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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-Q
____________________
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 31, 1995
Commission File Number 0-16072
DECORA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 68-0003300
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MILL STREET
FORT EDWARD, NY 12828
(address of principal executive office) (Zip code)
Registrant's telephone number (518) 747-6255
(including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 30 days.
Yes X No
--- ---
At February 9, 1996 there were 34,429,390 shares of Common Stock of the
registrant outstanding. This document consists of 16 pages.
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FORM 10-Q
DECORA INDUSTRIES, INC.
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements.
Unaudited Consolidated Balance Sheets
as of December 31, 1995 and March 31, 1995 3 - 4
Unaudited Consolidated Statements of
Operations for the Nine Months and Quarters
Ended December 31, 1995 and 1994 5
Unaudited Consolidated Statements of
Cash Flows for the Nine Months Ended
December 31, 1995 and 1994 6
Notes to Unaudited Consolidated
Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9 - 13
PART II OTHER INFORMATION 14
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SIGNATURES 16
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FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
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DECEMBER 31, 1995 MARCH 31, 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 235 $ 309
Accounts receivable, less allowances 7,272 2,941
Inventories (Note 2) 5,919 4,874
Net current assets of discontinued
Operations - ComTel (Note 3) 274 -
Prepaid expenses and other current assets 1,027 503
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Total current assets 14,727 8,627
Property and equipment, net 8,961 7,646
Notes receivable 1,560 1,560
Intangibles, net & other assets 11,682 11,788
Deferred income taxes 1,400 1,400
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Total Assets $38,330 $31,021
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See accompanying notes to unaudited consolidated financial statements.
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FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
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December 31, 1995 March 31, 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,042 $ 2,840
Accrued liabilities 1,501 1,791
Current portion of long-term debt (Note 4) 11,848 3,157
Net current liabilities of discontinued
operations - ComTel - 601
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Total current liabilities 17,391 8,389
Long-term debt 10,525 15,006
Net non-current liabilities of discontinued
operations - Yorkville - 1,520
Other non-current liabilities 343 285
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Total liabilities 28,259 25,200
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Warrants in subsidiary 1,735 1,425
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Shareholders' equity:
Common stock, $.01 par value; 45,000,000 shares authorized;
34,429,390 and 30,717,737 shares issued and outstanding 344 307
Additional paid-in capital 31,045 28,288
Accumulated deficit (23,053) (24,199)
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Total shareholders' equity 8,336 4,396
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Total Liabilities and Shareholders' Equity $ 38,330 $ 31,021
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See accompanying notes to unaudited consolidated financial statements.
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FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
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QUARTER ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
--------------------------- ------------------------------
1995 1994 1995 1994
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Revenues $10,247 $8,955 $29,449 $30,517
Cost of goods sold 7,187 5,929 21,501 21,849
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Gross profit 3,060 3,026 7,948 8,668
Marketing, general and
administrative expense 1,730 2,124 4,641 5,510
------- ------ ------- -------
Operating income 1,330 902 3,307 3,158
Interest expense 734 670 2,117 1,782
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Income from continuing
operations before taxes 596 232 1,190 1,376
Provision for taxes 16 16 44 70
------- ------ ------- -------
Income from continuing operations 580 216 1,146 1,306
(Loss) from discontinued
operations - ComTel - (195) - (283)
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Net income $ 580 $ 21 $ 1,146 $ 1,023
======= ====== ======= =======
Income (loss) per common share (Note 5):
Continuing operations $ 0.02 $ 0.01 $ 0.04 $ 0.04
Discontinued operations - ($0.01) - ($ 0.01)
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Net Income $ 0.02 $ 0.00 $ 0.04 $ 0.03
======= ====== ======= =======
Average shares of common stock used in
computation of income (loss) per
share 32,382 30,566 31,576 30,240
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See accompanying notes to unaudited consolidated financial statements.
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FORM 10-Q
DECORA INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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NINE MONTHS ENDED DECEMBER 31,
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1995 1994
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Cash flows from operating activities:
Net income $ 1,146 $ 1,023
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,258 1,219
Amortization of debt discount 336 196
Accretion of put warrants 310 -
Net changes in current assets and liabilities: (4,930) (2,736)
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Net cash (used) by operating activities (1,880) (298)
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Cash flows from investing activities:
Purchase of fixed assets (2,304) (797)
Increase (decrease) in net assets and
liabilities of discontinued operations (2,395) (249)
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Net cash (used) by investing activities (4,699) (1,046)
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Cash flows from financing activities:
Long-term borrowings 788 7,572
Short-term borrowings 4,460 -
Repayment of debt (990) (750)
Stock issued in satisfaction of debt 1,744 -
Stock issued in connection with extension of debt 500 -
Deferred debt issuance cost (197) -
Conversion of Long-term debt (350) -
Liabilities settled in refinancing - (6,284)
Proceeds from issuance of common stock 550 675
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Net cash provided by financing activities 6,505 1,213
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Net (decrease) in cash (74) ( 131)
Cash at beginning of period 309 320
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Cash at end of period $ 235 $ 189
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See accompanying notes to unaudited consolidated financial statements.
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FORM 10-Q
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Integration of Financial Statements Reported on Form 10-K
The accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the Company's audited consolidated financial
statements included in its Form 10-K for the fiscal year ended March 31, 1995,
filed with the Securities and Exchange Commission (File No. 0-16072) (the "Form
10-K"). In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position as of December 31,
1995 and March 31, 1995, and the results of its operations and cash flows for
the periods presented. Certain reclassifications of prior year amounts have
been made to conform to the current year's presentation.
NOTE 2 - Inventories
Inventories at December 31, 1995 and March 31, 1995 consisted of the following:
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DECEMBER 31, 1995 MARCH 31, 1995
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(In thousands)
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Raw Materials $3,701 $2,593
Work-in-Process 1,394 1,250
Finished Goods 824 1,031
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$5,919 $4,874
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NOTE 3 - Sale of ComTel
As more fully described in the Form 10-K, on June 14, 1995, the Company
completed the sale of the fixed assets and inventory related to the last
remaining division of ComTel's business. The selling price was $1,370,000
(consisting of $1,100,000 cash and a note for $270,000) plus the assumption of
$75,000 of liabilities. The note receivable bears interest at 10% payable
semiannually, and was to be repaid quarterly until December 1995 based on usage
of purchased inventory. As of December 31, 1995, $198,000 of such note was
paid and the Company is taking legal action with respect to verification of
remaining inventory and repayment of the remaining $72,000 balance of the note.
In addition, in conjunction with the sale, claims on ComTel's assets with
respect to a $300,000 note payable to a customer were forgiven except for
$50,000 which was repaid during the quarter ended December 31, 1995. The
transactions resulted in a loss approximating $540,000 with respect to the book
value of the related assets at that date which was reserved for on the
Company's financial statements as of March 31, 1995.
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FORM 10-Q
Certain remaining notes and accounts receivable were not sold to the buyers and
certain liabilities of the ComTel businesses, which were not guaranteed by the
holding Company, were not assumed by the buyers of those business units. The
Company is in the process of collecting such remaining notes and receivables
and settling such liabilities. Any net losses which Management anticipated
incurring during this process were provided for at March 31, 1995, however, no
assurances can be given that management's estimate of such losses will be
accurate. At this time, Management anticipates that no further net losses are
expected to be incurred with respect to the ComTel operations.
The results of operations of ComTel have been reported as discontinued
operations in the accompanying financial statements.
NOTE 4 - Current Portion of Long Term Debt
As of December 31, 1995, Current Portion of Long Term Debt of $11,848,000
included a $4,000,000 scheduled principal payment to the Company's subordinated
lender, CIGNA, on April 15, 1996; $6,000,000 of the Company's revolving line of
credit which currently expires on July 31, 1996 and $1,848,000 of scheduled
bank term loan payments over the next twelve months. Management is currently
in negotiations with CIGNA regarding extension of the amount due in April and
believes that it will be successful in such negotiations. The Company is also
in discussions with the Company's senior lender regarding renewal of the
revolving line of credit for an additional two year period which it believes
will occur in the ordinary course of business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for a detailed discussion of the increase of the current
portion of long term debt during the period.
NOTE 5 - Earnings per Share
The number of shares of common stock and common stock equivalents used in the
computation of earnings per share for each period is the weighted average
number of shares outstanding during the periods and, if dilutive, common stock
options, warrants and convertible securities which are common stock
equivalents.
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FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's financial statements include the consolidated financial position
at December 31, 1995 and March 31, 1995 and the consolidated results of
operations for the quarters and nine month periods ended December 31, 1995 and
1994 of Decora Industries, Inc. and its subsidiaries (the "Company" unless the
context otherwise indicates). The Company operates through its wholly-owned
subsidiary, Decora, Incorporated ("Decora"), which is the Company's only
operating subsidiary.
During the first nine months of fiscal 1996, the Company accomplished the
following key operational achievements: it completed the integration of its
newly acquired manufacturing operations from Rubbermaid; it successfully
introduced an enhanced self-adhesive product offering to the European market as
well as additional proprietary decorative products to the U.S. wallcoverings
and arts & crafts markets; it has refocused with Rubbermaid the program of
decorative Con-Tact(R) products in the housewares market thereby allowing the
Company to pursue specialty products in other markets and it reached a more
mature market acceptance of its Wearlon(R) liquid coating system thereby
enabling strategic distribution discussion with various potential partners in
several markets.
During the first half of fiscal 1996, the Company completed a significant
expansion of its manufacturing operations in order to fulfill the requirements
of an expanded manufacturing agreement with its largest customer, Rubbermaid
Incorporated, which was signed on April 17, 1995. With the new operations,
the Company now performs final consumer packaging steps for ConTact(R)
decorative products. These operations had previously taken place at a
Rubbermaid facility in North Carolina and during May, June and July, the
Company relocated and installed the machinery and started up the finishing
operation in its Fort Edward, NY facility. Absorption of these operations
required significant capital investment, higher operating expenses and reduced
interim production volume. Management believes that such expansion and
integration of finishing steps will add to its control over the cost of the
products making them more competitive in the market and contributing to the
Company's overall growth and profitability. Additionally, as a result of
the consolidation of all manufacturing steps in one location, goods previously
sold to Rubbermaid and located in their facilities as buffer inventories were
sold to customers at the expense of additional production by the Company.
While more gradual absorption of such buffer inventory was anticipated,
Rubbermaid sold the majority during the nine months resulted in significantly
reduced volume for the period versus the prior year. Rubbermaid continues to
focus on reducing overall inventory levels with a short term focus on
housewares products, including those purchased from the Company, which efforts
may negatively affect the volume of products sold by the Company to Rubbermaid.
In addition to the manufacturing expansion described above, during the first
half of the year the Company redefined its product offering to Rubbermaid under
which a more focused decorative covering and shelf liner product line for the
housewares market was adopted, allowing Decora to expand sales of products
targeted to other markets through other distribution alternatives while
focusing new product introductions for Rubbermaid in the housewares segment.
As a result, sales of specialty products to Rubbermaid approximating $1.8
million in the same nine month period in the prior year were not purchased by
Rubbermaid; however, during the third quarter, the Company shipped over $1.7
million of new decorative products to its other strategic distributors.
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FORM 10-Q
RESULTS OF CONTINUING OPERATIONS AND FORWARD LOOKING INFORMATION
NINE MONTHS ENDED DECEMBER 31, 1995 VS. NINE MONTHS ENDED DECEMBER 31, 1994.
Revenue of the Company was $29,449,000 for the nine months ended December 31,
1995 compared to $30,517,000, or 3.5% lower, for the same period in the prior
year. As noted above, a significant portion of this decline resulted from
Rubbermaid's absorption of buffer inventories of products purchased from the
Company which are no longer required as a result of the integration of product
finishing operations at the Company's Fort Edward facility. Core revenues also
were adversely impacted by inventory imbalances during the peak summer season
which coincided with the relocation of finishing operations to the Company's
Fort Edward facility and distribution operations to Rubbermaid's Ohio
facilities. The volume of products sold to Rubbermaid was also impacted by
Rubbermaid's decision to focus on Con-Tact(R) shelving and decorative products
for the housewares market, and to discontinue non-housewares specialty
products, including the Company's FabriArt(TM) self-adhesive textile products
and KidScape(TM) juvenile border and mural products. While the Company now has
the ability to take these products to new distribution channels, in the short
term, minimal sales of such products to Rubbermaid during the recent nine
months resulted in $1.8 million lower sales from the levels experienced in the
prior year's period. All of the above factors resulted in the volume of
products sold to Rubbermaid that was 16% lower during the recent nine months
versus the same period in the prior year. Such decline was partially offset by
the additional value added to the products by the new finishing operations
since June resulting in only a 4% decline in revenues from products sold to
Rubbermaid during the period.
Revenue from international sales of self adhesive decorative products for the
nine months ended December 31, 1995 increased by $717,000, or 80% over the same
period last year primarily as a result of sale of the initial stocking order of
the Company's new European line to its distribution partner, Friedola in
November and December. Such products were successfully introduced at the
Heimtextil trade fair in January and the Company anticipates reorders for such
products to begin during the first quarter of fiscal 1997. Sales to other
international customers were lower as a result of the inability to package and
ship products during the move and start-up of the new finishing operations in
the Company's facility.
Sales of self-adhesive wall covering and thin film products were $589,000
during the nine month period ended December 31, 1995. During the same period
in the prior year, sales of such products totaled $767,000 which included
certain products which were subsequently discontinued for profitability
reasons and are thus not included in the current year's results. During the
current period, the Company emphasized developing new designs and refining
commercial manufacturing processes for continued products shipments of which
began during the third quarter. Management anticipates increasing such volume
during the fourth quarter.
Revenues from industrial products for the recent nine month period were
$388,000, or $427,000 lower than for the same period last year primarily as a
result of a $565,000 reduction in revenue from a less profitable release liner
product line which was discontinued in September 1994. This decline, in
addition to a decline in revenues of the Company's Cobra(R) tape line, was
partially offset by an increase in sale of Wearlon(R) liquid coating sales and
sales of other industrial products including self-adhesive coated substrates
for the graphic arts industry.
Management believes that revenues for its new wall covering and thin film
products will continue to grow during the fourth quarter, however, uncertainty
remains regarding revenue levels to be expected from its core product line
during the remainder of the year due to the uncertain retail environment and
the potential for further inventory contraction at Rubbermaid. Such impact has
already been felt during the month of January when revenues from
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FORM 10-Q
the Company's largest customer fell below expectations. As noted above,
Management also anticipates that significant reorders of its European products
will not begin until the spring of 1996 following the line's introduction at
various trade shows during the fourth quarter. Management continues to place
efforts on broadening its product offering to more diversified consumer market
segments including the reintroduction of products recently discontinued by
Rubbermaid with distribution partners having critical emphasis in the arts and
crafts and juvenile wall covering segments and continued growth of its new wall
covering, thin film and international products.
Gross profit for the nine months ended December 31, 1995 versus the prior
year's period was $720,000 lower. The Company's gross margin percentage
declined from 28.4% in the prior year to 27.0% in the recent nine month period
as a result of the addition and start-up of the new manufacturing operations
which adversely impacted gross margins and the inclusion of certain costs in
costs of good sold which had been developmental expenses in the prior year.
Marketing, general and administrative expenses were lower during the nine
months ended December 31, 1995 versus the prior year by $869,000 as a result of
lower research and product development expenditures and the transition of
certain new product processes from the developmental stage in the prior year to
ordinary costs of goods sold in the current year. As a result of the above
changes, operating income for the recent nine month period increased to
$3,307,000 from $3,158,000 during the same period in the prior year. Research
and development activities are at lower levels than in previous years as
Management is now placing more focus on the sale and marketing of products
derived from the Company's established technologies.
Income from continuing operations for the nine months ended December 31, 1995
was $1,146,000 versus $1,306,000 for the same period in the prior year. The
increase in operating income noted above was offset principally by a $335,000
increase in interest expense as a result of increased borrowings on the
Company's revolving line of credit and a $310,000 increase in the non-cash
accretion of the Warrants in Subsidiary liability subject to a put option in
April 1997. Such increased interest expense was partially offset by a small
reduction of the tax provision. No loss from discontinued operations was
recorded during the current period resulting in net income for the nine months
ended December 31, 1995 of $1,146,000, or $0.04 per share, versus $1,023,000,
or $0.03 per share for the nine months ended December 31, 1994.
QUARTER ENDED DECEMBER 31, 1995 VERSUS QUARTER ENDED DECEMBER 31, 1994
Revenue for the quarter ended December 31, 1995 increased 14% from $8,955,000
for the quarter ended December 31, 1994 to $10,247,000 for the quarter ended
December 31, 1995. An 11% decrease in the volume of products sold to the
Company's principal customer was offset by the increased value added of the new
finishing operations and the sale of certain discontinued product inventory
resulting in a 5% increase in revenues to Rubbermaid. Revenues from
international sales of self-adhesive decorative products during the quarter
were $841,000 more than the levels achieved in the same quarter of the prior
year reflecting the shipment of the initial order of the new European line to
Friedola. Sales of thin film, and self-adhesive wall covering products
increased 2% during the quarter versus the prior year period as the Company
began shipment of new designs to Norwall. Although they remain a relatively
small base, revenue from the Company's industrial products, including self
adhesive substrates and the Company's proprietary Wearlon(R) liquid coatings,
also contributed to the increase in revenues during the current quarter.
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FORM 10-Q
Gross profit for the quarter ended December 31, 1995 was $3,060,000 versus
gross profit of $3,026,000 for the same quarter in the prior year. Gross
profit was higher as a result of increased sales volume but did not increase
proportionately with sales volume as a result of a lower margin product mix
(see nine month discussion above), negative manufacturing variances relating to
new manufacturing operations and the inclusion of former development costs as
part of costs of goods sold. The year-to-year comparison is also impacted by a
one-time accrual for the benefit of raw material price pass-throughs to the
Company's customers during the prior year's quarter (because of such timing
differences during the year and the impact of rapidly changing raw material
prices, gross margin trends should be analyzed on a year-to-year basis). As a
result, gross profit percentage declined from 33.8% in the prior year's third
quarter to 29.9% in the most recent quarter. Higher dollar gross profit in the
most recent quarter combined with a reduction of $394,000 in marketing,
general and administrative expenses resulted in operating income for the most
recent quarter of $1,330,000 as compared with operating income of $902,000 for
the same period in the prior year. Such increase was partially offset by
higher interest expense related to increased borrowings and interest rates and
the non-cash accrual for the Warrants in the subsidiary detailed above. No
provision for discontinued operations was made in the current quarter resulting
in net income for the quarter ended December 31, 1995 of $580,000, or $0.02 per
share, as compared to net income for the quarter ended December 31, 1994 of
$21,000, or $0.00 per share.
LIQUIDITY AND CAPITAL RESOURCES
As indicated on its balance sheet, the Company's working capital decreased by
$2,902,000 from March 31, 1995 to December 31, 1995 as a result of a $8,691,000
increase in the current portion of long term debt which offset a net increase
of $5,789,000 in other current assets and liabilities.
Current portion of long term debt increased by $8,691,000 primarily as a result
of the reclassification of certain existing debt of the Company from long to
short term for which the Company is currently negotiating extensions and
renewals. The Company's operating subsidiary's existing revolving line of
credit which had an outstanding balance of $6,000,000 as of December 31
currently expires on July 31, 1996. Management is in the process of renewing
such line of credit with the lender in the ordinary course of business as it
has twice before since its establishment in 1990 and believes that a two year
renewal will be obtained prior to its expiration. The Company's operating
subsidiary also has its first principal payment of $4,000,000 due to its
subordinated lender, CIGNA, on April 15, 1996 and accordingly is classified as
current in the December 31, 1995 balance sheet. Management is currently
negotiating an extension of this payment with the lender and believes such
extension will be achieved prior to the end of the current fiscal year,
although no assurances can be given.
During the quarter ended December 31, 1995, the Company successfully negotiated
an extension of a convertible note in the amount of $1,500,000 which was due on
November 3, 1995. Such note was extended until May 1998 at the same interest
rate. Interest for the two and one half year period and an extension fee were
pre-paid at closing through the issuance of 782,089 shares of stock. The
lender also received warrants for the purchase of 1,700,000 shares of common
stock which are exercisable only in the event that the note is paid in full
without conversion. A second convertible note in the amount of $550,000 which
was due on January 1, 1996 was satisfied during the third quarter through
partial conversion and repayment of the balance with cash. In order to satisfy
such obligation, during the third quarter the Company raised $550,000 in a
private placement of common stock.
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FORM 10-Q
Current assets increased by $6,100,000 during the period. Accounts receivable
increased by $4,331,000 during the period primarily as a result of increased
billings in the third quarter and longer terms granted to its international
customers. Such increase also resulted from delayed payments by the Company's
primary customer resulting from systems transition problems related to the
relocation of distribution operations to Ohio. Inventories increased by
$1,045,000 primarily as a result of higher inventory balances which must be
carried by the Company as a result of the recent consolidation of consumer
packaging operations with the same customer. Other assets increased $524,000
primarily as a result of the aforementioned prepayment of interest and
extension fee. Accounts payable increased $1,202,000 reflecting higher
expenses related to the new operations and delayed payments to vendors pending
receipt of past due receivables from the Company's primary customer. Accrued
liabilities declined by $290,000 primarily as a result of seasonal timing
differences. Net current assets and liabilities of discontinued operations
grew from a net liability of $601,000 to a net asset value of $274,000
reflecting the reduction of liabilities related to the former ComTel operations
following its sale in March and June of 1995.
Cash balances as of December 31, 1995 were $235,000 which were primarily held
by the Company's Decora Incorporated subsidiary and are limited by certain debt
covenants as to use. Decora Incorporated continues to expend funds on
machinery and facility improvements related to the addition of new
manufacturing operations for Rubbermaid described above in addition to normal
capital expenditures. During the first nine months, the Company financed
$875,000 of such expenditures on a long term basis through the borrowing of
$500,000 under an existing capital expenditure line of credit in July 1995 and
through the borrowing of $375,000 of long term, low interest funds from a local
municipal development corporation. Additional capital investment has been
financed on a short term basis through operating cash flow and its bank line of
credit.
Capital expenditures for the nine months ended December 31, 1995 were
approximately $2,304,000, the majority of which were spent on the installation
of the new manufacturing operations discussed above. Historical capital
expenditure levels during the same period have been in the range of $600,000 to
$800,000. The Company is in the process of executing a long-term financing
for such excess expenditures through the issuance of long term tax-exempt
industrial development bonds, the receipt of interest subsidy and job training
grants through existing state programs and the sharing of certain costs with
Rubbermaid. Management does not anticipate spending significant additional
funds on capital projects during the remainder of the year.
SUMMARY
Management believes that short term liquidity needs will be satisfied through
completion of the renewals and extensions of short term debt which are
currently under discussion, through cash flow generated by operations, through
the collection of outstanding receivables and through completion of the pending
long term industrial development bond financing. Additionally, in January
1996, the Company borrowed an additional $650,000 pursuant to a term loan with
the bank's primary lender. In its continued effort to become more efficient and
to hedge the changes in order rate and the seasonality in the core business,
the Company has taken steps to reduce costs while continuing its emphasis on
the development of its new businesses.
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FORM 10-Q
DECORA INDUSTRIES, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A description of the Company's legal proceedings is included in the Company's
Annual Report on Form 10-K for the year ended March 31, 1995 and its Quarterly
Reports on Form 10-Q for its quarters ended June 30, 1995 and September 30,
1995. There have been no new material developments in the Company's existing
litigation.
The Company and its subsidiaries are defendants in other pending actions,
which, in the opinion of management of the Company, are not material to the
Company's financial condition or results of operations. Although no assurances
can be given regarding the ultimate outcome of such matters, the Company has
accrued amounts for the defense and settlement costs which the Company
considers adequate.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
Not Applicable.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10) Material Contracts
10.1 Amended and Restated Note and Warrant Purchase Agreement by and
between Decora and Johnson.
10.2 Amended and Restated Convertible Negotiable Promissory Note in
the amount of $1,500,000 by and between Decora as payor and Johnson
as holder.
10.3 Series C Warrant to Purchase Common Stock of Decora Industries,
Inc.
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<PAGE> 15
FORM 10-Q
(11) Statement regarding computation of per share earnings.
11.1 Statement regarding computation of per share earnings. (See Note
4 of Notes to Unaudited Consolidated Financial Statements contained in
Part 1 hereof).
(b) Reports on Form 8-K
None
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<PAGE> 16
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DECORA INDUSTRIES, INC.
(REGISTRANT)
by /s/ Timothy N. Burditt
-------------------------------
TIMOTHY N. BURDITT
EVP ADMINISTRATION & FINANCE
DATED: February 12,1996
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<PAGE> 1
EXHIBIT 2.1
AMENDED AND RESTATED
NOTE AND WARRANT PURCHASE AGREEMENT
THIS AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT (this
"Restated Agreement") is made effective as of the 3rd day of November, 1995, by
and between DECORA INDUSTRIES, INC., a Delaware corporation (the
"Corporation"), and ROBERT W. JOHNSON IV, an individual who is a resident of
the State of New York ("Purchaser").
RECITALS
A. Immediately prior to the execution of the Restated Agreement, Purchaser
owned, beneficially, 2,431,589 shares of the Corporation's common stock, $0.01
par value per share ("Common Stock"), including shares of Common Stock issuable
upon conversion of the Existing Note (as hereinafter defined) and the Warrants
(as hereinafter defined, other than the Series C Warrant).
B. As of November 3, 1992 as reflected in a Note and Warrant Purchase
Agreement, dated as of such date (the "Purchase Agreement"), Purchaser was
issued (i) a promissory note in the principal amount of $1,500,000 that is
convertible into shares of Common Stock at the price of $1.70 per share (the
"Existing Note"), (ii) a warrant to purchase 225,000 shares of Common Stock at
the price of $1.40 per share and (iii) a Warrant to purchase 100,000 shares of
Common Stock that is exercisable as determined in such Warrant.
C. Purchaser has agreed to amend and restate the Existing Note upon the
amendment of both of the above-described warrants, issuance of an additional
warrant to purchase up to 1,700,000 shares, prepayment of interest for the
amended and restated note, and issuance of 309,400 shares of Common Stock as a
closing fee.
D. As consideration for Purchaser's entering into this Restated Agreement
and amendment and restatement of the Existing Note, the Corporation desires to
issue 309,400 shares of Common Stock to Purchaser upon execution of this
Agreement.
AGREEMENTS
In consideration of the premises and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I
Amendment of the Existing Note and
Series A and Series B Warrant and Authorization
And Sale of Series C Warrant
1.01 Authorizations. Prior to the Closing, the Corporation shall (a)
authorize the issuance to Purchaser of 309,400 shares of Common Stock as
consideration for entering into this Agreement, (b) authorize the amendment and
restatement of the Existing Note in the form of the amended and restated
convertible negotiable promissory note (the "Amended Note") attached hereto as
Exhibit 1.01(b), (c) authorize the extension of the Purchaser's Warrant to
purchase 225,000 shares of Common Stock at the price of $1.40 per share (the
"Amended Series A Warrant") in the form of the amendment attached hereto as
Exhibit 1.01(c), which Amended Series A Warrant shall be entered into by
Purchaser in connection with the extension of the Existing Note, (d) authorize
the extension of the Purchaser's warrant to purchase 100,000 shares of Common
Stock exercisable as determined in such warrant (the "Amended Series B
Warrant") in the form of the amendment attached hereto as Exhibit 1.01(d),
which Amended Series B Warrant shall be entered into by Purchaser in connection
with the extension of the Existing Note, (e) authorize the issuance and sale to
Purchaser of a warrant to purchase 1,700,000 shares of Common Stock at an
initial price of $0.78 per share (the "Series C Warrant") in the form of the
warrant attached hereto as Exhibit 1.01(e) which Series C Warrant shall be
issued to Purchaser in connection with the extension of the Existing Note, (f)
authorize the issuance to Purchaser of 472,689 shares of Common Stock
representing the prepaid interest due under the Amended Note, and (g) reserve
817,647 shares of Common Stock for issuance upon exercise of the Series C
Warrant. The Series A Warrant, as amended, the Series B Warrant, as amended,
and the Series C Warrant are sometimes hereinafter collectively referred to as
the "Warrants".
1.02 Consideration for Sale; Amendment of Series A and Series B Warrants;
Sale of Series C Warrant. In reliance upon the respective representations and
warranties of the parties set forth herein and upon the certificates delivered
by the Corporation pursuant hereto, (a) the Corporation agrees to issue 309,400
shares of Common Stock to Purchaser upon Purchaser's execution of this
Agreement, and 472,689 shares of Common Stock to Purchaser representing prepaid
interest due under the Note, in each case free and clear of any liens, claims,
charges and encumbrances whatsoever, (b) the Corporation agrees to amend the
Series A and Series B Warrants and (c) the Corporation agrees to sell to
Purchaser, free and clear of any liens, claims, charges and encumbrances
whatsoever, and Purchaser agrees to purchase from the Corporation, at the
Closing, the Series C Warrant, all as consideration for Purchaser's agreement
to amend and restate the Note. Nothing herein shall constitute, or shall be
deemed to constitute, a payment, settlement or novation of the indebtedness
evidenced by the Existing Note or to release or otherwise adversely affect any
right of Purchaser against the Corporation.
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<PAGE> 3
ARTICLE II
Closing and Delivery
2.01 Closing. The closing of the extension of the Existing Note and
Series A and Series B Warrants and the purchase of the Series C Warrant (the
"Closing") shall take on place or before the 22nd day of December, 1995, or on
such other date as may be agreed to in writing by the parties (such date being
hereinafter referred to as the "Closing Date"), and shall be deemed to take
place in New York, New York.
2.02 Delivery. At the Closing, the Corporation shall deliver to Purchaser
(a) stock certificates for 309,400 shares and 472,689 shares, respectively, of
Common Stock, each duly executed and registered in Purchaser's name, (b) the
Amended Note, dated November 3, 1995 and duly executed, (c) the Amended Series
A and Series B Warrants which Warrants shall be duly executed and (d) the
Series C Warrant, which Warrant shall be duly executed and registered in
Purchaser's name.
ARTICLE III
Representations and Warranties
of the Corporation
The Corporation hereby makes the following representations and warranties
to Purchaser:
3.01 Corporate Existence. Each of the Corporation and Decora,
Incorporated ("Decora Manufacturing") is a corporation duly organized and in
good standing under the laws of the jurisdiction of its incorporation and is
duly qualified to do business and is in good standing in each jurisdiction
where the character of its assets or the nature of its activities requires such
qualification.
3.02 Capitalization. The Corporation's authorized capital stock consists
of 45,000,000 shares of Common Stock and 5,000,000 shares of preferred stock
("Preferred Stock"). Immediately prior to the Closing, 32,111,842 shares of
Common Stock and zero (0) shares of Preferred Stock shall be issued and
outstanding.
3.03 Corporate Power. The Corporation has all requisite corporate power
necessary to own all properties owned by it, to conduct its business as now
conducted and as proposed to be conducted by it, to enter into this Agreement,
the Amended Note, the Warrants and all other agreements, documents and
instruments contemplated hereby and thereby (sometimes collectively
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<PAGE> 4
referred to herein as the "Operative Documents") to which it is a party, to
carry out all transactions contemplated by the Operative Documents, and to
issue the Amended Note and the Warrants to Purchaser as provided herein.
3.04 Authorization. The Corporation and its directors and stockholders
have taken all corporate action necessary for the authorization, approval,
execution, issuance, delivery and performance of the Operative Documents to
which it is a party, the consummation of the transactions contemplated by the
Operative Documents, and the shares of Common Stock issuable upon execution of
this Agreement by Purchaser, payment of interest on the Amended Note,
conversion of the Amended Note and the exercise of the Warrants.
3.05 Binding Effect. Each of the Operative Documents to which the
Corporation is a party is the legal, valid and binding obligation of the
Corporation and is enforceable against the Corporation in accordance with its
terms, subject to any applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws or equitable principles affecting the
enforcement of creditors' rights generally, whether considered in a proceeding
at law or in equity.
3.06 Compliance with Corporate Instruments. Neither the Corporation nor
Decora Manufacturing is in violation of any provision of its certificate of
incorporation, by-laws or other governing documents.
3.07 Compliance with Laws and Regulations; Subsidiaries. The Corporation
and Decora Manufacturing is in compliance in all material respects with all
laws, orders, regulations and ordinances of all federal, state and local
governmental authorities (including, without limitation, federal and state
securities and blue sky agencies) that are applicable to it. Other than Decora
Manufacturing, the Corporation has no Subsidiaries presently engaged in active
business operations. As used in this Agreement, "Subsidiary" or "Subsidiaries"
shall mean any or all corporations, respectively, of which the Corporation
owns, directly or indirectly, more than fifty percent (50%) of the outstanding
capital stock having voting power to elect a majority of the board of directors
of such corporation.
3.08 Consents. The Corporation has obtained all consents, approvals,
qualifications, licenses, orders or authorizations of, and filings with, all
federal, state and local governmental authorities (including, without
limitation, federal and state securities and blue sky agencies) that are
required, prior to the Closing, in connection with (a) the offer, sale and
issuance of the Amended Note, the Warrants and shares of Common Stock issuable
upon execution of this Agreement by Purchaser, payment of interest on the
Amended Note, conversion of the Amended Note and the exercise of the Warrants,
(b) the valid execution, delivery and performance of the Operative Documents to
which it is a party, and (c) the consummation of any other transactions
contemplated by the Corporation or any of said Operative Documents.
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<PAGE> 5
3.09 Exemption from Registration. The offer, sale and issuance of the
Amended Note and the Warrants as contemplated herein and the issuance of the
Common Stock issuable upon execution of this Agreement by Purchaser, payment of
interest on the Amended Note, conversion of the Amended Note and the exercise
of the Warrants are exempt from the registration requirements of Securities Act
of 1933, as amended (the "Securities Act"), and the Corporation shall not take
any action that would cause the loss of said exemption.
3.10 Validity of Shares. The shares of Common Stock issuable upon
execution of this Agreement by Purchaser, payment of interest on the Amended
Note, conversion of the Amended Note and the exercise of the Warrants have been
duly and validly reserved and, upon issuance upon execution of this Agreement
by Purchaser, payment of interest on the Amended Note, conversion of the
Amended Note and the exercise of the Warrants, shall be duly and validly
issued, fully paid, non-assessable and free and clear of all liens, security
interests, mortgages, pledges, claims, charges and encumbrances whatsoever
(collectively, "Liens").
3.11 No Violation. The execution, delivery and performance by the
Corporation of the Operative Documents to which it is a party shall not (a)
conflict with, or result in a breach of any provision of the certificate of
incorporation, by-laws or other governing documents of the Corporation or
Decora Manufacturing, (b) result in a default, give rise to any right of
termination, cancellation or acceleration, or result in the imposition of any
Liens, or require any consent or approval, under any of the terms, conditions
or provisions of any material note, bond, mortgage, indenture, loan, license,
agreement, lease or other instrument to which the Corporation or Decora
Manufacturing is a party or by which it or they or the properties of any of
them may be bound, or (c) violate any law, judgment, order, writ, injunction,
order, rule or regulation of any federal, state or local government, court,
arbitrator, bureau, board, commission, office, authority, department or other
governmental agency applicable to the Corporation or Decora Manufacturing, the
violation of which could have a material adverse effect on the Corporation or
any of its properties or assets.
3.12 No Litigation. Except as otherwise specifically set forth in
Schedule 3.12 attached hereto, there are no actions, suits, proceedings or
investigations, pending or threatened against or affecting the Corporation or
Decora Manufacturing, whether at law or in equity, before any federal, state or
local court, arbitrator, bureau, board, commission, office, authority,
department or other governmental agency that may, if determined adversely, have
a material adverse effect on the Corporation or Decora Manufacturing or result
in a damage, claim or other liability of the Corporation or Decora
Manufacturing in excess of $25,000.
3.13 Financial Statements. The Corporation has furnished Purchaser with
its Form 10-K for its year ended March 31, 1995 and its Form 10-Q for June 30,
1995 and September 30, 1995 (the "Financial Statements"). The Financial
Statements have been prepared in accordance with
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<PAGE> 6
generally accepted accounting principles consistently applied, and fairly and
accurately present the financial position of the Corporation and its
Subsidiaries for the periods to which they relate.
3.14 Absence of Undisclosed Liabilities. Except as incurred in the
ordinary course of business and consistent with past practices, neither the
Corporation nor its Subsidiaries has incurred any liabilities (whether fixed or
contingent, and including any tax liabilities due or to become due) which under
generally accepted accounting principles would be required to be disclosed in
the Financial Statements and which are not fully reflected or provided for in
the Financial Statements. The Corporation does not know, and has no reason to
know, of any basis for the assertion against the Corporation or its
Subsidiaries of any material liabilities not adequately reflected or reserved
against in the Financial Statements.
3.15 Securities Filings. The Corporation has furnished Purchaser with all
documents and instruments filed by it and Decora Manufacturing since January 1,
1991 with the Securities and Exchange Commission, including, without
limitation, all Form 10-Q's, Form 10-K's, Form 8's and Form 8-K's
(collectively, the "Securities Filings"). As of the respective dates of the
Securities Filings, all statements made by the Corporation and Decora
Manufacturing in the Securities Filings were accurate, true and complete in all
material respects. Schedule 3.15 hereto lists the Securities Filings that were
not timely filed with the Securities and Exchange Commission since the Purchase
Agreement.
3.16 Representations in Operative Documents. All of the representations
and warranties made by the Corporation in the Operative Documents to which it
is a party are true and complete in all material respects.
3.17 Full Disclosure. This Agreement, the exhibits hereto, the Operative
Documents to which the Corporation is a party and all other materials that have
been furnished to Purchaser by the Corporation do not contain any untrue
statement of material fact and do not omit to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. To the best knowledge
of the Corporation, after such inquiry as it has deemed necessary, there is no
fact relating to the Corporation, its Subsidiaries or its or their assets,
properties, business, prospects, condition, affairs or operations that might
have a material adverse effect on the Corporation, its Subsidiaries or the
planned operations thereof which have not been disclosed to Purchaser in
writing by the Corporation.
ARTICLE IV
Conditions to Closing
by Purchaser
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The obligation of Purchaser to amend and restate the Existing Note and the
Series A and Series B Warrants is subject to the fulfillment, to Purchaser's
satisfaction, of each of the following conditions at or prior to the Closing:
4.01 Performance. All covenants, agreements and conditions contained in
this Agreement, the Amended Note and the Warrants to be performed or complied
with by the Corporation on or prior to the Closing Date shall have been
performed or complied with by it in all respects.
4.02 Closing Certificate. At the Closing, the Corporation shall have
delivered to Purchaser a certificate, executed by the Chairman of the Board of
Directors or Chief Executive Officer of the Corporation, dated the Closing
Date, certifying to (a) the fulfillment of the conditions specified in this
Article IV, (b) that none of the representations and warranties made in Article
III hereof contain any untrue statement of material fact or omit to state a
material fact necessary in order to make the statements contained therein not
misleading in light of the circumstances under which they were made, and (c) to
such other matters as Purchaser shall have reasonably requested.
4.03 Legal Opinion. At the Closing, the Corporation shall have delivered
to Purchaser an opinion of Miller & Holguin, counsel to the Corporation, dated
the Closing Date, addressed to Purchaser and in the form of legal opinion
attached hereto as Exhibit 4.03.
4.04 Proceedings and Documents. As of the Closing Date, all corporate and
other proceedings in connection with the transactions contemplated by the
Operative Documents shall be satisfactory in form and substance to Purchaser
and his counsel, and Purchaser shall have received, at or prior to the Closing,
all such documents relating to such transactions as he shall have reasonably
requested.
4.05 Qualifications. On the Closing Date, all authorizations, approvals
or permits of, or filings with, any governmental authority, including state
securities or blue sky offices, that are required prior to the Closing in
connection with the issuance of the Amended Note or the Warrants, the issuance
of the shares of Common Stock to be issued upon execution of this Agreement by
Purchaser, payment of interest on the Amended Note, conversion of the Amended
Note and exercise of the Warrants shall have been duly obtained and shall be
effective on and as of the Closing Date.
4.06 Certificate of Incorporation. On the Closing Date, the Corporation
shall have delivered to Purchaser a copy of its certificate of incorporation,
including all amendments thereto through the Closing Date, that has been
certified by the Secretary of State for the State of Delaware.
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<PAGE> 8
4.07 Secretary's Certificate. At the Closing, the Corporation shall have
delivered to Purchaser copies of each of the following, in each case certified
as accurate, true and complete copies thereof as of the Closing Date by the
Corporation's Secretary:
(a) the by-laws of the Corporation, which shall be in a form acceptable
to Purchaser;
(b) resolutions of the Board of Directors of the Corporation,
authorizing and approving (1) the issuance and delivery of 309,400 shares of
Common Stock to Purchaser upon execution of this Agreement by Purchaser, (2)
the issuance and delivery of 472,689 shares of Common Stock to Purchaser as
prepaid interest due under the Amended Note, (3) the execution, issuance, sale,
delivery and performance of the Amended Note and the Warrants, (4) the
execution, delivery and performance of each of the Operative Documents to which
the Corporation is a party and the transactions contemplated thereby, and (5)
the reservation of an additional 817,647 shares of Common Stock for issuance
upon exercise of the Class C Warrant; and
(c) the signature(s) and incumbency of the officer(s) of the
Corporation authorized to execute and deliver the Operative Documents to which
the Corporation is a party.
4.08 Good Standing Certificates. At the Closing, the Corporation shall
have delivered to Purchaser good standing certificates, dated not more than ten
(10) days prior to the Closing Date, relating to the Corporation and Decora
Manufacturing from the Secretary of State for the state in which they were
incorporated.
4.09 Consents. At the Closing, the Corporation shall have delivered to
Purchaser copies of all consents and approvals of third parties required under
any licenses or agreements or otherwise in connection with the execution,
delivery or performance by the Corporation of the Operative Documents to which
it is a party.
4.10 Options and Other Rights. Schedule 4.10 hereto sets forth the names
of all other persons or entities having warrants, options, puts, calls,
registration rights, preemptive rights and/or other rights or obligations of
any kind to acquire, receive, convert or exchange shares of Common Stock or
other equity interests of the Corporation, including a brief description of
such rights and the exercise prices thereof.
4.11 Deliveries. At the Closing, the Corporation shall have delivered the
stock certificates for 309,400 shares and 472,689 shares, respectively, of
Common Stock, the Amended Note and the Warrants to Purchaser as provided in
Section 2.02 hereof.
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4.12 Additional Documents. Purchaser shall have received such other
documents, instruments, approvals or opinions as Purchaser shall have
reasonably requested.
ARTICLE V
Covenants of the Corporation
The Corporation hereby covenants and agrees that:
5.01 Reservation of Shares. For so long as the Amended Note is
outstanding and the Warrants may be exercised, the Company shall at all times
have authorized, and reserved for the purpose of issue upon payment of interest
on the Amended Note, conversion of the Amended Note and exercise of the
Warrants, a sufficient number of shares of Common Stock to provide for payment
of interest on the Amended Note, the exercise of the conversion rights
represented by the Amended Note and the exercise of the rights represented by
the Warrants.
5.02 Compliance with Exchange Regulations. The Corporation shall take all
such action as may be necessary to assure that the Common Stock issuable upon
payment of interest on the Amended Note, conversion of the Amended Note and the
exercise of the Warrants may be so issued without violation of any applicable
law or regulation or of any requirements of any domestic securities exchange or
the National Association of Securities Dealers Automatic Quotation ("NASDAQ")
system upon which any capital stock of the Corporation may be listed, provided
Purchaser provides the Corporation with such information as the Corporation
shall reasonably request and that is necessary to comply with the requirements
of any such exchange or system.
5.03 Nomination of Director. At any meeting of the stockholders of the
Corporation at which directors are to be elected and for so long as the Amended
Note shall remain outstanding, the management of the Corporation shall, at the
written request of Purchaser, nominate Purchaser (or his nominee) to be elected
to the Board of Directors of the Corporation. If Purchaser chooses not to
exercise his right to be named or nominated, or to have his nominee named or
nominated, as a director at any time, Purchaser (or his nominee) shall have the
right to attend any and all meetings of the Corporation's Board of Directors as
an observer, and the Corporation shall provide Purchaser (or his nominee) with
the same advance notice of such meetings as is provided to the Corporation's
Board of Directors.
5.04 Directors' Expenses. Each of the Corporation's directors shall have
the right to be reimbursed for the reasonable expenses incurred by such
director in attending meetings of the Board of Directors of the Corporation and
for otherwise fulfilling his fiduciary obligations as a director of the
Corporation.
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5.05 Directors' Meetings. The Corporation shall hold meetings of its
Board of Directors periodically but not less often than quarterly.
5.06 Director's Insurance. The Corporation shall use its best efforts to
procure from a financially reputable insurer a policy of director's insurance
with respect to Purchaser (or his nominee) in an amount and coverage
satisfactory to Purchaser. A certificate of insurance evidencing such
director's insurance shall be delivered by the Corporation to Purchaser. For
as long as Purchaser (or his nominee) serves as a director on the Board of
Directors of the Corporation, the Corporation shall maintain said policy of
director's insurance with respect to Purchaser (or his nominee) in an amount
and coverage satisfactory to Purchaser, and shall deliver to Purchaser
certificates of insurance evidencing the existence and timely renewal of said
policy of director's insurance.
5.07 Fees and Expenses. The Corporation agrees to bear all of its own
expenses in connection herewith, and shall also pay all expenses incurred by
Purchaser, including the legal fees and disbursements of Kohrman Jackson &
Krantz and of McCarthy, Lebit, Crystal & Haiman, counsel to Purchaser, in
connection with the transactions contemplated hereby, including, without
limitation, all expenses incurred in connection with (a) the preparation,
negotiation, closing under, amendment, waiver, administration or enforcement
of, or the preservation of any rights under any of the Operative Documents or
under the Corporation's certificate of incorporation or by-laws, (b) any stamp
and other taxes payable with respect to this Agreement and the shares of Common
Stock issuable upon execution of this Agreement by Purchaser, payment of
interest on the Amended Note, conversion of the Amended Note and exercise of
the Warrants, and (c) any filing with any governmental agency with respect to
Purchaser's purchase of the Amended Note, the Warrants or the shares of Common
Stock issuable upon execution of this Agreement by Purchaser, payment of
interest on the Amended Note, conversion of the Amended Note and exercise of
the Warrants; provided, however, that the Corporation shall have no obligation
to pay any broker's commissions upon the sale by Purchaser of any shares of
Common Stock issued to him upon execution by him of this Agreement, payment of
interest on the Amended Note, conversion of the Amended Note or exercise of the
Warrants.
5.08 Indemnification.
(a) The Corporation shall indemnify, defend and hold Purchaser harmless
from and against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including, without limitation, interest, penalties, court costs and attorneys'
fees, that Purchaser shall incur or suffer, which arise, result from, or relate
to any breach of, or failure by the Corporation to perform, any of its
representations, warranties, covenants or agreements in any of the Operative
Documents to which it is a party or in any other agreement or any schedule,
certificate, exhibit or instrument furnished or to be
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furnished by the Corporation hereunder or thereunder or in the certificate of
incorporation of the Corporation.
(b) If any indemnifiable claim by a third party is made against
Purchaser, Purchaser shall provide written notice to the Corporation of such
claim. By delivering written notice to Purchaser within fifteen days after
receipt of Purchaser's notice, the Corporation may, or upon written request of
Purchaser shall, assume the defense of such claim at its sole expense through
counsel satisfactory to Purchaser, provided that (1) the Corporation shall not
permit any lien, encumbrance or other adverse charge upon any asset of
Purchaser, (2) the Corporation shall permit Purchaser to participate in such
settlement or defense through counsel selected by Purchaser at Purchaser's
expense, and (3) the Corporation shall agree to promptly reimburse Purchaser
for the full amount of his liability to the third-party claimant. If the
Corporation shall not have employed counsel to defend such claim or if
Purchaser shall have reasonably concluded that the position of Purchaser and
the Corporation may be in conflict (in which case the Corporation shall not
have the right to direct the defense of any such claim on behalf of Purchaser),
legal and other expenses incurred by Purchaser shall be borne by the
Corporation. Notwithstanding the foregoing, Purchaser shall have the right to
pay or settle any such claim provided in such event it shall waive its right to
indemnity therefor by the Corporation.
5.09 Certain Restrictions and Limitations. For so long as the Amended
Note remains outstanding, the Corporation shall not, without the approval of
Purchaser:
(a) permit any of its Subsidiaries to amend, its certificate or
articles of incorporation or by-laws;
(b) permit any of its Subsidiaries to increase or decrease, the total
number of its authorized shares of capital stock or any class or series;
(c) permit its Subsidiaries to declare or pay, any cash or other
dividend or make any other distribution of any kind on their capital stock
other than dividends and distributions from any of the Subsidiaries to the
Corporation or to any other Subsidiaries;
(d) permit any of its Subsidiaries to enter into, any agreement with
respect to any merger or consolidation (other than a merger into or
consolidation with the Corporation or any of its wholly-owned Subsidiaries) or
transfer, or permit any of its Subsidiaries to transfer, whether by sale, lease
or other disposition in one or more transactions, an amount greater than ten
percent (10%) of the Corporation's or any of its Subsidiaries' assets;
provided, however, that this limitation shall not apply to (1) transfers to the
Corporation or any of the Corporation's wholly-owned Subsidiaries, or (2)
dispositions of obsolete equipment;
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(e) permit any of its Subsidiaries to enter into or permit to exist,
any agreement or undertaking (other than this Agreement) which prohibits,
restricts or limits the ability of any of its Subsidiaries to pay dividends or
distributions to the Corporation, or otherwise to transfer assets or engage in
transactions with the Corporation; or
(f) permit any of its Subsidiaries to issue or sell or to obligate such
Subsidiary to issue or sell any shares of its capital stock (including any
warrants, rights or options to purchase or otherwise acquire shares of such
capital stock or other securities exercisable or exchangeable for or
convertible into shares of such capital stock).
ARTICLE VI
Events of Default
6.01 Events of Default. If any of the following events (each is herein
referred to as an "Event of Default") shall occur:
(a) default shall occur in the performance of or compliance with any
covenant contained in Section 5.09 hereof;
(b) material default shall occur in the performance of or compliance
with any other covenant contained herein which shall continue uncured for more
than ten days after the occurrence of such default;
(c) if any representation or warranty to Purchaser made in writing by
the Corporation in this Agreement or in any other Operative Document, or in
connection with the transactions contemplated hereby or thereby, shall prove to
have been false or inaccurate in any material respect on the date as of which
made;
(d) the Corporation fails to execute and deliver the Amended Note to
Purchaser in the principal amount required by Section 1.02 hereof and at the
time required by Section 2.02 hereof;
(e) all or any part of the principal or interest due under the Amended
Note is not paid when and as the same shall become due and payable, whether at
the maturity thereof, by acceleration, by notice of prepayment or otherwise;
(f) any default in excess of $250,000 shall occur in the making of the
payment of the principal of or interest on any other indebtedness of the
Corporation or any of its
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<PAGE> 13
Subsidiaries for borrowed money, as and when the same shall become due and
payable by the lapse of time, by declaration, by call for redemption or
otherwise;
(g) default or the happening of any event shall occur under any
indenture, agreement or other instrument under which any indebtedness of the
Corporation or any of its Subsidiaries for borrowed money is or may be issued,
and such default or event shall continue for a period of time sufficient to
permit the acceleration of the maturity of any indebtedness of the Corporation
or any of its Subsidiaries outstanding thereunder;
(h) a receiver, conservator, custodian, liquidator or trustee of the
Corporation or any of its Subsidiaries or of all or any of the property of any
of them is appointed by court order and such order remains in effect for more
than sixty (60) days; or an order for relief is entered under the federal
bankruptcy laws with respect to the Corporation or any of its Subsidiaries; or
any of its material property is sequestered by court order and such order
remains in effect for more than sixty (60) days; or a petition is filed against
the Corporation or any of its Subsidiaries under the bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, and is
not dismissed within sixty (60) days after such filing;
(i) the Corporation or any of its Subsidiaries files a petition in
voluntary bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under any such law;
(j) the Corporation or any of its Subsidiaries makes an assignment for
the benefit of its creditors, or admits in writing its inability to pay, or in
fact does not pay, its debts generally as they become due, or consents to the
appointment of a receiver, conservator, custodian, liquidator or trustee of the
Corporation or any of its Subsidiaries, or of all or any part of the property
of any of them;
(k) final judgment for the payment of money in excess of $250,000 shall
be rendered by a court of record against the Corporation or any of its
Subsidiaries, and the Corporation or such Subsidiary shall not (1) discharge
the same (by insurance or otherwise) or provide for its discharge in accordance
with its terms, or (2) procure a stay of execution thereof within sixty (60)
days from the date of entry thereof and within said period of sixty (60) days,
or such longer period during which execution of such judgment shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed during
such appeal;
(l) a breach of any term or provision of any of the Warrants; or
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<PAGE> 14
(m) the Corporation is delisted or otherwise removed from the NASDAQ
system and is not on the same or next business day listed on any national
securities exchange;
then, when any Event of Default described in clause (c), (d), (g), (k) or (l)
of this Section 6.01 has occurred and shall be continuing, the Amended Note
shall, upon written or facsimile notice from Purchaser, forthwith be due and
payable, if not already due and payable; and when any Event of Default
described in clause (a), (b), (e), (f), (h), (i), (j) or (m) of this Section
6.01 has occurred, then, at the option of Purchaser, the principal of the
Amended Note shall be immediately due and payable, by acceleration, without
presentment, demand or notice of any kind, upon the occurrence thereof. If any
principal or installment of interest is not paid in full on the due date
thereof (whether by maturity or acceleration or otherwise), then the
outstanding principal balance of the Amended Note and any overdue installment
of interest thereon (to the extent permitted by applicable law) shall bear
additional interest from the due date of such payment, or from and after an
Event of Default, at a rate equal to the lesser of (1) the highest rate allowed
by applicable law, or (2) sixteen percent (16%) per annum (the "Default Rate")
until the amount due is paid. If payment of the Amended Note is accelerated,
then the outstanding principal balance thereof shall bear interest at the
Default Rate from and after the Event of Default and, at the option of
Purchaser, payment of interest shall be made in cash. The Corporation agrees
to reimburse Purchaser for all reasonable out-of-pocket costs and expenses
incurred by him in any effort to collect the Amended Note, whether or not suit
is filed, including reasonable compensation to Purchaser's attorneys for
services rendered in connection therewith, and pay interest on such costs and
expenses to the extent not paid when demanded at the Default Rate.
6.02 Remedies on Default.
(a) If an Event of Default shall have occurred pursuant to Section
6.01, Purchaser shall be entitled, in addition to the rights specified in
Section 6.01, to the rights set forth in the Amended Note and the Warrants and,
in addition, may proceed to protect and enforce any or all other rights, powers
and remedies of such holders by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any covenant
contained herein or in the Amended Note and the Warrants or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any right, power or remedy granted hereby or thereby or available
at law, in equity, by statute or otherwise.
(b) If any holder of any shares of capital stock or any indebtedness of
the Corporation for borrowed money shall serve any notice or demand or take any
other action in respect of a claimed default, the Corporation shall forthwith
give written notice thereof to Purchaser, describing the notice, demand or
action and the nature of the claimed default.
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<PAGE> 15
(c) No right, power or remedy conferred hereby or by ownership of the
Amended Note, or now or hereafter available at law, in equity, by statute or
otherwise shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute
or otherwise.
ARTICLE VII
Miscellaneous
7.01 Consent to Amendments. The provisions of this Agreement may be
amended only in writing by mutual agreement of the Corporation and Purchaser.
No course of dealing between the Corporation and Purchaser or any delay in
exercising any rights hereunder or under the Amended Note or Existing Note
shall operate as a waiver of any rights of Purchaser.
7.02 Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement, the
consummation of the Closing and any investigation made at any time by or on
behalf of Purchaser.
7.03 Successors. Except as otherwise expressly provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective heirs,
executors, personal representatives, successors and assigns of the parties
hereto, whether so expressed or not. In addition, and whether or not any
express assignment has been made, the provisions of this Agreement which are
for the benefit of Purchaser are also for the benefit of, and enforceable by,
any subsequent holders of any portion of the Amended Note or the Warrants
except any subsequent holder who acquires any such security in a registered
public offering or in a sale to the public under Rule 144.
7.04 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
7.05 Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of this
Agreement.
7.06 Notices. Any notices required, desired or permitted to be given
hereunder, shall be delivered personally, sent by overnight courier or mailed,
registered or certified mail, return receipt requested, to the following
addresses (or to such other address as each party may specify
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<PAGE> 16
in a notice given hereunder) and shall be deemed to have been received on the
day of personal delivery, one business day after delivery to the overnight
courier service or three business days after such mailing:
If to Purchaser:
Robert W. Johnson IV
The Johnson Co., Inc.
630 Fifth Avenue, Suite 1510
New York, New York 10111
with copies to:
Larry Crystal, Esq.
McCarthy, Lebit, Crystal & Haiman
1800 Midland Building
101 Prospect Avenue West
Cleveland, Ohio 44115
and
Marc C. Krantz, Esq.
Kohrman Jackson & Krantz
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
If to the Corporation:
Nathan Hevrony
Decora Industries, Inc.
1 Mill Street
Fort Edward, New York 12828
with a copy to:
Dale S. Miller, Esq.
Miller & Holguin
1801 Century Park East
Seventh Floor
Los Angeles, California 90067
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<PAGE> 17
7.07 Governing Law. The validity, meaning and effect of this Agreement
shall be determined in accordance with the laws of the State of New York
applicable to contracts made and to be performed in that State.
7.08 Purchaser's Investment Representations. Purchaser hereby represents
and warrants to the Corporation that:
(a) he is acquiring the 309,400 shares of Common Stock to be issued to
him upon his execution of this Agreement, the 472,689 shares of Common Stock to
be issued to him as prepaid interest on the Amended Note, and the Series C
Warrant for his own account and not with a view to reselling or distributing
such securities in any transaction which would constitute a "distribution"
within the meaning of the Securities Act;
(b) he has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of his investment
in said 782,089 shares of Common Stock and the Series C Warrant;
(c) he is able to bear the economic risks of an investment in said
782,089 shares of Common Stock and the Series C Warrant, including, without
limiting the generality of the foregoing, the risk of losing part or all of his
investment in said 782,089 shares of Common Stock and the Series C Warrant;
(d) he has had the opportunity to ask questions of, and receive answers
from, the Corporation concerning the terms and conditions of the offering of
said 782,089 shares of Common Stock and the Series C Warrant and to obtain
additional information about the Corporation;
(e) he is not an entity formed solely to make this investment;
(f) his execution, delivery and performance of this Agreement will not
breach the provisions of any agreement to which he is a party;
(g) he is an "accredited investor" as defined in Rule 501 promulgated
under the Securities Act;
(h) he will transfer the securities acquired hereunder in accordance
with the Securities Act;
(i) the offer to sell said 782,089 shares of Common Stock and the
Series C Warrant was directly communicated to him in such a manner that he was
able to ask questions of
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<PAGE> 18
and receive answers concerning the terms of this transaction, and that at no
time was he presented with or solicited by any leaflet, public or promotional
meeting, newspaper or magazine article, radio or television advertisement or
any other form of general advertising otherwise than in connection and
concurrently with such communicated offer;
(j) he has been advised that said 782,089 shares of Common Stock and
the Series C Warrant and the shares of Common Stock to be issued upon payment
of interest on and/or conversion of the Amended Note and/or exercise of the
Warrants are, or when issued will be, "restricted securities" as that term is
defined in Rule 144 promulgated under the Act; and
(k) all representations made by him in this Section 7.08 are accurate,
true and complete in all material respects as of the date hereof.
7.09 Confidentiality. The Corporation shall not, without Purchaser's
consent or unless required by law, disclose any of the information supplied by
Purchaser to the Corporation in connection with the transactions contemplated
by any of the Operative Documents to any person or entity other than the
directors and officers of, and counsel and accountants for, the Corporation who
need to know such information in order to consummate said transactions.
7.10 Exhibits and Schedules. All exhibits and schedules hereto and the
schedules and other documents to be delivered to Purchaser pursuant hereto are
an integral part of this Agreement.
7.11 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to Purchaser, upon any breach or default of the
Corporation under any of the Operative Documents, shall impair any such right,
power or remedy of Purchaser or shall be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; and any waiver of any single breach or default
shall not be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any such holder of any provisions or conditions of the
Operative Documents must be made in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, under either the
Operative Documents or by law or otherwise afforded to Purchaser, shall be
cumulative and not alternative.
7.12 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and the other party.
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<PAGE> 19
7.13 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto and the schedules and other documents to be delivered pursuant
hereto, and the other Operative Documents constitute the entire agreement of
the parties concerning the matters referred to herein and therein, and
supersede all prior and contemporaneous agreements and understandings.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective the date first set forth above.
DECORA INDUSTRIES, INC.
By:
--------------------------------
Its:
-------------------------------
-----------------------------------
Robert W. Johnson IV
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<PAGE> 1
EXHIBIT 10.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THUS MAY
NOT BE TRANSFERRED UNLESS REGISTERED UNDER THAT ACT OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
AMENDED AND RESTATED
CONVERTIBLE NEGOTIABLE
PROMISSORY NOTE
$1,500,000 November 3, 1995
FOR VALUE RECEIVED, DECORA INDUSTRIES, INC., a Delaware corporation ("Payor"),
hereby promises to pay to the order of ROBERT W. JOHNSON IV, his heirs,
executors, personal representatives and assigns ("Holder"), the principal sum
of One Million, Five Hundred Thousand Dollars ($1,500,000), with interest from
the date hereof on unpaid principal at the rate of twelve percent (12%) per
annum, all principal due and payable May 3, 1998 and all interest due and
payable in accordance herewith.
In consideration of this Amended and Restated Note, Payor shall concurrently
issue to Holder 309,400 fully paid and nonassessable shares of its common
stock, par value $0.01 per share (the "Common Stock") as a closing fee.
The outstanding principal balance of this Note may be prepaid at any time in
whole or in part by the Payor, without penalty; provided that in any event
Holder is provided seventy five (75) days, advance written notice of any
proposed prepayment during which time Holder may convert this Note pursuant to
the terms hereof.
Interest shall be payable once in advance representing interest payable with
respect to the term of November 3, 1995 through May 3, 1998 concurrently with
the execution and delivery of this Amended Note and shall consist of 472,689
fully paid and nonassessable shares of the Common Stock; provided that if the
Note is converted or prepaid in full prior to May 4, 1997, then Payor shall be
entitled to offset from the Note balance, $180,000 which is equal to the
pre-paid interest for the period May 4, 1997 to May 3, 1998.
Such interest was calculated in accordance with the following formula: The
outstanding principal balance of this Note was calculated as of November 3,
1995 and was multiplied by twelve percent (12%) multiplied by 2.5, in order to
provide total interest of $450,000 payable during the term of November 3, 1995
through May 3, 1998. Interest payable was then divided by a price per share of
$0.952 calculated as the Market Value of a share of Common Stock. "Market
Value"
<PAGE> 2
means: the average closing bid and asked prices for the 20 days prior to
November 3, 1995; as quoted on the NASDAQ Association of Securities Dealers
Automatic Quotation System ("NASDAQ").
If any of the following events (each is herein referred to as an "Event of
Default") shall occur:
(i) default shall occur in the performance of or
compliance with any covenant contained in Section 5.09 of the Amended
and Restated Note and Warrant Purchase Agreement by and between Payor
and Holder of even date herewith (the "Purchase Agreement");
(ii) material default shall occur in the performance of or
compliance with any other covenant contained herein or in the Purchase
Agreement which shall continue uncured for more than ten (10) days
after the occurrence of such default;
(iii) if any representation or warranty to Purchaser made
in writing by the Payor in the Purchase Agreement or in any other
agreement, document and instrument contemplated hereby and thereby,
shall prove to have been false or inaccurate in any material respect
on the date as of which made;
(iv) all or any part of the principal or interest due
under this Note is not paid when and as the same shall become due and
payable, whether at the maturity thereof, by acceleration, by notice
of prepayment or otherwise;
(v) any default in excess of $250,000 shall occur in the
making of the payment of the principal of or interest on any other
indebtedness of Payor or any of its Subsidiaries (as defined in the
Purchase Agreement) for borrowed money, as and when the same shall
become due and payable by the lapse of time, by declaration, by call
for redemption or otherwise;
(vi) default or the happening of any event shall occur
under any indenture, agreement or other instrument under which any
indebtedness of Payor or any of its Subsidiaries for borrowed money is
or may be issued, and such default or event shall continue for a
period of time sufficient to permit the acceleration of the maturity
of any indebtedness of Payor or any of its Subsidiaries outstanding
thereunder;
(vii) a receiver, conservator, custodian, liquidator or
trustee of Payor or any of its Subsidiaries or of all or any of the
property of any of them is appointed by court order and such order
remains in effect for more than sixty (60) days; or an order for
relief is entered under the federal bankruptcy laws with respect to
Payor or any of its Subsidiaries; or any of its material property is
sequestered by court order and such order remains in effect for more
than sixty (60) days; or a petition is filed against Payor or any of
its Subsidiaries under the bankruptcy, reorganization, arrangement,
insolvency, readjustment
- 2 -
<PAGE> 3
of debt, dissolution or liquidation law of any jurisdiction, whether
now or hereafter in effect, and is not dismissed within sixty (60)
days after such filing;
(viii) Payor or any of its Subsidiaries files a petition in
voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, or consents to the filing of any petition
against it under any such law;
(ix) Payor or any of its Subsidiaries makes an assignment
for the benefit of its creditors, or admits in writing its inability
to pay, or in fact does not pay, its debts generally as they become
due, or consents to the appointment of a receiver, conservator,
custodian, liquidator or trustee of Payor or any of its Subsidiaries,
or of all or any part of the property of any of them;
(x) final judgment for the payment of money in excess of
$250,000 shall be rendered by a court of record against Payor or any
of its Subsidiaries, and Payor or such Subsidiary shall not (1)
discharge the same (by insurance or otherwise) or provide for its
discharge in accordance with its terms, or (2) procure a stay of
execution thereof within sixty (60) days from the date of entry
thereof and within said period of sixty (60) days, or such longer
period during which execution of such judgment shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal;
(xi) a breach of any term or provision of the Series A
Warrant, dated as of November 3, 1992 to purchase 225,000 shares of
Common Stock granted to Holder, or of the Series B Warrant, dated as
of November 3, 1992 to purchase 100,000 shares of Common Stock also
granted to Holder, or of the Class C Warrant dated as of November 3,
1995 (collectively, the "Warrants"); or
(xii) Payor is delisted or otherwise removed from the
NASDAQ system and is not on the same or next business day listed on
any national securities exchange;
then, when any Event of Default described in clause (iii), (vi), (x) or (xi)
above has occurred and shall be continuing, this Note shall, upon written or
facsimile notice from Holder, forthwith be due and payable, if not already due
and payable; and when any Event of Default described in clause (i), (ii), (iv),
(v), (vii), (viii), (ix) or (xii) above has occurred, then, at the option of
Holder, the principal of this Note shall be immediately due and payable, by
acceleration, without presentment, demand or notice of any kind, upon the
occurrence thereof.
In addition to the acceleration of this Note upon the occurrence of any of the
foregoing events, Payor agrees that, if Payor completes a registered public
offering of its securities while any obligation remains outstanding under this
Note, then Payor shall at the option of Holder immediately deliver to Holder,
as a prepayment of principal due under this Note (but not
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<PAGE> 4
exceeding the outstanding principal balance of this Note then outstanding), one
hundred percent (100%) of the net proceeds of such offering in excess of
$4,000,000.
Failure by Payor to fulfill any of the obligations set forth in the immediately
preceding paragraph shall also constitute an "Event of Default". At the option
of Holder, the principal of this Note shall be immediately due and payable, by
acceleration, without presentment, demand or notice of any kind, upon the
occurrence of such failure.
If any principal or installment of interest is not paid in full on the due date
hereof (whether by maturity or acceleration or otherwise), then the outstanding
principal balance of this Note and any overdue installment of interest thereon
(to the extent permitted by applicable law) shall bear additional interest from
the due date of such payment, or from and after an Event of Default, at a rate
equal to the lesser of (i) the highest rate allowed by applicable law, or (ii)
sixteen percent (16%) per annum (the "Default Rate") until the amount due is
paid. If payment of this Note is accelerated, then the outstanding principal
balance hereof shall bear interest at the Default Rate from and after the Event
of Default, and at the option of Holder, payment of interest shall be made in
cash. Payor agrees to reimburse Holder for all reasonable out-of-pocket costs
and expenses incurred by him in any effort to collect this Note, whether or not
suit is filed, including reasonable compensation to Payor's attorneys for
services rendered in connection therewith, and pay interest on such costs and
expenses to the extent not paid when demanded at the Default Rate. If this
Note is not paid when due, whether at maturity or by acceleration, the
undersigned promises to pay Holder's costs of collection, which costs shall
include, but shall not be limited to, reasonable attorneys' fees and court
costs incurred by any holder hereof on account of such collection, whether or
not suit is filed hereon.
All agreements herein are expressly limited so that in no event whatsoever,
whether by reason of advancement of the proceeds hereof, acceleration of
maturity of the unpaid principal balance hereof, or otherwise, shall the amount
paid or agreed to be paid to Holder for the use or forbearance of the money to
be advanced hereunder exceed the highest lawful rate permissible under
applicable law. If, due to any circumstances whatsoever, fulfillment of any
provision hereof, or of the Purchase Agreement, or of any of the Warrants, at
the time performance of such provision shall be due, shall involve transcending
the limit of validity prescribed by law which a court of competent jurisdiction
may deem applicable hereto, then, ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity, and if, under any
circumstances, Holder shall ever receive as interest an amount which would
exceed the highest lawful rate, such amount which would be excessive interest
shall be applied to the reduction of the unpaid principal balance due hereunder
and not to the payment of interest. At the option of Holder, if a court of
competent jurisdiction determines that any amounts otherwise to be paid
hereunder exceed the highest permissible lawful rate, or if Payor asserts the
amounts otherwise to be paid hereunder exceed the highest permissible lawful
rate, then Holder shall have the right to accelerate the maturity of the entire
unpaid principal balance and accrued interest due under this Note, immediately
upon notice to Payor.
- 4 -
<PAGE> 5
Payor authorizes any attorney at law to appear in any court of record in the
State of New York, or in any other state or territory of the United States,
after this Note becomes due, either by lapse of time or by operation of any
provision of acceleration contained herein, and waive the issuance and service
of process, enter appearance and confess a judgment or enter a confession of
judgment against Payor in favor of any holder of this Note, for the amount then
due, together with costs that the undersigned has promised to pay herein, and
thereupon to release all errors and waive all rights of appeal and stay of
execution. Any reorganization, consolidation, merger, sale or similar
transaction involving Payor shall not impair the authority herein granted as to
the survivor or survivors of Payor.
Payor has executed and delivered to the attorney for Holder the affidavit which
is required under New York State CPLR Section 3218(a) to enter such a
confession of judgment against Payor. Said affidavit shall be held in escrow
by the attorney for Holder until such time as Holder may be entitled to such
confession of judgment against Payor, at which time such attorney is authorized
to file such affidavit with the appropriate County Clerk and enter the judgment
based thereon. In no event, however, shall execution be issued upon such
judgment for more than the sum actually due hereunder plus the costs Payor has
promised to pay herein, and, immediately upon the entry of such judgment,
Holder shall file with said County Clerk a partial satisfaction of judgment for
any amount which has been paid and is no longer due.
In connection herewith, Holder shall receive the right to convert the
outstanding principal balance of this Note, from time to time, into shares of
Common Stock, as set forth herein.
(a) CONVERSION OF NOTE. At the sole election of Holder hereof,
Holder may convert, without forfeiture of any prepaid interest (except as set
forth in the fourth paragraph hereof), all or any part of the principal balance
due under this Note (in increments of $100,000) into shares of Common Stock at
the conversion rate of $1.70 per share (the "Initial Conversion Price") as may
be adjusted from time to time as hereinafter set forth. Notwithstanding the
foregoing, if this Note has not been paid in full on or before May 3, 1998 and
the Holder exercises the Series C Warrant dated as of November 3, 1995, then
this Note shall not be convertible. The shares of Common Stock deliverable
upon such conversion, and as adjusted from time to time, are hereinafter
sometimes referred to as "Note Shares" and the conversion price of each share
of Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Conversion Price". The right to
convert may be exercised at any time prior to the due date of this Note by
presentation and surrender of this Note to Payor at its principal office, with
the Purchase Form annexed hereto duly executed. If this Note should be
exercised in part only, Payor shall, upon surrender of this Note for
cancellation, execute and deliver a new Note evidencing the principal balance
of the remaining obligation of Payor to Holder. Upon receipt by Payor of this
Note at its office, in proper form for conversion, Holder shall be deemed to be
the holder of record of the shares of Common Stock issuable upon such
conversion, notwithstanding that the stock transfer books of Payor shall then
be closed or that certificates representing such shares of Common Stock shall
not then be actually delivered to Holder. The Note Shares shall be "restricted
securities" as defined in the Securities Act of 1933,
- 5 -
<PAGE> 6
as amended (the "Securities Act"). Certificates for the shares so purchased
shall be delivered to Holder within a reasonable time, not exceeding ten days,
after rights represented by this Note shall have been exercised.
(b) SHARES TO BE FULLY PAID; RESERVATION OF SHARES. Payor
covenants and agrees:
(1) that all Note Shares shall, upon issuance, be fully
paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof;
(2) without limiting the generality of the foregoing,
that Payor will, from time to time, take all such action as may be
required to assure that the par value per share of the Common Stock is
at all times equal to or less than the then effective Conversion Price
per share of the Common Stock issuable pursuant to this Note;
(3) that, during the period within which interest is
payable on this Note and the rights represented by this Note may be
exercised, Payor shall at all times have authorized, and reserved for
the purpose of issue upon payment of interest on this Note and the
exercise of the rights evidenced by this Note, a sufficient number of
shares, of Common Stock to provide for the payment of interest and the
exercise of the rights represented by this Note;
(4) that Payor will take all such action as may be
necessary to assure that the Note Shares may be issued without
violation of any applicable law or regulation or of any requirements
of any domestic securities exchange or the NASDAQ system upon which
any capital stock of Payor may be listed, provided Holder provides
Payor with such information as Payor shall reasonably request and that
is necessary to comply with the requirements of any such exchange or
system;
(5) that no person has any preemptive or other right with
respect to the issuance of any Note Shares; and
(6) that Payor will not take any action which would
result in any adjustment of the Conversion Price if the total number
of shares of Common Stock issuable after such action upon payment of
interest on the Note or conversion of the Note, together with all
shares of Common Stock then outstanding and all shares of Common Stock
then issuable upon exercise of all Options (as hereinafter defined)
and upon conversion of all Convertible Securities (as hereinafter
defined) then outstanding, would exceed the total number of shares of
Common Stock then authorized by Payor's certificate of incorporation
(as then amended or restated). In the event any stock or securities
of Payor other than the Common Stock are issuable upon the exercise
hereof, the Payor will take or refrain from taking any action referred
to in clauses (1) through (6) of this Section (b) as though such
clauses applied to such other shares or securities then issuable upon
the exercise hereof.
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<PAGE> 7
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the payment of interest on or conversion
of this Note. With respect to any fraction of a share called for upon any
interest payment hereunder or conversion hereof, Payor shall pay to Holder an
amount in cash equal to such fraction multiplied by the current market value of
a share, determined as follows:
(1) If the Common Stock is listed on a domestic
securities exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the NASDAQ system, the current
market value shall be the last reported sale price of the Common Stock
on such exchange or system on the last business day prior to the date
of an interest payment on this Note or conversion of this Note, as the
case may be, or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or system;
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current market value shall be the
mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc., or any similar successor
organization, on the last business day prior to the date of exercise
of this Note; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount not less than
the book value thereof as at the end of the most recent fiscal year of
Payor ending prior to the date of an interest payment on this Note or
conversion of this Note, as the case may be, determined in such
reasonable manner as may be prescribed by the Board of Directors of
Payor.
(d) TRANSFER OR ASSIGNMENT OF NOTE. This Note is freely
transferable and may be assigned or hypothecated from the date hereof.
(e) RIGHTS OF HOLDER. Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in Payor, either at law or equity, and
the rights of Holder are limited to those expressed in this Note and are not
enforceable against Payor except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Conversion Price and the number
and kind of securities purchasable upon the conversion of this Note shall be
subject to adjustment from time to time upon the happening of certain events as
hereinafter provided. The Conversion Price in effect at any time and the
number and kind of securities purchasable upon conversion of the Note shall be
subject to adjustment as follows:
(1) Issuance of Common Stock. If and whenever after
November 3, 1992 Payor shall issue or sell (or be deemed to issue or
sell as provided hereunder) any shares of its Common Stock for a
consideration per share less than the Conversion Price in effect
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<PAGE> 8
immediately prior to the time of such issue or sale (other than shares
of Common Stock issued pursuant to this Note and the Warrants and the
shares of Common Stock listed as pending issuance, and the shares of
Common Stock listed as being issuable pursuant to options pending
issuance, in Schedule 3.02 to the Note and Warrant Purchase Agreement
dated as of November 3, 1992), then, forthwith upon such issue or
sale, the Conversion Price shall be reduced to the price, calculated
to the nearest cent, determined by dividing (i) the sum of (A) the
number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Conversion Price and (B)
the consideration, if any, received by Payor upon such issue or sale,
by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(i) Issuance of Rights or Options. In case at
any time Payor shall in any manner grant (whether directly or
by assumption in a merger or otherwise), after the date
hereof, any rights to subscribe for or to purchase, or any
options for the purchase of (such rights or options being
herein called "Options"), Common Stock or any stock or
securities convertible into or exchangeable for Common Stock
(such convertible or exchangeable stock or securities being
herein called "Convertible Securities") whether or not such
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of
such Convertible Securities (determined as provided in the
following sentence) shall be less than the Conversion Price in
effect immediately prior to the time of granting such Options,
then the total maximum number of shares of Common Stock
issuable upon the exercise of all such Options or upon
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options and
thereafter shall be deemed to be outstanding. The price per
share for which Common Stock is issuable, as referred to in
the preceding sentence, shall be determined by dividing (A)
the sum of (1) the total amount, if any, received or
receivable by Payor as consideration for the granting of such
Options, plus (2) the minimum aggregate amount of additional
consideration payable to Payor upon the exercise of all such
Options, plus (3) in the case of all such Options that relate
to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or
sale of all such Convertible Securities (to the extent not
counted in clause (2) hereof) and upon the conversion or
exchange of all such Convertible Securities into Common Stock,
by (B) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options; the consideration
received or receivable by Payor shall in each case be
determined in accordance with Section (f)(l)(v) hereof.
Except as otherwise provided in Section (f)(1)(iii) hereof, no
adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such
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<PAGE> 9
Convertible Securities upon exercise of such Options or upon
the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. In case
Payor shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell, after the date
hereof, any Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined as provided in
the following sentence) shall be less than the Conversion
Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price
per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (A) except as otherwise provided in
Section (f)(l)(iii) below, no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities,
and (B) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustments of the Conversion Price have been or are to be
made pursuant to Section (f)(1)(i) hereof, no further
adjustment of the Conversion Price shall be made by reason of
such issue or sale. The price per share for which Common
Stock is issuable, as referred to in the preceding sentence,
shall be determined by dividing (A) the sum of (1) the total
amount received or receivable by Payor as consideration for
the issue or sale of such Convertible Securities, plus (2) the
minimum aggregate amount of additional consideration, if any,
payable upon the conversion or exchange of such Convertible
Securities into Common Stock, by (B) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities; the consideration
received or receivable by Payor shall in each case be
determined in accordance with Section (f)(l)(v) hereof.
(iii) Change in Option Price or Conversion Rate.
Upon the happening of any of the following events, namely, if
the purchase price provided for in any outstanding Option
referred to in Section (f)(1)(i) hereof, the additional
consideration, if any, payable upon the conversion or exchange
of any outstanding Convertible Securities referred to in
Section (f)(1)(i) or (f)(l)(ii) hereof, or the rate at which
any such Convertible Securities are convertible into or
exchangeable for Common Stock shall change at any time (other
than under or by reason of provisions designed to protect
against dilution), the Conversion Price in effect at the time
of such event shall forthwith be readjusted to the Conversion
Price that would have been in effect at such time had such
Options or Convertible Securities provided for such changed
purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or
sold. On the
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<PAGE> 10
expiration of any option referred to in Section (f)(1)(i)
hereof prior to the exercise thereof or the termination of any
right to convert or exchange any Convertible Securities
referred to in Section (f)(1)(i) or (f)(1)(ii) hereof prior to
the exercise of such rights, the Conversion Price then in
effect hereunder shall forthwith be increased (but in no case
shall such Conversion Price be increased to a price greater
than the Initial Conversion Price) to the Conversion Price
that would have been in effect at the time of such expiration
or termination had such Option or Convertible Security, to the
extent outstanding immediately prior to such expiration or
termination never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding for the
purposes of any calculation under Section (f)(1)(i) or
(f)(1)(ii) hereof. If the purchase price provided for in any
Option referred to in Section (f)(1)(i) hereof or the
additional consideration, if any, payable upon the conversion
or exchange of any Convertible Securities issuable upon the
exercise of any such Options or upon the conversion or
exchange of any Convertible Securities referred to in Section
(f)(1)(ii) hereof and still outstanding shall decrease, or the
number of shares of Common Stock issuable upon conversion or
exchange of any such Convertible Securities shall increase, at
any time under or by reason of provisions with respect thereto
designed to protect against dilution, then in case of the
delivery of Common Stock upon the exercise of any such Option
or upon conversion or exchange of any such Convertible
Security, the Conversion Price then in effect hereunder shall
forthwith be adjusted to the Conversion Price which would have
obtained had Section (f)(1)(i) and (f)(1)(ii) hereof and the
provisions of this Section (f)(1)(iii) hereof never been given
effect in relation to such Option or Convertible Securities
and had the Conversion Price been adjusted pursuant to Section
(f)(1) hereof at the time of delivery of such shares of Common
Stock based on the consideration received (or deemed received
under Section (f)(l)(v) hereof) for such Common Stock,
determined as of the date of such delivery, provided that such
adjustment of the Conversion Price shall be made only if as a
result thereof the Conversion Price then in effect hereunder
is thereby reduced.
(iv) Stock Dividends. In case Payor shall declare
a dividend or make any other distribution upon any stock of
Payor payable in Common Stock, Options or Convertible
Securities, any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued
or sold without consideration for purposes of the calculations
to be made under this Section (f). If Payor shall at any time
prior to payment in full of this Note declare a dividend
payable in cash on its Common Stock and at substantially the
same time offer its stockholders a right to purchase Common
Stock from the proceeds of such dividend or for an amount
substantially equal to such dividend, then, in such case, all
Common Stock so issued shall, for purpose of this Note, be
deemed to have been issued as a stock dividend.
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<PAGE> 11
(v) Consideration for Securities. In case any
shares of Common Stock, Options or Convertible Securities
shall be issued or sold by Payor for cash, the consideration
received therefor shall be deemed to be the amount received by
Payor thereof, provided that in no case shall any deduction be
made for any commissions, discounts or other expenses incurred
by Payor for any underwriting of the issue or otherwise in
connection therewith. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the
consideration other than cash received by Payor shall be
deemed to be the fair value of such consideration as
determined reasonably and in good faith by the Board of
Directors of Payor (irrespective of the accounting treatment
thereof). In case any Common Stock, Options or Convertible
Securities shall be issued in connection with any merger or
consolidation in which Payor is the surviving corporation
(other than any consolidation or merger in which the
previously outstanding shares of Common Stock of Payor shall
be changed into or exchanged for the stock or other securities
of another corporation) the amount of consideration therefor
shall be deemed to be the fair value as determined reasonably
and in good faith by the Board of Directors of Payor
(irrespective of the accounting treatment thereof) of such
portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to
such shares of Common Stock, Options or Convertible
Securities, as the case may be. In the event of any
consolidation or merger of Payor in which Payor is not the
surviving corporation or in which the previously outstanding
shares of Common Stock of Payor shall be changed into or
exchanged for the stock or other securities of another
corporation, or in the event of any sale of all or
substantially all of the assets of Payor for stock or other
securities of any corporation, Payor shall be deemed to have
issued a number of shares of its Common Stock equal to the
number of shares of Common Stock used for computing the actual
exchange ratio on which the transaction was predicated and for
a consideration equal to the fair market value on the date of
transaction of all such stock or securities of the other
corporation received by the holders of the capital stock of
Payor or by Payor and if such calculation results in
adjustment of the Conversion Price, the determination of the
number of shares of Common Stock issuable upon conversion of
the Note immediately prior to such merger, consolidation or
sale, for purposes of Section (f)(4) hereof shall be made
after giving effect to such adjustment of the Conversion
Price.
(vi) Record Date. In case Payor shall take a record
of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the
case may be.
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<PAGE> 12
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of Payor, and the
disposition or reissuance of any such shares shall be
considered an issue or sale of Common Stock for the purposes
of this Section (f).
(2) Liquidating Dividends. Payor will not declare a
dividend upon the Common Stock payable otherwise than out of
consolidated earnings or consolidated earned surplus, determined in
accordance with generally accepted accounting principles, including
the making of appropriate deductions for minority interests, if any,
in subsidiaries, and otherwise than in Common Stock, unless Payor
shall pay over to Holder, on the dividend payment date, the cash,
stock or other securities and other property that Holder would have
received if Holder had converted this Note in full to purchase Common
Stock and had been the record holder of such Common Stock on the date
on which a record is taken for the purpose of such dividend, or, if a
record is not taken, the date as of which the holders of Common Stock
of record entitled to such dividend are to be determined. For the
purposes of the foregoing, a dividend other than in cash shall be
considered payable out of earnings or surplus (other than revaluation
or paid in surplus) only to the extent that such earnings or surplus
are charged an amount equal to the fair value of such dividend as
determined reasonably and in good faith by the Board of Directors of
Payor.
(3) Subdivision of Combination of Stock. In case Payor
shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common
Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall
be proportionately increased.
(4) Merger, Sale, Reorganization, Reclassification or
Consolidation. If any capital reorganization or reclassification of
the capital stock of Payor, or any consolidation or merger of Payor
with another corporation, or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provisions shall be made whereby
Holder shall thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in this Note and
in lieu of the shares of the Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and
in any such case appropriate provision shall be made with respect to
the rights and interests of Holder to
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<PAGE> 13
the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and Note Shares upon
the conversion of this Note) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of the rights represented
hereby (including an immediate adjustment, by reason of such
consolidation or merger, of the Conversion Price to the value for the
Common Stock reflected by the terms of such consolidation or merger if
the value so reflected is less than the Conversion Price in effect
immediately prior to such consolidation or merger). In the event of a
merger or consolidation of Payor with or into another corporation as a
result of which a number of shares of common stock of the successor or
surviving corporation greater or lesser than the number of shares of
Common Stock of Payor outstanding immediately prior to such merger or
consolidation are issuable to holders of Common Stock of Payor, then
the Conversion Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common
Stock of Payor outstanding immediately prior to such merger or
consolidation. Payor shall not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor or
surviving corporation (if other than Payor) resulting from such
consolidation or merger or the corporation purchasing such assets, as
the case may be, shall assume by written instrument executed and
mailed or delivered to Holder hereof at the last address of Holder
appearing on the books of Payor, the obligation to deliver to Holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, Holder may be entitled to purchase or receive
hereunder. If a purchase, tender or exchange offer is made to and
accepted by the holders of more than fifty percent (50%) of the
outstanding shares of Common Stock of Payor, Payor shall not effect
any consolidation, merger or sale with the Person (as hereinafter
defined) having made such offer or with any Affiliate (as hereinafter
defined) of such Person, unless prior to the consummation of such
consolidation, merger or sale Holder shall have been given a
reasonable opportunity to then elect to receive either the stock,
securities or assets then issuable upon the conversion of this Note
or, if different, the stock, securities or assets, or the equivalent,
issued to previous holders of the Common Stock in accordance with such
offer, computed as though Holder had been, at the time of such offer,
a holder of the stock, securities or assets then purchasable upon the
conversion of this Note. As used in this Section (f)(4), the term
"Person" shall include an individual, a partnership, a corporation, a
trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof, and an "Affiliate" of
any Person shall mean any Person directly or indirectly controlling,
controlled by or under direct or indirect common control with, such
other Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by
contract or otherwise.
(5) Notice of Adjustment. Whenever the Conversion Price
is adjusted, as herein provided, Payor shall promptly cause a notice
setting forth the adjusted Conversion
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<PAGE> 14
Price and adjusted number of Note Shares issuable upon conversion of
the Note, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based, to be mailed to
Holder of the Note at Holder's last address as shown on the books of
Payor. Payor may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by Payor) to make any computation required by
this Section (f), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(6) Other Notices. In case at any time:
(i) Payor shall declare any cash dividend upon
its Common Stock;
(ii) Payor shall declare any dividend upon its
Common Stock payable in stock or make any special dividend or
other distribution (other than regular cash dividends) to the
holders of its Common Stock;
(iii) Payor shall offer for subscription to the
holders of any of its Common Stock any additional shares of
stock of any class or other rights;
(iv) there shall be any capital reorganization,
reclassification of the capital stock of Payor or
consolidation or merger of Payor with, or sale of all or
substantially all of its assets to, another corporation;
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of Payor; or
(vi) there shall be any subdivision or combination
of the outstanding shares of Common Stock into, respectively,
a greater or lesser number of shares of Common Stock;
then, in any one or more of said cases, Payor shall give, by first
class mail, postage prepaid, addressed to Holder at the address of
Holder as shown on the books of Payor, (i) at least twenty (20) days
prior written notice of the date on which the books of Payor shall
close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of
any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up and (ii) in the case of
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) above 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) above shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization,
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<PAGE> 15
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
(7) Duty to make Fair Adjustments in Certain Cases. If
any event occurs as to which in the opinion of either the Board of
Directors of Payor or Holder of the Note the other provisions of this
Section (f) are not strictly applicable or if strictly applicable
would not fairly protect the purchase rights of the Note in accordance
with the essential intent and principles of such provisions, then the
Board of Directors and Holder shall mutually agree upon an adjustment
in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights
as aforesaid, but in no eventhall any such adjustment have the effect
of increasing the Conversion Price as otherwise determined pursuant to
this Section (f) except in the event of an increase in option price,
additional consideration or conversion rate as contemplated by Section
(f)(1)(iii) hereof, or a combination of shares of the type contemplated
in Section (f)(3) hereof and then in no event to an amount larger than
the Conversion Price as adjusted pursuant to Section (f)(1)(iii) or
(f)(3) hereof.
(8) Share Adjustment. Whenever the Conversion Price
payable upon conversion of this Note is adjusted pursuant to Sections
(f)(1), (f)(3), (f)(4), (f)(7) and (f)(9) hereof, the number of Note
Shares purchasable upon conversion of this Note shall simultaneously
be adjusted by multiplying the number of Note Shares initially
issuable upon conversion of this Note by the Conversion Price in
effect on the date hereof and dividing the product so obtained by the
Conversion Price, as adjusted.
(9) Minimum Adjustment. No adjustment in the Conversion
Price shall be required unless such adjustment would require an
increase or decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of this
Section (f)(9) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment required to be
made hereunder. All calculations under this Section (f) shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the
case may be. Anything in this Section (f) to the contrary
notwithstanding, Payor shall be entitled, but shall not be required,
to make such changes in the Conversion Price, in addition to those
required by this Section (f), as it, in its sole discretion, shall
determine to be advisable in order that any dividend or distribution
in shares of Common Stock, subdivision, reclassification or
combination of Common Stock, issuance of warrants to purchase Common
Stock or liquidating dividends referred to hereinabove in this Section
(f) hereafter made by Payor to the holders of its Common Stock shall
not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
(g) OFFICER'S CERTIFICATE. Whenever the Conversion Price shall be
adjusted as required by the provisions of the foregoing Section (f), Payor
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office an officer's certificate showing the adjusted
Conversion Price determined as herein provided, setting forth in reasonable
detail the
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<PAGE> 16
facts requiring such adjustment, including a statement of the number of
additional shares of Common Stock, if any, and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such officer's certificate shall be made available at all reasonable times
for inspection by Holder or any holder of a Note executed and delivered
pursuant to Section (a) hereof and Payor shall, forthwith after each such
adjustment, mail a copy by certified mail of such certificate to Holder or any
such holder.
(h) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) Piggyback Registration. The shares of Common Stock
issuable upon conversion of this Note have not been registered under the
Securities Act, the New York Martin Act, as amended, or under the laws of any
other state. If while any obligation remains outstanding under this Note Payor
proposes to register any security under the Securities Act on any registration
form (otherwise than for the registration of securities to be offered and sold
pursuant to (a) an employee benefit plan, (b) a dividend or interest
reinvestment plan, (c) other similar plans or (d) reclassifications of
securities, mergers, consolidations and acquisitions of assets on Form S-4 or
any successor thereto) prescribed by the Securities and Exchange Commission
(the "Commission") permitting a secondary offering or distribution, not less
than sixty (60) days prior to each such registration, Payor shall give to the
holders of the Note or Note Shares written notice of such proposal which shall
describe in detail the proposed registration and distribution (including those
jurisdictions where registration or qualification under the securities or blue
sky laws is intended) and, upon the written request of any holder of a Note or
Note Shares given within thirty (30) days after the date of any such notice,
proceed to include in such registration such shares of Common Stock as have
been requested by any such holder to be included in such registration. Any
holder of a Note or Note Shares shall in its request describe briefly the
proposed disposition of such shares of Common Stock. Payor will in each
instance use its best efforts to cause any Note Shares (the holders of which
shall have so requested registration thereof) to be registered under the
Securities Act and qualified under the securities or blue sky laws of any
jurisdiction requested by a prospective seller, all to the extent necessary to
permit the sale or other disposition thereof (in the manner stated in such
request) by a prospective seller of the securities so registered. Payor agrees
that any Note Shares so registered shall be offered on terms no less favorable
than those applicable to the shares offered by Payor or other selling
stockholders.
If the managing underwriter, who shall be selected by Payor to
manage the distribution of the shares of Common Stock being registered, advises
Payor in writing that, in its opinion, the inclusion of the shares of Common
Stock requested to be included in such registration by a holder of the Note or
Note Shares with the securities being registered by Payor and other prospective
sellers would have a materially adverse affect on the distribution of all such
securities, then (a) Payor shall include in such registration the Note Shares
on a pari passu basis with shares of other selling stockholders or (b) any
holder of a Note or Note Shares may, at its sole option, delay its offering and
sale for a period not to exceed 120 days after the effective date of such
registration as such managing underwriter shall reasonably request. In the
event of such delay,
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<PAGE> 17
Payor shall use its best efforts to effect any registration or qualification
under the Securities Act and the securities or blue sky laws of any
jurisdiction as may be necessary to permit such prospective seller to make its
proposed offering and sale following the end of such period of delay.
Holder or the holders of Note Shares who have requested shares
of Common Stock to be included in a registration pursuant to this Section
(h)(1) by acceptance hereof or thereof, agrees to execute an underwriting
agreement with such underwriter that is (i) reasonably satisfactory to such
holder and (ii) in customary form.
Nothing in this Section (h)(1) shall be deemed to require
Payor to proceed with any registration of its securities after giving the
notice herein provided.
(2) Demand Registration. At any time while any
obligation remains outstanding under this Note that Payor is required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the holders of the Note and the holders of any
Note Shares may, on up to two (2) separate occasions, require Payor to effect
the registration of the Note Shares pursuant to the provisions of this Section
(h)(2); provided that Note Shares payable as an interest installment shall not
be eligible for registration unless this Note has been converted in whole into
Note Shares. If the holders of the Note and the holders of any Note Shares
representing a total of more than fifty percent (50%) of the shares of Common
Stock issuable upon the payment of interest on the Note or the conversion of
the Note shall give notice to Payor to the effect that such holders intend to
(i) transfer all or any part of the Note Shares or (ii) convert all or any part
of the Note and transfer all or any part of the Note Shares under such
circumstances that a public distribution (within the meaning of the Securities
Act) of the Note Shares will be involved, and the aggregate number of Note
Shares to be transferred as described in the foregoing clauses (i) and (ii) is
equal to at least twenty-five percent (25%) of the aggregate number of shares
then issuable upon conversion of the Note, then Payor shall, within thirty days
after receipt of such notice, file a registration statement pursuant to the
Securities Act to the end that such shares may be sold under the Securities Act
as promptly as is practicable thereafter and Payor will use its best efforts to
cause any such registration statement to become effective and to keep the
prospectus included therein current for 135 days after the effective date
thereof or until the distribution shall have been completed, whichever first
occurs; provided that such holders shall furnish Payor with appropriate
information (relating to the intention of such holders) in connection therewith
as Payor may reasonably request in writing. If at the time Payor receives
notice pursuant to this Section (h)(2) it would be impossible or impracticable
to include Payor's most recent fiscal year-end financial statements as the most
recent certified financial statements required to be included therein and
provided that an Event of Default does not then exist, Payor's obligation to
effect a registration pursuant to this Section (h)(2) shall be suspended until
Payor's next fiscal year-end financial statements must be filed with the
Commission in accordance with the Commission's rules. The managing underwriter
for any offering made pursuant to this Section (h)(2) shall be selected by the
holders of a majority of the Note or Note Shares requiring registration
hereunder, subject to the consent, not unreasonably withheld, of Payor.
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<PAGE> 18
(3) Registration and Qualification Procedures. Whenever
Payor is required by the provisions of this Section (h) to use its best efforts
to effect the registration of any of its securities under the Securities Act,
Payor will, as expeditiously as is possible:
(i) prepare and file with the Commission a
registration statement with respect to such securities;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and
the prospectus current and to comply with the provisions of
the Securities Act with respect to the sale of all securities
covered by such registration statement whenever the seller of
such securities shall desire to sell the same; provided,
however, that Payor shall have no obligation to file any
amendment or supplement at its own expense more than nine (9)
months after the effective date of such registration
statement;
(iii) furnish to each seller such number of copies
of preliminary prospectuses and prospectuses and each
supplement or amendment thereto and such other documents as
each seller may reasonably request in order to facilitate the
sale or other disposition of the securities owned by such
seller in conformity with (A) the requirements of the
Securities Act and (B) the seller's proposed method of
distribution;
(iv) register or qualify the securities covered by
such registration statement under the securities or blue sky
laws of such jurisdictions within the United States as each
seller shall reasonably request, and do such other reasonable
acts and things as may be required of it to enable each seller
to consummate the sale or other disposition in such
jurisdictions of the securities owned by such seller;
provided, however, that Payor shall not be required to (A)
qualify as a foreign corporation or consent to a general and
unlimited service of process in any such jurisdictions, (B)
qualify as a dealer in securities, or (C) in the case of a
registration described in Section (h)(1) hereof, register or
qualify at its own expense securities of such seller in any
jurisdiction not described in the notice of Payor referred to
in the first paragraph of Section (h)(1) hereof, in any case
in order to accomplish any of the foregoing;
(v) furnish, at the request of any seller on the
date such securities are delivered to the underwriters for
sale pursuant to such registration or, if such securities are
not being sold through underwriters, on the date the
registration statement with respect to such securities becomes
effective, (A) an opinion, dated such date, of the counsel
representing Payor for the purposes of such registration,
addressed to the underwriters, if any, and to the seller
making such request,
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<PAGE> 19
covering such legal matters with respect to the registration
in respect of which such opinion is being given as the seller
of such securities may reasonably request and are customarily
included in such opinions, at such times as such opinions are
customarily given, and (B) letters dated, respectively, (1)
the effective date of the registration statement and (2) the
date such securities are delivered to the underwriters, if
any, for sale pursuant to such registration, from a firm of
independent certified public accountants of recognized
standing selected by Payor, addressed to the underwriters, if
any, and to the seller making such request, covering such
financial, statistical and accounting matters with respect to
the registration statement in respect of which such letters
are being given as the seller of such securities may
reasonably request and are customarily included in such
letters and at such times as such letters are customarily
given;
(vi) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available to its security holders as soon as reasonably
practicable, but not later than sixteen (16) months after the
effective date of the registration statement, an earnings
statement covering a period of at least twelve (12) months
beginning after the effective date of the registration
statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(vii) enter into and perform an underwriting
agreement with the managing underwriter, if any, selected as
provided in Section (h), as the case may be, containing
customary terms of offer and sale of the securities, payment
provisions, underwriting discounts and commissions,
representatives, warranties, covenants, indemnities, terms and
conditions; and
(viii) keep each seller advised in writing as to the
initiation and progress of any registration under Section
(h), as the case may be.
(4) Allocation of Expenses. If Payor is required by the
provisions of Section (h) to use its best efforts to effect the registration or
qualification under the Securities Act or any state securities or blue sky laws
of any of the Note Shares, Payor will pay all expenses in connection therewith,
including, without limitation, (i) all expenses incident to filing with the
National Association of Securities Dealers, Inc., (ii) registration or listing
fees, (iii) printing expenses, (iv) accounting and legal fees and expenses, (v)
expenses of any special audits incident to or required by any such registration
or qualification, (vi) premiums for insurance in such amount, if any, deemed
appropriate by the managing underwriter, (vii) expenses of complying with the
securities or blue sky laws of any jurisdictions in connection with such
registration or qualification and (viii) stamp and stock transfer taxes;
provided, however, Payor shall not be liable for any discounts or commissions
to any underwriter.
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<PAGE> 20
(5) Indemnification. In connection with any registration
or qualification of securities under Section (h) hereof, Payor hereby
indemnities Holder and the holders of any Note Shares and each underwriter
thereof, including each person, if any, who controls Holder or such stockholder
or underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, against all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon (i) any untrue, or alleged untrue, statement of a material
fact contained in any registration statement, preliminary prospectus,
prospectus or notification or offering circular or other similar document (as
amended or supplemented if Payor shall have furnished any amendments or
supplements thereto); (ii) any omission, or alleged omission, to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (iii) any violation by Payor of any
federal, state or common law rule or regulation applicable to Payor and
relating to action or inaction required of Payor in connection with any such
registration, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement or omission or alleged omission based solely upon information
furnished in writing to Payor by Holder or any such stockholder or underwriter
expressly for use therein. Payor and each officer, director and controlling
person of Payor or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act are hereby indemnified by
Holder and by the holders of any shares of Common Stock issuable upon the
conversion hereof against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue, or alleged untrue, statement of a material fact contained in any
registration statement, preliminary prospectus or notification or offering
circular (as amended or supplemented if Payor shall have furnished any
amendments or supplements thereto) or arising out of or are based upon any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was based solely upon information furnished in
writing to Payor by Holder or any such stockholder expressly for use therein;
provided, however, that, with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus, the
indemnity agreement contained in this sentence shall not apply to the extent
that any loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus was not sent or given to the person asserting
any loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Common Stock concerned to such person if it is
determined that it was the responsibility of Payor or any of its directors,
officers or agents, or any underwriter to provide such Person with a current
copy of the prospectus and such current copy of the prospectus would have cured
the defect giving rise to such loss, claim, damage, liability or expense.
Promptly upon receipt by a party indemnified under
this Section (h)(5) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be sought
against any indemnifying party under this Section (h)(5), such indemnified
party shall notify the indemnifying party in writing of the commencement of
such action, but the failure so to notify the indemnifying party shall not
relieve it of any
- 20 -
<PAGE> 21
liability which it may have to any indemnified party, unless such failure shall
materially adversely affect the defense of such action. In case notice of
commencement of any such action shall be given to the indemnifying party as
above provided, the indemnifying party shall be entitled to participate in and,
to the extent it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and satisfactory to such indemnified party. The indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
(other than reasonable costs of investigation) shall be paid by the indemnified
party unless (i) the indemnifying party agrees to pay the same, (ii) the
indemnifying party fails to assume the defense of such action with counsel
reasonably satisfactory to the indemnified party, or (iii) the named parties to
any such action (including any impleaded parties) have been advised by such
counsel that representation of such indemnified party and the indemnifying
party by the same counsel would be inappropriate under applicable standards of
professional conduct (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified
party). No indemnifying party shall be liable for any settlement entered into
without its consent.
If the indemnification provided in this Section
(h)(5) shall for any reason be unenforceable by an indemnified party, although
otherwise available in accordance with its terms, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages, liabilities or expenses with respect to which such indemnified party
has claimed indemnification, in such proportion as is appropriate to reflect
the relative fault of the indemnified party on the one hand and the
indemnifying party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as other relevant equitable considerations. Payor, Holder and each holder
of Note Shares agree that it would not be just and equitable if contribution
pursuant hereto were to be determined by pro rata allocation or by any other
method of allocation which does not take into account such equitable
considerations. The amount paid or payable by an indemnified party as a result
of losses, claims, damages, liabilities or expenses referred to herein shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending against any
action or claim which is the subject hereof. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
Holder and each holder of Note Shares bearing the
legend required by Section (1) hereof, by acceptance hereof or thereof, as the
case may be, agrees to the indemnification provisions of this Section (h).
(i) LISTING. If any shares of Common Stock required to be
reserved for issue upon the payment of interest hereon or the conversion hereof
require registration with or approval of any governmental authority under any
federal or state law, or listing on any domestic securities exchange or the
NASDAQ system, before such shares may be issued upon such payment or
- 21 -
<PAGE> 22
conversion, as the case may be, Payor will, at its expense and as expeditiously
as possible, use its best efforts to cause such shares to be duly registered or
approved or listed on the relevant domestic securities exchange or system, as
the case may be.
(j) CLOSING OF BOOKS. Payor will at no time close its transfer
books against the transfer of any Note Shares in any manner which interferes
with the timely payment of interest or the conversion of this Note.
(k) INVESTMENT REPRESENTATIONS. Holder, by acceptance hereof, and
with reference to this Note and the shares of Common Stock issuable upon
conversion of this Note, represents and warrants to Payor that: Holder is
acquiring such securities for investment and not with a view to or in
connection with any offering or distribution, and Holder has no present
intention of selling or otherwise disposing of such securities.
(l) SECURITIES LEGEND. This Note as well as, if necessary, the
securities issued for payment of interest on this Note and in the event of the
conversion of this Note for shares of the Common Stock, will bear substantially
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER THAT ACT
OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
(m) TRANSFERABILITY. Any shares of Common Stock acquired hereunder
can be sold or disposed of when Payor shall have received a copy of an opinion
of counsel to Holder (which opinion is reasonably acceptable to Payor) which
states that the sale or other disposition thereof may be effected without
registration under the Securities Act in accordance with any rules or
regulations promulgated thereunder then obtaining to which such shares are
subject; provided, that any such sale or disposition is made in accordance with
the terms of the opinion of counsel.
(n) DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Note are inserted for convenience of reference only and do not
constitute a part of this Note.
(o) LEGAL EFFECT. This Note is being executed and delivered within
the State of New York and shall be construed and enforced in accordance with
the laws of said State.
(p) DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to Holder, upon any breach or default of Payor
under this Note, shall impair any such right, power or remedy of Payor or shall
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; and
any waiver of any single breach or default shall not be deemed a waiver of any
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<PAGE> 23
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any such
Holder of any provisions or conditions of this Note must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, under either this Note or by law or otherwise afforded to Payor,
shall be cumulative and not alternative.
(q) REPLACEMENT. This Amended and Restated Convertible Promissory
Note constitutes the continuation of indebtedness outstanding under the
Convertible Promissory Note dated November 3, 1992 (the "Existing Note");
provided that nothing herein shall constitute, or shall be deemed to
constitute, a payment, settlement, or novation of the indebtedness evidenced by
the Existing Note or to release or otherwise adversely affect any right of
Holder against Payor.
BY SIGNING THIS PAPER, PAYOR GIVES UP ITS RIGHT TO NOTICE AND COURT TRIAL. IF
PAYOR DOES NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST PAYOR WITHOUT
PAYOR'S PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM
PAYOR REGARDLESS OF ANY CLAIMS PAYOR MAY HAVE AGAINST ANY HOLDER, WHETHER FOR
FAILURE TO COMPLY WITH THE TERMS OF THIS NOTE OR ANY OTHER CAUSE.
DECORA INDUSTRIES, INC.
By:
--------------------------------------
Its:
--------------------------------------
DO NOT DESTROY THIS ORIGINAL NOTE: When paid, this original Note must be
surrendered to Payor for cancellation and retention.
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<PAGE> 24
PURCHASE FORM
Dated: , 199
-------------- --
The undersigned hereby irrevocably elects to convert the within Note
to the extent of purchasing _____ shares of Common Stock.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
----------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
(Please typewrite or print in block letters)
Signature
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<PAGE> 1
EXHIBIT 10.3
VOID AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON NOVEMBER 3, 2000.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THUS MAY
NOT BE TRANSFERRED UNLESS REGISTERED UNDER THAT ACT OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
NO. W-003
SERIES C WARRANT TO PURCHASE COMMON STOCK
OF
DECORA INDUSTRIES, INC.
This is to Certify that, FOR VALUE RECEIVED, ROBERT W. JOHNSON IV, his
heirs, executors, personal representatives and assigns (the "Holder"), is
entitled to purchase, subject to the provisions of this Series C Warrant
("Warrant"), from Decora Industries, Inc., a Delaware corporation (the
"Company"), 1,700,000 shares of fully paid and nonassessable shares of common
stock of the Company, par value $0.01 per share ("Common Stock"), at a price of
$0.78 per share (the "Initial Exercise Price") at any time during the period
from the date hereof to November 3, 2000 (the "Expiration Date"), but not later
than 5:00 p.m., New York City Time, on the Expiration Date, provided that this
Warrant shall be exercisable only (i) if at any time the Note (as hereinafter
defined) is paid in full by the Company; or (ii) if after May 3, 1998, the
Company has not paid the Note in full. Notwithstanding the foregoing, this
Warrant shall not be exercisable if at any time the Holder exercises its
conversion rights under the Note. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as the
"Series C Warrant Shares" and the exercise price of each share of Common Stock
in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Exercise Price".
(a) EXERCISE OF WARRANT. This Warrant may be exercised by the
Holder in whole or in part at any time or from time to time on or after the
date hereof and until the Expiration Date, or if either such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day which shall not be such a day, by
presentation and surrender hereof to the Company at its principal office with
the Purchase Form annexed hereto duly executed and accompanied by payment of
the Exercise Price for the number of Series C Warrant Shares specified in such
form. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and
<PAGE> 2
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Series C Warrant Shares. Upon receipt by the Company of
this Warrant at its office in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Certificates for the
shares so purchased shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) days, after rights represented by this Warrant shall
have been exercised.
(b) SHARES TO BE FULLY PAID: RESERVATION OF SHARES. The Company
covenants and agrees:
(1) that all Series C Warrant Shares shall, upon
issuance, be fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof;
(2) without limiting the generality of the foregoing,
that the Company will, from time to time, take all such action as may
be required to assure that the par value per share of the Common Stock
is at all times equal to or less than the then effective Exercise
Price per share of the Series C Warrant Shares;
(3) that, during the period within which the rights
represented by this Warrant may be exercised, the Company shall at all
times have authorized, and reserved for the purpose of issue upon
exercise of the rights evidenced by this Warrant, a sufficient number
of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant;
(4) that the Company will take all such action as may be
necessary to assure that the Series C Warrant Shares may be issued
without violation of any applicable law or regulation or of any
requirements of any domestic securities exchange or the National
Association of Securities Dealers Automatic Quotation ("NASDAQ")
system upon which any capital stock of the Company may be listed,
provided the Holder provides the Company with such information as the
Company shall reasonably request and that is necessary to comply with
the requirements of any such exchange or system;
(5) that no person has any preemptive or other right with
respect to the issuance of this Warrant or any Series C Warrant
Shares; and
(6) that the Company will not take any action which would
result in any adjustment of the Exercise Price if the total number of
shares of Common Stock issuable after such action upon exercise of all
warrants, together with all shares of Common Stock then outstanding
and all shares of Common Stock then issuable upon exercise of any
Options (as hereinafter defined) and upon conversion of all
Convertible Securities (as hereinafter defined) then outstanding,
would exceed the total number of shares of Common
- 2 -
<PAGE> 3
Stock then authorized by the Company's certificate of incorporation
(as then amended or restated). In the event any stock or securities
of the Company other than the Common Stock are issuable upon the
exercise hereof, the Company will take or refrain from taking any
action referred to in clauses (1) through (6) of this Section (b) as
though such clauses applied to such other shares or securities then
issuable upon the exercise hereof.
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a domestic
securities exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the NASDAQ system, the current
market value shall be the last reported sale price of the Common Stock
on such exchange or system on the last business day prior to the date
of exercise of this Warrant or if no such sale is made on such day,
the average closing bid and asked prices for such day on such exchange
or system;
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current market value shall be the
mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc., or any similar successor
organization, on the last business day prior to the date of exercise
of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount not less than
the book value thereof as at the end of the most recent fiscal year of
the Company ending prior to the date of the exercise of the Warrant,
determined in such reasonable manner as may be prescribed by the Board
of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company, for other warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder.
This Warrant is freely transferable and may be assigned or hypothecated from
the date hereof. Upon surrender of this Warrant to the Company at its
principal office with the Assignment Form annexed hereto duly executed, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee named in the Assignment Form and this Warrant shall promptly be
cancelled. This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued and signed by the Holder hereof. The
term "Warrant" as used herein includes any warrants into which this Warrant may
be divided or exchanged. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant,
- 3 -
<PAGE> 4
and in the case of loss, theft or destruction, of reasonably satisfactory
indemnification and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor and
date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein. Furthermore, Holder by acceptance hereof, consents to and agrees
to be bound by and to comply with all the provisions of this Warrant,
including, without limitation, all the obligations imposed upon the Holder by
Section (m) hereof. In addition, the holder of this Warrant, by accepting the
same, agrees that the Company may deem and treat the person in whose name this
Warrant is registered as the absolute, true and lawful owner for all purposes
whatsoever, and the Company shall not be affected by any notice to the
contrary.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price and the number
and kind of securities purchasable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the happening of certain events as
hereinafter provided. The Exercise Price in effect at any time and the number
and kind of securities purchasable upon exercise of each Warrant shall be
subject to adjustment as follows:
(1) Issuance of Common Stock. If and whenever after the
date hereof the Company shall issue or sell (or be deemed to issue or
sell as provided hereunder) any shares of its Common Stock for a
consideration per share less than the Exercise Price in effect
immediately prior to the time of such issue or sale (other than
shares of Common Stock issued pursuant to this Warrant, the Series A
and Series B Warrants as amended by the Company and the Holder on even
date herewith and the Company's Amended Convertible Negotiable
Promissory Note of even date herewith (the "Note"), the shares issued
as a closing fee with respect to the Note and the shares issued as
interest for the Note), then, forthwith upon such issue or sale, the
Exercise Price shall be reduced to the price, calculated to the
nearest cent, determined by dividing (i) the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issue or
sale multiplied by the then existing Exercise Price and (B) the
consideration, if any, received by the Company upon such issue or
sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(i) Issuance of Rights or Options. In case at
any time the Company shall in any manner grant (whether
directly or by assumption in a merger or otherwise), after the
date hereof, any rights to subscribe for or to purchase, or
any options for the purchase of (such rights or options being
herein called "Options"), Common Stock or any stock or
securities convertible into or exchangeable for Common Stock
(such convertible or exchangeable stock or securities being
herein
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<PAGE> 5
called "Convertible Securities") whether or not such Options
or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of
such options or upon conversion or exchange of such
Convertible Securities (determined as provided in the
following sentence) shall be less than the Exercise Price in
effect immediately prior to the time of granting such Options,
then the total maximum number of shares of Common Stock
issuable upon the exercise of all such Options or upon
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options and
thereafter shall be deemed to be outstanding. The price per
share for which Common Stock is issuable, as referred to in
the preceding sentence, shall be determined by dividing (A)
the sum of (1) the total amount, if any, received or
receivable by the Company as consideration for the granting of
such Options, plus (2) the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of all such Options, plus (3) in the case of all such
Options that relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable
upon the issue or sale of all such Convertible Securities (to
the extent not counted in clause (2) above) and upon the
conversion or exchange of all such Convertible Securities into
Common Stock, by (B) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options; the
consideration received or receivable by the Company shall in
each case be determined in accordance with Section (f)(l)(v)
hereof. Except as otherwise provided in Section (f)(1)(iii)
hereof, no adjustment of the Exercise Price shall be made upon
the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities. In case
the Company shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell, after the date
hereof, any Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined as provided in
the following sentence) shall be less than the Exercise Price
in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price
per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (A) except as otherwise provided in
Section (f)(1)(iii) below, no adjustment of the Exercise Price
shall be made upon the actual issue of such Common Stock upon
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<PAGE> 6
conversion or exchange of such Convertible Securities, and (B)
if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustments of the
Exercise Price have been or are to be made pursuant to Section
(f)(1)(i) hereof, no further adjustment of the Exercise Price
shall be made by reason of such issue or sale. The price per
share for which Common Stock is issuable, as referred to in
the preceding sentence, shall be determined by dividing (A)
the sum of (1) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus (2) the minimum aggregate amount
of additional consideration, if any, payable upon the
conversion or exchange of such Convertible Securities into
Common Stock, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such
Convertible Securities; the consideration received or
receivable by the Company shall in each case be determined in
accordance with Section (f)(l)(v) hereof.
(iii) Change in Option Price or Conversion Rate.
Upon the happening of any of the following events, namely, if
the purchase price provided for in any outstanding Option
referred to in Section (f)(1)(i) hereof, the additional
consideration, if any, payable upon the conversion or exchange
of any outstanding Convertible Securities referred to in
Section (f)(1)(i) or (f)(1)(ii) hereof, or the rate at which
any such Convertible Securities are convertible into or
exchangeable for Common Stock shall change at any time (other
than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of
such event shall forthwith be readjusted to the Exercise Price
that would have been in effect at such time had such Options
or Convertible Securities provided for such changed
purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or
sold. On the expiration of any Option referred to in Section
(f)(1)(i) hereof prior to the exercise thereof or the
termination of any right to convert or exchange any
Convertible Securities referred to in Section (f)(1)(i) or
(f)(l)(ii) hereof prior to the exercise of such rights, the
Exercise Price then in effect hereunder shall forthwith be
increased (but in no case shall such Exercise Price be
increased to a price greater than the Initial Exercise Price)
to the Exercise Price that would have been in effect at the
time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately
prior to such expiration or termination never been issued, and
the Common Stock issuable thereunder shall no longer be deemed
to be outstanding for the purposes of any calculation under
Section (f)(1)(i) or (f)(1)(ii) hereof. If the purchase price
provided for in any Option referred to in Section (f)(1)(i)
hereof or the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities
issuable upon the exercise of any such Options or upon the
conversion or exchange of any Convertible Securities referred
to in Section (f)(1)(ii) hereof and still outstanding shall
decrease, or the number of shares of Common Stock issuable
upon conversion or exchange of any
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<PAGE> 7
such Convertible Securities shall increase, at any time under
or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of
Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security, the
Exercise Price then in effect hereunder shall forthwith be
adjusted to the Exercise Price which would have obtained had
sections (f)(l)(i) and (f)(l)(ii) hereof and the provisions of
this Section (f)(l)(iii) never been given effect in relation
to such Option or Convertible Securities and had the Exercise
Price been adjusted pursuant to Section (f)(1) hereof at the
time of delivery of such shares of Common Stock based on the
consideration received (or deemed received under Section
(f)(l)(v) hereof) for such Common Stock, determined as of the
date of such delivery, provided that such adjustment of the
Exercise Price shall be made only if as a result thereof the
Exercise Price then in effect hereunder is thereby reduced.
(iv) Stock Dividends. In case the Company shall
declare a dividend or make any other distribution upon any
stock of the Company payable in Common Stock, Options or
Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration for purposes of
the calculations to be made under this Section (f). If the
Company shall at any time prior to the expiration of this
Warrant declare a dividend payable in cash on its Common Stock
and at substantially the same time offer its stockholders a
right to purchase Common Stock from the proceeds of such
dividend or for an amount substantially equal to such
dividend, then, in such case, all Common Stock so issued
shall, for purpose of this Warrant, be deemed to have been
issued as a stock dividend.
(v) Consideration for Securities. In case any
shares of Common Stock, Options or Convertible Securities
shall be issued or sold by the Company for cash, the
consideration received therefor shall be deemed to be the
amount received by the Company thereof, provided that in no
case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection
therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Company shall be deemed to be
the fair value of such consideration as determined reasonably
and in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof). In case
any Common Stock, Option or Convertible Securities shall be
issued in connection with any merger or consolidation in which
the Company is the surviving corporation (other than any
consolidation or merger in which the previously outstanding
shares of Common Stock of the Company shall be changed into or
exchanged for the stock or other securities of another
corporation) the amount of consideration therefor
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<PAGE> 8
shall be deemed to be the fair value as determined reasonably
and in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof) of such
portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to
such shares of Common Stock, Options or Convertible
Securities, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is
not the surviving corporation or in which the previously
outstanding shares of Common Stock of the Company shall be
changed into or exchanged for the stock or other securities of
another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or
other securities of any corporation, the Company shall be
deemed to have issued a number of shares of its Common Stock
equal to the number of shares of Common Stock used for
computing the actual exchange ratio on which the transaction
was predicated and for a consideration equal to the fair
market value on the date of transaction of all such stock or
securities of the other corporation received by the holders of
the capital stock of the Company or by the Company and if such
calculation results in adjustment of the Exercise Price, the
determination of the number of shares of Common Stock issuable
upon exercise of the Warrants immediately prior to such
merger, consolidation or sale, for purposes of Section (f)(4)
hereof shall be made after giving effect to such adjustment of
the Exercise Price.
(vi) Record Date. In case the Company shall take
a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the
case may be.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and
the disposition or reissuance of any such shares shall be
considered an issue or sale of Common Stock for the purposes
of this Section (f).
(2) Liquidating Dividends. The Company will not declare
a dividend upon the Common Stock payable otherwise than out of
consolidated earnings or consolidated earned surplus, determined in
accordance with generally accepted accounting principles, including
the making of appropriate deductions for minority interests, if any,
in subsidiaries, and otherwise than in Common Stock, unless the
Company shall pay over to the Holder, on the dividend payment date,
the cash, stock or other securities and other property that the Holder
would have received if the Holder had exercised this Warrant in full
to purchase Common Stock and had been the record holder of such Common
Stock on the date on
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<PAGE> 9
which a record is taken for the purpose of such dividend, or, if a
record is not taken, the date as of which the holders of Common Stock
of record entitled to such dividend are to be determined. For the
purposes of the foregoing, a dividend other than in cash shall be
considered payable out of earnings or surplus (other than revaluation
or paid in surplus) only to the extent that such earnings or surplus
are charged an amount equal to the fair value of such dividend as
determined reasonably and in good faith by the Board of Directors of
the Company.
(3) Subdivision or Combination of Stock. In case the
Company shall at any time subdivide its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common
Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be
proportionately increased.
(4) Merger, Sale, Reorganization, Reclassification, or
Consolidation. If any capital reorganization or reclassification of
the capital stock of the Company, or any consolidation or merger of
the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby the Holder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the shares of the
Common Stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of
the Holder to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Exercise Price and Series
C Warrant Shares issuable, upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of the rights represented hereby (including an immediate
adjustment, by reason of such consolidation or merger, of the Exercise
Price to the value for the Common Stock reflected by the terms of such
consolidation or merger if the value so reflected is less than the
Exercise Price in effect immediately prior to such consolidation or
merger). In the event of a merger or consolidation of the Company with
or into another corporation as a result of which a number of shares of
common stock of the successor or surviving corporation greater or
lesser than the number of shares of Common Stock of the Company
outstanding immediately prior to such merger or consolidation are
issuable to holders of Common
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<PAGE> 10
Stock of the Company, then the Exercise Price in effect immediately
prior to such merger or consolidation shall be adjusted in the same
manner as though there were a subdivision or combination of the
outstanding shares of Common Stock of the Company outstanding
immediately prior to such merger or consolidation. The Company shall
not effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor or surviving corporation (if other
than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets, as the case may be, shall assume
by written instrument executed and mailed or delivered to the Holder
hereof at the last address of the Holder appearing on the books of the
Company, the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
the Holder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than
fifty percent (50%) of the outstanding shares of Common Stock of the
Company, the Company shall not effect any consolidation, merger or
sale with the Person (as hereinafter defined) having made such offer
or with any Affiliate (as hereinafter defined) of such Person, unless
prior to the consummation of such consolidation, merger or sale the
Holder shall have been given a reasonable opportunity to then elect to
receive either the stock, securities or assets then issuable upon the
exercise of this Warrant or, if different, the stock, securities or
assets, or the equivalent, issued to previous holders of the Common
Stock in accordance with such offer, computed as though the Holder
hereof had been, at the time of such offer, a holder of the stock,
securities or assets then purchasable upon the exercise of this
Warrant. As used in this Section (f)(4), the term "Person" shall
include an individual, a partnership, a corporation, a trust, a joint
venture, an unincorporated organization and a government or any
department or agency thereof, and an "Affiliate" of any Person shall
mean any Person directly or indirectly controlling, controlled by or
under direct or indirect common control with, such other Person. A
Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract or otherwise.
(5) Notice of Adjustment. Whenever the Exercise Price is
adjusted, as herein provided, the Company shall promptly cause a
notice setting forth the adjusted Exercise Price and adjusted number
of Series C Warrant Shares issuable upon exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based, to be mailed to the Holder
of this Warrant at the Holder's last address appearing in the Warrant
Register. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(6) Other Notices. In case at any time:
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<PAGE> 11
(i) the Company shall declare any cash dividend
upon its Common Stock;
(ii) the Company shall declare any dividend upon
its Common Stock payable in stock or make any special dividend
or other distribution (other than regular cash dividends) to
the holders of its Common Stock;
(iii) the Company shall offer for subscription to
the holders of any of its Common Stock any additional shares
of stock of any class or other rights;
(iv) there shall be any capital reorganization,
reclassification of the capital stock of the Company or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation;
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company; or
(vi) there shall be any subdivision or combination
of the outstanding shares of Common Stock into, respectively,
a greater or lesser number of shares of Common Stock;
then, in any one or more of said cases, the Company shall give, by
first class mail, postage prepaid, addressed to the Holder at the
address of such Holder as shown on the books of the Company, (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 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) above 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) above shall also specify the date on which the
holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
(7) Duty to Make Fair Adjustments in Certain Cases. If
any event occurs as to which in the opinion of either the Board of
Directors of the Company or the holders of a majority of the warrants
outstanding at such time of which this Warrant forms a part the other
provisions of this Section (f) are not strictly applicable or if
strictly applicable would not fairly protect the purchase rights of
the warrants in accordance with the essential intent and principles of
such provisions, then the Board of Directors and the holders of a
majority
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<PAGE> 12
of the warrants outstanding at such time of which this Warrant forms a
part shall mutually agree upon an adjustment in the application of
such provisions, in accordance with such essential intent and
principles, so as to protect such purchase rights as aforesaid, but in
no event shall any such adjustment have the effect of increasing the
Exercise Price as otherwise determined pursuant to this Section (f)
except in the event of an increase in option price, additional
consideration or conversion rate as contemplated by Section
(f)(1)(iii) hereof, or a combination of shares of the type
contemplated in Section (f)(3) hereof and then in no event to an
amount larger than the Exercise Price as adjusted pursuant to Section
(f)(1)(iii) or Section (f)(3) hereof.
(8) Share Adjustment. Whenever the Exercise Price
payable upon exercise of any Warrant is adjusted pursuant to Sections
(f)(1), (f)(3), (f)(4), (f)(7) and (f)(9) hereof, the number of Series
C Warrant Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Series C
Warrant Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product
so obtained by the Exercise Price, as adjusted.
(9) Minimum Adjustment. No adjustment in the Exercise
Price shall be required unless such adjustment would require an
increase or decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of this
Section (f)(9) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment required to be
made hereunder. All calculations under this Section (f) shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the
case may be. Anything in this Section (f) to the contrary
notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it, in its sole discretion,
shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification
or combination of Common Stock, issuance of warrants to purchase
Common Stock or liquidating dividends referred to hereinabove in this
Section (f) hereafter made by the Company to the holders of its Common
Stock shall not result in any tax to the holders of its Common Stock
or securities convertible into Common Stock.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section (f), the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office an officer's certificate showing the adjusted
Exercise Price determined as herein provided, setting forth in reasonable
detail the facts requiring such adjustment, including a statement of the number
of additional shares of Common Stock, if any, and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such officer's certificate shall be made available at all reasonable times
for inspection by the Holder or any holder of a Warrant executed and delivered
pursuant to Section (a) hereof and the Company shall, forthwith after each such
adjustment, mail a copy by certified mail of such certificate to the Holder or
any such holder.
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<PAGE> 13
(h) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) Piggyback Registration. The shares of Common Stock
issuable upon exercise of this Warrant have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), the New York Martin
Act, as amended, or under the laws of any other state. If the Company proposes
to register any security under the Securities Act on any registration form
(otherwise than for the registration of securities to be offered and sold
pursuant to (i) an employee benefit plan, (ii) a dividend or interest
reinvestment plan, (iii) other similar plans or (iv) reclassifications of
securities, mergers, consolidations and acquisitions of assets on Form S-4 or
any successor thereto) prescribed by the Securities and Exchange Commission
(the "Commission") permitting a secondary offering or distribution, not less
than sixty days prior to each such registration, the Company shall give to the
holders of the Warrants or Series C Warrant Shares written notice of such
proposal which shall describe in detail the proposed registration and
distribution (including those jurisdictions where registration or qualification
under the securities or blue sky laws is intended) and, upon the written
request of any holder of a Warrant or Series C Warrant Shares given within
thirty (30) days after the date of any such notice, proceed to include in such
registration such shares of Common Stock as have been requested by any such
holder to be included in such registration. Any holder of a Warrant or Series
C Warrant Shares shall in its request describe briefly the proposed disposition
of such shares of Common Stock. The Company will in each instance use its best
efforts to cause any Series C Warrant Shares (the holders of which shall have
so requested registration thereof) to be registered under the Securities Act
and qualified under the securities or blue sky laws of any jurisdiction
requested by a prospective seller, all to the extent necessary to permit the
sale or other disposition thereof (in the manner stated in such request) by a
prospective seller of the securities so registered. The Company agrees that
any Series C Warrant Shares so registered shall be offered on terms no less
favorable than those applicable to the shares offered by the Company or other
selling stockholders.
If the managing underwriter, who shall be selected by the
Company to manage the distribution of the shares of Common Stock being
registered, advises the Company in writing that, in its opinion, the inclusion
of the shares of Common Stock requested to be included in such registration by
a holder of a Warrant or Series C Warrant Shares with the securities being
registered by the Company and other prospective sellers would have a materially
adverse affect on the distribution of all such securities, then (i) the Company
shall include in such registration the Series C Warrant Shares on a pari passu
basis with shares of other selling stockholders or (ii) any holder of a Warrant
or Series C Warrant Shares may, at its sole option, delay its offering and sale
for a period not to exceed 120 days after the effective date of such
registration as such managing underwriter shall reasonably request. In the
event of such delay, the Company shall use its best efforts to effect any
registration or qualification under the Securities Act and the securities or
blue sky laws of any jurisdiction as may be necessary to permit such
prospective seller to make its proposed offering and sale following the end of
such period of delay.
The holder of a Warrant or Series C Warrant Shares who has
requested shares of Common Stock to be included in a registration pursuant to
this Section (h)(1) by acceptance hereof
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<PAGE> 14
or thereof, agrees to execute an underwriting agreement with such underwriter
that is (i) reasonably satisfactory to such holder and (ii) in customary form.
Nothing in this Section (h)(1) shall be deemed to require the
Company to proceed with any registration of its securities after giving the
notice herein provided.
(2) Demand Registration. At any time that the Company is
required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the holders of Warrants
and the holder of any Series C Warrant Shares may, on up to two (2) separate
occasions, require the Company to effect the registration of the Series C
Warrant Shares pursuant to the provisions of this Section (h)(2). If the
holders of Warrants and the holders of any Series C Warrant Shares representing
a total of more than fifty percent (50%) of the shares of Common Stock issuable
upon the exercise of the Warrants shall give notice to the Company to the
effect that such holders intend to (i) transfer all or any part of the Series C
Warrant Shares or (ii) exercise all or any part of the Warrant and transfer all
or any part of the Series C Warrant Shares under such circumstances that a
public distribution (within the meaning of the Securities Act) of the Series C
Warrant Shares will be involved, and the aggregate number of Series C Warrant
Shares to be transferred as described in the foregoing clauses (i) and (ii) is
equal to at least twenty-five percent (25%) of the aggregate number of Series C
Warrant Shares then issuable upon exercise of Warrants, then the Company shall,
within thirty (30) days after receipt of such notice, file a registration
statement pursuant to the Securities Act to the end that such shares may be
sold under the Securities Act as promptly as is practicable thereafter and the
Company will use its best efforts to cause any such registration statement to
become effective and to keep the prospectus included therein current for 135
days after the effective date thereof or until the distribution shall have been
completed, whichever first occurs; provided that such holders shall furnish the
Company with appropriate information (relating to the intention of such
holders) in connection therewith as the Company may reasonably request in
writing. If at the time the Company receives notice pursuant to this Section
(h)(2) it would be impossible or impracticable to include the Company's most
recent fiscal year-end financial statements as the most recent certified
financial statements required to be included therein and provided that the
Company is not then in default on its obligations under Article VI of the
Purchase Agreement, the Company's obligation to effect a registration pursuant
to this Section (h)(2) shall be suspended until the Company's next fiscal
year-end financial statements must be filed with the Commission in accordance
with the Commission's rules. The managing underwriter for any offering made
pursuant to this Section (h)(2) shall be selected by the holders of a majority
of the Warrants or Series C Warrant Shares requiring registration hereunder,
subject to the consent, not unreasonably withheld, of the Company.
(3) Registration and Qualification Procedures. Whenever
the Company is required by the provisions of this Section (h) to use its best
efforts to effect the registration of any of its securities under the
Securities Act, the Company will, as expeditiously as is possible:
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<PAGE> 15
(i) prepare and file with the Commission a
registration statement with respect to such securities;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and the prospectus current and
to comply with the provisions of the Securities Act with respect to
the sale of all securities covered by such registration statement
whenever the seller of such securities shall desire to sell the
same; provided, however, that the Company shall have no obligation to
file any amendment or supplement at its own expense more than nine (9)
months after the effective date of such registration statement;
(iii) furnish to each seller such number of copies
of preliminary prospectuses and prospectuses and each supplement or
amendment thereto and such other documents as each seller may
reasonably request in order to facilitate the sale or other
disposition of the securities owned by such seller in conformity with
(A) the requirements of the Securities Act and (B) the seller's
proposed method of distribution;
(iv) register or qualify the securities covered by
such registration statement under the securities or blue sky laws of
such jurisdictions within the United States as each seller shall
reasonably request, and do such other reasonable acts and things as
may be required of it to enable each seller to consummate the sale or
other disposition in such jurisdictions of the securities owned by
such seller; provided, however, that the Company shall not be required
to (A) qualify as a foreign corporation or consent to a general and
unlimited service of process in any such jurisdictions, (B) qualify as
a dealer in securities, or (C) in the case of a registration described
in Section (h)(1) hereof, register or qualify at its own expense
securities of such seller in any jurisdiction not described in the
notice of the Company referred to in the first paragraph of Section
(h)(1) hereof, in any case in order to accomplish any of the
foregoing;
(v) furnish, at the request of any seller on the
date such securities are delivered to the underwriters for sale
pursuant to such registration or, if such securities are not being
sold through underwriters, on the date the registration statement with
respect to such securities becomes effective, (A) an opinion, dated
such date, of the counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the
seller making such request, covering such legal matters with respect
to the registration in respect of which such opinion is being given as
the seller of such securities may reasonably request and are
customarily included in such opinions, at such times as such opinions
are customarily given, and (B) letters dated, respectively, (1) the
effective date of the registration statement and (2) the date such
securities are delivered to the underwriters, if any, for sale
pursuant to such registration, from a firm of independent certified
public accountants of recognized standing selected by the Company,
addressed to the underwriters, if any, and to the seller making such
request,
- 15 -
<PAGE> 16
covering such financial, statistical and accounting matters with
respect to the registration statement in respect of which such letters
are being given as the seller of such securities may reasonably
request and are customarily included in such letters and at such times
as such letters are customarily given;
(vi) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
available to its security holders as soon as reasonably practicable,
but not later than sixteen (16) months after the effective date of the
registration statement, an earnings statement covering a period of at
least twelve (12) months beginning after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(vii) enter into and perform an underwriting
agreement with the managing underwriter, if any, selected as provided
in Section (h) hereof, as the case may be, containing customary terms
of offer and sale of the securities, payment provisions, underwriting
discounts and commissions, representatives, warranties, covenants,
indemnities, terms and conditions; and
(viii) keep each seller advised in writing as to the
initiation and progress of any registration under Section (h) hereof,
as the case may be.
(4) Allocation of Expenses. If the Company is required
by the provisions of Section (h) hereof to use its best efforts to effect the
registration or qualification under the Securities Act or any state securities
or blue sky laws of any of the Series C Warrant Shares, the Company will pay
all expenses in connection therewith, including, without limitation, (i) all
expenses incident to filing with the National Association of Securities
Dealers, Inc., (ii) registration or listing fees, (iii) printing expenses, (iv)
accounting and legal fees and expenses, (v) expenses of any special audits
incident to or required by any such registration or qualification, (vi)
premiums for insurance in such amount, if any, deemed appropriate by the
managing underwriter, (vii) expenses of complying with the securities or blue
sky laws of any jurisdictions in connection with such registration or
qualification and (viii) stamp and stock transfer taxes; provided, however, the
Company shall not be liable for any discounts or commissions to any
underwriter.
(5) Indemnification. In connection with any registration
or qualification of securities under Section (h) hereof, the Company hereby
indemnities the Holder and the holders of any Series C Warrant Shares and each
underwriter thereof, including each person, if any, who controls the Holder or
such stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, against all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon (i) any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus,
prospectus or notification or offering circular or other similar document (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto); (ii) any omission, or alleged omission, to state therein
a material fact
- 16 -
<PAGE> 17
required to be stated therein or necessary to make the statements therein not
misleading; or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or alleged untrue statement or
omission or alleged omission based solely upon information furnished in writing
to the Company by the Holder or any such stockholder or underwriter expressly
for use therein. The Company and each officer, director and controlling person
of the Company or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act are hereby indemnified by the
Holder and by the holders of any shares of Common Stock issuable upon the
exercise hereof against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue, or alleged untrue, statement of a material fact contained in any
registration statement, preliminary prospectus or notification or offering
circular (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or are based upon any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission, was based solely upon information furnished in
writing to the Company by the Holder or any such stockholder expressly for use
therein; provided, however, that, with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this sentence shall not apply
to the extent that any loss, claim, damage, liability or expense results from
the fact that a current copy of the prospectus was not sent or given to the
person asserting any loss, claim, damage, liability or expense at or prior to
the written confirmation of the sale of the Common Stock concerned to such
person if it is determined that it was the responsibility of the Company or any
of its directors, officers or agents, or any underwriter to provide such Person
with a current copy of the prospectus and such current copy of the prospectus
would have cured the defect giving rise to such loss, claim, damage, liability
or expense.
Promptly upon receipt by a party indemnified under this
Section (h)(5) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be sought
against any indemnifying party under this Section (h)(5), such indemnified
party shall notify the indemnifying party in writing of the commencement of
such action, but the failure so to notify the indemnifying party shall not
relieve it of any liability which it may have to any indemnified party, unless
such failure shall materially adversely affect the defense of such action. In
case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and satisfactory to such indemnified
party. The indemnified party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel (other than reasonable costs of investigation) shall
be paid by the indemnified party unless (i) the indemnifying party agrees to
pay the same, (ii) the indemnifying party fails to assume the defense
- 17 -
<PAGE> 18
of such action with counsel reasonably satisfactory to the indemnified party or
(iii) the named parties to any such action (including any impleaded parties)
have been advised by such counsel that representation of such indemnified party
and the indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of such indemnified party). No indemnifying party shall be liable for any
settlement entered into without its consent.
If the indemnification provided in this Section (h)(5) shall
for any reason be unenforceable by an indemnified party, although otherwise
available in accordance with its terms, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages,
liabilities or expenses with respect to which such indemnified party has
claimed indemnification, in such proportion as is appropriate to reflect the
relative fault of the indemnified party on the one hand and the indemnifying
party on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
other relevant equitable considerations. The Company, each Holder and each
holder of Series C Warrant Shares issued upon the exercise hereof agree that it
would not be just and equitable if contribution pursuant hereto were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account such equitable considerations. The amount paid or
payable by an indemnified party as a result of losses, claims, damages,
liabilities or expenses referred to herein shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending against any action or claim which is the
subject hereof. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
Each Holder of this Warrant and each holder of Series C
Warrant Shares issued upon the exercise hereof and bearing the legend required
by Section (1) hereof, by acceptance hereof or thereof, as the case may be,
agrees to the indemnification provisions of this Section (h).
(i) LISTING. If any Series C Warrant Shares required to be
reserved for issue upon the exercise hereof require registration with or
approval of any governmental authority under any federal or state law, or
listing on any domestic securities exchange or the NASDAQ system, before such
shares may be issued upon such exercise or conversion, as the case may be, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved or listed on the
relevant domestic securities exchange or system, as the case may be.
(j) CLOSING OF BOOKS. The Company will at no time close its
transfer books against the transfer of any Warrant or of any Series C Warrant
Shares in any manner which interferes with the timely exercise of this Warrant.
- 18 -
<PAGE> 19
(k) INVESTMENT REPRESENTATIONS. The Holder, by acceptance hereof,
and with reference to this Warrant and the shares of Common Stock issuable upon
exercise of this Warrant, represents and warrants to the Company that: the
Holder is acquiring such securities for investment and not with a view to or in
connection with any offering or distribution, and the Holder has no present
intention of selling or otherwise disposing of such securities.
(l) SECURITIES LEGEND. This Warrant as well as, if necessary, the
securities issued in the event of the exercise of this Warrant for shares of
Common Stock, will bear substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER THAT ACT
OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
(m) TRANSFERABILITY. Any Series C Warrant Shares acquired
hereunder can be sold or disposed of when the Company shall have received a
copy of an opinion of counsel to the Holder (which opinion is reasonably
acceptable to the Company) which states that the sale or other disposition
thereof may be effected without registration under the Securities Act in
accordance with any rules or regulations promulgated thereunder then obtaining
to which such shares are subject; provided, that any such sale or disposition
is made in accordance with the terms of the opinion of counsel.
(n) DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections of this Warrant are inserted for convenience of reference only and do
not constitute a part of this Warrant.
- 19 -
<PAGE> 20
(o) LEGAL EFFECT. This warrant is being executed and delivered
within the State of New York and shall be construed and enforced in accordance
with the laws of such State.
DECORA INDUSTRIES, INC.
By:
--------------------------------
Its:
--------------------------------
Dated: November 3, 1995
- 20 -
<PAGE> 21
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the within
Series C Warrant to the extent of purchasing ________ shares of Common Stock
and hereby makes payment of $___________ in payment of the actual exercise
price thereof, and requests that the certificates for such shares be issued in
the name of and be delivered to:
Name:
--------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
-----------------------------------------------------------------------
(Please typewrite or print in block letters)
and if such shares shall not be all of the shares purchasable hereunder, that a
new warrant of like tenor for the balance of the shares purchasable hereunder
be delivered to the undersigned.
------------------------------------
Signature
Dated:
---------------------------
<PAGE> 22
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________________________ hereby sells,
assigns and transfers unto:
Name:
--------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
-----------------------------------------------------------------------
(Please typewrite or print in block letters)
the right to purchase Common Stock represented by this Series C Warrant to the
extent of shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
------------------------------------
Signature
Dated:
---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 235
<SECURITIES> 0
<RECEIVABLES> 7,449
<ALLOWANCES> 177
<INVENTORY> 5,919
<CURRENT-ASSETS> 14,727
<PP&E> 14,658
<DEPRECIATION> 5,697
<TOTAL-ASSETS> 38,330
<CURRENT-LIABILITIES> 17,391
<BONDS> 10,525
344
0
<COMMON> 0
<OTHER-SE> 7,992
<TOTAL-LIABILITY-AND-EQUITY> 38,330
<SALES> 0
<TOTAL-REVENUES> 29,449
<CGS> 0
<TOTAL-COSTS> 26,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,117
<INCOME-PRETAX> 1,190
<INCOME-TAX> 44
<INCOME-CONTINUING> 1,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,146
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
