SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 9, 1996
Date of Report (Date of earliest event reported)
DISCUS ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 0-13826 41-1456350
(State or other jurisdiction (Commission File No.) (IRS Employer ID No.)
of incorporation)
2430 Metropolitan Centre, 333 South Seventh Street
Minneapolis, Minnesota 55402
(Address of principal executive offices)
(612) 305-0339
(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS
On January 9, 1996, the Company sold 1,227,273 Shares of Class B Common
Stock (the "Class B Stock") to Northland Business Capital, L.L.P. ("Northland"),
1285 Northland Drive, St. Paul, Minnesota 55120-1139 for an aggregate
consideration of $1,350,000.00. The Class B Stock represents approximately 24.7%
of the Company's outstanding Common shares after such sale. The transaction was
completed in a private placement exempt from registration under the Securities
Act of 1933, as amended (the "Act").
Under the terms of the Class B Stock, the holder of Class B Stock is
entitled to elect one member of the Company's Board of Directors, which may not
exceed a total of nine (9) persons. The holders of the Class B Stock have also
been granted customary antidilution rights including, but not limited to, rights
to prevent dilution in the event of stock splits, stock dividends, combinations,
sales of stock below the market price of the Company's Common shares and other
events affecting the capitalization of the Company. The Holders of the Class B
Common Stock may convert such shares into an equal number of Common shares,
subject to antidilution provisions. Except for the foregoing rights, the rights
of holders of the Class B Stock are substantially similar to the rights of
holders of the outstanding Company's Common shares. The Company's Board of
Directors has increased the number of directors serving on the Board to seven
(7) persons and has appointed Brian K. Smith, a partner of Northland, to the
Board.
Under the terms of the Stock Purchase Agreement entered into between
the Company and Northland, Northland has been granted certain rights with
respect to the registration of Common Stock it acquires under the Act, including
both demand and incidental registration rights. In addition, the Company has
entered into a five-year consulting agreement with Northland, pursuant to which
the Company will be paying Northland an annual retainer in the amount of
$6,000.00 and has granted Northland a Warrant for the purchase of 50,000 Shares
of the Company's Common Stock at a purchase price of $1.10 per Share,
exercisable over a seven year period. The transactions giving rise to the
issuance of the Class B Stock and related matters result from negotiations
entered into between the Company and Northland in December 1995.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
10.1 Stock Purchase Agreement dated January 9, 1996
between Registrant and Northland Business Capital,
L.L.P.
10.2 Certificate of Designation of Class B Common Stock.
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.
DISCUS ACQUISITION CORPORATION
Dated: January 12, 1996. By /s/ William H. Spell
William H. Spell
Chief Executive Officer
EXHIBIT 10.1
-------------------------------
DISCUS ACQUISITION CORPORATION
-------------------------------
STOCK PURCHASE AGREEMENT
WITH
NORTHLAND BUSINESS CAPITAL, L.L.P.
January 9, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. AUTHORIZATION OF SECURITIES....................................................................................1
2. SALE AND PURCHASE OF SECURITIES................................................................................1
3. CLOSING........................................................................................................1
4. RESTRICTION ON TRANSFER OF SECURITIES..........................................................................2
4.1 RESTRICTIONS..................................................................................................2
4.2(A) LEGEND....................................................................................................2
(B) STOP TRANSFER ORDER...........................................................................................3
4.3 REMOVAL OF LEGEND.............................................................................................3
4.4 REGISTER OF SECURITIES........................................................................................3
5. REPRESENTATIONS AND WARRANTIES BY COMPANY......................................................................3
5.1 ORGANIZATION, STANDING, ETC...................................................................................3
5.2 QUALIFICATION.................................................................................................4
5.3 FINANCIAL STATEMENTS..........................................................................................4
5.4 TAX RETURNS AND AUDITS........................................................................................4
5.5 CHANGES, DIVIDENDS, ETC.......................................................................................4
5.6 TITLE TO PROPERTIES AND ENCUMBRANCES..........................................................................5
5.7 LITIGATION; GOVERNMENTAL PROCEEDINGS..........................................................................5
5.8 COMPLIANCE WITH APPLICABLE LAWS AND OTHER INSTRUMENTS.........................................................6
5.9 CLASS B SHARES AND CONVERSION STOCK...........................................................................6
5.10 SECURITIES LAWS..............................................................................................6
5.11 CAPITAL STOCK................................................................................................7
5.12 OUTSTANDING DEBT.............................................................................................7
5.13 ASSETS AND CONTRACTS.........................................................................................7
5.14 CORPORATE ACTS AND PROCEEDINGS...............................................................................8
5.15 NO BROKERS OR FINDERS........................................................................................8
5.16 CONFLICTS OF INTEREST........................................................................................8
5.17 LICENSES.....................................................................................................8
5.18 REGISTRATION RIGHTS..........................................................................................9
5.19 RETIREMENT PLANS.............................................................................................9
5.20 ENVIRONMENTAL AND SAFETY LAWS................................................................................9
5.21 ACQUISITION AGREEMENT........................................................................................9
5.22 DISCLOSURE...................................................................................................9
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER....................................................................9
6.1 INVESTMENT INTENT.............................................................................................9
6.2 LOCATION OF PRINCIPAL OFFICE AND QUALIFICATION AS ACCREDITED INVESTOR........................................10
6.3 ACTS AND PROCEEDINGS.........................................................................................10
6.4 NO BROKERS OR FINDERS........................................................................................10
7. CONDITIONS OF THE PURCHASER'S OBLIGATION......................................................................10
7.1 NO ERRORS, ETC...............................................................................................11
7.2 COMPLIANCE WITH AGREEMENT....................................................................................11
7.3 CERTIFICATE OF OFFICERS......................................................................................11
7.4 OPINION OF COMPANY'S COUNSEL.................................................................................11
7.5 NO EVENT OF DEFAULT..........................................................................................14
7.6 QUALIFICATION................................................................................................14
7.7 PROCEEDINGS AND DOCUMENTS....................................................................................14
7.8 CO-SALE AGREEMENTS...........................................................................................14
7.9 CAPITAL ADEQUACY.............................................................................................14
7.10 CORPORATE STRUCTURE.........................................................................................14
7.11 UP-FRONT FEE................................................................................................15
7.12 TAX MATTERS.................................................................................................15
7.13 EMPLOYMENT AGREEMENTS.......................................................................................15
7.14 REVOLVER AVAILABILITY.......................................................................................15
7.15 CONSULTING AGREEMENT........................................................................................15
8. AFFIRMATIVE COVENANTS.........................................................................................15
8.1 CORPORATE EXISTENCE..........................................................................................15
8.2 BOOKS OF ACCOUNT AND RESERVES................................................................................15
8.3 FURNISHING OF FINANCIAL STATEMENTS AND INFORMATION...........................................................16
8.4 INSPECTION...................................................................................................17
8.5 PREPARATION AND APPROVAL OF BUDGETS..........................................................................17
8.6 PAYMENT OF TAXES AND MAINTENANCE OF PROPERTIES...............................................................18
8.7 INSURANCE....................................................................................................18
8.8 PAYMENT OF INDEBTEDNESS AND DISCHARGE OF OBLIGATIONS.........................................................19
8.9 DIRECTORS' AND STOCKHOLDERS' MEETINGS........................................................................19
8.10 REPLACEMENT OF CERTIFICATES REPRESENTING CLASS B SHARES OR CONVERSION STOCK.................................20
8.11 APPLICATION OF PROCEEDS.....................................................................................20
8.12 RETIREMENT PLANS............................................................................................20
8.13 FILING OF REPORTS...........................................................................................20
8.14 RULE 144A...................................................................................................21
9. NEGATIVE COVENANTS............................................................................................21
10. CONVERSION STOCK.............................................................................................22
10.1 CONVERSION OF CLASS B SHARES................................................................................22
10.2 STOCK FULLY PAID; RESERVATION OF CLASS B SHARES.............................................................22
10.3 ADJUSTMENT OF NUMBER OF CLASS B SHARES AND CONVERSION PRICE.................................................22
11. REGISTRATION OF STOCK........................................................................................22
11.1 REQUIRED REGISTRATION.......................................................................................22
11.2 INCIDENTAL REGISTRATION.....................................................................................23
11.3 REGISTRATION PROCEDURES.....................................................................................24
11.4 EXPENSES....................................................................................................26
11.5 INDEMNIFICATION.............................................................................................27
12. DEFAULT......................................................................................................28
12.1 EVENTS OF DEFAULT...........................................................................................28
12.2 SUITS FOR ENFORCEMENT.......................................................................................29
12.3 REMEDIES CUMULATIVE.........................................................................................29
12.4 REMEDIES NOT WAIVED.........................................................................................29
13. DEFINITIONS..................................................................................................29
13.1 "ADDITIONAL CLASS B SHARES OF COMMON STOCK".................................................................30
13.2 "COMMON STOCK"..............................................................................................30
13.3 "COMPANY"...................................................................................................30
13.4 "COMPANY STOCK OPTION PLAN".................................................................................30
13.5 "CONVERSION PRICE"..........................................................................................30
13.6 "CONVERTIBLE SECURITIES"....................................................................................30
13.7 "FORM 8-K REPORT"...........................................................................................30
13.8 "INDEBTEDNESS FOR BORROWED MONEY"...........................................................................30
13.9 "PERMITTED LIENS"...........................................................................................30
13.10 "PURCHASED STOCK"..........................................................................................31
13.11 "SELLER INDEBTEDNESS"......................................................................................31
13.12 "SUBSIDIARY"...............................................................................................31
14. CONSENTS; WAIVERS AND AMENDMENTS.............................................................................31
15. CHANGES, WAIVERS, ETC........................................................................................32
16. PAYMENT OF FEES AND EXPENSES OF PURCHASER....................................................................32
17. NOTICES......................................................................................................32
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC..............................................................32
19. PARTIES IN INTEREST..........................................................................................33
20. HEADINGS.....................................................................................................33
21. CHOICE OF LAW................................................................................................33
22. COUNTERPARTS.................................................................................................33
</TABLE>
EXHIBIT 1 -- Class B Stock Provisions
EXHIBIT 2 -- Disclosure Schedule
EXHIBIT 3 -- Financial Statements
EXHIBIT 4 -- Contracts
EXHIBIT 5 -- Form of Co-Sale Agreement
DISCUS ACQUISITION CORPORATION
STOCK PURCHASE AGREEMENT
January 9, 1996
To Northland Business Capital, L.L.P.,
(the "Purchaser")
Ladies and Gentlemen:
In consideration of the agreement of the Purchaser to purchase the
Class B Shares (as hereinafter defined), as provided for herein, the
undersigned, DISCUS ACQUISITION CORPORATION, a Minnesota corporation (the
"Company"), hereby agrees with the Purchaser as follows:
1. Authorization of Securities. The Company proposes to authorize,
issue and sell an aggregate of up to 1,227,273 class B common shares, to be
issued pursuant to and be entitled to the benefits of the provisions of a
Certificate of Designation containing the terms set forth in Exhibit 1 hereto
(the "Class B Stock Provisions"). The term Class B Shares as used herein shall
mean the class B common shares issued to the Purchaser on the Closing Date and
any additional shares of class B common shares of the Company issued to the
Purchaser.
The Class B Shares shall be convertible into shares of the Company's
Common Stock (such shares of Common Stock into which the Class B Shares are
convertible and all shares of Common Stock of the Company issued in exchange or
substitution therefor being hereinafter sometimes referred to as the "Conversion
Stock"), initially at the rate of one share of Common Stock for each Class B
Share (subject to adjustment as hereinafter provided), all as more fully set
forth in the Class B Stock Provisions. The Class B Shares shall be subject in
all respects to all of the other provisions of the Class B Stock Provisions.
2. Sale and Purchase of Securities. Subject to the terms and conditions
hereof, the Company agrees to sell to the Purchaser, and the Purchaser agrees to
purchase from the Company, 1,227,273 Class B Shares at an aggregate purchase
price of $1,350,000.
3. Closing. The closing of the sale to, and purchase by, the Purchaser
of the Class B Shares (the "Closing") shall occur at the offices of Briggs and
Morgan, Minneapolis, Minnesota, at the hour of 9:00 A.M., Minneapolis time, on
January 9, 1996 or on such other day or at such other time or place as the
Purchaser and the Company shall agree upon (the "Closing Date").
At the Closing the Company will deliver to the Purchaser certificates
representing the Class B Shares being purchased by the Purchaser, registered in
the name of the Purchaser (or in the name of its nominee as may be specified to
the Company at least 48 hours prior to the Closing Date), against payment to the
Company of the purchase price of the Class B Shares being purchased by the
Purchaser, by wire transfer of federal or other immediately available funds to
such account as shall be specified by the Company in writing.
4. Restriction on Transfer of Securities.
4.1 Restrictions. The Class B Shares and the Conversion Stock
are transferable only pursuant to (a) a public offering registered under the
Securities Act of 1933, as amended (the "Securities Act"), (b) Rule 144 (or any
similar rule then in effect) adopted under the Securities Act, if such rule is
available, and (c) subject to the conditions elsewhere specified in this Section
4, any other legally available means of transfer.
4.2(a) Legend. Each certificate representing Class B Shares
shall be endorsed with the following legend:
"The securities evidenced hereby may not be transferred
without (i) the opinion of counsel satisfactory to the Company
that such transfer may be lawfully made without registration
under the Federal Securities Act of 1933 and all applicable
state securities laws or (ii) registration under the Federal
Securities Act of 1933 and all applicable state securities
laws."
Upon the conversion of any Class B Shares, unless the Company receives an
opinion of counsel from the holder of such a security satisfactory to the
Company to the effect that a sale, transfer, assignment, pledge or distribution
of the Conversion Stock issuable upon such conversion may be made without
registration, or unless such Conversion Stock is being disposed of pursuant to
registration under the Securities Act and any applicable state act, the same
legend shall be endorsed on the certificate evidencing such Conversion Stock.
The aforesaid legend shall be removed with respect to securities held
for at least three years (including, with respect to the Conversion Stock the
period during which the related converted Class B Shares had been held) by a
person who has not been an affiliate of the Company (as defined in Rule 144
under the Securities Act) during the three months preceding the request for
removal of such legend. The foregoing legend removal requirement is based on
Rule 144(k) under the Securities Act as currently in force, and assumes that
such Rule (or a successor thereto) in substantially its current form shall be in
effect at the time of any such request for legend removal.
(b) Stop Transfer Order. A stop transfer order shall be placed with the
Company's transfer agent preventing transfer of any of the securities referred
to in paragraph (a) above pending compliance with the conditions set forth in
any such legend (except as otherwise provided in paragraph (a) above).
4.3 Removal of Legend. Any legend endorsed on a certificate or
instrument evidencing a security pursuant to Section 4.2 hereof shall be
removed, and the Company shall issue a certificate or instrument without such
legend to the holder of such security, (a) in accordance with Section 4.2(a)
hereof, (b) if such security is being disposed of pursuant to registration under
the Securities Act and any applicable state acts or pursuant to Rule 144 or any
similar rule then in effect, or (c) if such holder provides the Company with an
opinion of counsel satisfactory to the Company to the effect that a sale,
transfer, assignment, offer, pledge or distribution for value of such security
may be made without registration and that such legend is not required to satisfy
the applicable exemption from registration.
4.4 Register of Securities. The Company or its duly appointed
agent shall maintain a separate register for the Class B Shares in which it
shall register the issuance and transfer of all Class B Shares. All transfers of
Class B Shares shall be recorded on the register maintained by the Company or
its agent, and the Company shall be entitled to regard the registered holder of
such securities as the actual owner of the securities so registered until the
Company or its agent is required to record a transfer of such securities on its
register. The Company or its agent shall be required to record any such transfer
when it receives (a) the security to be transferred duly and properly endorsed
by the registered holder thereof or by its attorney duly authorized in writing,
and (b) the opinion of counsel referred to in Sections 4.2 and 4.3 hereof or
evidence of compliance with the registration provisions referred to in those
Sections.
5. Representations and Warranties by Company. Except as disclosed in
Exhibit 2 hereto, the Company represents and warrants to the Purchaser that:
5.1 Organization, Standing, etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota, and has the requisite corporate power and authority to own
its properties and to carry on its business in all material respects as it is
now being conducted. The Company has the requisite corporate power and authority
to issue the Class B Shares and the Conversion Stock, and to otherwise perform
its obligations under this Agreement. The copies of the Articles of
Incorporation and Bylaws of the Company delivered to the Purchaser prior to the
execution of this Agreement are true and complete copies of the duly and legally
adopted Articles of Incorporation and Bylaws of the Company in effect as of the
date of this Agreement. Except for the Company's acquisition of Peerless Chain
Company pursuant to that certain Stock Purchase Agreement dated as of November
22, 1995 between the Company and Bridgewater Resources Corp., as amended by that
certain First Amendment dated December 1, 1995 and that certain Second Amendment
dated as of December 13, 1995 (the "Acquisition Agreement"), the Company does
not have any direct or indirect equity interest in any other firm, corporation,
partnership, joint venture association or other business organization.
5.2 Qualification. The Company is duly qualified or licensed
as a foreign corporation in good standing in each jurisdiction wherein the
nature of its activities or of its properties owned or leased makes such
qualification or licensing necessary and failure to be so qualified or licensed
would have a material adverse impact on its business.
5.3 Financial Statements. Attached hereto as Exhibit 3 are the
Form 10-KSB of the Company for the fiscal year 1994, and the Form 10-QSB of the
Company for the three-month period ended September 30, 1995, which Forms include
balance sheets as of such dates, and a statement of earnings for the year and
nine-month periods then ended. Such financial statements (i) are in accordance
with the books and records of the Company, (ii) present fairly the financial
condition of the Company at the balance sheet dates and the results of its
operations for the periods therein specified, and (iii) have, in all material
respects, been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior accounting periods.
Specifically, but not by way of limitation, the balance sheets or notes thereto
disclose all of the debts, liabilities and obligations of any nature (whether
absolute, accrued or contingent and whether due or to become due) of the Company
at December 25, 1994 and September 30, 1995 (the "Balance Sheet Date") which,
individually or in the aggregate, are material and which in accordance with
generally accepted accounting principles would be required to be disclosed in
such balance sheets, and the omission of which would, in the aggregate, have a
material adverse impact on the Company. The balance sheets include appropriate
reserves for all taxes and other liabilities accrued at such dates but not yet
payable.
5.4 Tax Returns and Audits. All required federal, state and
local tax returns or appropriate extension requests of the Company have been
filed, and all federal, state and local taxes required to be paid with respect
to such returns have been paid or due provision for the payment thereof has been
made. The Company is not delinquent in the payment of any such tax or in the
payment of any assessment or governmental charge. The Company has not received
notice of any tax deficiency proposed or assessed against it, and has not
executed any waiver of any statute of limitations on the assessment or
collection of any tax. None of the tax returns of the Company has been audited
by governmental authorities in a manner to bring such audits to the attention of
the Company. The Company does not have any tax liabilities except those
reflected in Exhibit 3 hereto and those incurred in the ordinary course of
business since the Balance Sheet Date.
5.5 Changes, Dividends, etc. Except for the transactions
contemplated by this Agreement, the Acquisition Agreement or as disclosed in the
Form 8-K Report, since the Balance Sheet Date the Company has not: (a) incurred
any debts, obligations or liabilities, absolute, accrued or contingent and
whether due or to become due, except current liabilities incurred in the
ordinary course of business, which (individually or in the aggregate) will not
materially and adversely affect the business, properties or prospects of the
Company; (b) paid any obligation or liability other than, or discharged or
satisfied any liens or encumbrances other than those securing, current
liabilities, in each case in the ordinary course of business; (c) declared or
made any payment or distribution to its stockholders as such, or purchased or
redeemed any of its shares of capital stock or other securities, or obligated
itself to do so; (d) mortgaged, pledged or subjected to lien, charge, security
interest or other encumbrance any of its assets, tangible or intangible, except
in the ordinary course of business; (e) sold, transferred or leased any of its
assets except in the ordinary course of business and except for the sale of the
limited partnership interest in the Khan's Mongolian Barbeque restaurant
operation and the real property in Roseville, Minnesota related thereto and the
disposition of the Company's interest in the Fuddruckers leasehold and related
restaurant equipment in Cottage Grove, Minnesota; (f) canceled or compromised
any debt or claim, or waived or released any right of material value; (g)
suffered any physical damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties, business or
prospects of the Company; (h) entered into any transaction other than in the
ordinary course of business; (i) encountered any labor difficulties or labor
union organizing activities; (j) issued or sold any shares of capital stock or
other securities or granted any options, warrants or other purchase rights with
respect thereto other than in accordance with the terms and conditions of the
Company Stock Option Plan; (k) made any acquisition or disposition of any
material assets or become involved in any other material transaction, other than
for fair value in the ordinary course of business; (l) increased the
compensation payable, or to become payable, to any of its directors or
employees, or made any bonus payment or similar arrangement with any directors
or employees or increased the scope or nature of any fringe benefits provided
for its employees or directors other than the bonus payable to William H. Spell
and the annual compensation payable to the directors of the Company as provided
in Section 8.9 of this Agreement; or (m) agreed to do any of the foregoing other
than pursuant hereto. There has been no material adverse change in the financial
condition, operations, results of operations or business of the Company since
the Balance Sheet Date.
5.6 Title to Properties and Encumbrances. The Company has good
and marketable title to all its owned properties and assets, and the properties
and assets used in the conduct of its business, which properties and assets are
not subject to any mortgage, pledge, lease, lien, charge, security interest,
encumbrance or restriction, except (a) those which are shown and described in
Exhibit 3 hereto or the notes thereto, and (b) Permitted Liens (as hereinafter
defined). The plant, offices and equipment owned and leased by the Company have
been kept in good condition and repair in the ordinary course of business, and
the Company has not been threatened with any action or proceeding under any
building or zoning ordinance, law or regulation.
5.7 Litigation; Governmental Proceedings. There are no legal
actions, suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company, its properties, assets or business, and the
Company is not aware of any facts which are likely to result in or form the
basis for any such action, suit or other proceeding. The Company is not in
default with respect to any judgment, order or decree of any court or any
governmental agency or instrumentality. The Company has not been threatened with
any action or proceeding under any business or zoning ordinance, law or
regulation.
5.8 Compliance with Applicable Laws and Other Instruments. To
the best knowledge of the Company, the business and operations of the Company
have been and are being conducted in all material respects in accordance with
all applicable laws, rules and regulations of all governmental authorities.
Neither the execution nor delivery of, nor the performance of or compliance
with, this Agreement nor the consummation of the transactions contemplated
hereby will conflict with, or, with or without the giving of notice or passage
of time, result in any breach of, or constitute a default under, or result in
the imposition of any lien or encumbrance upon any asset or property of the
Company pursuant to, any applicable law, administrative regulation or judgment,
order or decree of any court or governmental body, any agreement or other
instrument to which the Company is a party or by which it or any of its
properties, assets or rights is bound or affected, and will not violate the
Articles of Incorporation or Bylaws of the Company. The Company is not in
violation of its Articles of Incorporation or its Bylaws nor in violation of, or
in default under, any lien, indenture, mortgage, lease, agreement, instrument,
commitment or arrangement in any material respect.
5.9 Class B Shares and Conversion Stock. The Class B Shares,
when issued and paid for pursuant to the terms of this Agreement, will be duly
authorized, validly issued and outstanding, fully paid, nonassessable and free
and clear of all pledges, liens, encumbrances and restrictions, except as set
forth in Section 4 hereof, and the shares of Conversion Stock issuable upon
conversion of the Class B Shares have been reserved for issuance based upon the
initial Conversion Price (as hereinafter defined), and when issued upon
conversion will be duly authorized, validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions, except as set forth in Section 4 hereof. The certificates
representing the Class B Shares to be delivered by the Company hereunder, and
the certificates representing the Conversion Stock to be delivered upon the
conversion of the Class B Shares, will be genuine, and the Company has no
knowledge of any fact which would impair the validity thereof.
5.10 Securities Laws. Based in part upon the representations
and warranties contained in Section 6 hereof, no consent, authorization,
approval, permit or order of or filing with any governmental or regulatory
authority is required under current laws and regulations in connection with the
execution and delivery of this Agreement or the offer, issuance, sale or
delivery of the Class B Shares or the offer of the Conversion Stock other than
the qualification thereof, if required, under applicable state securities laws,
which qualification has been or will be effected as a condition of these sales.
The Company has not, directly or through an agent, offered the Class B Shares or
the Conversion Stock or any similar securities for sale to, or solicited any
offers to acquire such securities from, persons other than the Purchaser and
other accredited investors. Under the circumstances contemplated hereby, the
offer, issuance, sale and delivery of the Class B Shares and the offer of the
Conversion Stock will not under current laws and regulations require compliance
with the prospectus delivery or registration requirements of the Securities Act.
5.11 Capital Stock. The authorized capital stock of the
Company consists of 10,000,000 shares, of which 4,971,174 shares of Common Stock
are issued and outstanding. In addition, the company has outstanding
subscriptions, options, warrants or commitments under which the Company is
obligated to issue an aggregate of 1,331,750 shares of Common Stock of the
Company. The Company does not have any treasury shares. All of the outstanding
shares of capital stock of the Company were duly authorized and validly issued
and are fully paid and nonassessable. There are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, Convertible
Securities (as hereinafter defined) or other agreements or arrangements of any
character or nature whatever, except as set forth above or as contemplated by
this Agreement, under which the Company is or may be obligated to issue capital
stock or other securities of any kind representing an ownership interest or
contingent ownership interest in the Company. Neither the offer nor the issuance
or sale of the Class B Shares or the Conversion Stock constitutes an event,
under any anti-dilution provisions of any securities issued or issuable by the
Company or any agreements with respect to the issuance of securities by the
Company, which will either increase the number of shares issuable pursuant to
such provisions or decrease the consideration per share to be received by the
Company pursuant to such provisions. No holder of any security of the Company is
entitled to any preemptive or similar rights to purchase securities from the
Company provided, however, that nothing in this Section 5.11 shall affect, alter
or diminish any right granted to the Purchaser in this Agreement. All
outstanding securities of the Company have been issued in full compliance with
an exemption or exemptions from the registration and prospectus delivery
requirements of the Securities Act and from the registration and qualification
requirements of all applicable state securities laws.
5.12 Outstanding Debt. The Company has no Indebtedness for
Borrowed Money (as hereinafter defined) except as otherwise set forth in
Exhibits 2 and 3 hereto or the notes thereto. The Company is not in default in
the payment of the principal of or interest or premium on any such Indebtedness
for Borrowed Money, and no event has occurred or is continuing under the
provisions of any instrument, document or agreement evidencing or relating to
any such Indebtedness for Borrowed Money which with the lapse of time or the
giving of notice, or both, would constitute an event of default thereunder.
5.13 Assets and Contracts.
Attached hereto as Exhibit 4 is a list of contracts, agreements,
leases, documents, commitments or other arrangements, in addition to those
specified in Exhibit 2, to which the Company is a party or by which it is
otherwise bound involving payments remaining to or from the Company in excess of
$25,000 and other agreements material to the Company's business entered into
outside of the ordinary course of business (the "Contracts"). All the Contracts
are in effect and enforceable according to their respective terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally, and except for judicial limitations on the enforcement of the remedy
of specific performance and other equitable remedies), and there is not under
any Contract any existing material default or event of default or event which,
with notice or lapse of time or both, would constitute an event of default
thereunder. All parties to the Contracts are in substantial compliance therewith
and no party is in material default in any respect thereunder.
5.14 Corporate Acts and Proceedings. This Agreement has been
duly authorized by all necessary corporate action on behalf of the Company, and
has been duly executed and delivered by authorized officers of the Company. All
corporate action necessary to the authorization, creation, issuance and delivery
of the Class B Shares and the Conversion Stock has been taken on the part of the
Company, or will be taken by the Company on or prior to the Closing Date. This
Agreement is a valid and binding agreement of the Company enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, and except for
judicial limitations on the enforcement of the remedy of specific enforcement
and other equitable remedies.
5.15 No Brokers or Finders. No person, firm or corporation has
or will have, as a result of any act or omission of the Company, any right,
interest or valid claim against or upon the Company or the Purchaser for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity, in connection with the transactions contemplated by this Agreement.
The Company will indemnify and hold the Purchaser harmless against any and all
liability with respect to any such commission, fee or other compensation which
may be payable or determined to be payable in connection with the transactions
contemplated by this Agreement.
5.16 Conflicts of Interest. Except as set forth in Exhibit 2
and in the Company's 10-KSB Report attached as Exhibit 3, no officer, director
or stockholder of the Company or any affiliate (as such term is defined in Rule
405 under the Securities Act) of any such person has any direct or indirect
interest (a) in any entity which does business with the Company, or (b) in any
property, asset or right which is used by the Company in the conduct of its
business, or (c) in any contractual relationship with the Company other than as
an employee. For the purpose of this Section 5.16, there shall be disregarded
any interest which arises solely from the ownership of less than a 1% equity
interest in a corporation whose stock is regularly traded on any national
securities exchange or in the over-the-counter market.
5.17 Licenses. The Company possesses from the appropriate
agency, commission, board and government body and authority, whether state,
local or federal, all licenses, permits, authorizations, approvals, franchises
and rights which (a) are necessary for it to engage in the business currently
conducted by it, and (b) if not possessed by the Company would have an adverse
impact on the Company's business. The Company has no knowledge that would lead
it to believe that it will not be able to obtain all licenses, permits,
authorizations, approvals, franchises and rights that may be required for any
business the Company proposes to conduct.
5.18 Registration Rights. Except as set forth in Exhibit 2,
and other than under this Agreement, the Company has not agreed to register any
of its authorized or outstanding securities under the Securities Act.
5.19 Retirement Plans. The Company does not have any
retirement plan in which any employees of the Company participate that is
subject to any provisions of the Employee Retirement Income Security Act of 1974
and of the regulations adopted pursuant thereto ("ERISA").
5.20 Environmental and Safety Laws. To the best of its
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation.
5.21 Acquisition Agreement. The Company has furnished to the
Purchaser a true, complete and correct copy of the Acquisition Agreement. The
Acquisition Agreement has not subsequently been amended, supplemented or
modified, and constitutes the complete understanding between the Company and
Bridgewater Resources Corp. in respect of the matters and transactions covered
thereby. The Acquisition Agreement has been duly executed and delivered by the
parties thereto and is in full force and effect. All representations and
warranties made by the Company in the Acquisition Agreement, and, to the best
knowledge of the Company after due inquiry, all representations and warranties
made by Bridgewater Resources Corp. in the Acquisition Agreement, are true and
correct in all material respects.
5.22 Disclosure. The Company has not knowingly withheld from
the Purchaser any material facts relating to the assets, business, operations,
financial condition or prospects of the Company. No representation or warranty
in this Agreement or in any certificate, schedule, statement or other document
furnished or to be furnished to the Purchaser pursuant hereto or in connection
with the transactions contemplated hereby contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated herein or therein or necessary to make the statements
herein or therein not misleading.
6. Representations and Warranties of Purchaser. The Purchaser
represents and warrants that:
6.1 Investment Intent. The Class B Shares being acquired by
the Purchaser hereunder are being purchased, and the Conversion Stock acquired
by the Purchaser upon conversion of such Class B Shares will be acquired, for
the Purchaser's own account and not with the view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act. The Purchaser understands that the Class B Shares and the
Conversion Stock have not been registered under the Securities Act or any
applicable state laws by reason of their issuance or contemplated issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act and such laws, and that the reliance of the Company and
others upon this exemption is predicated in part upon this representation and
warranty. The Purchaser further understands that the Class B Shares and
Conversion Stock may not be transferred or resold without (a) registration under
the Securities Act and any applicable state securities laws, or (b) an exemption
from the requirements of the Securities Act and applicable state securities
laws.
The Purchaser understands that an exemption from such registration is
not presently available pursuant to Rule 144 promulgated under the Securities
Act by the Securities and Exchange Commission (the "Commission") and that in any
event the Purchaser may not sell any securities pursuant to Rule 144 prior to
the expiration of a two-year period after the Purchaser has acquired the
securities. The Purchaser understands that any sales pursuant to Rule 144 may
only be made in full compliance with the provisions of Rule 144.
6.2 Location of Principal Office and Qualification as
Accredited Investor. The Purchaser's principal office is located in the State of
Minnesota. The Purchaser qualifies as an accredited investor within the meaning
of Rule 501 under the Securities Act. The Purchaser has such knowledge and
experience in financial and business matters that the Purchaser is capable of
evaluating the merits and risks of the investment to be made hereunder by the
Purchaser. The Purchaser has had an opportunity to ask questions concerning
investment in the Company of officers of the Company, and its subsidiary,
Peerless Chain Company, and has received answers to the same to its
satisfaction.
6.3 Acts and Proceedings. This Agreement has been duly
authorized by all necessary action on the part of the Purchaser, has been duly
executed and delivered by the Purchaser, and is a valid and binding agreement
upon the part of the Purchaser.
6.4 No Brokers or Finders. No person, firm or corporation has
or will have, as a result of any act or omission by the Purchaser, any right,
interest or valid claim against the Company for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement. The Purchaser will
indemnify and hold the Company harmless against any and all liability with
respect to any such commission, fee or other compensation which may be payable
or determined to be payable as a result of the actions of such Purchaser in
connection with the transactions contemplated by this Agreement.
7. Conditions of the Purchaser's Obligation. The obligation to purchase
and pay for the Class B Shares which the Purchaser has agreed to purchase on the
Closing Date is subject to the fulfillment prior to or on the Closing Date of
the following conditions. In the event that any such condition is not satisfied
to the satisfaction of the Purchaser, then the Purchaser shall not be obligated
to proceed with the purchase of the Class B Shares.
7.1 No Errors, etc. The representations and warranties of the
Company under this Agreement shall be true in all material respects as of the
Closing Date with the same effect as though made on and as of the Closing Date.
7.2 Compliance with Agreement. The Company shall have
performed and complied with all agreements or conditions required by this
Agreement to be performed and complied with by it prior to or as of the Closing
Date.
7.3 Certificate of Officers. The Company shall have delivered
to the Purchaser a certificate, dated the Closing Date, executed by the
President and the senior financial officer of the Company and certifying to the
satisfaction of the conditions specified in Sections 7.1, 7.2 and 7.5 hereof.
7.4 Opinion of Company's Counsel. The Company shall have
delivered to the Purchaser an opinion or opinions of Briggs and Morgan, counsel
for the Company, dated the Closing Date, to the effect that:
(a) The Company is a duly and validly organized and existing
corporation in good standing under the laws of the State of Minnesota;
has the corporate power and authority to enter into this Agreement, to
issue and sell the Class B Shares and the Conversion Stock as
contemplated by this Agreement, and to carry out the provisions of this
Agreement; has the corporate power and authority to own and hold its
properties owned and leased and to carry on the business in which it is
engaged; and has not failed to qualify to do business as a foreign
corporation in good standing in any state or jurisdiction wherein the
nature of its activities or of its properties owned or leased makes
such qualification necessary and failure to be so qualified would have
a material adverse effect upon the Company.
(b) This Agreement has been duly authorized, executed and
delivered by the Company, and is a legal, valid and binding agreement
of the Company enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally, and except for judicial limitations on the
enforcement of the remedy of specific performance and other equitable
remedies.
(c) A Certificate of Designation containing the Class B Stock
Provisions has been duly adopted by all necessary corporate action, and
has been duly filed with the Secretary of State of the State of
Minnesota (no other filing or recording is necessary to perfect the
rights and privileges of the holders of the Class B Shares).
(d) The Class B Shares are entitled to the rights, preferences
and provisions of the Class B Stock Provisions subject, however, to
bankruptcy, insolvency, moratorium or reorganization laws and judicial
limitations on the enforcement of the remedy of specific performance
and other equitable remedies.
(e) The Class B Shares have been duly authorized, issued and
delivered by the Company and are fully paid and nonassessable, and the
certificates for the Class B Shares are in valid and sufficient form.
(f) The Conversion Stock has been duly authorized and reserved
for issuance upon conversion of the Class B Shares based upon the
initial Conversion Price, and when issued upon such conversion in
accordance with the terms and conditions of the Class B Shares and
those of this Agreement the Conversion Stock will be duly authorized
and issued and will be fully paid and nonassessable.
(g) All corporate proceedings required by law or by the
provisions of this Agreement to be taken by the Board of Directors and
the stockholders of the Company on or prior to the Closing Date in
connection with the execution and delivery of this Agreement, the
offer, issuance and sale of the Class B Shares and the Conversion
Stock, and in connection with the consummation of the transactions
contemplated by this Agreement, have been duly and validly taken.
(h) The Company is authorized by its Articles of Incorporation
to issue 10,000,000 shares, of which 1,227,273 shares have been
designated class B common shares. The Class B Shares are the only class
B common shares that are issued and outstanding. There are 4,971,174
common shares duly issued and outstanding, all of which are fully paid
and nonassessable. The issuance and sale of such outstanding common
shares were registered under, or exempt from registration under, the
Securities Act and such shares were issued in conformity with the
permit or qualification requirements of all applicable state securities
laws. Except for such class B common shares and such common shares, the
Company has no other authorized or outstanding series or class of
capital stock, and, to the knowledge of such counsel, there are no
outstanding securities convertible into common shares of the Company or
outstanding options, warrants or other rights to acquire securities of
the Company, other than (a) the Class B Shares, and (b) options and
warrants granted under this Agreement or disclosed in Section 5.11
above and Exhibit 2 to this Agreement. To the knowledge of such
counsel, there are no agreements or understandings on the part of the
Company with respect to the registration of any securities of the
Company under the Securities Act, other than those granted under this
Agreement, and there are no obligations on the part of the Company to
purchase or redeem any outstanding shares of capital stock of the
Company.
(i) The Articles of Incorporation of the Company do not
provide for any security holder preemptive or similar rights to
subscribe for or purchase any shares of capital stock of the Company,
and, no security holder of the Company has been granted preemptive or
similar rights to subscribe for or to purchase any shares of capital
stock of the Company pursuant to any agreement of which such counsel
has knowledge, nor will any security holder of the Company be entitled
to any such rights as a result of the execution or delivery of this
Agreement or the issuance of the Class B Shares or the Conversion
Stock.
(j) Assuming the accuracy of the representations of the
Purchaser set forth in Section 6 hereof, the Company has obtained the
approval or consent of all governmental agencies or bodies required to
be obtained by it for the legal and valid execution and delivery of
this Agreement and the legal and valid offer, issuance and sale of the
Class B Shares and the offer of the Conversion Stock to the Purchaser
through conversion by it of the Class B Shares and for the performance
of the obligations of the Company under any provisions of this
Agreement. The Company is not in violation of any term, provision or
condition of its Articles of Incorporation or Bylaws, or, to the best
of such counsel's actual knowledge, in violation of any material term,
provision or condition of any agreement or other instrument to which
the Company is a party or by which it is bound or to which any of its
properties, assets or business is subject or any judgment, decree or
order known to such counsel or to the best of such counsel's actual
knowledge any statute, rule or regulation; and the execution, delivery
and performance of this Agreement, the offer, issuance and sale of the
Class B Shares and the Conversion Stock and the consummation of the
transactions contemplated by this Agreement will not result in any
breach or violation of the terms or provisions of, or constitute a
default under, the Articles of Incorporation or the Bylaws of the
Company or, to the best of such counsel's actual knowledge, in
violation of any material term, provision or condition of any agreement
or other instrument to which the Company is a party or by which it is
bound or to which any of its properties, assets or business is subject
or any judgment, decree or order known to such counsel or to the best
of such counsel's actual knowledge any statute, rule or regulation.
(k) Assuming the accuracy of the representations of the
Purchaser set forth in Section 6 hereof, the offer, sale, issuance and
delivery of the Class B Shares and the offer of the Conversion Stock to
the Purchaser through conversion by it of the Class B Shares under the
circumstances contemplated by the Amendment and this Agreement are
exempt from the registration and prospectus delivery requirements of
the Securities Act, and all registrations, qualifications, permits and
approvals required under applicable state securities laws for the
lawful offer, sale, issuance and delivery of the Class B Shares and the
Conversion Stock have been obtained.
(l) Such counsel have no knowledge of any litigation,
proceeding or governmental investigation pending or threatened against
the Company, its key management employees, properties or business
which, if determined adversely to the Company, would have a material
adverse effect upon the financial condition, operations, results of
operations or business of the Company.
7.5 No Event of Default. There shall exist at the time of
Closing no condition or event which would constitute an Event of Default (as
hereinafter defined) or which, after notice or lapse of time or both, would
constitute an Event of Default.
7.6 Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under applicable
state securities laws for the lawful execution and delivery of this Agreement
and the offer, sale, issuance and delivery of the Class B Shares and the offer
of the Conversion Stock shall have been obtained.
7.7 Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transaction shall be satisfactory in
form and substance to the Purchaser and its special counsel.
7.8 Co-Sale Agreements. William H. Spell; Harry W. Spell; and
Bruce A. Richard shall each have entered into a Co-Sale Agreement with the
Purchaser substantially in the form of Exhibit 5 hereto.
7.9 Capital Adequacy. The Purchaser shall be satisfied with
the capital adequacy and solvency of the Company after giving effect to the
transactions contemplated by this Agreement and shall have received such
evidence as necessary to enable the Purchaser to make a determination regarding
the capital adequacy and solvency of the Company.
7.10 Corporate Structure. The corporate structure of the
Company shall be acceptable to the Purchaser, in its sole discretion.
7.11 Up-Front Fee. The Company shall have paid to the
Purchaser an up-front fee of $35,000.
7.12 Tax Matters. The Purchaser shall be satisfied with all
material tax consequences of the transactions contemplated by this Agreement
(including, without limitation, allocation of the purchase price to each asset
class, amortization and depreciation of each asset class, and the deductibility
of such amortization and depreciation), and shall have received professional
opinions, in form and substance satisfactory to the Purchaser, addressing such
tax consequences.
7.13 Employment Agreements. The Company shall have caused
Peerless Chain Company to have entered into employment agreements with each of
its management employees which contain terms and conditions that are
satisfactory to the Purchaser in its sole and absolute discretion.
7.14 Revolver Availability. As of the Closing Date, the
Company shall have at least $1 million in borrowing availability under its
revolving credit facility.
7.15 Consulting Agreement. The Company and the Purchaser shall
have entered into a consulting agreement in form and substance satisfactory to
the Purchaser.
8. Affirmative Covenants. Subject to the provisions of Section 14
hereof and so long as the Purchaser owns ten percent (10%) or more of the
Company's outstanding Common Stock (including any Class B Shares owned by the
Purchaser), the Company covenants and agrees that:
8.1 Corporate Existence. The Company will maintain and cause
each Subsidiary (as hereinafter defined) to maintain its corporate existence in
good standing and comply with all applicable laws and regulations of the United
States or of any state or states thereof or of any political subdivision thereof
and of any governmental authority where failure to so comply would have a
material adverse impact on the Company or its business or operations.
8.2 Books of Account and Reserves. The Company will, and will
cause each of its Subsidiaries to, keep books of record and account in which
full, true and correct entries are made of all of its and their respective
dealings, business and affairs, in accordance with generally accepted accounting
principles. The Company will employ certified public accountants selected by the
Board of Directors of the Company who are "independent" within the meaning of
the accounting regulations of the Commission and have annual audits made by such
independent public accountants in the course of which such accountants shall
make such examinations, in accordance with generally accepted auditing
standards, as will enable them to give such reports or opinions with respect to
the financial statements of the Company and its Subsidiaries as will satisfy the
requirements of the Commission in effect at such time with respect to
certificates and opinions of accountants.
8.3 Furnishing of Financial Statements and Information. The
Company will deliver to the Purchaser:
(a) as soon as practicable, but in any event within 45 days
after the close of each month, unaudited consolidated and consolidating
balance sheets of the Company and its Subsidiaries as of the end of
such month, together with the related consolidated and consolidating
statements of operations and cash flow for such month, setting forth
the budgeted figures for such month prepared and submitted in
connection with the Company's annual plan as required under Section 8.5
hereof and in comparative form figures for the corresponding month of
the previous fiscal year, all in reasonable detail and certified by an
authorized accounting officer of the Company, subject to year-end
adjustments;
(b) as soon as practicable, but in any event within 90 days
after the end of each fiscal year, a consolidated balance sheet of the
Company and its Subsidiaries, as of the end of such fiscal year,
together with the related consolidated statements of operations,
stockholders' equity and cash flow for such fiscal year, setting forth
in comparative form figures for the previous fiscal year, all in
reasonable detail and duly certified by the Company's independent
public accountants, which accountants shall have given the Company an
opinion, unqualified as to the scope of the audit, regarding such
statements;
(c) within 90 days after the end of each fiscal year, written
notice of the current Conversion Price for the Class B Shares,
including a brief statement indicating any adjustments reasonably
anticipated;
(d) promptly upon transmission thereof, copies of all reports,
proxy statements, registration statements and notifications filed by it
with the Commission pursuant to any act administered by the Commission
or furnished to stockholders of the Company or to any national
securities exchange;
(e) with reasonable promptness, such other financial data
relating to the business, affairs and financial condition of the
Company and any Subsidiaries as is available to the Company and as from
time to time the Purchaser may reasonably request;
(f) promptly following the issuance of any Additional Class B
Shares of Common Stock or of any Convertible Securities, or any
options, warrants or other rights to purchase Additional Class B Shares
of Common Stock or Convertible Securities, as these terms are
hereinafter defined, written notice of the amount of securities so
issued and the total consideration received therefor;
(g) at least 30 days prior to the earlier of (i) the execution
of any agreement relating to any merger or consolidation of the Company
or any of its Subsidiaries with another corporation, or a plan of
exchange involving the outstanding capital stock of the Company or any
of its Subsidiaries, or the sale, transfer or other disposition of all
or substantially all of the property, assets or business of the Company
or any of its Subsidiaries to another corporation, or (ii) the holding
of any meeting of the stockholders of the Company for the purpose of
approving such action, written notice of the terms and conditions of
such proposed merger, consolidation, plan of exchange, sale, transfer
or other disposition; and
(h) within 15 days after the Company learns in writing of the
commencement or threatened commencement of any material suit, legal or
equitable, or of any material administrative, arbitration or other
proceeding against the Company, any of its Subsidiaries or their
respective businesses, assets or properties, written notice of the
nature and extent of such suit or proceeding.
8.4 Inspection. The Company will permit the Purchaser and any
of its partners, officers or employees, or any outside representatives
designated by the Purchaser and reasonably satisfactory to the Company, to visit
and inspect at the Purchaser's expense any of the properties of the Company or
its Subsidiaries, including their books and records (and to make photocopies
thereof or make extracts therefrom), and to discuss their affairs, finances, and
accounts with their officers, lawyers and accountants, except with respect to
trade secrets and similar confidential information, all to such reasonable
extent and at such reasonable times and intervals as the Purchaser may
reasonably request. Except as otherwise required by laws or regulations
applicable to the Purchaser, the Purchaser shall maintain, and shall require its
representatives to maintain, all information obtained pursuant to Section 8.3
hereof, this Section 8.4 and Section 8.5 hereof on a confidential basis.
8.5 Preparation and Approval of Budgets. At least one month
prior to the beginning of each fiscal year of the Company, the Company shall
prepare and submit to its Board of Directors, for its review and approval, an
annual plan for such year, which shall include monthly capital and operating
expense budgets, balance sheets, cash flow statements and profit and loss
projections itemized in such detail as the Board of Directors may reasonably
request. Each annual plan shall be modified as often as is necessary in the
judgment of the Board of Directors to reflect changes required as a result of
operating results and other events that occur, or may be reasonably expected to
occur, during the year covered by the annual plan, and copies of each such
modification shall be submitted to the Board of Directors. The Company will
deliver to the Purchaser a copy of each such annual plan as approved by the
Board of Directors.
8.6 Payment of Taxes and Maintenance of Properties. The
Company will, and will cause each Subsidiary to:
(a) pay and discharge promptly, or cause to be paid and
discharged promptly when due and payable, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or
upon any of its properties, as well as all material claims of any kind
(including claims for labor, material and supplies) which, if unpaid,
might by law become a lien or charge upon its property; provided,
however, that neither the Company nor any Subsidiary shall be required
to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company or such Subsidiary
as the case may be shall have set aside on its books reserves
(segregated to the extent required by generally accepted accounting
principles) deemed adequate by it with respect thereto; and
(b) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time
to time make, or cause to be made, all repairs and renewals and
replacements which in the opinion of the Company are necessary and
proper so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; the Company will
maintain or cause to be maintained back-up copies of all valuable
papers and software.
8.7 Insurance. The Company will, and will cause each
Subsidiary to, obtain and maintain in force such property damage, public
liability, business interruption, worker's compensation, indemnity bonds and
other types of insurance as the Company's executive officers, after consultation
with an accredited insurance broker, shall determine to be necessary or
appropriate to protect the Company from the insurable hazards or risks
associated with the conduct of the Company's business. The Company's executive
officers shall periodically report to the Board of Directors on the status of
such insurance coverage.
All insurance shall be maintained in at least such amounts and to such
extent as shall be determined to be reasonable by the Board of Directors; and
all such insurance shall be effected and maintained in force under a policy or
policies issued by insurers of recognized responsibility, except that the
Company or any Subsidiary may effect worker's compensation or similar insurance
in respect of operations in any state or other jurisdiction either through an
insurance fund operated by such state or other jurisdiction or by causing to be
maintained a system or systems of self-insurance which is in accord with
applicable laws.
8.8 Payment of Indebtedness and Discharge of Obligations. The
Company will, and will cause each Subsidiary to, pay or cause to be paid the
principal of and interest and premium, if any, on all Indebtedness for Borrowed
Money heretofore or hereafter incurred or assumed by it when and as the same
shall become due and payable, unless such Indebtedness for Borrowed Money is
renewed or extended. The Company will, and will cause each Subsidiary to,
faithfully observe, perform and discharge all of the material covenants,
conditions and obligations which are imposed on it by any and all indentures and
other agreements securing or evidencing such Indebtedness for Borrowed Money or
pursuant to which such Indebtedness for Borrowed Money is issued, and will not
permit the continuance of any act or omission which is or under the provisions
thereof may be declared to be a material default thereunder, unless such default
is waived pursuant to the provisions thereof. Neither the Company nor any
Subsidiary shall be required to make any payment or to take any other action by
reason of this Section 8.8 at any time while it shall be currently contesting in
good faith by appropriate proceedings its obligations to make such payment or to
take such action provided that the Company or such Subsidiary, as the case may
be, shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting principles) deemed adequate by it with
respect thereto.
8.9 Directors' and Stockholders' Meetings. The holders of the
Class B Shares shall have the right to elect directors of the Company as set
forth in the Class B Stock Provisions.
The Company shall reimburse such holders of Class B Shares for the
reasonable out-of-pocket expenses incurred by them or the directors elected by
them pursuant to the Class B Stock Provisions in connection with the attending
of meetings by their director designees or carrying out any other duties by such
director designees that may be specified by the Board of Directors; shall pay
such director designees the same compensation paid to the other non-employee
directors of the Company (as set forth below); and shall maintain as part of its
Articles of Incorporation or Bylaws a provision for the indemnification of its
directors to the full extent permitted by law.
As consideration for serving on the Board of Directors of the Company,
the Company shall (i) pay each non-employee director or, in the case of the
director appointed by the Purchaser, the Purchaser, an annual fee of $6,000 per
year, payable quarterly in arrears in an amount equal to $1,500, and (ii)
subject to shareholder approval, issue to each director options to purchase
50,000 shares of the Company's Common Stock at fair market value on November 1,
1995 or such later date as a non-employee director shall first be elected or
appointed. The Company acknowledges and consents to any transfer by the
Purchaser-appointed director to the Purchaser of any shares of Common Stock
received by such Purchaser-appointed director upon exercise of such options.
The Company agrees, as a general practice, to hold a meeting of its
Board of Directors at least once every three months, and during each year to
hold its annual meeting of stockholders on or approximately on the date provided
in its Bylaws.
8.10 Replacement of Certificates Representing Class B Shares
or Conversion Stock. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any certificates
representing Class B Shares or Conversion Stock and, in the case of any such
loss, theft or destruction, upon delivery of a bond of indemnity satisfactory to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of the certificates representing Class B Shares or Conversion
Stock, as the case may be, the Company will issue new certificates representing
Class B Shares or Conversion Stock, as the case may be, of like tenor, in lieu
of such lost, stolen, destroyed or mutilated certificates representing Class B
Shares or Conversion Stock, as the case may be.
8.11 Application of Proceeds. Unless otherwise approved by the
Purchaser, the net proceeds received by the Company from the sale of the Class B
Shares shall be used to retire the Seller Indebtednesss and indebtedness
evidenced by that certain Stock Purchase Note dated December 13, 1995 in the
original principal amount of $100,000 executed by the Company and made payable
to the order of Harry W. Spell and that certain Stock Purchase Note dated
December 13, 1995 in the original principal amount of $125,000 executed by the
Company and made payable to the order of Pyramid Investors.
8.12 Retirement Plans. The Company will cause each retirement
plan of the Company or any of its Subsidiaries in which any employees of the
Company or of any of its Subsidiaries participate that is subject to the
provisions of ERISA and the documents and instruments governing each such plan
to be conformed to when necessary, and to be administered in a manner consistent
with, those provisions of ERISA and the Internal Revenue Code which may, from
time to time, become effective and operative with respect to such plans; and if
requested by the Purchaser in writing from time to time, furnish to the
Purchaser a copy of any annual report with respect to each such plan that the
Company files with the Internal Revenue Service pursuant to ERISA. The Company
will not, and will not permit, any Subsidiary to (i) engage in any "prohibited
transaction," (ii) incur any "accumulated funding deficiency," whether or not
waived, (iii) terminate any retirement plan in a manner which could result in
the imposition of a lien on any property of the Company or any of its
Subsidiaries, or (iv) incur any withdrawal liability in connection with any
"multiemployer plan."
8.13 Filing of Reports. The Company will, from and after such
time as it has securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, or has securities registered pursuant to the
Securities Act, make timely filing of such reports as are required to be filed
by it with the Commission so that Rule 144 under the Securities Act or any
successor provision thereto will be available to the security holders of the
Company who are otherwise able to take advantage of the provisions of such Rule.
8.14 Rule 144A. The Company agrees that, upon the request of
any holder of Class B Shares or Conversion Stock or any prospective purchaser of
Class B Shares or Conversion Stock the Company shall promptly provide (but in
any case within 15 days of a request) to such holder or potential purchaser the
following information: (a) a brief statement of the nature of the business of
the Company and its Subsidiaries and the products and services they offer; (b)
the Company's most recent consolidated balance sheets and profit and loss and
retained earnings statements, and similar financial statements for such part of
the two preceding fiscal years prior to such request as the Company has been in
operation (such financial information shall be audited, to the extent reasonably
available); and (c) such other information about the Company, its Subsidiaries
and their business, financial condition and results of operations as the
requesting person shall request in order to comply with Rule 144A promulgated
under the Securities Act and the antifraud provisions of the federal and state
securities laws.
The Company hereby represents and warrants to any such requesting
person that the information provided by the Company pursuant to this Section
8.14 will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
9. Negative Covenants. Subject to the provisions of Section 14 hereof
and so long as the Purchaser owns ten percent (10%) or more of the Company's
outstanding Common Stock (including any Class B Shares owned by the Purchaser),
the Company will not without the prior approval of the Purchaser:
(a) make or permit any Subsidiary to make loans or advances to
any person (including without limitation to any officer, director or
stockholder of the Company or any Subsidiary), firm, association or
corporation, except loans and advances to the Company and its
wholly-owned Subsidiaries and advances to suppliers and employees made
in the ordinary course of business; or
(b) pay, or permit any Subsidiary to pay, compensation,
whether by way of salaries, bonuses, participations in pension or
profit sharing plans, fees under management contracts or for
professional services or fringe benefits to any officer in excess of
amounts fixed by the Board of Directors of the Company prior to any
payment to such officer; or
(c) make any material change in the nature of its business as
carried on at the date of this Agreement; provided, however, that for
purposes of this Section 9, any entry into, or exit from similar lines
of business (whether by acquisition, disposition or otherwise) shall
not be a material change in the nature of its business as carried on at
the date of this Agreement.
10. Conversion Stock.
10.1 Conversion of Class B Shares. Any holder of any Class B
Shares may, at its option, at any time and from time to time, convert such Class
B Shares, or any thereof, into Conversion Stock at the rate and upon the terms
and conditions and subject to the adjustments set forth in the Class B Stock
Provisions.
10.2 Stock Fully Paid; Reservation of Class B Shares. The
Company covenants and agrees that all Conversion Stock that may be issued upon
conversion of the Class B Shares will, upon issuance in accordance with the
terms of the Class B Stock Provisions, be fully paid and nonassessable, and that
the issuance thereof shall not give rise to any preemptive rights on the part of
any person. The Company further covenants and agrees that the Company will at
all times have authorized and reserved a sufficient number of shares of its
Common Stock for the purpose of issue upon the conversion of the Class B Shares.
10.3 Adjustment of Number of Class B Shares and Conversion
Price. The number of shares of Common Stock issuable upon conversion of Class B
Shares and the Conversion Price with respect thereto shall be subject to
adjustment from time to time as set forth in the Class B Stock Provisions.
11. Registration of Stock.
11.1 Required Registration. If the Company shall receive a
written request therefor from any record holder or holders of an aggregate of at
least a majority of the shares of Purchased Stock not theretofore registered
under the Securities Act and sold, the Company shall prepare and file a
registration statement under the Securities Act covering the shares of Purchased
Stock which are the subject of such request and shall use its best efforts to
cause such registration statement to become effective. In addition, upon the
receipt of such request, the Company shall promptly give written notice to all
other record holders of shares of Purchased Stock not theretofore registered
under the Securities Act and sold that such registration is to be effected. The
Company shall include in such registration statement such shares of Purchased
Stock for which it has received written requests to register by such other
record holders within 30 days after the delivery of the Company's written notice
to such other record holders. The Company shall be obligated to prepare, file
and cause to become effective only two registration statements (other than on
Form S-3 or any successor form promulgated by the Commission ("Form S-3"))
pursuant to this Section 11.1, and to pay the expenses associated with such
registration statements; notwithstanding the foregoing, the record holder or
holders of an aggregate of at least a majority of the shares of Purchased Stock
not theretofore registered under the Securities Act and sold may require,
pursuant to this Section 11.1, the Company to file, and to pay the expenses
associated with, any number of registration statements on Form S-3, if such form
is then available for use by the Company and such record holder or holders and
at least 100,000 shares are to be included on any such registration statement.
In the event that the holders of a majority of the Purchased Stock for which
registration has been requested pursuant to this Section 11.1 determine for any
reason not to proceed with a registration at any time before a registration
statement has been declared effective by the Commission, and such registration
statement, if theretofore filed with the Commission, is withdrawn with respect
to the Purchased Stock covered thereby, and the holders of such Purchased Stock
agree to bear their own expenses incurred in connection therewith and to
reimburse the Company for the expenses incurred by it attributable to the
registration of such Purchased Stock, then the holders of such Purchased Stock
shall not be deemed to have exercised their right to require the Company to
register Purchased Stock pursuant to this Section 11.1.
If, at the time any written request for registration is received by the
Company pursuant to this Section 11.1, the Company shall have previously
determined to proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed offer and
sale for cash of any of its securities by it or any of its security holders,
such written request shall be deemed to have been given pursuant to Section 11.2
hereof rather than this Section 11.1, and the rights of the holders of Purchased
Stock covered by such written request shall be governed by Section 11.2 hereof.
Without the written consent of the holders of a majority of the
Purchased Stock for which registration has been requested pursuant to this
Section 11.1, neither the Company nor any other holder of securities of the
Company may include securities in such registration if in the good faith
judgment of the managing underwriter of such public offering the inclusion of
such securities would interfere with the successful marketing of the Purchased
Stock or require the exclusion of any portion of the Purchased Stock to be
registered.
If the Company delivers written notice to all record holders of
Purchased Stock of its determination to file a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities, such holders of Purchased Stock agree not to exercise their
right to demand registration of any shares of Purchased Stock pursuant to this
Section 11.1 for a period not to exceed 120 days from the date of such
registration.
11.2 Incidental Registration. Each time the Company shall
determine to proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed offer and
sale for cash of any of its securities by it or any of its security holders
(other than a registration statement on a form that does not permit the
inclusion of shares by its security holders), the Company will give written
notice of its determination to all record holders of Purchased Stock not
theretofore registered under the Securities Act and sold. Upon the written
request of a record holder of any shares of Purchased Stock given within 10
business days after receipt of any such notice from the Company, the Company
will, except as herein provided, cause all such shares of Purchased Stock, the
record holders of which have so requested registration thereof, to be included
in such registration statement, all to the extent requisite to permit the sale
or other disposition by the prospective seller or sellers of the Purchased Stock
to be so registered; provided, however, that nothing herein shall prevent the
Company from, at any time, abandoning or delaying any such registration
initiated by it; provided further, however, that if the Company determines not
to proceed with a registration after the registration statement has been filed
with the Commission and the Company's decision not to proceed is primarily based
upon the anticipated public offering price of the securities to be sold by the
Company, the Company shall promptly complete the registration for the benefit of
those selling security holders who wish to proceed with a public offering of
their securities and who bear all expenses in excess of $25,000 incurred by the
Company as the result of such registration after the Company has decided not to
proceed. If any registration pursuant to this Section 11.2 shall be underwritten
in whole or in part, the Company may require that the Purchased Stock requested
for inclusion pursuant to this Section 11.2 be included in the underwriting on
the same terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the managing underwriter of such
public offering the inclusion of all of the Purchased Stock originally covered
by a request for registration would reduce the number of shares to be offered by
the Company or interfere with the successful marketing of the shares of stock
offered by the Company, the number of shares of Purchased Stock otherwise to be
included in the underwritten public offering may be reduced pro rata (by number
of shares) among the holders thereof requesting such registration. Those shares
of Purchased Stock which are thus excluded from the underwritten public offering
shall be withheld from the market by the holders thereof for a period, not to
exceed 120 days, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering.
11.3 Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1 or 11.2 hereof to effect the
registration of shares of Purchased Stock under the Securities Act, the Company
will:
(a) prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed nine months;
(b) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the
sale of such securities, not to exceed nine months;
(c) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the
public offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may
reasonably request in writing within 20 days following the original
filing of such registration statement, except that the Company shall
not for any purpose be required to execute a general consent to service
of process or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(e) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration
statement has been filed;
(f) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Purchased Stock
by such holder;
(h) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances in which they were made, not misleading;
(i) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be
issued;
(j) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such holders
shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or the rules and regulations
thereunder, after having been furnished with a copy thereof at least
five business days prior to the filing thereof, unless in the opinion
of counsel for the Company the filing of such amendment or supplement
is reasonably necessary to protect the Company from any liabilities
under any applicable federal or state law and such filing will not
violate applicable law; and
(k) at the request of any such holder, furnish: (i) an
opinion, dated as of the closing date, of the counsel representing the
Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request,
covering such matters as such underwriters and holder or holders may
reasonably request; and (ii) letters dated as of the effective date of
the registration statement and as of the closing date, from the
independent certified public accountants of the Company, addressed to
the underwriters, if any, and to the holder or holders making such
request, covering such matters as such underwriters and holder or
holders may reasonably request.
11.4 Expenses. With respect to each registration, including
registrations pursuant to Form S-3, requested pursuant to Section 11.1 hereof
(except as otherwise provided in such Section with respect to registrations
voluntarily terminated at the request of the requesting security holders) and
with respect to each inclusion of shares of Purchased Stock in a registration
statement pursuant to Section 11.2 hereof (except as otherwise provided in
Section 11.2 with respect to registrations initiated by the Company but with
respect to which the Company has determined not to proceed), the Company shall
bear the following fees, costs and expenses: all registration, filing and NASD
fees, printing expenses, fees and disbursements of counsel and accountants for
the Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company and/or selling security holders
are required to bear such fees and disbursements), all internal Company
expenses, all legal fees and disbursements and other expenses of complying with
state securities or blue sky laws of any jurisdictions in which the securities
to be offered are to be registered or qualified, and the premiums and other
costs of policies of insurance against liability (if any) arising out of such
public offering. Fees and disbursements of counsel and accountants for the
selling security holders, underwriting discounts and commissions and transfer
taxes relating to the shares included in the offering by the selling security
holders, and any other expenses incurred by the selling security holders not
expressly included above, shall be borne by the selling security holders.
11.5 Indemnification. In the event that any Purchased Stock is
included in a registration statement under Section 11.1 or 11.2 hereof:
(a) The Company will indemnify and hold harmless each holder
of shares of Purchased Stock which are included in a registration
statement pursuant to the provisions of this Section 11, its directors
and officers, and any underwriter (as defined in the Securities Act)
for such holder and each person, if any, who controls such holder or
such underwriter within the meaning of the Securities Act, from and
against, and will reimburse such holder and each such underwriter and
controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such holder or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
provided, however, that the Company will not be liable in any such case
to the extent that any such loss, damage, liability, cost or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by such holder, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof.
(b) Each holder of shares of Purchased Stock which are
included in a registration pursuant to the provisions of this Section
11 will indemnify and hold harmless the Company, its directors and
officers, any controlling person and any underwriter from and against,
and will reimburse the Company, its directors and officers, any
controlling person and any underwriter with respect to, any and all
loss, damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue or alleged
untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in
reliance upon and in strict conformity with written information
furnished by such holder specifically for use in the preparation
thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section 11.5 of notice
of the commencement of any action involving the subject matter of the
foregoing indemnity provisions such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the
provisions of said paragraph (a) or (b), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, or if there is a conflict of
interest which would prevent counsel for the indemnifying party from
also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate
in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party
pursuant to the provisions of said paragraph (a) or (b) for any legal
or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii)
the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party.
12. Default.
12.1 Events of Default. Each of the following events shall be
an event of default (an "Event of Default") for purposes of this Agreement:
(a) if any representation or warranty made by or on behalf of
the Company in this Agreement or in any certificate, report or other
instrument delivered under or pursuant to any term hereof or thereof
shall prove to have been untrue or incorrect in any material respect as
of the date of this Agreement or as of the Closing Date; or
(b) if default shall be made in the due and punctual
performance or observance of any other term contained in this
Agreement, and such default shall have continued for a period of 15
days after written notice thereof to the Company by the holder of any
Class B Shares.
12.2 Suits for Enforcement. In case any one or more Events of
Default shall have occurred and be continuing, unless such Events of Default
shall have been waived, the holders of a majority of the Class B Shares may
proceed to protect and enforce their rights under this Section 13 by suit in
equity or action at law. It is agreed that in the event of such action such
holders of Class B Shares shall be entitled to receive all reasonable fees,
costs and expenses incurred, including without limitation such reasonable fees
and expenses of attorneys (whether or not litigation is commenced) and
reasonable fees, costs and expenses of appeals; provided, however, that the
holders of Class B Shares shall be entitled to receive the reasonable fees and
expenses of only one firm of designated attorneys.
12.3 Remedies Cumulative. No right, power or remedy conferred
upon any holder of Class B Shares shall be exclusive, and each such right, power
or remedy shall be cumulative and in addition to every other right, power or
remedy, whether conferred hereby or by any such security or now or hereafter
available at law or in equity or by statute or otherwise.
12.4 Remedies not Waived. No course of dealing between the
Company and any Purchaser or the holder of any Class B Shares, and no delay in
exercising any right, power or remedy conferred hereby or by any such security
or now or hereafter existing at law or in equity or by statute or otherwise,
shall operate as a waiver of or otherwise prejudice any such right, power or
remedy; provided, however, that this Section 12.4 shall not be construed or
applied so as to negate the provisions and intent of any statute which is
otherwise applicable.
13. Definitions. Unless the context otherwise requires, the terms
defined in this Section 13 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined below shall,
except as otherwise expressly provided, be determined by reference to the
Company's books of account and in conformity with generally accepted accounting
principles as applied to such books of account in the opinion of the independent
certified public accountants selected by the Board of Directors of the Company
as required under the provisions of Section 8.3 hereof.
13.1 "Additional Class B Shares of Common Stock" shall mean
all shares of Common Stock of the Company issued by the Company on or after the
Closing Date, except the Conversion Stock.
13.2 "Common Stock" shall mean the Company's authorized common
shares, any additional common shares which may be authorized in the future by
the Company, and any stock into which such common shares may hereafter be
changed, and, except for the Class B Common Shares, shall also include stock of
the Company of any other class which is not preferred as to dividends or as to
distributions of assets on liquidation, dissolution or winding up of the Company
over any other class of stock of the Company, and which is not subject to
redemption.
13.3 "Company" shall mean Discus Acquisition Corporation only,
and shall not include its subsidiary Peerless Chain Company or any other
Subsidiary or affiliate.
13.4 "Company Stock Option Plan" shall mean the Company's 1994
Stock Option Plan and the 1984 Employee Stock Option Plan, as each such plan may
be amended.
13.5 "Conversion Price" shall mean such price at which the
Class B Shares are convertible into Common Stock pursuant to Section 10 hereof
and the Class B Stock Provisions.
13.6 "Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are at any time directly
or indirectly convertible into or exchangeable for Additional Class B Shares of
Common Stock.
13.7 "Form 8-K Report" shall mean the Company's Form 8-K
Report reporting an event as of December 14, 1995, a copy of which is attached
to this Agreement in Exhibit 2 and deemed incorporated herein by reference.
13.8 "Indebtedness for Borrowed Money" shall include only
indebtedness of the Company and its Subsidiaries incurred as the result of a
direct borrowing of money and shall not include any other indebtedness
including, but not limited to, indebtedness incurred with respect to trade
accounts.
13.9 "Permitted Liens" shall mean (a) liens for taxes and
assessments or governmental charges or levies not at the time due or in respect
of which the validity thereof shall currently be contested in good faith by
appropriate proceedings; and (b) liens in respect of pledges or deposits under
worker's compensation laws or similar legislation, carriers', warehousemen's,
mechanics', laborers' and materialmen's, landlord's and statutory and similar
liens, if the obligations secured by such liens are not then delinquent or are
being contested in good faith, and liens and encumbrances incidental to the
conduct of the business of the Company or any Subsidiary which were not incurred
in connection with the borrowing of money or the obtaining of advances or
credits and which do not in the aggregate materially detract from the value of
its property or materially impair the use thereof in the operation of its
business.
13.10 "Purchased Stock" shall mean the Class B Shares, the
Conversion Stock and the stock or other securities of the Company issued in a
stock split or reclassification of, or a stock dividend or other distribution on
or in substitution or exchange for, or otherwise in connection with, any of the
foregoing securities, or in a merger or consolidation involving the Company or a
sale of all or substantially all of the Company's assets. Nothing in this
Section 13.10 shall be deemed to require the Company to register any Class B
Shares it being understood that the registration rights granted by Section 11
hereof relate only to shares of Common Stock and securities issued in
substitution or exchange therefor.
13.11 "Seller Indebtedness" shall mean the indebtedness
evidenced by that certain Purchase Money Note dated December 13, 1995, executed
by the Company and payable to the order of Bridgewater Resources Corp. in the
original principal amount of $1,200,000.
13.12 "Subsidiary" shall mean any corporation, association or
other business entity more than a majority (by number of votes) of the voting
stock of which is owned or controlled, directly or indirectly, by the Company or
by one or more of its Subsidiaries or both.
14. Consents; Waivers and Amendments. Except as otherwise specifically
provided herein, in each case in which approval of the Purchaser or holders of
Class B Shares is required by the terms of this Agreement, such requirement
shall be satisfied by a vote or the written consent of the holders owning at
least a majority of the Purchased Stock then outstanding (for purposes of this
Section 14, the holders of Class B Shares shall have a number of votes equal to
the number of shares of Common Stock into which the Class B Shares are
convertible). With the written consent of holders owning at least a majority of
the Purchased Stock then outstanding, the obligations of the Company under this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), and with the same approval the Company may
enter into a supplementary agreement for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of any supplemental agreement or modifying in any manner the rights and
obligations of the holders of the Purchased Stock and of the Company; provided,
however, that no such waiver or supplemental agreement shall (a) amend the terms
of the Class B Shares as set forth in the Certificate of Designation (any such
amendment to the terms of the Class B Shares shall require the vote of the
holders of the Class B Shares called for by the Certificate of Designation), or
(b) reduce the aforesaid percentage of Purchased Stock, the holders of which are
required to consent to any waiver or supplemental agreement, without the consent
of all of the record holders of shares whose rights would be affected by such
reduction. Written notice of any such waiver, consent or agreement of amendment,
modification or supplement shall be given to the record holders of the Purchased
Stock who have not previously consented thereto in writing.
15. Changes, Waivers, etc. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in Section 15 hereof.
16. Payment of Fees and Expenses of Purchaser. Upon the consummation of
the sale of Class B Shares anticipated by this Agreement or upon failure by the
Company to consummate such sales, the Company will pay the reasonable
out-of-pocket expenses incurred by the Purchaser in connection with the
transactions herein contemplated, including without limitation the reasonable
fees and out-of-pocket expenses of Faegre & Benson for their services as special
counsel to the Purchaser in connection with the transactions herein contemplated
and reasonable out-of-pocket due diligence and travel expenses. The Company will
also pay (a) all fees and expenses incurred by the Purchaser with respect to any
amendments or waivers requested by the Company (whether or not the same become
effective) under or in respect of this Agreement or the agreements contemplated
hereby, and (b) all fees and expenses incurred by the Purchaser with respect to
the enforcement of the rights granted under this Agreement or the agreements
contemplated hereby.
17. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail,
(a) if to any holder of any Purchased Stock, addressed to such
holder at its address as shown on the books of the Company, or at such
other address as such holder may specify by written notice to the
Company, or
(b) if to the Company, addressed to the Company, 2400
Metropolitan Centre, 333 South Seventh Street, Minneapolis, Minnesota
55402, attention: President, or to such other address as the Company
may specify by written notice to the Purchaser,
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received.
18. Survival of Representations and Warranties, etc. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, any investigation at any time made by the Purchaser
or on their behalf, and the sale and purchase of the Class B Shares and payment
therefor. All statements contained in any certificate, instrument or other
writing delivered by or on behalf of the Company pursuant hereto or in
connection with or contemplation of the transactions herein contemplated (other
than legal opinions) shall constitute representations and warranties by the
Company hereunder.
19. Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether so expressed or
not, and, in particular, shall inure to the benefit of and be enforceable by the
holder or holders at the time of any of the Purchased Stock.
20. Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
21. Choice of Law. It is the intention of the parties that the laws of
Minnesota shall govern the validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties.
22. Counterparts. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
Very truly yours,
DISCUS ACQUISITION CORPORATION
By /s/ William H. Spell
Chief Executive Officer
The foregoing Agreement is hereby
accepted as of the date first above written.
NORTHLAND BUSINESS CAPITAL, L.L.P.
By /s/ Brian K. Smith
Partner
EXHIBIT 2
EXCEPTION SCHEDULE
Attached
EXHIBIT 3
FINANCIAL STATEMENTS
Attached
EXHIBIT 4
CONTRACTS
None, except that certain Commercial Continuing Guaranty executed by
the Company on December 13, 1995 in favor of American Commercial Bank
guaranteeing promissory notes of officers and/or directors of the Company to
American Commercial Bank in the aggregate principal amount of $415,000.
EXHIBIT 5
FORM OF CO-SALE AGREEMENT
Attached
EXHIBIT 10.2
Certificate of Designation of Class B Common Stock
CLASS B STOCK PROVISIONS
(A) Classification.
The class B common stock of the corporation (the "Class B Common
Stock") shall be equal in all respects to the common stock of the corporation
(the "Common Stock"), except as otherwise provided herein. Such Common Stock and
Class B Common Stock are sometimes hereinafter collectively referred to as the
"capital stock."
(B) Voting Privileges.
(a) General. Each holder of Class B Common Stock shall have that number
of votes on all matters submitted to the stockholders that is equal to the
number of shares of Common Stock into which such holder's shares of Class B
Common Stock are then convertible as hereinafter provided. Except as otherwise
provided herein, and except as otherwise required by agreement or law, the
shares of capital stock of the corporation shall vote as a single class on all
matters submitted to the stockholders.
(b) Election of Directors. So long as Northland Business Capital,
L.L.P. or its affiliates shall continue to own at least 100,000 shares of Class
B Common Stock, (i) the Board of Directors of the corporation shall consist of
not more than nine (9) members, (ii) the holders of the Class B Common Stock,
exclusively and voting as a single class, shall be entitled, by a vote of a
majority of the outstanding shares of Class B Common Stock held by such holders,
to elect one (1) director of the corporation and to exercise any right of
removal or replacement of such director, and (iii) the holders of the Common
Stock, exclusively and voting as a single class, shall be entitled, by a vote of
a majority of the outstanding shares of Common Stock held by such holders, to
elect not more than eight (8) of the directors of the corporation and to
exercise any right of removal or replacement of such directors.
(c) Additional Class Votes by Class B Common Stock. Without the
affirmative vote or written consent of the holders (acting together as a class)
of a majority of the shares of Class B Common Stock at the time outstanding, the
corporation shall not:
(1) authorize or issue any additional shares of Class B Common
Stock; or
(2) amend the Articles of Incorporation of the corporation so as
to alter any existing provision relating to Class B Common
Stock or the holders thereof or waive any of the rights
granted to the holders of the Class B Common Stock by the
Articles of Incorporation of the corporation.
(C) Dividends.
In the event any dividend or distribution is declared or made with
respect to the Common Stock, each holder of shares of Class B Common Stock shall
be paid such dividend or receive such distribution on the basis of the number of
shares of Common Stock into which such holder's shares of Class B Common Stock
are then convertible, as hereinafter provided. Dividends on shares of Class B
Common Stock shall be payable only out of funds legally available therefor.
(D) Conversion Right.
At the option of the holders thereof, the shares of Class B Common
Stock shall be convertible, at the office of the corporation (or at such other
office or offices, if any, as the Board of Directors may designate), into fully
paid and nonassessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock of the corporation, at the conversion price,
determined as hereinafter provided, in effect at the time of conversion, each
share of Class B Common Stock being deemed to have a value of $1.10 for the
purpose of such conversion. The price at which shares of Common Stock shall be
delivered upon conversion (herein called the "conversion price") shall be
initially $1.10 per share of Common Stock, provided, however, that such initial
conversion price shall be subject to adjustment from time to time in certain
instances as hereinafter provided. The following provisions shall govern such
right of conversion:
(1) In order to convert shares of Class B Common Stock into shares
of Common Stock of the corporation, the holder thereof shall
surrender at any office herein above mentioned the certificate
or certificates therefor, duly endorsed to the corporation or
in blank, and give written notice to the corporation at such
office that such holder elects to convert such shares. Shares
of Class B Common Stock shall be deemed to have been converted
immediately prior to the close of business on the day of the
surrender of such shares for conversion as herein provided,
and the person entitled to receive the shares of Common Stock
of the corporation issuable upon such conversion shall be
treated for all purposes as the record holder of such shares
of Common Stock at such time. As promptly as practicable on or
after the conversion date, the corporation shall issue and
deliver or cause to be issued and delivered at such office a
certificate or certificates for the number of shares of Common
Stock of the corporation issuable upon such conversion.
(2) The conversion price shall be subject to adjustment from time
to time as hereinafter provided. Upon each adjustment of the
conversion price each holder of shares of Class B Common Stock
shall thereafter be entitled to receive the number of shares
of Common Stock of the corporation obtained by multiplying the
conversion price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to
conversion immediately prior to such adjustment and dividing
the product thereof by the conversion price resulting from
such adjustment.
(3) Except for the issuance of options to purchase Common Stock
referred to in Section 5.11 of that certain Stock Purchase
Agreement dated January 9, 1996 between the corporation and
Northland Business Capital, L.L.P. and except for shares of
Common Stock issued upon the exercise of such options
(provided that the aggregate number of shares thus awarded and
covered by unexercised options and thus issued pursuant to
such options shall not be in excess of 1,231,750
(appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar
changes)), if and whenever the corporation shall issue or sell
any shares of its Common Stock for a consideration per share
less than the lower of (i) the conversion price in effect
immediately prior to the time of such issue or sale, and (ii)
the market price (as defined below) on the date of such issue
or sale, then, forthwith upon such issue or sale, the
conversion price shall be reduced to the price (calculated to
the nearest cent) determined as follows:
(i) by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by
the then existing conversion price and (2) the
consideration, if any, received by the corporation
upon such issue or sale, by (B) an amount equal to
the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale
and (2) the number of shares of Common Stock thus
issued or sold; or
(ii) by multiplying the conversion price in effect
immediately prior to the time of such issue or sale
by a fraction, the numerator of which shall be the
sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale
multiplied by the market price immediately prior to
such issue or sale, plus (2) the consideration
received by the corporation upon such issue or sale,
and the denominator of which shall be the product of
(1) the total number of shares of Common Stock
outstanding immediately after such issue or sale,
multiplied by (2) the market price immediately prior
to such issue or sale.
Solely for purposes of calculating the number of
shares of Common Stock outstanding in clauses (i) and (ii)
above, the term "Common Stock outstanding" shall include those
shares of Common Stock issuable upon conversion of outstanding
shares of Class B Common Stock.
No adjustment of the conversion price, however, shall
be made in an amount less than 2% of the conversion price in
effect on the date of such adjustment, but any such lesser
adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which,
together with any such adjustment so carried forward, shall be
an amount equal to or greater than 4% of the conversion price
then in effect.
For the purposes of this subparagraph (3), the
following provisions (i) to (v), inclusive, shall also be
applicable:
(i) In case at any time the corporation shall grant
(whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, (a)
Common Stock or (b) any obligations or any shares of
stock of the corporation which are convertible into,
or exchangeable for, Common Stock (any of such
obligations or shares of stock being hereinafter
called "Convertible Securities") whether or not such
rights or 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 rights or
options or upon conversion or exchange of such
Convertible Securities (determined by dividing (x)
the total amount, if any, received or receivable by
the corporation as consideration for the granting of
such rights or options, plus the minimum aggregate
amount of additional consideration payable to the
corporation upon the exercise of such rights or
options, plus, in the case of such rights or options
which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any,
payable upon the issue of such Convertible Securities
and upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options
or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of
such rights or options) shall be less than the lower
of (i) the conversion price in effect immediately
prior to the time of the granting of such rights or
options and (ii) the market price on the date of the
granting of such rights or options, then the total
maximum number of shares of Common Stock issuable
upon the exercise of such rights or options or upon
conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed
to have been issued for such price per share. Except
as provided in subparagraph (6) below, no further
adjustments of the conversion price shall be made
upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible
Securities.
(ii) In case the corporation shall issue or sell (whether
directly or by assumption in a merger or otherwise)
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 by dividing (x) the total amount received
or receivable by the corporation as consideration for
the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional
consideration, if any, payable to the corporation
upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the lower
of (i) the conversion price in effect immediately
prior to the time of such issue or sale and (ii) the
market price on the date 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 (as of the date of the
issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for
such price per share, provided that (a) except as
provided in subparagraph (6) below, no further
adjustments 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
rights to subscribe for or to purchase or any option
to purchase any such Convertible Securities for which
adjustments of the conversion price have been or are
to be made pursuant to other provisions of this
subparagraph (3), no further adjustment of the
conversion price shall be made by reason of such
issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by
the corporation therefor, without deducting therefrom
any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed
by the corporation in connection therewith. In case
any shares of Common Stock or Convertible Securities
or any rights or options to purchase any such Common
Stock 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
corporation shall be deemed to be the fair value of
such consideration as determined by the Board of
Directors of the corporation, without deducting
therefrom any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed
by the corporation in connection therewith. In case
any shares of Common Stock or Convertible Securities
or any rights or options to purchase such Common
Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which
the corporation is the surviving corporation, the
amount of consideration therefor shall be deemed to
be the fair value as determined by the Board of
Directors of the corporation of such portion of the
assets and business of the non-surviving corporation
or corporations as such Board shall determine to be
attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In
the event of any consolidation or merger of the
corporation in which the corporation is not the
surviving corporation or in the event of any sale of
all or substantially all of the assets of the
corporation for stock or other securities of any
other corporation, the corporation shall be deemed to
have issued a number of shares of its Common Stock
for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on
which the transaction was predicated and for a
consideration equal to the fair market value on the
date of such transaction of such stock or securities
of the other corporation, and if any such calculation
results in adjustment of the conversion price, the
determination of the number of shares of Common Stock
issuable upon conversion immediately prior to such
merger, conversion or sale, for purposes of
subparagraph (7) below, shall be made after giving
effect to such adjustment of the conversion price.
(iv) In case the corporation shall take a record of the
holders of its Common Stock for the purpose of
entitling them (a) to receive a dividend or other
distribution payable in Common Stock or in
Convertible Securities, or in any rights or options
to purchase any Common Stock or Convertible
Securities, or (b) to subscribe for or purchase
Common Stock 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 rights of
subscription or purchase, as the case may be.
(v) 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 corporation, and the
disposition of any such shares shall be considered an
issue or sale of Common Stock for the purpose of this
subparagraph (3).
(4) In case the corporation shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of
Common Stock, as described in subparagraph (5) below) or
Convertible Securities, or in any rights or options to
purchase Common Stock or Convertible Securities, or (ii)
declare any other dividend or make any other distribution upon
the Common Stock payable otherwise than out of earnings or
earned surplus, then thereafter each holder of shares of Class
B Common Stock upon the conversion thereof will be entitled to
receive the number of shares of Common Stock into which such
shares of Class B Common Stock have been converted, and, in
addition and without payment therefor, each dividend described
in clause (i) above and each dividend or distribution
described in clause (ii) above which such holder would have
received by way of dividends or distributions if continuously
since such holder became the record holder of such shares of
Class B Common Stock such holder (i) had been the record
holder of the number of shares of Common Stock then received,
and (ii) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible
Securities, and any rights or options to purchase any Common
Stock or Convertible Securities) payable in respect of such
Common Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the
foregoing a dividend or distribution other than in cash shall
be considered payable out of earnings or earned surplus only
to the extent that such earnings or earned surplus are charged
an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the
corporation.
(5) In case the corporation 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 of
the corporation shall be combined into a smaller number of
shares, the conversion price in effect immediately prior to
such combination shall be proportionately increased.
(6) If (i) the purchase price provided for in any right or option
referred to in clause (i) of subparagraph (3), or (ii) the
additional consideration, if any, payable upon the conversion
or exchange of Convertible Securities referred to in clause
(i) or clause (ii) of subparagraph (3), or (iii) the rate at
which any Convertible Securities referred to in clause (i) or
clause (ii) of subparagraph (3) 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 then in effect
hereunder shall forthwith be increased or decreased to such
conversion price as would have obtained had the adjustments
made upon the issuance of such rights, options or Convertible
Securities been made upon the basis of (a) the issuance of the
number of shares of Common Stock theretofore actually
delivered upon the exercise of such options or rights or upon
the conversion or exchange of such Convertible Securities, and
the total consideration received therefor, and (b) the
issuance at the time of such change of any such options,
rights, or Convertible Securities then still outstanding for
the consideration, if any, received by the corporation
therefor and to be received on the basis of such changed
price; and on the expiration of any such option or right or
the termination of any such right to convert or exchange such
Convertible Securities, the conversion price then in effect
hereunder shall forthwith be increased to such conversion
price as would have obtained had the adjustments made upon the
issuance of such rights or options or Convertible Securities
been made upon the basis of the issuance of the shares of
Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such
rights or options or upon the conversion or exchange of such
Convertible Securities. If the purchase price provided for in
any right or option referred to in clause (i) of subparagraph
(3), or the rate at which any Convertible Securities referred
to in clause (i) or clause (ii) of subparagraph (3) are
convertible into or exchangeable for Common Stock, shall
decrease 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 right or option or upon conversion or exchange of any
such Convertible Security, the conversion price then in effect
hereunder shall forthwith be decreased to such conversion
price as would have obtained had the adjustments made upon the
issuance of such right, option or Convertible Security been
made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock
delivered as aforesaid.
(7) If any capital reorganization or reclassification of the
capital stock of the corporation, or consolidation or merger
of the corporation 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, and subject to subparagraph (a)
above, lawful and adequate provision shall be made whereby the
holders of Class B Common Stock shall thereafter have the
right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of the
Common Stock of the corporation immediately theretofore
receivable upon the conversion of Class B Common Stock, 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 receivable upon
the conversion of Class B Common Stock had such
reorganization, reclassification, consolidation, merger or
sale not taken place, plus all dividends unpaid and
accumulated or accrued thereon to the date of such
reorganization, reclassification, consolidation, merger or
sale, and in any such case appropriate provision shall be made
with respect to the rights and interests of the holders of
Class B Common Stock to the end that the provisions hereof
(including without limitation provisions for adjustments of
the conversion price and of the number of shares receivable
upon the conversion of Class B Common Stock) shall thereafter
be applicable, as nearly as may be in relation to any shares
of stock, securities or assets thereafter receivable upon the
conversion of Class B Common Stock. The corporation shall not
effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other
than the corporation) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed to the registered
holders of Class B Common Stock, at the last addresses of such
holders appearing on the books of the corporation, the
obligation to deliver to such holders such shares of stock,
securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to receive.
(8) Upon any adjustment of the conversion price, then and in each
case the corporation shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the registered
holders of Class B Common Stock, at the addresses of such
holders as shown on the books of the corporation, which notice
shall state the conversion price resulting from such
adjustment and the increase or decrease, if any, in the number
of shares receivable at such price upon the conversion of
Class B Common Stock, setting forth in reasonable detail the
method of calculation and the facts upon which such
calculation is based.
(9) In case at any time:
(i) the corporation shall declare any cash dividend on
its Common Stock at a rate in excess of the rate of
the last cash dividend theretofore paid;
(ii) the corporation shall pay any dividend payable in
stock upon its Common Stock or make any distribution
(other than regular cash dividends) to the holders of
its Common Stock;
(iii) the corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional
shares of stock of any class or other rights;
(iv) there shall be any capital reorganization, or
reclassification of the capital stock of the
corporation, or consolidation or merger of the
corporation with, or sale of all or substantially all
of its assets to, another corporation; or
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
corporation;
then, in any one or more of said cases, the corporation shall
give written notice, by first-class mail, postage prepaid,
addressed to the registered holders of Class B Common Stock at
the addresses of such holders as shown on the books of the
corporation, of the date on which (a) the books of the
corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (b) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as
the case may be. Such notice shall also specify the date as of
which the holders of Common Stock of record shall participate
in such dividend, distribution or subscription rights, or
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.
Such written notice shall be given at least 20 days prior to
the action in question and not less than 20 days prior to the
record date or the date on which the corporation's transfer
books are closed in respect thereto.
(10) If any event occurs as to which in the opinion of the Board of
Directors of the corporation the other provisions of this
paragraph (D) are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holders
of Class B Common Stock in accordance with the essential
intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid.
(11) As used in this paragraph (D) the term "Common Stock" shall
mean and include the corporation's presently authorized Common
Stock and shall also include any capital stock of any class of
the corporation hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
provided that the shares receivable pursuant to conversion of
shares of Class B Common Stock shall include shares designated
as Common Stock of the corporation as of the date of issuance
of such shares of Class B Common Stock, or, in case of any
reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph (7) above.
(12) No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which
would otherwise be issuable, the corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to
the same fraction of the market price per share of Common
Stock as of the close of business on the day of conversion.
"Market price" shall mean if the Common Stock is traded on a
securities exchange or on the NASDAQ National Market System,
the closing sale price of the Common Stock on such exchange or
the NASDAQ National Market System, or, if the Common Stock is
otherwise traded in the over-the-counter market, the average
bid price at the end of the day in the over-the-counter
market, in each case averaged over a period of 20 consecutive
business days prior to the date as of which "market price" is
being determined; provided, however, that in the event of a
private placement of the Common Stock the term "market price"
shall mean the fair value of the Common Stock as determined by
an independent appraiser mutually acceptable to the
corporation and the holders of the Class B Common Stock. If at
any time the Common Stock is not traded on an exchange or the
NASDAQ National Market System, or otherwise traded in the
over-the-counter market, the "market price" shall be deemed to
be the higher of (i) the book value thereof as determined by
any firm of independent public accountants of recognized
standing selected by the Board of Directors of the corporation
as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be
made, or (ii) the fair value thereof determined in good faith
by the Board of Directors of the corporation as of a date
which is within 15 days of the date as of which the
determination is to be made.
