constitute a default thereunder, or result in the creation or imposition of any
lien, charge, security interest or encumbrance of any nature upon any of the
property or assets of the Investor pursuant to the terms of any such agreement
or instrument, or (c) violate any provision of law or any applicable judgment,
ordinance, regulation or order of any court or governmental agency. The
officer(s) executing this Agreement and any other document executed and
delivered by the Investor in connection herewith, is duly authorized to act on
behalf of the Investor.
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Section 3.3 Validity and Binding Effect .
This Agreement and any other document executed and delivered by the
Investor in connection herewith are the legal, valid and binding obligations of
the Investor, enforceable against it in accordance with their respective terms.
Section 3.4 Accredited Investor; Investment Intent .
Each Investor is an "accredited investor" under Rule 501(a) under the
Securities Act of 1933 (the "Securities Act"). Tandem is an investment company
registered under the Investment Company Act of 1940, as amended and has a net
worth in excess of One Million Dollars ($1,000,000). Argosy is a Small Business
Investment Company, as the term is defined in Section 103 of the Small Business
Investment Act of 1958, 15 U.S.C.A. ss.662, and has a total capital of at least
One Million Dollars ($1,000,000). Each Investor is acquiring the Debentures for
its own account, for investment, and not with a view to the distribution or
resale thereof, in whole or in part, in violation of the Securities Act or any
applicable state securities law, and the Investor has no present intention of
selling, negotiating or otherwise disposing of the Debentures.
Section 3.5 Survival .
The representations and warranties of the Investor contained in this
Agreement shall survive the Closing in accordance with Section 10.5 hereof
ARTICLE IV - COVENANTS OF THE COMPANY
From and after the Closing Date and continuing so long as any amount
remains unpaid on any of the Debentures:
Section 4.1 Prior Covenants .
The covenants set forth in Article V of the Preferred Stock Purchase
Agreement (other than Section 5.2 (relating to the payment of dividends on the
Preferred Stock) which is hereby terminated) shall remain in full force and
effect. References therein to "the Preferred Stock " and "as long as any shares
of the Preferred Stock remain outstanding" or other similar language shall
hereinafter mean the Debentures and so long as any of the Debentures are
outstanding.
Section 4.2 No Dividends .
No dividends (other than dividends or distributions paid in shares of
or options, warrants or rights to subscribe for or purchase shares of Common
Stock) shall be declared or paid or set apart for payment by the Company or
other distribution of cash or other property declared or made directly or
indirectly by the Company or any affiliate or any Person acting on behalf of the
Company or any of its affiliates with respect to any shares of Common Stock or
other capital stock (provided that the issuance of such other capital stock has
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been approved under subsection 4.3(c) below to the extent such approval is
required by such subsection) over which the Preferred Stock had preference or
priority in the payments of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Company (or would have had such
preference or priority were the Preferred Stock still outstanding) (the "Junior
Stock") unless in each case (x) all interest payments on the Debentures have
been paid in full as of the date of each such proposed distribution and (y)
sufficient funds shall have been paid or set apart for the payment of the full
interest payment for the current quarter with respect to the Debentures.
Section 4.3 Limitation on Activities .
In addition to any other vote or consent of shareholders required by
law or the Articles of Incorporation of the Company, the Company will not take
any of the following actions without the written consent of the holders of at
least seventy-five percent (75%) of the aggregate principal amount of the
Debentures then outstanding:
(a) redeem, purchase or otherwise acquire for value (or pay into or set
aside for a sinking fund for such purpose) any Debentures otherwise than by
redemption of the Debentures in accordance with Section 2 of the Debentures or
by conversion in accordance with Section 1 of the Debentures;
(b) redeem, purchase or otherwise acquire (or pay into or set aside for
a sinking fund for such purpose) any share or shares of the Junior Stock, except
for (i) a purchase or other acquisition of Common Stock made for purposes of any
employee incentive or benefit plan of the Company or any subsidiary, or (ii) the
purchase of up to 125,000 shares of Common Stock (as adjusted for stock splits
or stock dividends) pursuant to a certain "Put Option" contained in a certain
Asset Purchase Agreement dated as of December 3, 1997, by and among the Company
and the parties thereto;
(c) authorize or issue, or obligate itself to issue, any other security
(i) senior to or in parity with the Debentures as to redemption rights or
liquidation preferences or (ii) which entitles the holders thereof to voting
rights equal to at least twenty percent (20%) of the outstanding voting power of
all capital stock of the Company or to elect directors which constitute twenty
percent (20%) or more of the Board of Directors;
(d) effect any sale, lease, assignment, transfer, or other conveyance
of all or substantially all of the assets of the Company or any of its
subsidiaries, or any consolidation or merger involving the Company or any of its
subsidiaries, except (A) merger with a Wholly-owned subsidiary of the Company,
(B) a mere reincorporation transaction, or (C) a merger pursuant to which the
Company is the surviving entity and the capitalization of the Company remains
unchanged; or
(e) effect any change in the rights or limitations of the Common Stock
of the Company, or any recapitalization of the Company.
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ARTICLE V - SUBORDINATION OF DEBENTURES
Section 5.1 Subordination
Notwithstanding anything to the contrary in this Agreement or in the
Debentures, the indebtedness evidenced by the Debentures, including principal
and interest, shall be subordinate and junior to: (i) the prior payment of the
indebtedness of the Company for borrowed money (except such indebtedness of the
Company other than the Debentures which is expressly stated to be subordinate or
junior in any respect to other indebtedness of the Company) outstanding as of
the date of this Agreement and set forth on Schedule 5.1 hereto (including any
obligations of the Company under any guaranty or suretyship agreement relating
to indebtedness for borrowed money by Subsidiaries of the Company), constituting
borrowed money from financial institutions approved by the Board of Directors of
the Company and designated as being senior to the Debentures (but only to the
extent so designated), together with all obligations issued in renewal,
deferral, extension, refunding, amendment or modification of any such
indebtedness including, without limitation, any and all indebtedness now or
hereafter owing by the Company to Summit Bank, N.A., and its successors and
assigns (collectively, the "Senior Indebtedness"); and (ii) the indebtedness
evidenced by the debentures originally issued in January 1998 pursuant to the
Debenture Purchase Agreement dated as of December 17, 1997, by and among the
Company, Tandem and Argosy and as amended by the amended and restated debentures
of even date herewith (the "Outstanding Debentures").
.ection 5.2 Liquidation, etc
(a) Upon any distribution of assets of the Company in connection with
any dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency, or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise), the holders of all Senior
Indebtedness and the Outstanding Debentures shall first be entitled to receive
payment in full of the principal thereof, premium, if any, and interest due
thereon, and all costs and expenses (including attorneys' fees) related thereto,
before the holders of the Debentures shall be entitled to receive any payment on
account of the principal of or interest on or any other amount owing with
respect to the Debentures (other than payment in shares of capital stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, which
stock and securities are subordinated to the payment of all Senior Indebtedness
and the Outstanding Debentures and securities received in lieu thereof which may
at the time be outstanding). Under the circumstances provided herein, the
holders of the Senior Indebtedness and the Outstanding Debentures shall have the
right to receive and collect any distributions made with respect to the
Debentures until such time as the Senior Indebtedness and the Outstanding
Debentures are paid in full, and shall have the further right to take such
actions as may be deemed necessary or required to so receive and collect such
distributions including making or filing any proofs of claim relating thereto.
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(b) Without in any way modifying the provisions of this Article V or
affecting the subordination effected hereby if such notice is not given, the
Company shall give prompt written notice to each Investor of any dissolution,
winding up, liquidation or reorganization of maker (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise).
.ection 5.3 Default on Senior Indebtedness or Outstanding Debentures
The Company shall not declare or pay any dividends or make any
distributions to the holders of capital stock of the Company, or purchase or
acquire for value, any of the Debentures if any default has occurred and is
continuing with respect to the payment of principal of, premium if any or
interest on any Senior Indebtedness or the Outstanding Debentures.
.ection 5.4 Subrogation
Upon the prior payment in full of both the Senior Indebtedness and the
Outstanding Debentures, the Investors shall be subrogated to the rights of the
holders of the Senior Indebtedness and the Outstanding Debentures to receive
payments or distributions of assets of the Company applicable to the Senior
Indebtedness and the Outstanding Debentures until all amounts owing on the
Debentures shall be paid in full, and for the purpose of such subrogation, no
payments or distributions to the Investors otherwise payable or distributable to
the holders of the Senior Indebtedness or the Outstanding Debentures shall, as
between the Company, its creditors, other than the holders of the Senior
Indebtedness and the Outstanding Debentures, and the Investors, be deemed to be
payment by the Company to or on account of the Debentures, it being understood
that the provisions of this Article V are and are intended solely for the
purpose of defining the relative rights of the Investors, on the one hand, and
the holders of the Senior Indebtedness and the Outstanding Debentures, on the
other hand.
Section 5.5 Company's Obligations Not Impaired
(a) Nothing contained in this Article V or in the Debentures is
intended to or shall impair, as between the Company and the Investors, the
obligation of the Company, which is absolute and unconditional, to pay the
Investors the principal of and interest on the Debentures as and when the same
shall become due and payable in accordance with the terms of the Debentures, or
is intended to or shall affect the relative rights of the Investors other than
with respect to the holders of the Senior Indebtedness and the Outstanding
Debentures, nor, except as expressly provided in this Article V, shall anything
herein or therein prevent the Investors from exercising all remedies otherwise
permitted by applicable law upon the occurrence of an Event of Default under
this Agreement or under the Debentures.
(b) If any payment or distribution shall be received in respect of the
Debentures in contravention of the terms of this Article V, such payment or
distribution shall be held in trust for the holders of the Senior Indebtedness,
and shall be immediately delivered to such holders in the same form as received.
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ARTICLE VI - RESTRICTIONS ON TRANSFER
Section 6.1 Legends, Restrictions on Transfer
The Debentures have not been registered under the Securities Act or any
state securities laws. Each Debenture issued pursuant to this Agreement (except
as permitted by this Article VI) shall bear a legend in substantially the
following form:
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS, OR (ii) IN THE
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH TRANSFER.
The provisions of this Article VI shall be binding upon all subsequent
holders of the Debentures unless in the opinion of counsel to any such holder,
specified in Section 6.2 below, the Debentures are no longer subject to the
restrictions described herein.
.ection 6.2 Notice of Intention to Transfer; Opinions of Counsel
The Debentures shall not be transferable except upon the conditions
specified in this Article VI. Each holder of any Debenture, by acceptance
thereof, agrees, prior to any transfer of such Debenture, to give written notice
to the Company of such holder's intention to effect such transfer and briefly
describe the manner of the proposed transfer. Such notice of intended transfer
shall be accompanied by, if applicable, an opinion of counsel to such holder
reasonably satisfactory to the Company, to the effect that registration under
the Securities Act of such Debenture in connection with such proposed transfer
is not required. If in the opinion of such counsel, the proposed transfer of
such Debenture may be effected without registration of such Debenture, under the
Securities Act, such holder shall be entitled to transfer such Debenture in
accordance with the terms of the notice delivered by such holder to the Company.
The Company will promptly upon such transfer deliver new Debentures not bearing
a legend of the character set forth in Section 6.1, unless in the opinion of
such counsel subsequent disposition by such holder of the Debentures to be so
transferred may require registration under the Securities Act. If the proposed
transfer of such Debenture may not be effected without registration of such
Debenture under the Securities Act, the holder thereof shall not be entitled to
transfer such Debenture, in the absence of an effective registration statement.
ARTICLE VII - EVENTS OF DEFAULT; REMEDIES
Section 7.1 Events of Default
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The occurrence of any one of the following shall constitute an "Event
of Default" under this Agreement:
(a) Default shall occur in the payment of interest on any Debenture
when the same shall have become due, which Default shall continue for five (5)
days; or
(b) Default shall occur in the making of any payment of the principal
of any Debenture or the premium, if any, by the Company thereon at the expressed
or any accelerated maturity date or at any date fixed by the Company for
prepayment, which Default shall continue for five (5) days; or
(c) Default shall be made in the payment of the principal of or
interest on any Indebtedness (other than the Debentures) of the Company or any
subsidiary of the Company and such Default shall continue beyond the period of
grace, if any, allowed with respect thereto; or
(d) Default or the happening of any event shall occur under any
contract, agreement, lease, indenture or other instrument under which any
Indebtedness (other than the Debentures) of the Company or any subsidiary of the
Company may be issued and such Default or event shall (i) result in liability of
more than $100,000 and (ii) continue for a period of time sufficient to permit
the acceleration of the maturity of any such Indebtedness of the Company or any
subsidiary of the Company outstanding thereunder; or
(e) Default shall occur in the observance or performance of any
covenant or agreement contained in Sections 5.11 or 5.13 of the Preferred Stock
Purchase Agreement, and such Default shall continue after five (5) days of
notice thereof to the Company; or
(f) Default shall occur in the observance or performance of any other
provision of this Agreement or Article V of the Preferred Stock Purchase
Agreement (other than Section 5.12) which is not remedied within thirty (30)
days after the earlier of (i) the date on which the Company first obtains
knowledge of such Default and (ii) the date on which written notice thereof is
given to the Company by the holder of any Debenture; or
(g) Any representation or warranty made by the Company herein or in the
Preferred Stock Purchase Agreement (to the extent that such representation or
warranty has survived as of the applicable date in accordance with the terms of
this Agreement or the Preferred Stock Purchase Agreement, as applicable), or
made by the Company in any statement or certificate furnished by the Company in
connection with the consummation of the issuance and delivery of the Debentures
or furnished by the Company pursuant hereto, is untrue in any material respect
as of the date of the issuance or making thereof; or
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(h) Final judgment or judgments for the payment of money aggregating in
excess of $100,000, is or are outstanding against the Company or any subsidiary
of the Company or against any property or assets of either and any one of such
judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or
otherwise for a period of thirty (30) days from the date of its entry; or
(i) The Company or any subsidiary of the Company becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any subsidiary of the
Company applies for or consents to the appointment of a custodian, trustee,
liquidator, or receiver for the Company or such Subsidiary or for the major part
of the property of either; or
(j) A custodian, trustee, liquidator, or receiver is appointed for the
Company or any subsidiary of the Company or for the major part of the property
of either and is not discharged within sixty (60) days after such appointment;
or
(k) Bankruptcy, reorganization, arrangement or insolvency proceedings,
or other proceedings for relief under any bankruptcy or similar law or laws for
the relief of debtors, are instituted by or against the Company or any
subsidiary of the Company and, if instituted against the Company or any
subsidiary of the Company, are consented to or are not dismissed within sixty
(60) days after such institution.
Section 7.2 Acceleration of Maturities
When any Event of Default described in paragraph (a), (b) or (c) of
Section 7.1 has happened and is continuing, any holder of any Debenture may, and
when any Event of Default described in paragraphs (d) through (i), inclusive, of
said Section 7.1 has happened and is continuing the holder or holders of fifty
percent (50%) or more of the principal amount of Debentures at the time
outstanding may, by notice to the Company, declare the entire principal and all
interest accrued on all Debentures to be, and all Debentures shall thereupon
become, forthwith due and payable, without any presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived. When any
Event of Default described in paragraph (j) or (k) of Section 7.1 has occurred,
then all outstanding Debentures shall immediately become due and payable without
presentment, demand or notice of any kind, all of which are hereby expressly
waived. Upon the Debentures becoming due and payable as a result of any Event of
Default as aforesaid, the Company will forthwith pay to the holders of the
Debentures the entire principal and interest accrued on the Debentures. No
course of dealing on the part of any Debenture holder nor any delay or failure
on the part of any Debenture holder to exercise any right shall operate as a
waiver of such right or otherwise prejudice such holder's rights, powers and
remedies. The Company further agrees, to the extent permitted by law, to pay to
the holder or holders of the Debentures all costs and expenses, including
reasonable attorneys' fees, incurred by them in the collection of any Debentures
upon any Default hereunder or thereon.
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ARTICLE VIII - AMENDMENTS, WAIVERS AND CONSENTS
Section 8.1 Consent Required .
Any term, covenant, agreement or condition of this Agreement may, with
the consent of the Company, be amended or compliance therewith may be waived
(either generally or in a particular instance and either retroactively or
prospectively), if the Company shall have obtained the consent in writing of the
holders of at least seventy-five percent (75%) in aggregate principal amount of
the Debentures then outstanding; provided that without the written consent of
the holders of all of the Debentures then outstanding, no such waiver,
modification, alteration or amendment shall be effective (a) which will change
the time of payment of the principal of or the interest on any Debenture or
reduce the principal amount thereof or change the rate of interest thereon, (b)
which will change the percentage of holders of the Debentures required to
consent to any such amendment, modification or waiver of any of the provisions
of this Article VIII [Amendments, etc.] or Article VII [Defaults; Remedies].
Section 8.2 Solicitation of Debenture Holders .
The Company will not, directly or indirectly, pay or cause to be paid
by remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any holder of the Debentures as consideration for or as an
inducement to the entering into by any holder of the Debentures of any waiver or
amendment of any of the terms and provisions of this Agreement unless such
remuneration is concurrently paid, on the same terms, ratably to the holders of
all of the Debentures then outstanding.
Section 8.3 Effect of Amendment or Waiver .
Any such amendment or waiver shall apply equally to all of the holders
of the Debentures and shall be binding upon them, upon each future holder of any
Debenture and upon the Company, whether or not such Debenture shall have been
marked to indicate such amendment or waiver. No such amendment or waiver shall
extend to or affect any obligation not expressly amended or waived or impair any
right consequent thereon.
ARTICLE IX - INTERPRETATION OF AGREEMENT; DEFINITIONS
Section 9.1 Definitions .
Unless the context otherwise requires, the terms hereinafter set forth
when used herein shall have the following meanings and the following definitions
shall be equally applicable to both the singular and plural forms of any of the
terms herein defined:
<PAGE>
"Debentures" shall mean those debentures issued initially to the
Investors in accordance with this Agreement and dated as of January 1, 1999, as
more fully described in Section 1.1 herein.
"Default" shall mean any event or condition, the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default as defined in Section 7.1.
"Event of Default" shall have the meaning set forth in Section 7.1
hereof.
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with GAAP shall be classified upon a balance
sheet of such Person as liabilities of such Person, and in any event shall
include all (a) obligations of such Person for borrowed money or which have been
incurred in connection with the acquisition of property or assets, (b)
obligations secured by any lien or other charge upon property or assets owned by
such Person, even though such Person has not assumed or become liable for the
payment of such obligations, (c) obligations created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the Event of Default are
limited to repossession or sale or property, (d) capitalized rentals, and (e)
guaranties of obligations of others of the character referred to in this
definition.
The term "knowledge" shall mean, with respect to a particular fact or
other matter, if a director or executive officer of the Company or any
subsidiary of the Company is actually, or has been, aware of such fact or other
matter, after reasonable inquiry under the circumstances.
"Materially Adverse Effect" shall mean a materially adverse effect upon
the business, assets, liabilities, financial condition, results of operations or
business prospects, in each case of the Company and its subsidiaries taken as a
whole, or upon the ability of the Company to perform its obligations under this
Agreement, the Debentures or the other Operative Documents.
"Operative Documents" shall have the meaning set forth in Section 2.1
hereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof
"Registration Rights Agreement" shall mean the Registration Rights
Agreement by and among the Company, Tandem and Argosy.
<PAGE>
"Sale Event" shall mean any consolidation, merger or statutory share
exchange (other than (i) a merger with a Wholly-owned subsidiary of the Company,
(ii) a reincorporation transaction or (iii) a merger pursuant to which the
Company is the surviving entity and the capitalization of the Company remains
unchanged) in which the outstanding shares of capital stock of the Company are
exchanged for securities or other consideration of or from another corporation,
or a sale of all or substantially all the assets or stock of the Company;
provided, however, that any such event shall not be regarded as a Sale Event if
the holders of seventy-five percent (75%) of the aggregate principal amount of
the Debentures then outstanding approve such event or elect not to have any such
event deemed to be a Sale Event by giving written notice to the Company at least
ten (10) days prior to the effective date of such event.
"Security" shall have the same meaning as in Section 2(l) of the
Securities Act.
The term "subsidiary " shall mean, as to any particular parent
corporation, any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be owned by such parent corporation and/or one or more
corporations which are themselves subsidiaries of such parent corporation.
"Voting Stock" shall mean Securities of any class or classes the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any subsidiary of the
Company shall mean a subsidiary of which all of the issued and outstanding
shares of stock (except shares required as directors' qualifying shares) shall
be owned by the Company and/or one or more of its Wholly-owned subsidiaries.
Section 9.2 Accounting Principles .
Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.
<PAGE>
ARTICLE X - MISCELLANEOUS
Section 10.1 Expenses; Stamp Tax Indemnity .
Whether or not the transactions herein contemplated shall be
consummated, the Company agrees to pay directly (a) the reasonable fees,
expenses and disbursements of Investors' counsel, not to exceed Two Thousand
Dollars ($2,000) per Investor, incurred in connection with the entering into of
this Agreement and the issuance of the Debentures and the consummation of the
transactions contemplated hereby and (b) so long as an Investor holds any of the
Debentures, all out-of-pocket expenses including, but not limited to the
reasonable fees, expenses and disbursements of Investors' counsel relating to
any, amendment, waiver or consent pursuant to the provisions hereof (whether or
not the same are actually executed and delivered), including, without
limitation, any amendments, waivers or consents resulting from any work-out,
restructuring or similar proceedings relating to the performance by the Company
of its obligations under this Agreement and the Debentures. The Company also
agrees that it will pay and save the Investors harmless against any and all
liability with respect to stamp and other taxes, if any, which may be payable in
connection with the execution and. delivery of this Agreement or the Debentures.
The Company agrees to protect and indemnify each Investor against any liability
for any and all brokerage fees and commissions payable or claimed to be payable
to any Person retained by the Company in connection with the transactions
contemplated by this Agreement.
Section 10.2 Powers and Rights Not Waived; Remedies Cumulative .
No delay or failure on the part of the holder of any Debenture in the
exercise of any power or right shall operate as a waiver thereof; nor shall any
single or partial exercise of the same preclude any other of further exercise
thereof, or the exercise of any other power or right, and the rights and
remedies of the holder of any Debenture are cumulative to and are not exclusive
of any rights or remedies any such holder would otherwise have, and no waiver or
consent, given or extended pursuant to Article IX hereof, shall extend to or
affect any obligation or right not expressly waived or consented to.
Section 10.3 Notices .
All communications provided for hereunder shall be in writing and shall
be delivered personally, or mailed by registered mail, or by prepaid overnight
air courier, or by facsimile communication, in each case addressed:
If to Tandem: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Fax: (615) 726-1208
Attention: Craig Macnab
<PAGE>
with a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Fax: (615) 742-4539
Attention: Donald I.N.McKenzie, Esq.
If to Argosy: Argosy Investment Partners, L.P.
950 West Valley Road, Suite 2902
Wayne, Pennsylvania 19087
Fax: (610) 964-9524
Attention: John Paul Kirwin, III, Principal
with a copy to: McCausland, Keen & Buckman
Radnor Court
259 Radnor-Chester Road,
Suite 160
Radnor, Pennsylvania 19087-5240
Fax: (610) 341-1099
Attention: Robert H. Young, Jr.
If to the Company: Berger Holdings, Ltd.
805 Pennsylvania Blvd.
Feasterville, Pennsylvania 19053
Fax: (215) 355-7738
Attention: President
with a copy, if on
or before July 4,
1999, to: Wolf, Block, Schorr, and
Solis-Cohen LLP
12th Floor, Packard Building
111 South 15th Street
Philadelphia, Pennsylvania 19102
Fax: (215) 977-2334
Attention: Jason M. Shargel, Esq.
and, if after
July 4, 1999, to: Wolf, Block, Schorr, and Solis-Cohen LLP
22nd Floor
1650 Arch Street
Philadelphia, Pennsylvania 19103
Fax: (215) 977-2334
Attention: Jason M. Shargel, Esq.
<PAGE>
or such other address as an Investor or the subsequent holder of any Debenture
initially issued to an Investor may designate to the Company in writing, or such
other address as the Company may in writing designate to the Investors or to a
subsequent holder of the Debentures initially issued to the Investors, provided,
however, that a notice sent by overnight air courier shall only be effective if
delivered at a street address designated for such purpose by such person and a
notice sent by facsimile communication shall only be effective if made by
confirmed transmission at a telephone number designated for such purpose by such
person or, in either case, as an Investor or a subsequent holder of any
Debentures initially issued to an Investor may designate to the Company in
writing or at a telephone number herein set forth in the case of the Company.
Section 10.4 Successors and Assigns .
The Investors' interests in this Agreement, the Debentures and the
other Operative Documents may be endorsed, assigned and/or transferred (in whole
or in part) by the Investors, and any such holder and/or assignee of the same
shall succeed to and be possessed of the rights and powers of the Investor under
all of the same to the extent transferred and assigned. The Company shall not
assign any of its rights nor delegate any of its duties under this Agreement,
the Preferred Stock Agreement or any of the other Operative Documents by
operation of law or otherwise without the prior express written consent of the
Investors, and in the event the Company obtains such consent, this Agreement and
the other Operative Documents shall be binding upon such assignee.
Section 10.5 Survival of Covenants and Representation .
All representations and warranties made by the Company and the
Investors herein shall survive the Closing, and shall be extinguished and
eliminated on June 30, 1999. All covenants made by the Company herein (including
those referred to in Article IV above) shall survive the Closing and delivery of
the Operative Documents in accordance with their respective terms so long as any
amounts are outstanding under the Debentures. The representations and warranties
set forth in the Preferred Stock Purchase Agreement shall survive as set forth
therein without any modification as a result of the execution and delivery of
this Agreement.
Section 10.6 Severability .
Should any part of this Agreement for any reason be declared invalid or
unenforceable, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if this
Agreement had been executed with the invalid or unenforceable portion thereof
eliminated and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Agreement without
including therein any such part, parts or portion which may for any reason, be
hereafter declared invalid or unenforceable.
<PAGE>
Section 10.7 Governing Law .
This Agreement and the Debentures issued and sold hereunder shall be
governed by and construed in accordance with Tennessee law, without regard to
its conflict of law rules.
Section 10.8 Captions, Counterparts .
The descriptive headings of the various Sections or parts of this
Agreement are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 10.9 Continuing Obligations .
Notwithstanding anything to the contrary set forth herein, the
Investors confirm and acknowledge that the Debentures and the Outstanding
Debentures are Company's Obligations to Creditor within the meaning of the
Subordination Agreements dated as of January 2, 1998, among Summit Bank, the
Company and the Investors, as amended, which Subordination Agreements remain in
full force and effect.
Section 10.10 Entire Agreement .
This Agreement constitutes the entire agreement of the parties
with regard to the exchange of the Debentures for the Preferred Stock.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
written above.
COMPANY:
BERGER HOLDINGS, LTD.
By: /s/ Joseph F. Weiderman
Name: Joseph F. Weiderman
Title: President
INVESTORS:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: /s/ Craig Macnab
Craig Macnab, Vice President
ARGOSY INVESTMENT PARTNERS, L.P.
By: Argosy Associates, L.P.,
its general partner
By: Argosy Associates, Inc.,
its general partner
By: ./s/ John Paul Kirwin III
Name: John Paul Kirwin III
Title: Vice President
<PAGE>
EXHIBIT A
DEBENTURE
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS, OR (ii) IN THE
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH TRANSFER.
Berger Holdings, Ltd.
Subordinated Convertible Debenture Due December 31, 2003
No. S-1 Dated as of January 1, 1999
$1,500,000
For value received, Berger Holdings, Ltd., a Pennsylvania corporation
(the "Company"), hereby promises to pay to Argosy Investment Partners, L.P., 950
West Valley Road, Suite 2902, Wayne, Pennsylvania 19087, or registered assigns,
on the 31st day of December, 2003 (the "Regular Maturity Date") (or before the
Regular Maturity Date upon the occurrence of a Sale Event or a redemption or
conversion of this Debenture in accordance with the terms hereof (each an "Early
Termination Date"), as the case may be), the principal amount of One Million
Five Hundred Thousand Dollars ($1,500,000) and to pay interest (computed on the
basis of a 360-day year of twelve 30-day months) on the principal amount from
time to time remaining unpaid hereon at the rate of 10% per annum from January
1, 1999 (the "Issue Date") until the Regular Maturity Date or the Early
Termination Date, payable in each case quarterly on the first day of each
February, May, August, and November in each year, commencing February 1, 1999,
and on the Regular Maturity Date or the Early Termination Date. The Company
agrees to pay interest (computed on the same basis) on overdue principal and
premium, if any, and (to the extent legally enforceable) on any overdue
installment of interest, at the stated rate plus 3% per annum (or, in each case,
at the highest rate permitted by applicable law, whichever is less) until paid.
Both the principal hereof and interest hereon are payable to the order
of the holder hereof at its address registered on the books of the Company or by
federal funds wire transfer to a bank account designated in writing by the
holder to the Company in coin or currency of the United States of America which
at the time of payment shall be legal tender for the payment of public and
private debts. If any amount of principal, premium, if any, or interest on or in
respect of this Debenture becomes due and payable on any date which is not a
Business Day, such amount shall be payable on the next preceding Business Day.
"Business Day" means any day other than a Saturday, Sunday, statutory holiday or
other day on which banks in Tennessee are required by law to close or are
customarily closed.
<PAGE>
This Debenture is one of the Subordinated Convertible Debentures due on
or before December 31, 2003 of the Company in the aggregate principal amount of
Four Million Dollars ($4,000,000), issued under and pursuant to the terms and
provisions of an Exchange Agreement, dated as of January 1, 1999 (the "Exchange
Agreement"), entered into by the Company with the original investors referred to
therein, and this Debenture and the holder hereof are entitled, equally and
ratably with the holders of all other Debentures outstanding under the Exchange
Agreement, to all the benefits provided for thereby or referred to therein, and
to which Exchange Agreement reference is hereby made for all such terms and
provisions. The terms which are capitalized herein shall have the meanings set
forth in the Exchange Agreement unless the context shall otherwise require.
This Debenture is subordinated to certain other indebtedness of the
Company to the extent and with the effect set forth in the Exchange Agreement.
If an Event of Default occurs and is continuing, the principal of this
Debenture and the other Debentures outstanding under the Exchange Agreement may
be declared due and payable in the manner and with the effect provided in the
Exchange Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company at
805 Pennsylvania Blvd., Feasterville, Pennsylvania 19053, or such other address
as the Company shall have advised the holders of the Debenture in writing, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Debenture or its attorney duly authorized in writing
and in accordance with the provisions of Section 6.2 of the Exchange Agreement.
Payment of or on account of principal, premium, if any, and interest on this
Debenture shall be made only to or upon the order in writing of the registered
holder.
The Debentures are convertible and redeemable and holders thereof are
entitled to certain notices, as set forth more fully below.
Section 1 Conversion Rights. The holders of the Debentures
shall have the following conversion rights:
(a) Right to Convert. The Debentures shall be convertible at any time,
and from time to time, at the option of the holder thereof, into such number of
fully paid and nonassessable shares of the common stock of the Company (the
"Common Stock"), as is determined by dividing the aggregate principal amount of
the Debentures tendered to the Company for conversion (the "Numerator") by the
Conversion Price (as defined below) in effect at the time of conversion. The
conversion price at which shares of Common Stock shall be deliverable upon
conversion of the Debentures without the payment of additional consideration by
the holder thereof (the "Conversion Price") initially shall be Four and 25/100
Dollars ($4.25). Such initial Conversion Price, and the rate at which the
Debentures may be converted into shares of Common Stock, shall be subject to
adjustment as provided below. The conversion rights of the holders of the
Debentures shall terminate (i) in the event of a liquidation of the Company, at
the close of business on the first full day preceding the date fixed for the
payment of any amounts distributable on liquidation to the holders of the
Debentures; and (ii) in the event the Debentures are called for redemption
pursuant to this Note, at the close of business on the first full day preceding
the date fixed for such redemption, unless the Company shall default in making
payment in full of the redemption price.
<PAGE>
(b) Adjustment to Conversion Price Upon Occurrence of Extraordinary
Common Stock Event. Upon the happening of an Extraordinary Common Stock Event
(as hereinafter defined), the Conversion Price for the Debentures,
simultaneously with the happening of such Extraordinary Common Stock Event,
shall be adjusted by multiplying the then-effective Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Extraordinary Common Stock Event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such Extraordinary Common Stock Event, and the product so
obtained thereafter shall be the Conversion Price for the Debentures. The
Conversion Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive Extraordinary Common Stock Event(s).
"Extraordinary Common Stock Event" shall mean (i) the issuance of additional
shares of Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) a stock split or subdivision of outstanding shares of Common Stock
into a greater number of shares of Common Stock, or (iii) a reverse stock split
or combination of outstanding shares of Common Stock into a smaller number of
shares of Common Stock.
(c) Recapitalization or Reclassification. If the Common Stock issuable
upon the conversion of the Debentures shall be changed into the same or a
different number of shares of any class or classes of stock of the Company,
whether by recapitalization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for in Section
1(b) above, or a reorganization, merger, share exchange, consolidation, or sale
of assets provided for in Section 1(d) below), then and in each such event the
holders of the Debentures shall have the right, at any time thereafter, to
convert the Debentures into the kind and amount of shares of stock and other
securities and property receivable upon such recapitalization, reclassification,
or other change by holders of the number of shares of Common Stock into which
such Debentures might have been converted immediately prior to such
recapitalization, reclassification, or change, all subject to further adjustment
as provided herein.
(d) Capital Reorganization, Merger, Share Exchange, Consolidation, or
Sale of Assets. If at any time or from time to time there shall be a capital
reorganization of the Common Stock, including a merger, share exchange,
consolidation, or sale of all or substantially all of assets of the Company
(other than a subdivision or combination of shares or stock dividend provided
for in Section 1(b) above or a recapitalization or reclassification provided for
in Section 1(c) above), then, as a part of such reorganization, provision shall
be made so that the holders of the Debentures thereafter shall be entitled to
receive, upon conversion of the Debentures, the number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock into which such Debentures might have been converted immediately prior to
such capital reorganization would have been entitled to receive. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 1(d) with respect to the rights of the holders of the Debentures
after the reorganization to the end that the provisions of this Section 1(d)
(including adjustment of the Conversion Price then in effect and the number of
shares acquired upon conversion of the Debentures) shall be applicable after
that event in as nearly equivalent a manner as may be practicable.
<PAGE>
Notwithstanding the foregoing, in the case of a consolidation, merger, share
exchange, or sale of all or substantially all the assets of the Company, the
provisions of Section 1.1 of the Exchange Agreement shall apply to the
Debentures, and this Section 1(d) shall not apply, unless, as provided in
Section 1.1 of the Exchange Agreement, the holders of seventy-five percent (75%)
of the aggregate principal amount of the Debentures then outstanding elect that
such event shall not be deemed to be a Sale Event.
(e) Certain Dilutive Issues.
(i) Special Definitions. For purposes of
this Section 1(e), the following definitions apply:
(1) "Options" shall mean
rights, options, or warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities (as defined
below), except for (A) currently exercisable options and warrants to
purchase an aggregate of 1,539,248 shares of Common Stock outstanding
on December 31, 1997 (the "Outstanding Options"), (B) options to
purchase an aggregate of 1,270,000 shares of Common Stock granted or
provided for but not exercisable as of December 31, 1997 (the "Agreed
Options"), (C) rights or options to acquire up to an aggregate of
250,000 shares of Common Stock which may be granted to employees,
directors or consultants to the Company at an exercise price of no
less than the Fair Market Value (as defined in Section 1(h) below) on
the date of grant (the "Future Options") and (D) warrants to purchase
an aggregate of 350,000 shares of Common Stock granted and reserved
for issuance on December 31, 1997 (the "Current Warrants").
(2) "Convertible Securities"
shall mean any evidences of indebtedness (other than the Debentures),
shares of stock (other than Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(3) "Additional Shares of
Common Stock" shall mean all shares of Common Stock issued (or deemed
to be issued pursuant to Section 1(e)(iii) by the Company after
December 31, 1997 other than shares of Common Stock issued or issuable
upon (i) upon conversion of the Debentures, (ii) upon the exercise of
the Outstanding Options; (iii) upon the exercise of the Agreed
Options, (iv) upon the exercise of any Future Options, or (v) upon the
exercise of the Current Warrants.
(ii) No Adjustment of Conversion Price.
Any provision herein to the contrary notwithstanding, no adjustment in the
number of shares of Common Stock into which the Debentures are convertible shall
be made, by adjustment in the Conversion Price, unless the consideration per
share (determined pursuant to Section 1(e)(v) hereof) for an Additional Share of
Common Stock issued or deemed to be issued by the Company is less than the
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Shares of Common Stock.
(iii) Issue of Options and Convertible
Securities. In the event the Company at any time or from time to time after
December 31, 1997 shall issue any Options or Convertible Securities or shall fix
<PAGE>
a record date for the determination of holders of any class of securities then
entitled to receive anysuch Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such
number)of Common Stock issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date, provided
that Additional Shares of Common Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Section 1(e)(v)
hereof) of such Additional Shares of Common Stock would be less than the
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in
the Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(2) if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase or decrease in the consideration payable to the
Company, or decrease or increase in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange thereof, the Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities, provided, however,
that no such adjustment of the Conversion Price shall affect Common Stock
previously issued upon conversion of the Debentures;
(3) upon the expiration of any
such Options or any rights of conversion or exchange under such Convertible
Securities that shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(a) in the
case of Convertible Securities or Options for Common Stock, the only Additional
Shares of Common Stock issued were the shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Company for the issue of all such
Options, whether or not exercised, plus the consideration actually received by
the Company upon such exercise, or for the issue of all such Convertible
Securities that were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such conversion or
exchange, and
(b) in the
case of Options for Convertible Securities, only the Convertible Securities, if
any, actually issued upon the exercise thereof were issued at the time of issue
of such Options, and the consideration received by the Company for the
<PAGE>
Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Company for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Company (determined pursuant to Section 1(e)(v)) upon the issue
of the Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment
pursuant to Section 1(e)(iii)(2) or (3) above shall have the effect of
increasing the Conversion Price to an amount which exceeds the lower of (a) the
Conversion Price prior to the initial adjustment to which the readjustment
applies, or (b) the Conversion Price that would have resulted from any issuance
of Additional Shares of Common Stock between the date of the initial adjustment
date and such readjustment date; and
(5) in the event of
any change in the number of shares of Common Stock issuable upon the exercise,
conversion or exchange of any Option or Convertible Security, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price then in effect shall forthwith be readjusted to such Conversion
Price as would have been obtained had the adjustment which was initially made
upon the issuance of such unexercised Option or unconverted Convertible
Security, been made upon the basis of such subsequent change, but no further
adjustment shall be made for the actual issuance of Common Stock upon the
exercise or conversion of any such Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common Stock. In the event the Company at any
time after the Original Issue Date shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 1(e)(iii)), without consideration or for a consideration per share less
than the Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, the Conversion Price shall be reduced to a price
(calculated to the nearest cent) determined by multiplying the then current
Conversion Price by a fraction the numerator of which shall be the sum of
(A) the number of shares of
Common Stock outstanding immediately prior to such issue, plus
(B) the
number of shares of Common Stock which the aggregate consideration received by
the Company for the total number of Additional Shares of Common Stock so issued
would purchase at the Conversion Price in effect immediately prior to such
issuance
and the denominator of
which shall be the sum of
(x) the number of shares of
Common Stock outstanding immediately prior to such issue, plus
(y) the number of such
Additional Shares of Common Stock so issued.
<PAGE>
For the purpose of the above
calculation, the number of shares of Common Stock outstanding shall be
calculated on a fully diluted basis,as if all the Debentures and all other
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance, and any outstanding warrants, options or
other rights for the purchase of shares of stock or Convertible Securities had
been fully exercised immediately prior to such issuance, and the resulting
securities fully converted into shares of Common Stock, if so convertible as of
such date. This calculation shall not include, however, any Additional Shares of
Common Stock issuable with respect to the Debentures, Convertible Securities or
outstanding options, warrants or other rights for the purchase of shares or
Convertible Securities, solely as a result of adjustment of the Conversion Price
resulting from the issuance of Additional Shares of Common Stock causing such
adjustment.
The provisions of
this Section 1(e)(iv) do not apply if the provisions of any of Section 1(b), (c)
or (d) apply.
(v) Determination of Consideration.
The consideration received by the Company for the issue of any Additional Shares
of Common Stock shall be computed as follows:
(1) Cash,
Property, and Other Consideration. Such consideration shall:
a) insofar
as it consists of cash, be computed as the aggregate amount of cash received by
the Company excluding amounts paid or payable for accrued interest or accrued
dividends;
(b) insofar as it
consists of property, services, or other consideration other than cash, be
computed at the fair value thereof at the time of such issue, as determined in
good faith by the Board of Directors; and
(c) in the
event Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Company for consideration which covers both,
be the proportion of the consideration so received, computed as provided in
clauses (a) and (b) above, as is determined in good faith by the Board of
Directors.
(2) Options and
Convertible Securities. The consideration per share received by the Company for
Additional Shares of Common Stock deemed to have been issued pursuant to Options
and Convertible Securities, shall be deemed to be the sum of the consideration
paid for such Option or Convertible Security, if any, plus the lowest
consideration per share then payable upon the exercise of Options, as set forth
in the instruments relating to such Options or Convertible Securities, without
regard to any provision contained therein designed to protect against dilution.
If Options or Convertible Securities are issued together with other securities
or instruments of the Company, the Board of Directors shall determine in good
faith the amount of consideration paid for such Option or Convertible
Securities.
<PAGE>
(f) Certificate as to Adjustments. In each case of an
adjustment or readjustment of the Conversion Price of the Debentures, the
Company will furnish each holder of the Debentures with a certificate prepared
by the Chief Financial Officer of the Company showing such adjustment or
readjustment and stating in detail the facts upon which such adjustment or
readjustment is based.
(g) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of the Debentures shall surrender the
certificate(s) representing the Debentures being converted to the Company at its
principal office, accompanied by written notice to the Company at that office
that such holder elects to convert such Debentures (a "Conversion Notice"). The
Conversion Notice also shall state the name(s) and address(es) in which the
certificate(s) for shares of Common Stock issuable upon such conversion shall be
issued. The certificate(s) for the Debentures surrendered for conversion shall
be accompanied by proper assignment thereof to the Company or in blank. The date
when the Conversion Notice is received by the Company together with the
certificate(s) representing the Debentures being converted shall be the
"Conversion Date." As promptly as practicable after the Conversion Date, the
Company shall issue and deliver to the holder of the Debentures being converted,
or on its written order, such certificate(s) as it may request of the number of
whole shares of Common Stock issuable upon the conversion of such Debentures in
accordance with the provisions of this Section 1 and cash, as provided in
Section 1, in respect of any fraction of a share of Common Stock issuable upon
such conversion. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the Conversion Date, and at such
time the rights of the holder as a holder of the converted Debentures shall
cease and the person(s) in whose name(s) any certificate(s) for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become the
holder(s) of record of the shares of Common Stock represented thereby.
(h) Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of the Debentures. Instead of any fractional shares of Common Stock
that otherwise would be issuable upon conversion of any of the Debentures, the
Company shall pay to the holder of Debentures that were converted a cash
adjustment in respect of such fractional shares in an amount equal to the same
fraction of the Fair Market Value price per share of the Common Stock at the
close of business on the Conversion Date. "Fair Market Value" shall mean (i) in
the case of a security listed or admitted to trading on any securities exchange,
the last reported sale price, regular way (as determined in accordance with the
practices of such exchange), on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day (and in the case of
a security traded on more than one national securities exchange, at such price
or such average, upon the exchange on which the volume of trading during the
last calendar year was the greatest), (ii) in the case of a security not then
listed or admitted to trading on any securities exchange, the last reported sale
price on such day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a reputable quotation
service designated by the Company, (iii) in the case of a security not then
listed or admitted to trading on any securities exchange and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or the Wall Street Journal, or if there are no bids and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 days prior to the date in
<PAGE>
question) for which prices have been so reported, and (iv) in the case of a
security determined by the Company's Board of Directors as not having an active
quoted market or in the case of other property, such fair market value as shall
be determined by the Board of Directors. The determination as to whether any
fractional shares are issuable shall be based upon the total number of
Debentures being converted at any one time by any holder thereof, not upon each
Debenture being converted.
(i) Reservation of Common Stock. The Company at all times shall reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the Debentures, such
number of its shares of Common Stock as from time to time shall be sufficient to
effect the conversion of all outstanding Debentures.
Section 2 Redemption.
(a) Redemption at the Option of the Company. The Debentures shall not
be redeemable or otherwise subject to prepayment by the Company at any time
prior to the first anniversary of the Issue Date. On and after the first
anniversary of the Issue Date and at any time prior to the Maturity Date, at the
option of the Company, the Company may fix a date (the "Redemption Date") on
which it shall redeem all (but not less than all) of the then outstanding
Debentures by paying in cash to the holders thereof and in respect of each One
Hundred Dollars ($100.00) in principal amount of Debentures tendered to the
Company for redemption, the Redemption Price (as defined below), but only in the
event that the average bid price of the Common Stock exceeds Nine Dollars
($9.00) per share (without giving effect to any stock splits, stock dividends or
recapitalizations after December 31, 1997), with respect to each of the twenty
(20) consecutive Trading Days (as defined below) immediately preceding the date
of the Redemption Notice (as defined in Section 2(b) below). A holder of the
Debentures may elect, by written notice delivered to the Company not less than
ten (10) days prior to the Redemption Date, to waive its right to have redeemed
all (but not less than all) of the Debentures held by such holder which are
eligible to be redeemed on such Redemption Date, provided that on such
Redemption Date each such Debenture which is not redeemed shall be converted
automatically into shares of Common Stock at the Conversion Price then in effect
on such Redemption Date. The term "Trading Day" shall mean any day other than
Saturday or Sunday on which national securities exchanges are open for trading
and trades in the Common Stock occur. The term "Redemption Price" shall mean an
amount per One Hundred Dollars ($100.00) in principal amount of Debentures equal
to (A) for any redemption pursuant to clause (i) above, an amount equal to One
Hundred Dollars ($100.00) plus an amount equal to all interest payments then due
but unpaid (including interest thereon); and (B) for any redemption pursuant to
clause (ii) above, One Hundred Five Dollars ($105.00) plus an amount equal to
all interest payments then due but unpaid (including interest thereon), in each
case up to and including the Redemption Date.
(b) Procedures for Redemption of the Debentures. At least thirty (30)
days but not more than forty-five (45) days prior to the Redemption Date the
Company shall mail a written notice, first class postage prepaid, to each holder
of record at the close of business on the business day preceding the day on
which notice is given, of the Debentures to be redeemed, at the address last
shown on the records of the Company for such holder, notifying such holder of
the redemption to be effected, specifying (i) that all Debentures shall be
redeemed from such holder, (ii) the Redemption Date, (iii) the Redemption Price,
(iv) the place at which payment may be obtained, (v) advising such holder of its
right to elect to waive its right to have all (but not less than all) such
shares redeemed and that, if such election is made, such Debentures which are
not redeemed shall be converted automatically into shares of Common Stock at the
<PAGE>
Conversion Price then in effect (setting forth such Conversion Price), and (vi)
calling upon such holder to surrender to the Company, in the manner and at the
place designated, the Debentures to be redeemed (the "Redemption Notice"). On or
after the Redemption Date, each holder of the Debentures to be redeemed shall
surrender to the Company Debentures, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such Debentures
shall be payable to the order of the person whose name appears on the Company's
register of Debentures as the owner thereof and, upon payment in full of the
Redemption Price, each surrendered Debenture shall be discharged. From and after
each Redemption Date, unless there shall have been a default in payment of the
Redemption Price, any of the Debentures redeemed on such Redemption Date shall
not be entitled to any further rights as Debentures and shall not be deemed
outstanding for any purpose.
Section 3 Notices of Record Date. In the event of any:
(a) taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase, or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(b) capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger, consolidation,
or share exchange of the Company, or any transfer of all or substantially all
the assets of the Company to any other corporation, or any other entity or
person; or
(c) voluntary or involuntary dissolution, liquidation, or winding
up the Company;
then and in each such event the Company shall mail or cause to be mailed to each
holder of the Debentures a notice specifying (i) the record date for such
dividend, distribution, or right and a description of such dividend,
distribution, or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger, share
exchange, dissolution, liquidation, or winding up is expected to become
effective, and (iii) the time, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, share exchange, dissolution,
liquidation, or winding up. Such notice shall be mailed at least ten (10) days
prior to the date specified in such notice on which such action is to be taken.
If the indebtedness represented by this Debenture or any part thereof
is placed in the hands of attorneys for collection after an Event of Default, or
the enforcement of any rights under the Exchange Agreement, the Company agrees
to pay the principal, premium if any, and interest due and payable hereon, and
an amount equal to all costs of collecting this Debenture, including reasonable
attorneys' fees and expenses.
Section 4 No Dilution or Impairment. The Company will not, by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Debentures set forth herein, but will
at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Debentures against dilution or other
impairment.
<PAGE>
This Debenture and said Exchange Agreement are governed by and
construed in accordance with the laws of Tennessee.
[Corporate Seal] BERGER HOLDINGS, LTD.
ATTEST: By:
- ------------------------
----------------------------
Secretary Joseph F. Weiderman, President
<PAGE>
EXHIBIT B
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II)
IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE ACT
AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
Warrant No. RA-1
This Stock Purchase Warrant Amends, Restates and Supersedes
the Stock Purchase Warrant Dated as of December 31, 1997
in favor of Sirrom Capital Corporation
AMENDED AND RESTATED STOCK PURCHASE WARRANT
This Warrant is issued this 1st day of January, 1999, by BERGER
HOLDINGS, LTD., a Pennsylvania corporation (the "Company"), to SIRROM CAPITAL
CORPORATION d/b/a Tandem Capital, a Tennessee corporation ("Tandem" which,
together with any subsequent assignee or transferee hereof is hereinafter
referred to collectively as "Holder" or "Holders").
AGREEMENT:
A. Issuance of Warrant; Term. For and in consideration of SIRROM CAPITAL
CORPORATION d/b/a Tandem Capital, purchasing from the Company its 12.25%
Subordinated Debenture due December 31, 2003, in the initial principal amount of
Two Million Dollars (the "Debenture") pursuant to the terms of a Debenture
Purchase December 17, 1997, among the Company, Tandem and Argosy Investment
Partners, L.P. ("Argosy") (the "Debenture Purchase Agreement"), and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to purchase Two
Hundred Forty Thousand (240,000) shares of the Company's common stock, par value
$.01 per share (the "Common Stock"). The shares of Common Stock issuable upon
exercise of this Warrant are hereinafter referred to as the "Shares." The number
of such shares and the Exercise Price (as defined below) are subject to
adjustment as provided herein. The term "Warrant" as used herein includes this
Warrant and any warrants delivered in exchange therefor as provided herein. This
Warrant shall be exercisable at any time and from time to time during the term
commencing on the date hereof and ending at 5:00 p.m. Eastern Standard Time on
December 31, 2003.
B.
<PAGE>
C. Exercise Price. The exercise price (the "Exercise Price") per share for
which all or any of the Shares may be purchased pursuant to the terms of this
Warrant shall be Four Dollars and Twenty-Five Cents ($4.25), as adjusted from
time to time pursuant to Section 7 hereof.
D.
E. Exercise.
F.
1. Manner of Exercise. This Warrant may be exercised by the Holder hereof
(but only on the conditions hereinafter set forth) as to all or any increment or
increments of one hundred (100) Shares (or the balance of the Shares if less
than 100), upon delivery to the Company at the following address: 805
Pennsylvania Blvd., Feasterville, Pennsylvania 19053 or such other address as
the Company shall designate in a written notice to the Holder hereof, of the
Notice of Exercise in the form of Annex A hereto, duly completed and executed on
behalf of the Holder, together with this Warrant and payment to the Company of
the aggregate Exercise Price of the Shares so purchased. The Exercise Price
shall be payable, at the option of the Holder, (i) by certified or bank check,
(ii) by the surrender by the Holder for cancellation of Debentures or any
portion thereof having an outstanding principal balance at least equal to the
aggregate Exercise Price, or (iii) by a combination of (i) and (ii) above. Upon
exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable, and in any event within ten (10) days thereafter, execute and
deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised, which new Warrant shall in all
other respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which may be
payable in respect of the issuance of this Warrant or the issuance of any Shares
upon exercise of this Warrant.
1. Conversion Rights. In lieu of exercising this Warrant pursuant to
Section 3(a) above, the Holder shall have the right to require the Company to
convert this Warrant, in whole or in part and at any time or times into Shares
(the "Conversion Right"), upon delivery to the Company at its address in Section
3(a) or such other address as the Company shall designate in a written notice to
the Holder hereof, of the Notice of Exercise, with the election to convert duly
completed and executed on behalf of the Holder, together with this Warrant. Upon
exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number of Shares
which is equal to the quotient obtained by dividing (x) the net value of the
number of Shares into which this Warrant is being converted at the time the
Conversion Right is exercised (determined by subtracting the aggregate Exercise
Price for the Shares into which this Warrant is being converted immediately
prior to the exercise of the Conversion Right from a number equal to the product
of (i) the Fair Market Value (as such term is defined in Section 7(e)) per share
as at such time, multiplied by (ii) that number of Shares purchasable upon
exercise of this Warrant (or portion hereof that is being converted at the time
the Conversion Right is exercised) immediately prior to the exercise of the
Conversion Right (taking into account all applicable adjustments pursuant to
Section 7)), by (y) the Fair Market Value per share. Any references in any
<PAGE>
Warrants to the "exercise" of this Warrant, and the use of the term exercise
herein, shall be deemed to include (without limitation) any exercise of the
Conversion Right.
2.
B. Covenants and Conditions. The above provisions are subject to the
following:
C.
1. Securities Laws Compliance. Neither this Warrant nor the Shares have
been registered under the Securities Act of 1933, as amended ("Securities
Act") or any state securities laws ("Blue Sky Laws"). This Warrant has been
acquired for investment purposes and not with a view to distribution or resale
in violation of the registration provisions of the Securities Act; except for
the transfer of the Warrant to one or more wholly-owned subsidiaries of Sirrom
Capital Corporation, which subsidiary(s) shall be an "accredited investor," as
defined in Rule 501(a) under the Securities Act, this Warrant may not be sold or
otherwise transferred without (i) an effective registration statement for such
Warrant under the Securities Act and such applicable Blue Sky Laws, or (ii) an
opinion of counsel, which opinion and counsel shall be reasonably satisfactory
to the Company and its counsel, that registration is not required under the
Securities Act or under any applicable Blue Sky Laws (the Company hereby
acknowledges that Sherrard & Roe, PLC is acceptable counsel). Transfer of the
Shares issued upon the exercise of this Warrant shall be restricted in the same
manner and to the same extent as the Warrant and the certificates representing
such Shares shall bear substantially the following legend:
2.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW
AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any Shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
1. Covenants of the Company. The Company covenants and agrees that all
shares of Common Stock which may be issued upon exercise of this Warrant
will, upon issuance and payment therefor, be legally and validly issued and
outstanding, fully paid and nonassessable, free from all taxes, liens, charges
<PAGE<
with respect to the issuance thereof. The Company further covenants that it
shall at all times during the term of this Warrant reserve and keep available
for issuance upon the exercise of this Warrant such number of authorized but
unissued shares of Common Stock as will be sufficient to permit the exercise in
full of this Warrant and, from time to time, will take all steps necessary to
amend its Articles of Incorporation to provide sufficient reserves of shares of
its Common Stock for issuance upon exercise of the Warrant.
2.
B. Transfer of Warrant.
C.
1. Warrant Register. The Company will maintain a warrant register
containing the names and address of the Holder or Holders. Any Holder of
this Warrant or any portion thereof may change its address as shown on the
warrant register by written notice to the Company requesting such change. Any
notice or written communication required or permitted to be given to the Holder
may be delivered or given by registered or certified mail to such Holder as
shown on the warrant register and at the address shown on the warrant register.
Until this Warrant is transferred on the warrant register of the Company, the
Company may treat the Holder as shown on the warrant register as the absolute
owner of this Warrant for all purposes, notwithstanding any notice to the
contrary.
2.
3. Transferability.Subject to compliance with the provisions of Section 4(a)
hereof, this Warrant may be transferred, in whole or in part, to any person, by
presentation of the Warrant to the Company together with the Notice of
Assignment in the form of Annex B hereto, duly endorsed for transfer. Upon such
presentation for transfer, the Company shall promptly execute and deliver a new
Warrant or Warrants in the form hereof in the name of the assignee(s) and in the
denominations specified in such instructions in the Assignment Form. The Company
shall pay all expenses incurred by it in connection with the preparation,
issuance and delivery of new Warrants under this Section 5.
4.
D. Warrant Holder
Not Shareholder; Rights Offering. Except as otherwise provided herein, this
Warrant does not confer upon the Holder, as such, any right whatsoever as a
shareholder of the Company. Notwithstanding the foregoing, if the Company should
offer to all of the Company's shareholders the right to purchase any securities
of the Company, then all Shares of Common Stock that are subject to this Warrant
shall be deemed to be outstanding and owned by the Holder and the Holder shall
be entitled to participate in such rights offering.
E.
F. Adjustment of Exercise Price and Number of Shares Issuable. The Exercise
Price and the number of shares purchasable hereunder are subject to adjustment
from time to time as follows:
G.
1. Stock Splits, Recapitalization, Etc. If all or any portion of this
Warrant shall be exercised subsequent to any stock split, stock dividend,
recapitalization, combination of shares of the Company, or other similar event
occurring after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate number
and class of shares which such Holder would have received if this Warrant had
been exercised immediately prior to the record date for such stock split, stock
dividend, recapitalization, combination of shares, or other similar event.
<PAGE>
2.
3. Merger, Etc.If the Company at any time merges or consolidates with or into
any other corporation or enters into a similar transaction (other than a merger
in which the Company is the surviving corporation and in connection with which
there is no reclassification or other change in the Common Stock or other
securities of the Company or any issuance of stock, securities or property to
the holders of its outstanding shares of Common Stock), then the Company shall
notify the Holder of any such event and, effective upon the record or other date
of determination of persons affected by such merger, consolidation or similar
transaction, the securities which the Holder would be entitled to receive on the
exercise hereof shall include the kind and amount of securities, cash and
property that would have been held by the Holder if on such determination date
the Holder had been the holder of record of the securities, cash and properties
issuable upon exercise of the Warrant on such determination date (or the right
thereto prior to the effective date thereof). In the event of any merger,
consolidation or similar transaction referred to above in this Section 7(b), the
Company shall, and shall cause any successor corporation as a condition
precedent to such transaction to, execute and deliver to each Holder " a new
Warrant (i) providing that the owner of such Warrant, upon exercise thereof,
shall have the right to purchase the securities as adjusted as described above,
and (ii) containing provisions for subsequent adjustments in a manner and on
terms as nearly equivalent as may be practicable to the adjustments provided for
in this Section 7(b).
4.
5. Adjustment on Certain Dilutive Issues.
6.
6.1 Definitions. For purposes of this Section 7(c), the following
definitions apply:
6.2
(a) "Options" shall mean rights, options, or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible Securities
(as defined below), except for (A) currently exercisable options and
warrants to purchase an aggregate of 1,539,248 shares of Common Stock
outstanding on January 2, 1998 (the "Outstanding Options"); (B) options to
purchase an aggregate of 1,270,000 shares of Common Stock granted or
provided for but not exercisable as of January 2, 1998 (the "Agreed
Options"), (C) rights or options to acquire up to an aggregate of 250,000
shares of Common Stock which may be granted to employees, directors or
consultants to the Corporation at an exercise price of no less than the
Fair Market Value (as defined in Section 5(h) below) on the date of grant
(the "Future Options") and (D) warrants to purchase an aggregate of 350,000
shares of Common Stock granted and reserved for issuance on January 2,
1998 (the "Current Warrants").
(a) "Convertible Securities" shall mean any evidences of indebtedness,
shares of stock (other than Common Stock and the Company's Series A
Convertible Preferred Stock (the "Series A Preferred')) or other
securities convertible into or exchangeable for Common Stock.
<PAGE>
(a) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or deemed to be issued pursuant to Section
7(c)(iii)) by the Corporation after January 2, 1998, other than shares
of Common Stock issued or issuable upon (i) upon conversion of shares
of Series A Preferred Stock or as a dividend or distribution on Series
A Preferred Stock, (ii) upon the exercise of the Outstanding Options;
(iii) upon the exercise of the Agreed Options, (iv) upon the exercise
of any ISOs, or (v) upon the exercise of the Current Warrants.
1.1 Adjustment of Exercise Price. In the event that the
consideration per share (determined pursuant to Section 7(c)(v)
hereof) for an Additional Share of Common Stock issued or deemed to be
issued by the Company is less than the Exercise Price in effect on the
date of, and immediately prior to, the issue of such Additional Share
of Common Stock, then the Exercise Price and the number of shares
shall be adjusted as provided herein.
1.2
1.3 Issue of Options and Convertible Securities. In the event the
Company at any time or from time to time after the Warrant
Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any
class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such
number) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options herefor, the
conversion or exchange of such Convertible Securities, shall
be deemed to be Additional Shares of Common Stock issued as
of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section
7(c)(v) hereof) of such Additional Shares of Common Stock
would be less than the Exercise Price in effect on the date
of and immediately prior to such issue, or such record date,
as the case may be, and provided that in any such case in
which Additional Shares of Common Stock are deemed to be
issued:
1.4
(a) no further adjustments in the Exercise Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(a) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase
or decrease in the consideration payable to the Company, or
decrease or increase in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange thereof, the
Exercise Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible
<PAGE>
Securities, provided, however, that no such adjustment of the
Exercise Price shall affect Common Stock previously issued upon
exercise or conversion of this Warrant;
(a) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities that shall
not have been exercised, the Exercise Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
(i) in the case of Convertible Securities or Options for Common Stock
the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities
and the consideration received therefor was the consideration actually
received by the Company for the issue of all such Options, whether or
not exercised, plus the consideration actually received by the Company
upon such exercise, or for the issue of all such Convertible
Securities that were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Company
upon such conversion or exchange, and
(i) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of
Common Stock deemed to have been then issued was the consideration
actually received by the Company for the issue of all such Options,
whether or not exercised, plus the consideration deemed to have been
received by the Company (determined pursuant to Section 7(c)(v)) upon
the issue of the Convertible Securities with respect to which such
Options were actually exercised;
(a) no readjustment pursuant to Section 7(c)(iii)(2) or (3) above
shall have the effect of increasing the Exercise Price to an amount
which exceeds the lower of (a) the Exercise Price prior to the initial
adjustment to which the readjustment applies, or (b) the Exercise
Price that would have resulted from any issuance of Additional Shares
of Common Stock between the date of the initial adjustment date and
such readjustment date; and
(a) in the eventof any change in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Exercise Price
then in effect shall forthwith be readjusted to such Exercise Price as
would have been obtained had the adjustment which was initially made
upon the issuance of such unexercised Option or unconverted
Convertible Security, been made upon the basis of such subsequent
change, but no further adjustment shall be made for the actual
issuance of Common Stock upon the exercise or conversion of any such
Option or Convertible Security.
<PAGE>
1.1 Adjustment of Exercise Price Upon Issuance of Additional Shares of Common
Stock. In the event the Company at any time after the Warrant Issue Date shall
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 7(c)(iii)), without consideration
or for a consideration per share less than the Exercise Price in effect on the
date of and immediately prior to such issue, then and in such event, the
Exercise Price shall be reduced to a price (calculated to the nearest cent)
determined by multiplying the then current Exercise Price by a fraction the
numerator of which shall be the sum of 1.2
(A) the number of shares of Common Stock
outstanding immediately prior to such issue, plus
(B) the number of shares of Common Stock
which the aggregate consideration received by the Company for
the total number of Additional Shares of Common Stock so
issued would purchase at the Exercise Price in effect
immediately prior to such issuance
and the denominator of which shall be the sum of
(x) the number of shares of Comm immediately prior to such
issue, plus
(y) the number of such Additional Shares of Common Stock so
issued.
For the purpose of the above calculation, the number of shares of Common Stock
outstanding shall be calculated on a fully diluted basis, as if all shares of
Series A Preferred and all other Convertible Securities had been fully converted
into shares of Common Stock immediately prior to such issuance, and any
outstanding warrants, options or other rights for the purchase of shares of
stock or Convertible Securities had been fully exercised immediately prior to
such issuance, and the resulting securities fully converted into shares of
Common Stock, if so convertible as of such date. This calculation shall not
include, however, any Additional Shares of Common Stock issuable with respect to
this Warrant or to shares of Series A Preferred, Convertible Securities or
outstanding options, warrants or other rights for the purchase of shares or
Convertible Securities, solely as a result of adjustment of the Exercise Price
resulting from the issuance of Additional Shares of Common Stock causing such
adjustment.
The provisions of this Section 7(c)(iv) do not apply if the provisions
of any of Section 7(a) or (b) apply.
<PAGE>
1.1 Determination of Consideration. The consideration received by the Company
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
1.2
(a) Cash, Property, and Other Consideration. Such consideration shall:
(i) insofar as it consists of cash, be computed as the aggregate
amount of cash received by the Company excluding amounts paid
or payable for accrued interest or accrued dividends;
(i) insofar as it consists of property, services, or other consideration
other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(i) in the event Additional Shares of Common Stock are issued together
with other shares or securities or other assets of the Company for
consideration which covers both, be the proportion of the
consideration so received, computed as provided in clauses (a) and (b)
above, as is determined in good faith by the Board of Directors.
(a) Options and Convertible Securities. The consideration per share
received by the Company for Additional Shares of Common Stock deemed
to have been issued pursuant to Options and Convertible Securities,
shall be deemed to be the sum of the consideration paid for such
Option or Convertible Security, if any, plus the lowest consideration
per share then payable upon the exercise of Options, as set forth in
the instruments relating to such Options or Convertible Securities,
without regard to any provision contained therein designed to protect
against dilution. If Options or Convertible Securities are issued
together with other securities or instruments of the Company, the
Board of Directors shall determine in good faith the amount of
consideration paid for such Option or Convertible Securities.
1. Certificate as to Adjustments. In each case of any adjustment or readjustment
pursuant to Section 7(a)-(c) of the Exercise Price or the number of shares
issuable pursuant to this Warrant, the Company shall forthwith notify the Holder
or Holders of this Warrant of each such adjustment, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated.
2.
3. No Fractional Shares; Fair Market Value. If any
adjustment pursuant to Section 7(a)-(c) would create a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares subject to this
Warrant shall be the next higher number of shares, rounding all fractions
<PAGE>
upward. "Fair Market Value" per share of Common Stock shall mean (i) in the case
of a security listed or admitted to trading on any securities exchange, the last
reported sale price, regular way (as determined in accordance with the practices
of such exchange), on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day (and in the case of a
security traded on more than one national securities exchange, at such price or
such average, upon the exchange on which the volume of trading during the last
calendar year was the greatest), (ii) in the case of a security not then listed
or admitted to trading on any securities exchange, the last reported sale price
on such day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, as reported by a reputable quotation service
designated by the Company, (iii) in the case of a security not then listed or
admitted to trading on any securities exchange and as to which no such reported
sale price or bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reputable quotation
service, or the Wall Street Journal, or if there are no bids and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the most recent day (not more than 30 days prior to the date in question) for
which prices have been so reported, and (iv) in the case of a security
determined by the Company's Board of Directors as not having an active quoted
market or in the case of other property, such fair market value as shall be
determined by the Board of Directors.
4.
B. Certain Notices. In case at any time the Company shall propose to:
C.
1. declare any cash dividend upon its Common
Stock;
2.
3. declare any dividend upon its Common Stock payable in stock or make
any special dividend or other distribution to the holders of its Common Stock;
4.
5. offer for subscription to the holders of any of its Common Stock any
additional shares of stock in any class or series or other rights;
6.
7. reorganize, or reclassify the capital stock of the Company, or consolidate,
merge or otherwise combine with, or sell of all or substantially all of its
assets to, another corporation;
8.
9. voluntarily dissolve, liquidate or wind up of the affairs of the Company; or
10.
11. redeem or purchase any shares of its capital stock or securities convertible
12. into its capital stock;
13.
14. then, in any one or more of said cases, the Company shall give to the Holder
of the Warrant, by certified or registered mail, (i) at least twenty (20) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
<PAGE>
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
15.
D. Registration Rights. The shares of Common Stock issuable upon exercise of
this Warrant shall be "Registrable Securities" under that certain Registration
Rights Agreement, dated as of the Warrant Issue date, among the Company, Tandem
and Argosy, and the Holder of this Warrant shall be entitled to the benefits of
the Registration Rights Agreement in accordance with its terms.
E.
F. Governing Law
and Amendments. The corporate law of Pennsylvania shall govern all issues
concerning the relative rights of the Company and the holders of its Common
Stock. In all other matters, this Warrant shall be construed and enforced under
the laws of the State of Tennessee. No amendment or modification hereof shall be
effective except in a writing executed by each of the Company and the Holder.
G.
H. Equity Participation. This Warrant is issued in connection with the Debenture
Purchase Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. ss.47-24-101, et seq. and that equity
participation be permitted under said statutes and not constitute interest on
the Debenture. If under any circumstances whatsoever, fulfillment of any
obligation of this Warrant, the Debenture Purchase Agreement, or any other
agreement or document executed in connection with the Debenture Purchase
Agreement, shall violate the lawful limit of any applicable usury statute or any
other applicable law with regard to obligations of like character and amount,
then the obligation to be fulfilled shall be reduced to such lawful limit, such
that in no event shall there occur, under this Warrant, the Debenture Purchase
Agreement, or any other document or instrument executed in connection with the
Debenture Purchase Agreement, any violation of such lawful limit, but such
obligation shall be fulfilled to the lawful limit. If any sum is collected in
excess of the lawful limit, such excess shall be applied to reduce the principal
amount of the Debenture.
<PAGE>
IN WITNESS WHEREOF, Berger Holdings, Ltd. has caused this Warrant to be
executed by its duly authorized officer as of the date first above written.
A.
B. BERGER HOLDINGS, LTD.
C.
D. By: __________________________
F.
G. Name:_________________________
H.
I. Title:________________________
J.
K.HOLDER:
L.
M.SIRROM CAPITAL CORPORATION
N.d/b/a Tandem Capital
O.
P.
Q.By:____________________________
R. Craig Macnab, Vice President
S.
<PAGE>
ANNEX A
NOTICE OF EXERCISE
To: BERGER HOLDINGS, LTD.
(1) The undersigned hereby:
[Initial and complete one]
(a) _____ elects to purchase __________ shares of Common
Stock of BERGER HOLDINGS, LTD., pursuant to the
provisions of Section 3(a) of the attached Warrant,
and tenders herewith payment of the purchase price in
full for such shares in the amount of $__________; or
(b) _____ elects to exercise this Warrant for the
purchase of __________ shares of Common Stock,
pursuant to the conversion right set forth in Section
3(c) of the attached Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon
conversion thereof are being acquired solely for the account of the
undersigned, and for investment, and that the undersigned will not
offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any applicable state securities
laws.
(3) Please issue a certificate(s) representing said shares of Common Stock
in the name of the undersigned or in such other name as is specified
below:
___________________________
(Name)
___________________________
(Name)
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is
specified below:
___________________________
(Name)
_____________________________ ___________________________
(Date) (Signature)
<PAGE>
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint Attorney ____________________
to make such transfer on the books of BERGER HOLDINGS, LTD., maintained for the
purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant or
any shares of stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws. Further, the Assignee has acknowledged that upon exercise of
this Warrant, the Assignee shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of stock so
purchased are being acquired for investment and not with a view toward
distribution or resale in violation of the registration provisions of the
Securities Act or any state securities laws.
Dated:________________________ ___________________________
Signature of Holder
<PAGE>
EXHIBIT C
DEBENTURE
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS, OR (ii) IN THE
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH TRANSFER.
Berger Holdings, Ltd.
12.25% Subordinated Debenture Due December 31, 2003
This Debenture Amends, Restates and Supersedes the Debenture
Dated as of December 31, 1997 in favor of Sirrom Capital Corporation
No. RA-1 January 1, 1999
$2,000,000
For value received, Berger Holdings, Ltd., a Pennsylvania corporation
(the "Company"), hereby promises to pay to Sirrom Capital Corporation at Tandem
Capital, Inc. 500 Church Street, Suite 200, Nashville, Tennessee 37219, or
registered assigns, on the 31st day of December, 2003, the principal amount of
Two Million Dollars ($2,000,000) and to pay interest (computed on the basis of a
360-day year of twelve 30-day months) on the principal amount from time to time
remaining unpaid hereon at the rate of (a) 12.25% per annum from the date hereof
until January 1, 2003, and (b) 20% per annum from January 2, 2003, until
maturity, payable in each case quarterly on the first day of each February, May,
August, and November in each year, commencing February 1, 1999, and at maturity.
The Company agrees to pay interest (computed on the same basis) on overdue
principal and premium, if any, and (to the extent legally enforceable) on any
overdue installment of interest, at the stated rate plus 3% per annum (or, in
each case, at the highest rate permitted by applicable law, whichever is less)
until paid.
Both the principal hereof and interest hereon are payable to the order
of the holder hereof at its address registered on the books of the Company or by
federal funds wire transfer to a bank account designated in writing by the
holder to the Company in coin or currency of the United States of America which
at the time of payment shall be legal tender for the payment of public and
private debts. If any amount of principal, premium, if any, or interest on or in
respect of this Debenture becomes due and payable on any date which is not a
<PAGE>
Business Day, such amount shall be payable on the next preceding Business Day.
"Business Day" means any day other than a Saturday, Sunday, statutory holiday or
other day on which banks in Tennessee are required by law to close or are
customarily closed.
This Debenture is one of the 12.25% Subordinated Debentures due
December 31, 2003 of the Company in the aggregate principal amount of
$2,500,000, issued under and pursuant to the terms and provisions of the
Debenture Purchase Agreement, dated as of December 17, 1997 (the "Debenture
Agreement") and amended and restated pursuant to the terms and provisions of an
Exchange Agreement, dated as of January 1, 1999 (the "Exchange Agreement") both
of which entered into by the Company with the original purchasers referred to
therein, and this Debenture and the holder hereof are entitled, equally and
ratably with the holders of all other Debentures outstanding under the Debenture
Agreement, to all the benefits provided for thereby or referred to therein, and
to which Debenture Agreement reference is hereby made for all such terms and
provisions.
This Debenture is subordinated to certain other indebtedness of the
Company to the extent and with the effect set forth in the Debenture Agreement.
If an Event of Default, as defined in the Debenture Agreement, occurs
and is continuing, the principal of this Debenture and the other Debentures
outstanding under the Debenture Agreement may be declared due and payable in the
manner and with the effect provided in the Debenture Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company at
805 Pennsylvania Blvd., Feasterville, Pennsylvania 19053, or such other address
as the Company shall have advised the holders of the Debenture in writing, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Debenture or its attorney duly authorized in writing
and in accordance with the provisions of Section 7.2 of the Debenture Agreement.
Payment of or on account of principal, premium, if any, and interest on this
Debenture shall be made only to or upon the order in writing of the registered
holder.
If the indebtedness represented by this Debenture or any part thereof
is placed in the hands of attorneys for collection after an Event of Default, or
the enforcement of any rights under the Debenture Agreement, the Company agrees
to pay the principal, premium if any, and interest due and payable hereon, and
an amount equal to all costs of collecting this Debenture, including reasonable
attorneys' fees and expenses.
This Debenture, the Debenture Agreement and the Exchange Agreement are
governed by and construed in accordance with the laws of Tennessee.
[Corporate Seal] BERGER HOLDINGS, LTD.
ATTEST: By:
- ---------------------------- -------------------------------
Secretary Joseph F. Weiderman, President
<PAGE>
EXHIBIT D
DEBENTURE
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS, OR (ii) IN THE
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH TRANSFER.
Berger Holdings, Ltd.
12.25% Subordinated Debenture Due December 31, 2003
This Debenture Amends, Restates and Supersedes the
Debenture Dated as of December 31, 1997 in favor of Argosy
Investment Partners, L.P.
No. RA-2 January 1, 1999
$500,000
For value received, Berger Holdings, Ltd., a Pennsylvania corporation
(the "Company"), hereby promises to pay to Argosy Investment Partners, L.P., 950
West Valley Road, Suite 2902, Wayne, Pennsylvania 19087, or registered assigns,
on the 31st day of December, 2003, the principal amount of Five Hundred Thousand
Dollars ($500,000) and to pay interest (computed on the basis of a 360-day year
of twelve 30-day months) on the principal amount from time to time remaining
unpaid hereon at the rate of (a) 12.25% per annum from the date hereof until
January 1, 2002, (b) 19.25% per annum from January 2, 2002, until January 1,
2003 and (c) 14% per annum from January 2, 2003, until maturity, payable in each
case quarterly on the first day of each February, May, August, and November in
each year, commencing February 1, 1999, and at maturity. The Company agrees to
pay interest (computed on the same basis) on overdue principal and premium, if
any, and (to the extent legally enforceable) on any overdue installment of
interest, at the stated rate plus 3% per annum (or, in each case, at the highest
rate permitted by applicable law, whichever is less) until paid.
Both the principal hereof and interest hereon are payable to the order
of the holder hereof at its address registered on the books of the Company or by
federal funds wire transfer to a bank account designated in writing by the
holder to the Company in coin or currency of the United States of America which
at the time of payment shall be legal tender for the payment of public and
<PAGE>
private debts. If any amount of principal, premium, if any, or interest on or in
respect of this Debenture becomes due and payable on any date which is not a
Business Day, such amount shall be payable on the next preceding Business Day.
"Business Day" means any day other than a Saturday, Sunday, statutory holiday or
other day on which banks in Tennessee are required by law to close or are
customarily closed.
This Debenture is one of the 12.25% Subordinated Debentures due
December 31, 2003 of the Company in the aggregate principal amount of
$2,500,000, issued under and pursuant to the terms and provisions of the
Debenture Purchase Agreement, dated as of December 17, 1997 (the "Debenture
Agreement") and amended and restated pursuant to the terms and provisions of an
Exchange Agreement, dated as of January 1, 1999 (the "Exchange Agreement") both
of which entered into by the Company with the original purchasers referred to
therein, and this Debenture and the holder hereof are entitled, equally and
ratably with the holders of all other Debentures outstanding under the Debenture
Agreement, to all the benefits provided for thereby or referred to therein, and
to which Debenture Agreement reference is hereby made for all such terms and
provisions.
This Debenture is subordinated to certain other indebtedness of the
Company to the extent and with the effect set forth in the Debenture Agreement.
If an Event of Default, as defined in the Debenture Agreement, occurs
and is continuing, the principal of this Debenture and the other Debentures
outstanding under the Debenture Agreement may be declared due and payable in the
manner and with the effect provided in the Debenture Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company at
805 Pennsylvania Blvd., Feasterville, Pennsylvania 19053, or such other address
as the Company shall have advised the holders of the Debenture in writing, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Debenture or its attorney duly authorized in writing
and in accordance with the provisions of Section 7.2 of the Debenture Agreement.
Payment of or on account of principal, premium, if any, and interest on this
Debenture shall be made only to or upon the order in writing of the registered
holder.
If the indebtedness represented by this Debenture or any part thereof
is placed in the hands of attorneys for collection after an Event of Default, or
the enforcement of any rights under the Debenture Agreement, the Company agrees
to pay the principal, premium if any, and interest due and payable hereon, and
an amount equal to all costs of collecting this Debenture, including reasonable
attorneys' fees and expenses.
This Debenture, the Debenture Agreement and the Exchange Agreement are
governed by and construed in accordance with the laws of Tennessee.
[Corporate Seal] BERGER HOLDINGS, LTD.
ATTEST: By:
- ---------------------------- -------------------------------
Secretary Joseph F. Weiderman, President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 262,522
<SECURITIES> 0
<RECEIVABLES> 3,816,756
<ALLOWANCES> 30,000
<INVENTORY> 6,322,610
<CURRENT-ASSETS> 11,299,562
<PP&E> 18,334,626
<DEPRECIATION> 7,422,510
<TOTAL-ASSETS> 34,406,071
<CURRENT-LIABILITIES> 4,578,277
<BONDS> 0
0
0
<COMMON> 54,045
<OTHER-SE> 11,261,183
<TOTAL-LIABILITY-AND-EQUITY> 34,406,071
<SALES> 8,207,982
<TOTAL-REVENUES> 8,207,982
<CGS> 6,608,654
<TOTAL-COSTS> 6,608,654
<OTHER-EXPENSES> 1,201,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473,773
<INCOME-PRETAX> 72,497
<INCOME-TAX> (26,000)
<INCOME-CONTINUING> 46,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,497
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
