<PAGE>
SECURITIES AND EXCHANGE COMMISSIONUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934
For the quarterly period ended September 30, 1997
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to __________________
Commission file number 0-14669
-------
THE ARISTOTLE CORPORATION AND SUBSIDIARY
----------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1165854
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
78 Olive Street, New Haven, Connecticut 06511
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 867-4090
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ___
-----
As of November 4, 1997, 1,097,902 shares of Common Stock, $.01 par value per
share, were outstanding.
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
INDEX OF INFORMATION CONTAINED IN FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1997
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 1997
and June 30, 1997 3
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 660 $ 139
Marketable securities held in escrow, at market value 400 900
Accounts receivable, net of reserves of $382 and $172 4,050 3,519
Current maturities of employee notes - 100
Inventories 11,651 10,945
Other current assets 73 146
---------- ----------
Total current assets 16,834 15,749
---------- ----------
Property and equipment, net 1,608 1,475
---------- ----------
Other assets:
Marketable securities held in escrow, at market value 300 300
Employee notes receivable, less current maturities 208 208
Goodwill, net of amortization of $174 and $162 1,772 1,784
Deferred tax asset 630 630
Other noncurrent assets 226 235
---------- ----------
3,136 3,157
---------- ----------
$ 21,578 $ 20,381
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of long-term debt $ 7,570 $ 6,488
Current maturities of minority interest in subsidiary's preferred stock 800 900
Accounts payable 2,563 2,663
Accrued expenses 665 517
Deferred tax liability 630 630
---------- ----------
Total current liabilities 12,228 11,198
---------- ----------
Long-term debt, less current maturities 1,617 1,670
---------- ----------
Total liabilities 13,845 12,868
---------- ----------
Minority interest in subsidiary's preferred stock, less current maturities 805 805
---------- ----------
Minority interest in subsidiary's common stock 206 194
---------- ----------
Commitments and contingencies
Voting redeemable preferred stock, $.01 par value; 3,000,000 shares authorized;
73,721 and 75,678 Series A at September 30, 1997 and June 30, 1997, respectively,
26,022 and 34,065 Series B at September 30, 1997 and June 30, 1997, respectively,
60,756 Series C at September 30, 1997 and June 30, 1997 and 24,998 Series D at
September 30, 1997 and June 30, 1997 issued and outstanding 3 3
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; 3,000,000 shares
Authorized; 1,105,801 shares issued 11 11
Additional paid-in capital 159,762 159,762
Retained earnings (deficit) ( 153,024) ( 153,232)
Treasury stock at cost - 7,287 shares ( 30) ( 30)
---------- ----------
Total stockholders' equity 6,719 6,511
---------- ----------
$ 21,578 $ 20,381
========== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Net sales $ 7,568 $ 5,306
Cost of goods sold 5,596 3,818
---------- ----------
Gross profit 1,972 1,488
Operating expenses:
Selling 823 698
General and administrative 548 448
Product development 172 127
---------- ----------
Operating income 429 215
---------- ----------
Other income (expense)
Investment and interest income 17 62
Interest expense ( 189) ( 185)
---------- ----------
Income before income taxes
And minority interest 257 92
Income tax expense - 14
---------- ----------
Income before minority
Interest 257 78
Minority interest 49 53
---------- ----------
NET INCOME $ 208 $ 25
========== ==========
Net income per share $0.18 $0.02
========== ==========
Weighted average shares outstanding 1,131,940 1,137,940
========== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 208 $ 25
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 143 147
Changes in assets and liabilities:
Accounts receivable ( 531) ( 251)
Inventories ( 706) ( 24)
Other assets 580 27
Accounts payable ( 100) 92
Accrued expenses 148 67
------ --------
Net cash provided by (used in)
operating activities ( 258) 83
------ --------
Cash flows from investing activities:
Purchase of property and equipment ( 262) ( 79)
Purchase of marketable securities - ( 207)
Sale of marketable securities - 5,760
Settlement of FDIC claim - ( 3,759)
Minority interest 12 3
------ --------
Net cash provided by (used in)
investing activities ( 250) 1,718
------ --------
Cash flows from financing activities:
Net borrowings under line of credit 1,141 64
Principal payments under note payable ( 112) ( 67)
------ --------
Net cash provided by (used in)
financing activities 1,029 ( 3)
------ --------
INCREASE IN CASH AND CASH EQUIVALENTS 521 1,798
CASH AND CASH EQUIVALENTS AT BEGINNING 139 99
OF PERIOD ------ --------
CASH AND CASH EQUIVALENTS AT END OF $ 660 $ 1,897
PERIOD ====== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
---------------------
The Aristotle Corporation ("Aristotle") is a holding company for its
subsidiary, Aristotle Sub, Inc. ("ASI"). ASI is a holding company for The
Strouse, Adler Company ("Strouse"). Strouse designs, manufactures and markets
women's intimate apparel. Unless the context indicates otherwise, all references
herein to the "Company" include Aristotle, ASI and Strouse.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended September 30, 1997 are not necessarily indicative of results
that may be expected for the year ending June 30, 1998. For further information,
refer to the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
2. Earnings per Common Share
-------------------------
Weighted average shares outstanding are primary; treasury stock has not
been included. At September 30, 1997, the weighted average shares include 33,424
shares of common stock equivalents.
3. Debt Agreement
--------------
In September 1997, Strouse and Bank of Boston, Connecticut (the "Bank of
Boston") entered into an amended Credit Agreement whereby the maximum borrowing
under Strouse's line-of-credit was increased to $10,000,000 from $8,000,000. In
addition, the overadvance limit under the line-of-credit was adjusted, and
$500,000 pledged by Aristotle to secure Aristotle's and ASI's guarantee of
Strouse's line-of-credit facility and term loan facility (collectively, the
"Credit Facilities") was released.
Borrowing under the line-of-credit is determined by a borrowing base which
is equal to the sum of 80% of eligible accounts receivable, 50% of eligible raw
material inventory, and 60% of eligible finished goods inventory, with a maximum
borrowing of $10,000,000. In addition, the line-of-credit facility permits
advances to exceed the borrowing base amount by up to $1,000,000 through
December 1997, $1,250,000 from January 1998 through March 1998, $1,000,000
during April 1998 and $500,000 thereafter through September 1999 (so long as the
total line-of-credit is not more than the $10,000,000 and the overadvance is
reduced to zero for 30 consecutive days per annum). The principal amount of the
term loan is $2,000,000. The credit agreement matures in September 1999.
Strouse uses the Credit Facilities for working capital and other general
corporate purposes.
The interest on the line-of-credit will vary from prime to prime plus 1.0%
or Eurodollar plus 1.75% to Eurodollar plus 3.0% per annum, based on the
financial performance of Strouse. The term loan bears interest at the option of
the Company at a floating annual rate equal to prime plus .75%, or Eurodollar
plus 2.5% or at a fixed annual rate equal to Bank of Boston's cost of funds plus
2.25%. The term loan has a three-year term and requires principal payments to
reduce the amount outstanding based on a ten-year amortization.
6
<PAGE>
The Credit Facilities are secured by a lien on all assets of Strouse.
Aristotle and ASI have unconditionally guaranteed the Credit Facilities.
Recourse under each guaranty is limited to $2,000,000. The Credit Agreement
further provides that Strouse may not pay dividends to ASI or Aristotle without
Bank of Boston's prior written consent. Strouse must maintain certain financial
ratios and satisfy various other covenants in connection with the Credit
Facilities.
As of November 3, 1997, the balance outstanding on the line-of-credit was
$7,703,000 and the balance outstanding on the term loan was $1,800,000. As of
November 3, 1997, the additional borrowing available on the overadvance was
$1,000,000.
During 1997, Aristotle entered into a line-of-credit agreement with
Citizens Bank for $300,000. The line-of-credit bears interest at prime and
matures on August 31, 1998. As of November 3, 1997, the balance outstanding on
the line-of-credit was $75,000.
7
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's net sales for the first quarter ended September 30, 1997
increased 43% to $7,568,000, compared to net sales of $5,306,000 for the first
quarter ended September 30, 1996. The increase was primarily generated by a
$1,640,000 volume increase in shapewear products, a $472,000 volume increase in
specialty brassiere products, and a $150,000 impact from increased prices.
The Company's gross profit for the first quarter ended September 30, 1997
increased 33% to $1,972,000 from $1,488,000 for the first quarter ended
September 30, 1996, and gross margin percentage decreased to 26.1% from 28.0%.
The increase in gross profit was primarily a result of the increase in sales.
The decrease in gross margin percentage was principally due to the initial
shipments of the expanded "Slimlook" line of shapewear, which yielded lower
margins, primarily as a result of promotional pricing.
Selling, general and administrative expenses for the first quarter ended
September 30, 1997 were $1,371,000, compared to $1,146,000 for the corresponding
quarter ended September 30, 1996. The $225,000, or 19.6%, increase was
principally a result of increases in advertising and selling costs and
professional fees.
Product development costs for the Company for the first quarter ended
September 30, 1997 were $172,000, compared to $127,000 for the first quarter
ended September 30, 1996. Product development costs primarily included
compensation of Company personnel and were incurred by Strouse. All products are
designed internally in Strouse's New Haven and New York design centers. The
$45,000, or 35%, increase in costs reflects Strouse's continued investment in
the product development process through increases in staffing in Strouse's
design centers.
Investment and interest income was $17,000 and $62,000 for the first
quarters ended September 30, 1997 and 1996, respectively. The income for the
first quarter ended September 30, 1997 was principally generated by short-term
cash investments and the investment of funds held in an investment account (the
"Strouse Escrow Account") that was established in connection with the
acquisition of Strouse by Aristotle (the "Acquisition") and was subject to an
escrow and pledge agreement with the former Strouse stockholders (the "Former
Strouse Stockholders"). The $45,000 reduction in investment and interest income
was primarily a result of the payment, in September 1996, of approximately
$3,760,000 from two escrow accounts (the "FDIC Escrow Accounts") in connection
with a settlement between the Company and the FDIC related to certain disputes
between the FDIC, the Company and others (the "FDIC Settlement").
Interest expense for the first quarter ended September 30, 1997 increased
to $189,000 from $185,000 in the corresponding prior year period. The increase
in interest expense primarily resulted from increased borrowing levels to
support working capital needs and business growth.
Minority interest expense was $49,000 and $53,000 for the first quarters
ended September 30, 1997 and 1996, respectively. The minority interest expense
was principally due to preferred dividends paid or accrued during the first
quarter on outstanding preferred stock of ASI (the "ASI Preferred Stock") issued
to the Former Strouse Stockholders in connection with the Acquisition.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 30, 1997, cash required to fund the
working capital needs of Strouse was supplied principally through a line-of-
credit facility and term loan facility with Bank of Boston, trade credit, and
internally generated funds. In September 1997, Strouse and Bank of Boston
entered into an amended Credit Agreement whereby the maximum borrowing under
Strouse's line-of-credit was increased to $10,000,000 from $8,000,000. The
amendment also adjusted the amount by which borrowings can exceed the formula
amounts and released the $500,000 pledge by Aristotle and ASI to secure the
guarantee of the Credit Facilities.
During the three months ended September 30, 1997, cash required to fund the
operations of Aristotle was supplied primarily through earnings generated from
the Strouse Escrow Account, short-term cash investments, amounts payable to
Aristotle pursuant to certain notes from certain officers of Strouse, and
amounts received from Strouse in connection with a tax sharing agreement between
Aristotle and Strouse.
The Company utilized cash of $258,000 for operations during the three
months ended September 30, 1997 and generated cash of $83,000 from operations
during the three months ended September 30, 1996. During the three months ended
September 30, 1997, the utilization of cash from operations was principally the
result of increases in accounts receivables and inventories and decreases in
accounts payable, partially offset by net income from operations, decreases in
other assets and increases in accrued expenses. During the three months ended
September 30, 1996, the generation of cash from operations was principally due
to depreciation and amortization and increases in accounts payable and accrued
expenses, partially offset by increases in accounts receivables and inventories.
The Company utilized $250,000 for investing activities for the three months
ended September 30, 1997 and generated $1,718,000 from investing activities for
the three months ended September 30, 1996. During the three months ended
September 30, 1997, cash from investing activities was primarily utilized to
purchase $262,000 in property and equipment. During the three months ended
September 30, 1996, the primary generation of cash from investing activities was
the $5,760,000 sale of marketable securities that were withdrawn from the FDIC
Escrow Accounts in connection with the FDIC Settlement, offset by the payment of
$3,760,000 from the FDIC Escrow Accounts in connection with the FDIC Settlement.
During the three months ended September 30, 1996, the Company also used $207,000
to fund the payment of the Put Right, as defined below.
The Company generated $1,029,000 from financing activities for the three
months ended September 30, 1997. The Company utilized $3,000 for financing
activities during the three months ended September 30, 1996. Funds generated
during the three months ended September 30, 1997 were primarily a result of the
Company drawing $1,141,000 from its line-of-credit, offset by $112,000 payment
of its notes payable.
9
<PAGE>
In connection with the Acquisition in April 1994, ASI issued to the Former
Strouse Stockholders 245,381 shares of ASI Preferred Stock and Aristotle issued
to the Former Strouse Stockholders 270,379 shares of voting preferred stock of
Aristotle (the "Aristotle Preferred Stock"). Under the charter provisions in
effect at the time of the Acquisition, the Former Strouse Stockholders had the
right to require that ASI repurchase each share of ASI Preferred Stock for
$10.00 per share, plus any accrued but unpaid dividends, at various dates
beginning in April 1996 (the "Put Right"). Prior to the Put Right becoming
exercisable, the ASI Preferred Stockholders are entitled to quarterly dividends
of 8.9% per annum. Once the Put Right is exercisable, the dividends cease. In
order to exercise the Put Right, a Former Strouse Stockholder must also sell an
equal number of shares of Aristotle Preferred Stock to Aristotle for $.001 per
share. The payment of the repurchase price pursuant to the Put Right is secured
by the Strouse Escrow Account. Subject to the previous exercise of the Put
Right, as of September 30, 1997, 160,499 shares of ASI Preferred Stock and
185,497 shares of Aristotle Preferred Stock are currently outstanding.
In September 1997, the Company and certain of the Former Strouse
Stockholders who hold ASI Preferred Stock agreed to delay the exercise of the
remaining Put Rights and to modify certain other agreements entered into at the
time of the Acquisition (the "1997 Modification"). Under the 1997 Modification,
certain of the Former Strouse Stockholders surrendered to ASI 10,000 shares of
ASI Preferred Stock in exchange for the cancellation of an aggregate of $100,000
owed by these Former Strouse Stockholders to the Company under loans extended in
connection with the Acquisition (the "Acquisition Loans"). On January 1, 1998,
the Company is required to redeem 80,000 shares of ASI Preferred Stock for
$10.00 per share, or $800,000. The Company believes that it will have sufficient
funds to complete this redemption. The Put Right for the remaining 80,499 shares
of ASI Preferred Stock has been postponed such that the Put Right with respect
to 40,249 shares will be exercisable on January 1, 1999 and the Put Right with
respect to 40,250 shares will be exercisable on January 1, 2000.
Under the 1997 Modification, the maturity dates on the Acquisition Loans
were extended such that $104,000 of the outstanding balance will be due and
payable on January 1, 1999 and the remaining $104,000 will be due and payable on
January 1, 2000. Certain Former Strouse Stockholders also agreed to release
$400,000 from the Strouse Escrow Account on January 1, 1998 to be used to fund
the redemption of the ASI Preferred Stock required to be redeemed on that date
and to release of $200,000 and $100,000 on January 1, 1999 and January 1, 2000,
respectively, to satisfy the Company's Put Right obligations. Further, in
consideration for the Former Strouse Stockholders agreeing to postpone their Put
Right, the number of shares of Aristotle Common Stock into which each share of
ASI Preferred Stock may be exchanged has been increased from 1.282 to 1.667
shares. Finally, the holders of ASI Preferred Stock were released from their
obligations under a pension escrow agreement.
The Company anticipates that as a result of the amended bank agreement and
the 1997 Modification, there will be sufficient financial resources to meet the
Company's projected working capital and other cash requirements for the next
twelve months.
10
<PAGE>
RECENT DEVELOPMENTS
In October 1997, the Company and Geneve Corporation ("Geneve") entered into
a Preferred Stock Purchase Agreement (the "Preferred Stock Purchase Agreement"),
which provides for the purchase of approximately 489,131 shares of the Company's
Series E Convertible Preferred Stock, $.01 par value per share (the "Series E
Preferred Stock"), representing approximately thirty percent (30%) of the issued
and outstanding capital stock of Aristotle, for an aggregate purchase price of
approximately $2,250,000, or a per share price of $4.60. The Series E Preferred
Stock has one vote per share, with respect to matters other than the election of
directors and auditors, and is convertible into Common Stock for a conversion
price of $4.60, subject to adjustment for certain dilutive issuances of the
Company's capital stock. In addition, pursuant to the terms of the Preferred
Stock Purchase Agreement, Geneve shall have the right to designate two (2)
nominees for election to the Board of Directors of the Company for so long as
Geneve or its affiliates hold all of the issued and outstanding shares of the
Series E Preferred Stock or not less than thirty percent (30%) of the issued and
outstanding voting securities of the Company. Upon full conversion of the Series
E Preferred Stock, Geneve and certain of its affiliates will beneficially own
approximately thirty percent (30%) of the issued and outstanding Common Stock of
Aristotle. Aristotle has also granted to Geneve the right to require the Company
to repurchase shares of the Series E Preferred Stock at any time after the
earlier of December 31, 2001 or upon the occurrence of certain acceleration
events (the "Geneve Put Right"). The Preferred Stock Purchase Agreement also
provides for the redemption of the Series E Preferred Stock at the option of the
Company on or after December 31, 2001 as well as the mandatory redemption of the
Series E Preferred Stock on December 31, 2007 (collectively, the "Geneve
Redemption Right"). The repurchase price under the Geneve Put Right and the
Geneve Redemption Right is $4.60 per share, subject to adjustment for certain
recapitalization events, plus any accrued but unpaid dividends. The Geneve
closing is scheduled for early January 1998.
In November 1997, the Company received a payment from the Internal Revenue
Service ("IRS") with respect to a tax loss carryback claim related to its 1996
tax year in the amount of $1,400,000, net of related professional fees. This
claim remains subject to review by the IRS. The Company has not previously
recorded an income tax benefit associated with this claim and is planning to
record a net benefit of $700,000 in its current second fiscal quarter. As a
result of the tax loss carryback claim, the Company's Federal net operating loss
carryforward of $6,400,000 has been reduced to $2,200,000.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which establishes new standards for computing and
presenting earnings per share. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997 and earlier
application is not permitted. The Company does not believe that the adoption of
SFAS 128 will have a material impact on reported earnings per share.
11
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company believes that this report may contain forward-looking
statements within the meaning of the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include statements regarding the Company's liquidity and are based on
management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. The Company cautions investors that
there can be no assurance that actual results or business conditions will not
differ materially from those projected or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
following: the availability of financing and additional capital to fund the
Company's business strategy on acceptable terms, if at all, market responses to
pricing actions, continued competitive factors and pricing pressures, changes in
product mix, the timely acceptance of new products, inventory risks due to
shifts in market demand, the dependence by the Company on key customers,
manufacturing subcontractors, and general economic conditions. As a result, the
Company's future development efforts involve a high degree of risk. For further
information, refer to the more specific risks and uncertainties discussed
throughout this report.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months ended September
30, 1997.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ARISTOTLE CORPORATION
/s/ John J. Crawford
--------------------
John J. Crawford
Its President, Chief Executive Officer
and Chairman of the Board
Date: November 14, 1997
/s/ Paul McDonald
-----------------
Paul McDonald
Its Chief Financial Officer
and Secretary
(principal financial and chief
accounting officer)
Date: November 14, 1997
13
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
4.1 Certificate of Powers, Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the Series E
Convertible Preferred Stock of the Registrant (filed November 7,
1997) is attached hereto as Exhibit 4.1.
4.2 Amended and Restated Certificate of Incorporation of Aristotle
Sub, Inc. (filed October 31, 1997) is attached hereto as Exhibit
4.2.
10.1 Letter Agreement dated September 17, 1997 by and among The
Strouse, Adler Company, PBS Enterprises Ltd., Peter Blair
Shalleck, Sandy Shalleck, Davedan Properties Ltd., Maggie
Manufacturing Co. 1997 Ltd., and Maggie Manufacturing Company
Ltd. is attached hereto as Exhibit 10.1.
10.2 Third Amendment to Lease dated September 1, 1997 by and between
New England Resources Limited Partnership and The Strouse, Adler
Company is attached hereto as Exhibit 10.2.
10.3 First Amendment to Master Credit Agreement dated September 19,
1997 by and between The Strouse, Adler Company and Bank of Boston
Connecticut is attached hereto as Exhibit 10.3.
10.4 The Aristotle Corporation 1997 Employee and Director Stock Plan
is attached hereto as Exhibit 10.4
10.5 Preferred Stock Purchase Agreement dated as of October 22, 1997
between The Aristotle Corporation and Geneve Corporation is
attached hereto as Exhibit 10.5.
10.6 Registration Rights Agreement dated as of October 22, 1997
between The Aristotle Corporation and Geneve Corporation is
attached hereto as Exhibit 10.6.
10.7 Letter Agreement dated as of September 15, 1997 among The
Aristotle Corporation, Aristotle Sub, Inc. and certain
stockholders is attached hereto as Exhibit 10.7.
27.1 Financial Data Schedule
14
<PAGE>
Exhibit 4.1
Certificate of the Powers, Designations,
Preferences and Relative, Participating,
Optional and Other Special Rights of the
SERIES E CONVERTIBLE
PREFERRED STOCK
OF
THE ARISTOTLE CORPORATION
and the Qualifications, Limitations
or Restrictions Thereof, Which
Have Not Been Set Forth in the
Certificate of Incorporation
or in Any Amendment Thereto
(Pursuant to Section 151 of the General
Corporation Law of the State of Delaware)
The undersigned, John J. Crawford, President and Chief Executive Officer of
The Aristotle Corporation, a corporation organized and existing under the laws
of the State of Delaware (hereinafter the "Corporation"), DOES HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors of the
Corporation by the Certificate of Incorporation and pursuant to the provisions
of Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors. of the Corporation, at a meeting duly called and held on
August 28, 1997, duly authorized the following resolutions.
"RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of
its Certificate of Incorporation, the Board of Directors of the Corporation
hereby creates a series of Preferred Stock of the Corporation to consist of
489,131 of the 3,000,000 shares of Preferred Stock, $.01 par value per
share, which the Corporation now has authority to issue, and the Board of
Directors of the Corporation hereby fixes the designations, powers,
preferences and relative, participating, optional and other special rights,
and the qualifications, limitations or restrictions thereof, of the shares
of such series of Preferred Stock (in addition to the designations, powers,
preferences and relative, participating, optional and other special rights,
and the qualifications, limitations or restrictions thereof, set forth in
the Certificate of Incorporation of the Corporation which are applicable to
Preferred Stock of all series) as follows:
Designation and Number. The distinctive designation of the series
----------------------
shall be Series E Convertible Preferred Stock (hereinafter, "Series E
Preferred"); the number of
<PAGE>
shares of Series E Preferred which the Corporation is authorized to
issue shall be 489,131.
l. Definitions. For purposes of this Certificate of Designation, the
-----------
following terms shall have the meanings indicated.
(a) The term "Acceleration Event" means the occurrence at any time of
any of the following (it being understood that the Corporation shall
provide the holders of Series E Preferred with prompt written notice
thereof):
(1) the Corporation's Tangible Net Worth at the end of any
calendar month is less than $1,250,000 for any reason whatsoever,
and remains below $1,250,000 for a period of 60 days subsequent
thereto, provided, however, that if the Corporation has not
received a written notice declaring the foregoing to be an
Acceleration Event from holders of Series E Preferred within 90
days from the date such holders are notified of the foregoing,
then no Acceleration Event shall be deemed to have occurred; or
(2) the Corporation's Consolidated Tangible Net Worth at the end
of any calendar month is less than $4,000,000 as a result of
actions by the Corporation not in the ordinary course of
business, and remains below $4,000,000 for a period of 60 days
subsequent thereto, provided, however, that if the Corporation
has not received a written notice declaring the foregoing to be
an Acceleration Event from holders of the Series E Preferred
within 90 days from the date such holders are notified of the
foregoing, then no Acceleration Event shall be deemed to have
occurred; or
(3) the Corporation's failure to maintain cash or cash
equivalents of at least $540,000 against which no provider of
credit (other than trade creditors of the Corporation in the
ordinary course of business) has any recourse; or
(4) a default in any of the covenants and provisions of Section
5.06 of that certain Preferred Stock Purchase Agreement dated as
of October 21, 1997 between the Corporation and Geneve
Corporation; or
(5) there being fewer than two representatives of the' holders of
Series E Preferred on the Corporation's Board of Directors; or
(6) the issuance of shares of stock (other than Excluded Shares)
such that the issued and outstanding shares of the Corporation
owned by the holders of Series E Preferred represents less than
30% of the outstanding value of the stock of the Corporation at
any testing date; provided,
2
<PAGE>
however, that in the event that the Corporation issues any
Excluded Shares which would cause the holders of Series E
Preferred to have less than 30% of the outstanding value of the
stock of the Corporation at any testing date, the holders of
Series E Preferred shall have the right to purchase, as of the
testing date, such number of shares of Common Stock from the
Corporation at the then Fair Market Value thereof so that such
holders have not less than 30% of the outstanding value of the
stock of the Corporation at such testing date; provided further,
however, that such holders have determined, in their sole
reasonable discretion, that they are unable to purchase in the
open market such shares of Common Stock at the Fair Market Value
thereof as of the testing date (all of the foregoing within the
meaning of Section 382 of the Internal Revenue Code of 1986 and
the regulations pertaining thereto); or
(7) the issuance of shares of stock or rights, warrants or
options entitling the holders thereof to subscribe for or
purchase shares of stock such as to cause an ownership change
(within the meaning of Section 382 of the Internal Revenue Code
of 1986 and the regulations pertaining thereto).
(b) The term "Consolidated Tangible Net Worth" means the excess of the
tangible assets (as defined under GAAP) over the liabilities (as
defined under GAAP) of the Corporation and its subsidiaries, on a
consolidated basis, excluding the issued and outstanding shares of
Series E Preferred.
(c) The term "Excluded Shares" means shares of Common Stock issued or
issuable (1) in connection with an offering by the Corporation of
shares of its Common Stock to its then current holders of shares of
Common Stock pursuant to which offering the holders of Series E
Preferred shall have an opportunity to participate on a then pro rata
basis; (2) to officers, employees or directors of the Corporation or
any of its subsidiaries pursuant to a stock option plan approved by
the shareholders of the Corporation; (3) to directors of the
Corporation in connection with grants of shares of Common Stock as
compensation; and (4) upon conversion of any shares of Preferred Stock
of the Corporation issued and outstanding as of October 21, 1997.
(d) The term "Fair Market Value" means the average of the Market
Prices per share of Common Stock for the ten (10) consecutive Trading
Days ending on the day before the day in question, or if such Market
Prices per share of Common Stock are not so available, the fair market
price per share of Common Stock as determined by the Board of
Directors of the Corporation, whose determination shall be final,
binding and conclusive if made in good faith.
(e) The term "GAAP" means generally accepted accounting principles,
consistently applied.
3
<PAGE>
(f) The term "Junior Stock" means the Common Stock, and all those
classes and series of preferred or special stock and all those series
of Preferred Stock which, by the terms of the Certificate of
Incorporation (as the same may hereafter be amended) or of the
instrument by which the Board of Directors of the Corporation, acting
pursuant to authority granted in the Certificate of Incorporation (as
the same may hereafter be amended), shall designate the special rights
and limitations of each such class and series of preferred or special
stock or series of Preferred Stock, shall be subordinate to Series E
Preferred with respect to the right of the holders thereof to receive
dividends or to participate in the assets of the Corporation
distributable to stockholders upon any liquidation, dissolution or
winding-up of the Corporation.
(g) The term "Market Prices per share of Common Stock" for any Trading
Day means (i) the closing bid price for the Common Stock (as defined
in Section 7(g) hereof) on such Trading Day as published by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") (or, if such prices are not so published by NASDAQ, the
average of the high and low bid prices for the Common Stock on such
Trading Day, as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose) or
(ii) if the Common Stock is then listed or admitted to trading on a
national securities exchange, the last sale price regular way for the
Common Stock on such Trading Day as reported in the consolidated
transaction reporting system for securities listed or traded on such
exchange, or, in case no such reported sale takes place on such
Trading Day, the reported closing bid price regular way for the Common
Stock on such Trading Day on the principal national securities
exchange on which the Common Stock is then listed or admitted to
trading.
(h) The term "Parity Stock" means Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
and all those classes and series of preferred or special stock and all
those series of Preferred Stock which, by the terms of the Certificate
of Incorporation (as the same may hereinafter be amended) or of the
instrument by which the Board of Directors of the Corporation, acting
pursuant to authority granted in the Certificate of Incorporation (as
the same may hereafter be amended), shall designate the special rights
and limitations of each such class and series of preferred or special
stock or series of Preferred Stock, shall be on a parity with Series E
Preferred with respect to the right of the holders thereof to receive
dividends and to participate in the assets of the Corporation
distributable to stockholders upon any liquidation, dissolution or
winding-up of the Corporation.
(i) The term "Senior Stock" means all those classes and series of
preferred or special stock and all those series of Preferred Stock
which, by the terms of the Certificate of Incorporation (as the same
may hereafter be amended) or of the
4
<PAGE>
instrument by which the Board of Directors of the Corporation, acting
pursuant to authority granted in the Certificate of Incorporation (as
the same may hereafter be amended), shall designate the special rights
and limitations of each such class and series of preferred or special
stock or series of Preferred Stock, shall be, senior to Series E
Preferred with respect to the right of the holders thereof to receive
dividends or to participate in the assets of the Corporation
distributable to stockholders upon any liquidation, dissolution or
winding-up of the Corporation.
(j) The term "Tangible Net Worth" means the total common stockholders'
equity of the Corporation on a parent company basis (per Schedule 1 of
the Corporation's Annual Report on Form 10-K) adjusted as follows:
(i) decrease (subtract) for the recorded amount of the direct
and/or indirect investment in the equity of The Strouse,
Adler Company ("Strouse") or any other subsidiary of the
Corporation (excluding Aristotle Sub., Inc., not including
Strouse);
(ii) increase (add) for the recorded amount of minority
interest in the equity of any subsidiary of the
Corporation; and
(iii) increase (add) for the recorded amount of the Series E
Preferred,
all in accordance with GAAP. By way of example only, as at June 30,
1997, on a pro-forma basis, the Corporation's Tangible Net Worth is
$2,551,160 computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Corporation's total common stockholders' equity $ 6,510,711
Subtract indirect investment in the equity of
Strouse (6,403,576)
Add minority interest in the equity of
subsidiary 194,025
Add Series E Preferred 2,250,000
-----------
$ 2,551,160
===========
</TABLE>
(k) The term "Trading Day" means any day on which trading takes place
(i) in the over-the-counter market and prices reflecting such trading
are published by NASDAQ, or (ii) if the Common Stock is then listed or
admitted to trading on a national securities exchange, on the
principal national securities exchange on which the Common Stock is
then listed or admitted to trading.
2. Dividends. (a) The holders of Series E Preferred, in preference to
---------
the holders of Junior Stock, shall be entitled, in conjunction with
any provision then being made for the holders of Parity Stock, to
receive cumulative cash dividends at, but not exceeding, the rate of
$.3680 per share per annum, payable when, as and if declared by the
Board of Directors of the Corporation out of any assets of the
5
<PAGE>
Corporation lawfully available for the payment of dividends, payable
quarterly on the last days of March, June, September and December in
each year, commencing with the last day of March, 1998; provided,
however, in the event that (i) the Corporation fails to pay in full
dividends for two consecutive quarters or (ii) the Corporation fails
to redeem the shares of Series E Preferred in accordance with the
provisions of Section 6 hereof, the dividend rate set forth above
shall be $.5520 per share per annum, but only for the period or
periods during which the events set forth in (i) and/or (ii) remain
unremedied. Such dividends on Series E Preferred shall accrue and be
cumulative with respect to any shares issued on or after the date of
the initial issuance of shares of Series E Preferred, so that the
first dividend on shares of Series E Preferred, payable on the last
day of March, 1998, shall be in an amount per share (computed to the
nearest whole cent) determined by multiplying $.3680 by a fraction,
the numerator of which is the number of days from the date of the
initial issuance of shares of Series E Preferred to March 31, 1998,
and the denominator of which is 365. Such dividends on Series E
Preferred shall accrue and be cumulative with respect to shares issued
subsequent to March 31, 1998 from the dividend payment date next
preceding the date on which such shares are issued. Dividends shall
accrue and be cumulative on a day to day basis, whether or not earned
or declared, on each share of Series E Preferred from the date on
which dividends thereon are cumulative; it is understood, however,
that dividends shall not compound. If the stated dividends on shares
of Series E Preferred are not paid in full, shares of Series E
Preferred and all Parity Stock, if any, shall share ratably in the
payment of dividends, including accumulations thereof, if any, on such
shares in accordance with the sums which would be payable on such
shares if all dividends were paid in full.
(b) So long as any Series E Preferred is outstanding, no dividends
whatever shall be paid or declared, nor shall any distribution be
made, on any Junior Stock, other than a dividend or distribution
payable in Junior Stock or warrants or other rights to purchase Junior
Stock, unless all dividends on Series E Preferred for all past
quarterly dividend periods shall have been paid or declared and a sum
sufficient for the payment thereof set apart.
3. Liquidation Preference. Series E Preferred shall be preferred as to
----------------------
assets over Junior Stock so that, in the event of any liquidation,
dissolution or winding up of the Corporation, the holders of Series E
Preferred shall be entitled, in conjunction with any provision then
being made for the holders of Parity Stock, to have set apart for them
or to be paid out of the assets of the Corporation, after provision
for the holders of Senior Stock, if any, but before any distribution
is made to or set apart for the holders of Junior Stock, upon such
liquidation, dissolution or winding up, an amount in cash equal to,
and in no event more than, $4.60 per share of Series E Preferred plus
a sum of money equal to all dividends accrued and unpaid thereon to
the date that payment is made available to the holders of Series E
Preferred. If, upon such liquidation, dissolution or winding-up of
the Corporation, the assets of the Corporation available for
distribution to the holders
6
<PAGE>
of its stock shall, after provision for the holders of Senior Stock,
if any, be insufficient to permit the distribution in full of the
amounts receivable as aforesaid by the holders of Series E Preferred
and the amounts receivable by the holders of Parity Stock, if any,
then all such assets of the Corporation shall be distributed ratably
among the holders of Series E Preferred and the holders of Parity
Stock, if any, in proportion to the amounts which each would have been
entitled to receive if such assets were sufficient to permit
distribution in full as aforesaid. Neither the consolidation nor
merger of the Corporation nor the sale, lease or transfer by the
Corporation of all or any part of its assets shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation for the
purposes of this Section 4.
4. Voting Rights. (a) In addition to the rights hereinafter specified in
-------------
this Section 5 and any other rights provided by law, a holder of
Series E Preferred shall be entitled (i) to the number of votes per
share equal to the number of whole shares of Common Stock into which
each share of Series E Preferred is convertible as of the record date
for the determination of stockholders entitled to vote, (ii) to vote
on all matters upon which the holders of Common Stock are entitled to
vote, other than the election of directors and appointment of the
Corporation's independent auditors, and (iii) to notice of any
stockholders meeting in accordance with the By-laws of the
Corporation. Fractional votes shall not be permitted and any
fractional voting rights resulting from the above formula (after
aggregating all shares of Series E Preferred held by each holder)
shall be rounded to' the nearest whole number (with one-half being
rounded upward). Except as otherwise provided in the Certificate of
Incorporation or as expressly required by law, the holders of Series E
Preferred and the holders of Common Stock shall vote together as a
single class on all matters presented to stockholders and not as
separate classes.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of Series E Preferred so as to affect
adversely Series E Preferred or increase or decrease the number of
shares of Series E Preferred authorized hereby, without the written
consent or affirmative vote of the holders of a majority of the then
outstanding shares of Series E Preferred, given in writing or by vote
at a meeting, consenting or voting (as the case may be) separately as
a class. For this purpose, without limiting the generality of the
foregoing, (i) the authorization of any shares of capital stock with
preference or priority over Series E Preferred as to the right to
receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation and (ii) any merger or
consolidation of the Corporation into or with another entity, the sale
or conveyance to another entity of the property of the Corporation as
an entirety or substantially as an entirety (other than the sale of
the stock or all or substantially all of the assets of Strouse for
fair value as determined by the Board of Directors of the Corporation)
or the liquidation or dissolution of the Corporation, shall be deemed
to affect adversely Series E Preferred for purposes of this Section
5(b).
7
<PAGE>
5. Redemption of Series E Preferred.
--------------------------------
(a) Mandatory Redemption. On December 31, 2007 (the "Maturity Date"),
--------------------
the holder(s) of outstanding shares of Series E Preferred shall be
entitled to receive an amount in cash equal to $4.60 per share,
subject to equitable adjustments whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the
Series E Preferred Stock (the "Redemption Price"), plus all accrued
and unpaid dividends on such shares of Series E Preferred to the
Maturity Date, whether or not declared, out of funds legally available
for the payment of dividends, subject to the prior redemption of
Series E Preferred or the conversion of Series E Preferred at the
option of the holder at any time prior to the Maturity Date. As of the
Maturity Date, dividends on Series E Preferred shall cease to accrue,
all voting rights and privileges of the Series E Preferred herein and
all rights of the holders thereof as stockholders of the Corporation
shall cease and such shares shall cease to be outstanding. The
Corporation shall make appropriate arrangements for the payment of
cash in respect of the Redemption Price plus an amount in cash equal
to all dividends accrued but unpaid thereon to the date of redemption,
if any, in exchange for and contingent upon surrender of certificates
representing Series E Preferred, and the Corporation may defer the
payment of the Redemption Price or dividends on such shares of Series
E Preferred until, and make such payment contingent upon, the
surrender of such certificates representing Series E Preferred,
provided that the Corporation shall give the holders of Series E
Preferred such notice of any such actions as the Corporation deems
appropriate and upon such surrender such holders shall be entitled to
receive such dividends declared and paid on such shares of Series E
Preferred subsequent to the Maturity Date. Amounts payable in cash in
respect of shares of Series E Preferred shall not bear interest.
(b) Redemption at Option of the Corporation. Subject to the
---------------------------------------
provisions of Section 6(d) hereof, the Corporation, at its option, may
(except as otherwise provided in Section 7 hereof) redeem, at any time
after December 31, 2001, the whole or, from time to time, any part of
Series E Preferred at the Redemption Price, plus an amount in cash
equal to all dividends accrued but unpaid thereon to the date of
redemption.
(c) Redemption at Option of Holder. At any time after the earlier to
------------------------------
occur of (i) an Acceleration Event or (ii) December 31, 2001, the
Corporation shall redeem, at the option of a holder of Series E
Preferred, the whole or, from time to time, any part of Series E
Preferred at the Redemption Price, plus an amount in cash equal to all
dividends accrued but unpaid thereon to the date of redemption. If the
funds of the Corporation legally available for redemption of shares of
Series E Preferred are insufficient to redeem the total number of
shares of Series E Preferred submitted for redemption, those funds
which are legally available shall be used first to redeem the maximum
possible number of whole shares of Series E
8
<PAGE>
Preferred ratably among the holders of such shares of Series E
Preferred in proportion to the full amount such holders of Series E
Preferred would otherwise be entitled to receive in redemption of such
shares and only after payment of the full amount such holders of
Series E Preferred would otherwise be entitled to receive in full
redemption of such shares shall any payment in redemption be made to
holders of any other class or series of the capital stock of the
Corporation. The shares of Series E Preferred not redeemed shall
remain outstanding and entitled to all rights and preferences provided
herein, including, but not limited to, the accrual of dividends
pursuant to Section 3 hereof. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of
such shares of Series E Preferred, such funds shall be used, at the
end of the next succeeding fiscal quarter, to redeem the balance of
such shares, or such portion thereof for which funds are then legally
available.
(d) Not less than fifteen (15) days nor more than forty-five (45)
days prior to the date fixed for any redemption of Series E Preferred
(the "Redemption Date"), (x) pursuant to Section 6(a) or 6(b), a
notice specifying the Redemption Date, time and place thereof shall be
given by mail to the holders of record of the shares to be redeemed at
their respective addresses as shown on the stock records of the
Corporation or (y) pursuant to Section 6(c), a notice specifying the
Redemption Date, time and place thereof shall be given by mail to the
Corporation at its principal business address. If less than all shares
of Series E Preferred then outstanding are being redeemed, the notice
of redemption mailed to each holder of shares of Series E Preferred to
be redeemed or to the Corporation, as the case may be, shall identify
the shares of Series E Preferred held by such holder to be redeemed.
Except as provided above, no failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to a holder (i) to whom
the Corporation has failed to mail such notice or (ii) whose notice
was defective. An affidavit of the Secretary of the Corporation (or of
a transfer agent for Series E Preferred, if one has been appointed)
that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(e) From and after the Redemption Date determined pursuant to Section
6(b) or 6(c) (unless default be made by the Corporation in providing
monies for the payment of the Redemption Price, plus an amount in cash
equal to all dividends accrued but unpaid thereon to the date of
redemption, except due to the failure of the holders of such shares to
surrender such certificates representing the Series E Preferred to be
redeemed), all dividends on shares of Series E Preferred thereby
called for redemption shall cease to accrue, such shares shall cease
to be outstanding and all voting rights and privileges as set forth
herein and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive payment of the Redemption
Price, plus an amount in cash equal to all dividends accrued but
unpaid thereon to the date of redemption) shall cease.
9
<PAGE>
(f) If the Corporation shall, with respect to shares of Series E
Preferred called for redemption, irrevocably deposit, in trust for the
account of the holders of shares of Series E Preferred to be redeemed,
a sum sufficient to redeem such shares upon surrender of certificates
therefor, then no dividends shall accrue with respect to such shares
which have been called for redemption and such shares shall not be
deemed to be outstanding shares for the purpose of voting or
determining the total number of shares entitled to vote on any matter
on and after the date on which written notice of redemption has been
sent to holders thereof and such deposit has been made. Any monies so
deposited by the Corporation which shall not be required for
redemption because of the exercise of any right of conversion
subsequent to the date of the deposit, and any interest accrued on any
monies so deposited, shall be repaid to the Corporation upon request.
(g) Subject to the terms and provisions of Section 6(f), on' each
Redemption Date, the Corporation shall, at the place specified in the
notice of redemption, upon presentation and surrender to the
Corporation by the holder thereof of one or more certificates
representing shares of Series E Preferred to be redeemed, deliver or
cause to be delivered to or upon the written order of such holder a
sum in cash equal to the Redemption Price, plus an amount in cash
equal to all dividends accrued but unpaid thereon to the date of
redemption, of the shares of such holder to be redeemed on such date,
together with, if the certificate(s) presented and surrendered by such
holder represent a greater number of shares than the number of shares
to be redeemed from such holder, one or more new certificates
registered in the name of such holder and representing the shares of
Series E Preferred not redeemed.
(h) Shares of Series E Preferred redeemed pursuant to this Section 6
or converted pursuant to Section 7 hereof shall thereupon be deemed
retired and shall resume the status of authorized but unissued shares
of Preferred Stock (without serial designation) and may, subject to
the provisions hereof, be reissued as shares of Series E Preferred or
shares of any other series of Preferred Stock as determined' by the
Board of Directors of the Corporation.
7. Conversion.
----------
(a) Subject to the provisions of Section 6 hereof regarding
redemption and to the terms and conditions of this Section 7, each
share of Series E Preferred shall be convertible, at the option of the
holder thereof (except that, in respect of any such shares which shall
have been called for redemption by the Corporation, such option shall
terminate at the close of business on the second full business day
prior to the date fixed for redemption unless the Corporation shall
default in the payment of the Redemption Price, plus an amount in cash
equal to all dividends accrued but unpaid thereon to the date of
redemption, unless due to the failure of the holders of such shares to
surrender such certificates representing the Series E Preferred to be
redeemed), into the number of whole shares (calculated to the
10
<PAGE>
nearest whole share with 5/10ths of a share being considered as nearer
to the next higher whole share) of fully paid and nonassessable Common
Stock as is determined by dividing $4.60 by the then applicable
conversion price fixed or determined pursuant to the provisions of
Section 7(d) hereof, by surrender of a certificate or certificates for
shares of Series E Preferred so to be converted at the principal place
of business of the Corporation to the attention of the Secretary (or
at such other place or places, or to such other person's attention, as
may be designated by the Corporation) at any time during usual
business hours, together with written notice that the holder elects to
convert all such shares of Series E Preferred, or a stated number of
shares thereof, in accordance with the provisions of this Section 7.
Such notice shall also state the name or names (with addresses) in
which the certificate or certificates for Common Stock shall be
issued.
(b) As promptly as practicable after exercise by any holder of such
holder's option to convert any shares of Series E Preferred pursuant
to the provisions of this Section 7, the Corporation shall deliver or
cause to be delivered to or upon the written order of such holder one
or more certificates representing the number of shares of Common Stock
issuable upon such conversion, issued in such name or names as such
holder may direct, together with, if the certificate(s) surrendered
evidence a greater number of shares than the number of shares to be
converted, one or more certificates evidencing the shares of Series E
Preferred not to be converted. Each such conversion shall be deemed
to have been made immediately prior to the close of business on the
day the option to convert is exercised, and all rights of the
converting holder as a holder of the shares of Series E Preferred
surrendered for conversion shall cease at such time and the person or
persons in whose name or names the certificate(s) for the shares of
Common Stock issuable upon conversion are to be issued shall be
treated for all purposes as having become the record holder or holders
thereof at such time.
(c) If the last day for the exercise of the conversion option be, in
the jurisdiction where the principal place of business of the
Corporation (or other place designated by the Corporation as a place
for conversion of shares of Series E Preferred) is located, a
Saturday, Sunday or legal holiday, then such conversion option may be
exercised, at the conversion price in effect on such last day, upon
the next succeeding day not a Saturday, Sunday or legal holiday, in
such jurisdiction.
(d) The conversion price for shares of Series E Preferred shall be
$4.60 per share, provided that, if adjustment of the conversion price
is required pursuant to Sections 7(d)(i) through 7(d)(v) hereof, the
conversion price shall be such adjusted price.
11
<PAGE>
(i) In case any of the following shall occur:
(x) any reclassification or change in the outstanding
shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination); or
(y) any consolidation or merger other than involving a
subsidiary of the Corporation (other than Strouse) to which the
Corporation is a party (other than a merger in which the
Corporation is the surviving corporation and which does not
result in any reclassification of, or change in, the outstanding
shares of Common Stock); or
(z) any sale or conveyance to another entity of the
property of the Corporation as an entirety or substantially as
an entirety, other than a sale/leaseback, mortgage or other
similar financing transaction,
then, in each such case, appropriate provision shall be made,
effective as of the effective date of any such reclassification,
change, consolidation, merger, sale or conveyance, as the case may be,
whereby the holders of Series E Preferred then outstanding shall have
the right to convert such shares of Series E Preferred into the kind
and amount of shares of stock and other securities and property which
would have been receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of shares of
Common Stock which would have been issuable upon conversion of the
shares of Series E Preferred immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance.
In connection with any provision made pursuant to the terms of the
preceding sentence, provision shall also be made for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7. The above provisions of this Section
7(d)(i) shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales or conveyances.
(ii) In case the Corporation shall at any time subdivide or combine
the outstanding shares of Common Stock issuable upon conversion
of Series E Preferred, then, in each such case, the conversion
price in effect immediately prior to such subdivision or
combination shall, effective as of the effective date of such
subdivision or combination, be proportionately decreased in the
case of subdivision or proportionately increased in the case of
combination.
(iii) In case the Corporation shall issue rights, warrants or options
entitling the holder to subscribe for or purchase shares of
Common Stock (other than Excluded Shares), (A) at a price per
share of Common Stock less than 85% of the Fair Market Value of
a share of Common Stock on the record
12
<PAGE>
date mentioned below or (B) at a price per share of Common Stock
less than the conversion price in effect on the record date
mentioned below, the conversion price shall be reduced to the
lower of the prices determined by:
(y) multiplying the conversion price in effect immediately
prior to the record date mentioned below by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for
subscription or purchase would purchase at 85% of. the Fair
Market Value of a share of Common Stock on such record date, and
the denominator of which shall be the number of shares of Common
Stock outstanding on such record date plus the maximum number of
additional shares of Common Stock offered for subscription or
purchase; and
(z) multiplying the conversion price in effect immediately
prior to the record date mentioned below by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for
subscription or purchase would purchase at the conversion price
then in effect and the denominator of which shall be the number
of shares of Common Stock outstanding on such record date plus
the maximum number of additional shares of Common Stock offered
for subscription or purchase.
Such adjustment shall be made whenever such rights, warrants or
options are issued; and, to the extent that such rights, warrants or
options expire unexercised, the conversion price shall be readjusted
to the conversion price which would then be in effect had the'
adjustments made as of the record date for the issuance of such
rights, warrants or options been made upon the basis of the issuance
of rights, warrants or options to subscribe for or purchase only the
number of shares of Common Stock as to which such rights, warrants or
options were actually exercised. In case the Corporation shall issue
rights, warrants or options entitling the holder to subscribe for or
purchase securities convertible into, exchangeable for or carrying a
right to purchase shares of Common Stock (such securities being
referred to herein as "Convertible Securities"), (A) such issuance
shall be deemed to be an issuance of rights, warrants or options to
such holders entitling them to subscribe for or purchase Common Stock
at the price per share for which Common Stock is issuable upon
conversion, exchange or exercise of such Convertible Securities
(determined by. dividing (x) the minimum aggregate consideration
payable to the Corporation upon the issuance of such rights, warrants
or options, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable
upon the
13
<PAGE>
conversion, exchange or exercise thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion,
exchange or exercise of such Convertible Securities issuable upon the
exercise of such rights, warrants or options), and (B) the total
maximum number of shares of Common Stock issuable upon conversion,
exchange or exercise of such Convertible Securities shall be deemed to
be the number of shares of Common Stock offered for subscription or
purchase. To the extent that such Convertible Securities expire or
otherwise terminate without being converted, exercised or exchanged,
the conversion price shall be readjusted to the conversion price which
would then be in effect had the adjustments made as of the record date
for the issuance of such rights, warrants or options been made upon
the basis of the issuance of the number of shares of Common Stock that
were actually issued upon the conversion, exercise or exchange of such
Convertible Securities.
(iv) In case the Corporation shall pay a dividend or make a
distribution to all holders of shares of Common Stock, as such,
of shares of its stock, evidences of its indebtedness, assets or
rights, warrants or options (excluding dividends or distributions
payable in cash out of retained earnings of the Corporation,
distributions relating to sub-divisions and combinations covered
by Section 7(d) (ii) hereof and rights, warrants or options to
purchase or subscribe for shares of Common Stock or Convertible
Securities covered by Section 7(d) (iii) hereof), then in each
such case the conversion price shall be adjusted so that the same
shall equal the price determined by multiplying the conversion
price in effect immediately prior to the record date mentioned
below by a fraction, the numerator of which shall be the total
number of shares' of Common Stock outstanding immediately prior
to such record date multiplied by the Fair Market Value of a
share of Common Stock on such record date, less the fair market
value (as determined by the Board of Directors of the
Corporation) as of such record date of said shares of stock,
evidences of indebtedness or assets so paid or distributed or of
such rights, warrants or options, and the denominator of which
shall be the total number of shares of Common Stock outstanding
immediately prior to such record date multiplied by the Fair
Market Value of a share of Common Stock on such record date.
Such adjustment shall be made whenever any such dividend is paid
or such distribution is made and shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution.
(v) In case the Corporation shall issue shares of Common Stock, other
than Excluded Shares, (A) at a price per share of Common Stock
less than 85% of the Fair Market Value of a share of Common Stock
on the record date mentioned below or (B) at a price per share of
Common Stock less than the conversion price in effect on the
record date mentioned below, the conversion price shall be
reduced to the lower of the prices determined by:
14
<PAGE>
(y) multiplying the conversion price in effect immediately
prior to the record date mentioned below by a fraction, the
numerator of which shall. be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so issued would purchase
at 85% of the Fair Market Value of a share of Common Stock on
such record date, and the denominator of which shall be the
number of shares of Common Stock outstanding on such record date
plus the number of additional shares of Common Stock so issued;
and
(z) multiplying the conversion price in effect immediately
prior to the record date mentioned below by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so issued would purchase
at the conversion price then in effect, and the denominator of
which shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of
Common Stock so issued.
Such adjustment shall be made whenever such shares are issued. In case
the Corporation shall issue Convertible Securities (A) such issuance
shall be deemed to be an issuance of Common Stock at the price per
share for which Common Stock is issuable upon conversion, exchange or
exercise of such Convertible Securities (determined by dividing (x)
the minimum aggregate consideration payable to the Corporation upon
the conversion, exchange or exercise thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion,
exchange or exercise of such Convertible Securities), and (B) the
total maximum number of shares of Common Stock issuable upon
conversion, exchange or exercise of such Convertible Securities shall
be deemed to be the number of shares of Common Stock so issued. To
the extent that such Convertible Securities expire or otherwise
terminate without being converted, exercised or exchanged, the
conversion price shall be readjusted to the conversion price which
would then be in effect had the adjustments made as of the record date
for the issuance of such Convertible Securities been made upon the
basis of the issuance of the number of shares of Common Stock that
were actually issued upon the conversion, exercise or exchange of such
Convertible Securities.
(vi) For purposes of Sections 7(d) (iii) through 7(d)(v) hereof, the
following provisions (A) to (D) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by
or for
15
<PAGE>
the account of the Corporation or any of its subsidiaries, and
the issuance of rights, warrants or options to purchase or
subscribe for such treasury shares (or securities convertible
into, exchangeable for or carrying a right to purchase such
treasury shares) or the distribution of any such treasury shares
shall not be considered an issuance, dividend or distribution for
purposes of Sections 7(d)(iii) through (v) hereof.
(B) No adjustment of the conversion price shall be made
unless such adjustment would require an increase or decrease of
at least one percent (1%) in such price; provided that any
adjustments which by reason of this clause (B) are not required
to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require
an increase or decrease of at least one percent in the conversion
price then in effect hereunder.
(C) In any case in which this Section 7(d) shall require
that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the
occurrence of such event issuing to the holder of Series E
Preferred converted after such record date and before the
occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment
required by such event over and above the shares issuable upon
such conversion before giving effect to such adjustment.
(D) Except as otherwise expressly provided in this Section
7(d), no adjustment in the conversion price shall be made by
reason of the issuance or sale, in exchange for cash, property or
services, of shares of Common Stock, or any Convertible
Securities.
(e) Whenever the conversion price is adjusted as provided in this
Section 7, then, in each such case, the Corporation shall mail, or
cause to be mailed, to the holders of Series E Preferred, of record
not more than ten (10) days before the date of mailing, a notice in
writing stating the adjusted conversion price then and thereafter
effective under the provisions hereof, the method of calculating such
adjusted conversion price shown in reasonable detail, and the facts on
which such calculation is based. An affidavit of the Secretary of the
Corporation (or of a transfer agent for the Series E Preferred, if one
has been appointed) that any such notice has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(f) As used in this Section 7, the term "Common Stock" shall mean and
include the Corporation's Common Stock authorized on the date of the
original issue of shares of Series E Preferred and shall also include
any capital stock of any class of the Corporation thereafter
authorized which shall not be limited to a
16
<PAGE>
fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
(g) The Corporation shall pay cash in lieu of issuing a fractional
share of Common Stock upon the conversion of any Series E Preferred.
(h) Upon any conversion, no adjustment shall be made for dividends on
Series E Preferred surrendered for conversion or on Common Stock
delivered.
(i) The Corporation will at all times reserve and keep available out
of its authorized but unissued stock, solely for the purpose of issue
upon conversion of Series E Preferred, as provided in this Section 7,
such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of
Series E Preferred, and, upon the issuance thereof upon conversion,
all in accordance with the provisions hereof, such shares of Common
Stock when issued upon receipt of certificates representing such
shares of Series E Preferred, plus any additional consideration, shall
be duly and validly issued, fully paid and nonassessable.
(j) The issuance of certificates for shares of Common Stock shall be
made without charge for any tax in respect of such issuance. However,
if any such certificate is to be issued in a name other than that of
the holder of the converted Series E Preferred, the Corporation shall
not be required to issue or deliver any stock certificate or
certificates unless and until the holder has paid to the Corporation
the amount of any tax which may be payable in respect of any transfer
involved in such issuance or shall establish to the' satisfaction of
the Corporation that such tax has been paid.
(k) In the event of (i) any taking by the Corporation of a record of
the holders of any class of securities for the purpose of determining
the holders of such securities who are entitled to receive any
dividend (other than a cash dividend) or other distribution on Common
Stock or any right, warrant or option to subscribe for or purchase any
shares of Common Stock or any Convertible Securities, or (ii) any
reclassification or recapitalization of the capital stock of the
Corporation, any consolidation or merger of the Corporation with or
into another corporation, any transfer of all or substantially all of
the assets of the Corporation to any other corporation, entity or
person, or any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, the Corporation shall mail to each
holder of Series E Preferred at least ten (10) days prior to the
record date, effective date, or exchange date specified in such
notice, a notice specifying (A) the date on which any such record is
to be taken for the purpose of such dividend, distribution, rights,
warrants, or options, (B) the date on which any such reclassification,
recapitalization, consolidation, merger, transfer, dissolution,
liquidation, or winding-up is expected to become effective, and (C)
the time, if
17
<PAGE>
any is to be fixed, as to when the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding up.
8. General. The section headings contained in this Certificate of
-------
Designations are for reference purposes only and shall not affect in
any way the meaning of this Certificate of Designations.
THE UNDERSIGNED, the President and Chief Executive Officer of The Aristotle
Corporation, hereby make this certificate, declaring and certifying that this is
the duly authorized act and deed of the Corporation and the facts herein stated
are true, and accordingly have hereunto set his hand this 22nd day of
October, 1997.
THE ARISTOTLE CORPORATION
By: /s/ John J. Crawford
---------------------------
Name: John J. Crawford
Title: President and Chief
Executive Officer
18
<PAGE>
EXHIBIT 4.2
-----------
EXHIBIT A
---------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ARISTOTLE SUB, INC.
under Sections 242 and 245 of the
Delaware General Corporation Law
Aristotle Sub, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is Aristotle Sub, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed with the
Secretary of the State of Delaware on the 12th day of November, 1993.
THIRD: This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of the
Corporation by amending (i) Section 1 of Article 4 to delete the
clause "other than as set forth in Section 3," and (ii) Section 3 of
Article 4 to provide that the liquidation and dividend rights of the
holders of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall be pari passu with the liquidation and
dividend rights of the holders of the Geneve Preferred Stock.
FOURTH: The text of the Amended and Restated Certificate of Incorporation, as
amended or supplemented heretofore, is further amended hereby to read
as herein set forth in full.
FIFTH: This Amended and Restated Certificate of Incorporation was duly
adopted pursuant to resolutions adopted by the Board of Directors and
the Stockholders of the Corporation in accordance with Sections 242
and 245 of the Delaware General Corporation Law, notice of such
adoption by the required percentages of each class of capital stock
having been given in accordance with Section 228(d) to each
Stockholder who did not execute a written consent to such adoption.
IN WITNESS WHEREOF, Aristotle Sub, Inc. has caused this Certificate to be
signed by John Crawford, its President, this 22nd day of October, 1997.
ARISTOTLE SUB, INC.
By: /s/ John Crawford
--------------------------
John Crawford
Its President
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ARISTOTLE SUB, INC.
Article 1. Corporate Title. The name of the corporation is Aristotle Sub,
---------------
Inc. (the "Corporation").
Article 2. Duration. The duration of the Corporation is perpetual.
--------
Article 3. Purpose. The purpose or purposes for which the Corporation is
-------
organized are to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware (the "DGCL").
Article 4. Capital Stock. The total number of shares of all classes of
-------------
capital stock which the Corporation has authority to issue is six million
(6,000,000) shares, of which three million (3,000,000) shares shall be common
stock, par value $.01 per share (the "Common Stock"), amounting in the aggregate
to thirty thousand dollars ($30,000), and three million (3,000,000) shares shall
be serial preferred stock, par value $.01 per share (the "Preferred Stock"),
amounting in the aggregate to thirty thousand dollars ($30,000). The shares of
Common Stock and Preferred Stock may be issued by the Corporation from time to
time as approved by its board of directors (the "Board of Directors") without
the approval of its stockholders. The consideration for the issuance of the
shares of Common Stock or Preferred Stock shall be paid in full before their
issuance and shall not be less than the par value per share thereof. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of the shares of Common Stock or Preferred Stock. The
consideration for the shares of Common Stock or Preferred Stock shall be cash,
services actually performed for the Corporation, personal property, real
property, leases of real property or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor or
services, as determined by the Board of Directors, shall be conclusive. Upon
payment of such consideration, such shares of Common Stock or Preferred Stock
shall be deemed to be fully paid and nonassessable.
The Preferred Stock authorized by this Certificate of Incorporation (the
"Certificate of Incorporation") shall be issued in series. The first, second and
third such series shall be designated Series A Preferred Stock ("Series A
Preferred Stock"), which shall consist of one hundred twenty-two thousand six
hundred ninety one (122,691) shares, Series B Preferred Stock ("Series B
Preferred Stock") and Series C Preferred Stock ("Series C Preferred Stock"),
which shall each consist of sixty-one thousand three hundred forty-five (61,345)
shares.
Except for the 245,380 shares of Series A, B and C Preferred Stock, the
Preferred Stock may be issued in one or more series by the Corporation from time
to time as approved by its Board of Directors. The Board of Directors is
authorized by resolution or resolutions from time to time adopted and by filing
a certificate pursuant to Section 151(g) of the DGCL to provide for the issuance
of one or more series of Preferred Stock and to fix and state the voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights of the shares of each
such series of Preferred Stock and the qualifications, limitations and
restrictions thereof other than the Series A, B and C Preferred Stock. Each
share of each series of Preferred Stock shall have the same relative rights as
and be identical in all respects with all the other shares of the same series of
Preferred Stock.
2
<PAGE>
The relative rights, preferences, privileges, restrictions and other
matters relating to the respective classes of the shares of capital stock of the
Corporation are as follows:
Section 1. Junior Stock. For purposes of this Article, "Junior Shares"
------------
shall mean all Common Stock and any other shares of capital stock of the
Corporation other than the Series A, B and C Preferred Stock and the Geneve
Preferred Stock, as defined in Section 3.A. below..
Section 2. Dividends Rights of Series A, B and C Preferred Stock.
-----------------------------------------------------
The holders of the Series A, B and C Preferred Stock shall be entitled to
receive in any fiscal year, when and as declared by the Board of Directors, out
of any assets at the time legally available therefor, dividends in cash at the
rate per annum, prior to their respective Dividend Termination Dates (as defined
herein), of $.89 per share, payable in preference and priority to any payment of
any dividend on Junior Shares. The right to such dividends on the Series A, B
and C Preferred Stock shall be cumulative and shall accrue at the rate of $.2225
per share on the first day of each January, April, July and October until the
applicable Dividend Termination Date. On and after the applicable Dividend
Termination Date, no dividends shall accrue upon the Series A, B or C Preferred
Stock. As used in this Amended and Restated Certificate of Incorporation, the
"Dividend Termination Date" for any share of Preferred Stock means the later of
(a) the Put Right Commencement Date (as hereinafter defined) or Mandatory
Redemption Date (as hereinafter defined), as applicable, with respect to such
share or (b) the first date upon which The Aristotle Corporation ("Aristotle")
has sufficient audited financial statements in order to satisfy the requirements
for filing a registration statement under the federal securities laws pursuant
to which shares of Common Stock of Aristotle can be registered for sale. Each
share of Series A, B and C Preferred Stock as to which the Dividend Termination
Date has not occurred shall rank on a parity with each other share of Series A,
B and C Preferred Stock as to which the Dividend Termination Date has not
occurred, irrespective of series, with respect to dividends, and no dividends
shall be declared or paid or set apart for payment on any of the Series A, B or
C Preferred Stock as to which the Dividend Termination Date has not occurred
unless at the same time a dividend, bearing the same proportion to the dividend
rate shall also be declared or paid or set apart for payment, as the case may
be, on any of the Series A, B and C Preferred Stock as to which the Dividend
Termination Date has not occurred. No dividends shall be paid on any Junior
Shares unless all accrued dividends have been paid with respect to all
outstanding shares of Series A, B and C Preferred Stock as to which the Dividend
Termination Date has not occurred.
Section 3. Liquidation Preference.
----------------------
A. In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series A, B and
C Preferred Stock, along with the holders of any Preferred Stock issued by the
Corporation, its successors and assigns to Geneve Corporation (the "Geneve
Preferred Stock"), shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Junior Shares by reason of their ownership thereof, the sum of
(i) $10 for each share of Series A, B or C Preferred Stock then held by them,
plus an amount equal to all accrued but unpaid dividends on such Series A, B and
C Preferred Stock, and (ii) $4.60 for each share of Geneve Preferred Stock then
held by them, plus an amount equal to all accrued but unpaid dividends on such
Geneve Preferred Stock. If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A, B and C Preferred
Stock and the Geneve Preferred Stock shall be insufficient to permit the payment
to such holders of the full preferential amount aforesaid, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A, B and C Preferred Stock
and the Geneve Preferred Stock in proportion to their preferential liquidation
amounts as specified above. After payment has been made to the holders of the
Series A, B and C Preferred Stock and the Geneve Preferred Stock, of
3
<PAGE>
the full amounts to which they shall be entitled as aforesaid, all remaining
assets and funds of the Corporation shall be distributed among the holders of
the Junior Shares (other than the Geneve Preferred Stock).
B. For purposes of this Article 4, Section 3, a liquidation,
dissolution or winding up of the Corporation shall be deemed to be occasioned
by, or to include, a sale by any of the Corporation, Aristotle or The Strouse,
Adler Company ("Strouse") of all or substantially all of its assets or the
acquisition of this Corporation, Aristotle or Strouse by a Nonpermitted Party
(as hereinafter defined) by means of merger or consolidation resulting in the
exchange of the outstanding shares of capital stock of this Corporation,
Aristotle or Strouse for securities or consideration issued, or caused to be
issued, by the acquiring entity or its subsidiary or its parent.
C. In the event the Corporation shall propose to take any action of
the types described in Paragraphs (A) and (B) of this Article 4, Section 3, then
the Corporation shall, within ten (10) days after the date that the Board of
Directors approves such action, or twenty (20) days prior to any stockholders'
meeting called to approve such action, whichever is earlier, give each holder of
shares of Series A, B and C Preferred Stock and Geneve Preferred Stock initial
written notice of the proposed action. Such initial written notice shall
describe the material terms and conditions of such proposed action, including a
description of the stock, cash and property to be received by the holders of
shares of Series A, B and C Preferred Stock and Geneve Preferred Stock upon
consummation of the proposed action and the date of delivery thereof. If any
material change in the facts set forth in the initial notice shall occur, the
Corporation shall promptly give written notice to each holder of shares of
Series A, B and C Preferred Stock and Geneve Preferred Stock of such material
change.
D. The Corporation shall not consummate any proposed action of the
types described in Paragraphs (A) and (B) of this Article 4, Section 3 before
the expiration of thirty (30) days after the mailing of the initial notice or
twenty (20) days after the mailing of any subsequent written notice, whichever
is later; provided that any such 30-day or 20-day period may be shortened upon
the written consent of the holders of a majority of the outstanding shares of
Series A, B and C Preferred Stock and Geneve Preferred Stock.
E. In the event the Corporation shall propose to take any action of
the types described in Paragraphs (A) and (B) of this Article 4, Section 3 which
will involve the distribution of assets other than cash, the Board of Directors
shall make a good faith appraisal of the value of the assets to be distributed
to the holders of shares of Series A, B and C Preferred Stock and Geneve
Preferred Stock. The Corporation shall give prompt written notice to each
holder of shares of Series A, B and C Preferred Stock and Geneve Preferred Stock
of such valuation. All notices pursuant to this Article 4, Section 3 hereof
shall be deemed given upon personal delivery, or upon delivery to a recognized
overnight delivery service, or upon deposit in a United States Post Office by
registered or certified mail.
Section 4. Right of Holders of Series A, B and C Preferred Stock to Sell
-------------------------------------------------------------
their Shares and Right of Corporation to Redeem Series A, B and C Preferred
- ---------------------------------------------------------------------------
Stock. On the earlier of an "Acceleration Event" (as hereinafter defined) or at
- -----
any time after each date identified below as a "Put Right Commencement Date"
with respect to the holders of the following amounts Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock (each such date being a
"Put Right Commencement Date"):
4
<PAGE>
<TABLE>
<CAPTION>
SERIES OF PUT RIGHT
PREFERRED NUMBER OF COMMENCEMENT
HOLDER STOCK SHARES DATE
------ ----- ------ ----
<S> <C> <C> <C>
Howell Resource Partners Series A 23,608 January 1, 1999
Series B 1,392 January 1, 1999
Series B 1,804 January 1, 2000
Series C 23,196 January 1, 2000
Albert Kniberg Series C 6,809 January 1, 1999
Series C 6,808 January 1, 2000
Paul McDonald Series B 602 January 1, 1999
Series C 2,249 January 1, 1999
Series C 2,851 January 1, 2000
Graeme Caulfield Series C 2,308 January 1, 1999
Series C 2,308 January 1, 2000
C. David Goldman Series A 10 January 1, 1999
Series B 1,200 January 1, 1999
Series B 5 January 1, 2000
Series C 1,205 January 1, 2000
Louis Musante Series A 10 January 1, 1999
Series B 1,200 January 1, 1999
Series B 5 January 1, 2000
Series C 1,205 January 1, 2000
Joyce Baran Series B 255 January 1, 1999
Series C 607 January 1, 1999
Series C 862 January 1, 2000
</TABLE>
each holder of Series A, B or C Preferred Stock shall have the right to sell,
and the Corporation shall have the obligation to purchase, any or all of such
Series A, B or C Preferred Stock for a purchase price equal to $10 per share
plus any accrued and unpaid dividends thereon (each such right being a "Put
Right"); provided, however, that in order for the holder to exercise such Put
Right, the holder shall sell a number of each of the Series A, B and C Preferred
Stock of Aristotle issued to the holder on April 11, 1994, which is equal to the
number of Series A, B and C Preferred Stock with respect to which the holder is
exercising the Put Right, to Aristotle for a purchase price of $.001 per share.
The Put Right may be exercised at any time after the Put Right Commencement Date
until (a) with respect to the Series A and B Preferred Stock, April 12, 2000 and
(b) with respect to the Series C Preferred Stock, April 12, 2001 (each such date
being a "Put Right Termination Date").
As used herein an Acceleration Event shall mean any one or more of the
following (it being understood that the Corporation shall use reasonable efforts
to provide the holders of the Series A, Series B and Series C Preferred Stock
with at least twenty (20) days prior written notice of the occurrence of the
Acceleration Events set forth in (a), (b) and (d)):
(a) In the event that all or substantially all of the capital stock
or assets of Strouse, the Corporation or Aristotle shall have
been transferred to a party
5
<PAGE>
not controlling, controlled by or in the same control group as
Aristotle (a "Nonpermitted Party");
(b) In the event of merger, consolidation, business combination or
the reorganization involving Strouse, the Corporation or
Aristotle in which Strouse, the Corporation, Aristotle or a
corporation other than a Nonpermitted Party is not the surviving
corporation;
(c) In the event that Aristotle, the Corporation or Strouse makes an
assignment for the benefit of creditors, or shall apply for or
consent to the appointment of or taking possession by a committee
of creditors, a trustee, receiver or liquidator or if Aristotle,
the Strouse or the Corporation shall commence a case or have an
order for relief entered against it under federal bankruptcy laws
or applicable state insolvency or other similar laws; or
(d) In the event of the dissolution or liquidation of Strouse, the
Corporation or Aristotle other than in connection with a
transaction that would be an Acceleration Event described in
clause (a) or (b) but for the fact that the transferee or
surviving corporation is Strouse, the Corporation, Aristotle or a
corporation other than a Nonpermitted Party.
The Corporation shall redeem, out of funds legally available therefor, the
shares of Series A, B and C Preferred Stock listed below (each such share being
a "Redemption Share"), for $10 per share, plus any accrued and unpaid dividends
thereon, on January 1, 1998 (the "Mandatory Redemption Date"); provided,
however, that in order for the holder to participate in the foregoing mandatory
redemption, the holder shall sell a number of the Series A Preferred Stock of
Aristotle issued to the holder on April 11, 1994, which is equal to the number
of Redemption Shares that are being redeemed, to Aristotle for a purchase price
of $.001 per share.:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF SHARES OF
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
--------- --------- ---------
STOCK STOCK STOCK
----- ----- -----
HOLDER
-------
<S> <C> <C> <C>
Howell Resource Partners 22,784 0 0
Albert Kniberg 17,103 11,394 3,484
Richard Sheldon 0 2,410 4,820
Paul McDonald 2,424 2,924 0
Janney Montgomery 757 879 879
Scott, Inc. Custodian
f/b/o Paul H. McDonald
Graeme Caulfield 0 1,018 684
C. David Goldman 2,400 0 0
Louis Musante 2,400 0 0
Joyce Baran 1,261 451 0
John Peterson 964 482 482
</TABLE>
If the funds of the Corporation legally available for redemption of the
Redemption Shares are insufficient to redeem all of the Redemption Shares on the
Mandatory Redemption Date, the holders of Redemption Shares shall share ratably
in any funds legally available for redemption of such shares pro rata based on
the number of Redemption Shares held by each such holder. If the Corporation
fails to redeem all or a portion of the Redemption Shares within five (5)
calendar
6
<PAGE>
days after the Mandatory Redemption Date either because the funds of the
Corporation legally available for redemption of the Redemption Shares are
insufficient to redeem all of the Redemption Shares on the Mandatory Redemption
Date or for any other reason (other than the failure of the holder to surrender
certificates evidencing ownership of the Redemption Shares to the Corporation,
in which case Section 4(c) of this Article 4 shall apply), each holder of
Redemption Shares not redeemed thereafter shall have a Put Right with respect to
such Redemption Shares; provided, however, that in order for the holder to
exercise such Put Right, the holder shall sell a number of each of the Series A,
B and C Preferred Stock of Aristotle issued to the holder on April 11, 1994,
which is equal to the number of Series A, B and C Preferred Stock with respect
to which the holder is exercising the Put Right, to Aristotle for a purchase
price of $.001 per share. The Put Right with respect to such Redemption Shares
may be exercised at any time following the fifth calendar day after the
Mandatory Redemption Date (the "Put Right Commencement Date") until (a) with
respect to the Series A and B Preferred Stock, April 12, 2000 and (b) with
respect to the Series C Preferred Stock, April 12, 2001 (each such date being a
"Put Right Termination Date").
The Corporation shall have the right, as and when determined by the Board
of Directors out of funds legally available therefor, to redeem the Series A, B
and C Preferred Stock in whole or in part, for $10 per share, plus any accrued
and unpaid dividends thereon, at any time after the applicable Put Right
Termination Date for any such series.
The shares to be included in any partial redemption shall be chosen by lot,
to be conducted in such manner as the Board of Directors shall deem to be
appropriate.
Any redemption or purchase of Series A, B and C Preferred Stock by the
Corporation shall be carried out in accordance with the following provisions:
(A) In the event the Corporation shall redeem shares of Series A, B
and C Preferred Stock, notice of such redemption and a statement from the Chief
Financial Officer of the Corporation setting forth the amount of surplus of the
Corporation as of the end of the month immediately preceding the date of such
notice (which amount shall be not less than the amount of the redemption price)
shall be given by certified mail, return receipt requested, or by recognized
overnight delivery service, sent not less than thirty (30) nor more than sixty
(60) days prior to the redemption date, to each holder of record of the shares
to be redeemed, at such holder's address as the same appears on the stock record
books of the Corporation. Each such notice shall state: (i) the redemption date;
(ii) the number of shares to be redeemed and, if fewer than all the shares held
by such holder are to be redeemed, the number of such shares to be redeemed from
such holder; and (iii) the place or places where certificates for such shares
are to be surrendered for payment of the redemption price.
(B) In the event that a holder of Series A, B or C Preferred Stock
shall be entitled to and shall exercise his Put Right, notice of such holder's
exercise of such Put Right shall be given by certified mail, return receipt
requested, or by recognized overnight delivery service, sent not less than
thirty (30) nor more than sixty (60) days prior to the purchase date designated
by such holder. Each such notice shall state: (i) the purchase date designated
by such holder (which shall be after the Put Right Commencement Date and before
the Put Right Termination Date with respect to the series to be purchased); and
(ii) the number of shares of such series to be purchased.
(C) Notice having been mailed as aforesaid, then from and after the
redemption or purchase date (unless default shall be made by the Corporation in
providing money for the payment of the redemption or purchase price of the
shares called for redemption or purchase or, in the case of the exercise of a
Put Right, the Corporation has surplus in an amount less than the purchase
price), said shares shall: (i) be transferred or deemed transferred to the
Corporation free
7
<PAGE>
and clear of all liens and encumbrances; (ii) no longer be deemed to be
outstanding; and (iii) all rights of the holders thereof as shareholders of the
Corporation (except the right to receive from the Corporation the redemption or
purchase price) shall cease and terminate. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed or purchased
(properly endorsed or assigned for transfer, if the Board of Directors shall so
require), such shares shall be redeemed or purchased by the Corporation at the
price aforesaid, without interest. In case fewer than all the shares represented
by any such certificate are redeemed or purchased, a new certificate shall be
issued representing the unredeemed or unpurchased shares without cost to the
holder thereof. If the certificates evidencing ownership of redeemed shares are
not surrendered to the Corporation (or affidavits of lost certificates
accompanied by indemnities reasonable satisfactory to the Company are not
provided to the Company in place of such certificates) within six (6) years
after the giving of such notice of redemption, then the Corporation shall have
the right to retain the redemption price and to deem the shareholder to have
waived his right to receive the redemption price or any further right or benefit
from such certificate or shares. If the Corporation does not have sufficient
surplus to purchase the shares as to which the Put Right was being exercised,
the Corporation shall notify the holders of such shares as to the amount of
surplus that the Corporation does have.
(D) Any shares of Series A, B and C Preferred Stock which shall at any
time have been redeemed or purchased by the Corporation shall, after such
redemption or purchase, be canceled, retired and eliminated from being
authorized to be issued in the manner provided by applicable law.
Section 5. Covenants. In addition to any other rights provided by law, so
---------
long as shares of a Series A, B and C Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of a majority of such outstanding shares of such Series
A, B and C Preferred Stock:
(A) Increase or decrease the number of shares of Series A, B and C
Preferred Stock authorized hereby;
(B) Authorize or issue shares of any class or series of stock having a
liquidation preference superior to or equal to the Series A, B and C Preferred
Stock, or authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of the Corporation having
a liquidation preference superior to the Series A, B and C Preferred Stock;
(C) Reclassify any outstanding shares into shares having a liquidation
preference superior to the Series A, B and C Preferred Stock; or
(D) Amend this Article 4 and Article 11 hereof.
The covenants set forth in Sections 5(B) and (C) shall terminate on
the Put Right Termination Date.
Section 6. Voting Rights. The Common Stock will have the right to one
-------------
vote per share with respect to any matter as to which a vote or consent of the
stockholders of the Corporation is sought.
Article 5. Preemptive Rights. Holders of the capital stock of the
-----------------
Corporation shall not be entitled to preemptive rights with respect to any
shares or other securities of the Corporation which may be issued.
8
<PAGE>
Article 6. Directors. The Corporation shall be under the direction of the
---------
Board of Directors. The Board of Directors shall consist of not less than seven
directors nor more than fifteen (15) directors. The number of directors within
this range shall be as stated in the Bylaws, as may be amended from time to
time, and shall initially consist of thirteen (13) directors. The Board of
Directors shall divide the directors into three (3) classes and, when the number
of directors is changed, shall determine the class or classes to which the
increased or decreased number of directors shall be apportioned; provided, that
the directors in each class shall be as nearly equal in number as possible;
provided, further, that no decrease in the number of directors shall affect the
term of any director then in office.
The classification shall be such that the term of one class shall expire
each succeeding year. The Board of Directors shall initially be divided into
three classes named Class I, Class II and Class III, with Class I initially
consisting of five directors and Class II and III each initially consisting of
four directors. The terms, classifications, qualifications and election of the
Board of Directors and the filling of vacancies thereon shall be as provided
herein and in the Bylaws.
Subject to the foregoing, at each annual meeting of stockholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified.
Any vacancy occurring in the Board of Directors, including any vacancy
created by reason of an increase in the number of directors, shall be filled for
the unexpired term by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
No director may be removed except for cause and then only by an affirmative
vote of at least two-thirds of the total votes eligible to be voted by
stockholders at a duly constituted meeting of stockholders called for such
purpose. At least thirty (30) days prior to such meeting of stockholders,
written notice shall be sent to the director or directors whose removal will be
considered at such meeting.
Article 7. Bylaws. The Board of Directors or the stockholders may from
------
time to time amend the Bylaws.
Article 8. Special Meetings. Special meetings of stock-holders may be
----------------
called at any time but only by the chairman of the Board of Directors or the
president of the Corporation or by the Board of Directors.
Article 9. Registered Office. The street address of the Corporation's
-----------------
initial registered office in the State of Delaware is 1209 Orange Street, City
of Wilmington, County of New Castle, and the name of its initial registered
agent at such address is The Corporation Trust Company.
Article 10. Stockholder Meetings. Meetings of stockholders may be held
--------------------
within or without the State of Delaware, as the Bylaws may provide. The books of
the Corporation may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the Corporation.
Elections of Directors need not be by written ballot unless the Bylaws of the
Corporation shall so provide.
Article 11. Amendment of Certificate of Incorporation. The Corporation
-----------------------------------------
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation in the
9
<PAGE>
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders and directors are subject to this reserved power.
Article 12. Limitation on Director Liability. No director of the
--------------------------------
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for any breach of fiduciary duty by such director as a
director, except for liability (1) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the DGCL for approval of an unlawful dividend or
an unlawful stock purchase or redemption, or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or modification of
this Article 13 by the stockholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal liability of
a director of the Corporation for acts or omissions occurring prior to the
effective date of such repeal or modification.
10
<PAGE>
Exhibit 10.1
The Strouse, Adler Company
78 Olive Street
New Haven, CT 06511
September 17, 1997
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
56 Harrison Street
Suite 402
New Rochelle, NY 10801
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
Sandside
Port Maria, Jamaica
Ladies and Gentlemen:
Reference is hereby made to the agreements (collectively, the "Agreements")
described on Exhibit A attached hereto each dated as of December 22, 1994 by,
---------
between and among The Strouse, Adler Company ("Strouse, Adler"), PBS Enterprises
Ltd. ("PBS"), Peter Blair Shalleck ("Peter"), Sandy Shalleck ("Sandy"), Davedan
Properties Ltd. ("Davedan") and Maggie Manufacturing Company Ltd. ("Maggie I"),
pursuant to which PBS has agreed, among other things, to provide certain
manufacturing services to Strouse, Adler, and Strouse, Adler has acquired an
option to purchase certain assets owned by PBS and Maggie I and real property
owned by Davedan. Capitalized terms which are used but not otherwise defined
herein and which are defined in the Agreements shall have the respective
meanings herein as are given to such terms in the Agreements.
This letter agreement ("Letter Agreement") will confirm the following:
A. Strouse, Adler understands that Peter and Sandy are in the process of
forming a Jamaican limited liability company named Maggie Manufacturing Co. 1997
Ltd. ("Maggie II") with the intent that Maggie II will take over the operations
of Maggie I. Strouse, Adler further understands that Peter, Sandy and Anselmo
Rodriguez will be the sole shareholders of Maggie II and that Peter and Sandy
will be the sole directors of Maggie II. Strouse, Adler also understands that
upon the formation of Maggie II, Maggie I will assign and transfer to Maggie II
all of Maggie I's rights under each of the Agreements to which Maggie I is a
party and that Maggie II will assume and agree to pay, perform or discharge all
liabilities and obligations of Maggie I under each of the Agreements to which
Maggie I is a party (the "Assignment and Assumption"). Strouse, Adler hereby
consents to such Assignment and Assumption.
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 2
B. Peter and Sandy hereby covenant and agree that immediately upon the
formation of Maggie II, they shall cause Maggie II to execute this Letter
Agreement and shall undertake diligently to consummate the Assignment and
Assumption. The parties hereto acknowledge and agree that if, for whatever
reason, Maggie II does not execute this Letter Agreement, then (i) Maggie I
shall remain solely liable for all existing and future liabilities and
obligations under the Agreements to which Maggie I is a party and (ii) the
provisions of this Letter Agreement shall nonetheless be effective against
Peter, Sandy, Strouse, Adler, PBS, Davedan and Maggie I. The parties further
agree that upon the execution of this Letter Agreement by Maggie II and the
consummation of the Assignment and Assumption, Maggie I and Maggie II shall be
jointly and severally liable for all existing or future liabilities and
obligations under each of the Agreements to which Maggie I is a party and that
Maggie I shall not be released from any existing or future obligations or
liabilities under any of the Agreements to which Maggie I is a party. Peter and
Sandy specifically acknowledge and confirm that upon the execution of this
Letter Agreement by Maggie II, the provisions of the Specific Performance
Agreement shall be enforceable against each of them in their respective
capacities as shareholders and directors of both Maggie I and Maggie II. The
parties also specifically acknowledge and confirm that upon the execution of
this Letter Agreement by Maggie II, the Restrictive Covenant shall be
enforceable against both Maggie I and Maggie II. The parties further agree that
any usage of the capitalized term "Maggie" made in any of the Agreements and
this Letter Agreement shall for all purposes of the Agreements and this Letter
Agreement be deemed to refer collectively to Maggie I and Maggie II.
C. The parties hereto acknowledge that, in connection with the Assignment
and Assumption and as a result of the termination of the employees of Maggie I
(the "Employees") by Maggie I and the re-hiring thereof by Maggie II, severance,
redundancy and other payment obligations may be triggered respecting the
Employees (the "Severance Obligations"). Maggie hereby agrees to take any and
all actions reasonably necessary to avoid the triggering of the Severance
Obligations, including, without limitation, the giving of appropriate "notice in
lieu of severance" to each of the Employees. The parties agree that,
notwithstanding the foregoing or anything to the contrary contained in the
Agreements, Maggie shall be solely responsible for the payment of any Severance
Obligations and Strouse, Adler shall in no event be liable for payment to the
Employees or reimbursement to Maggie of the Severance Obligations.
D. The parties acknowledge that Maggie I has been receiving a monthly
subsidy from the Jamaican government in the amount of approximately $2700 U.S.
per month since January, 1997 and may in the future receive such monthly subsidy
payments and other payments, subsidies, allowances or credits from the Jamaican
government or any subdivision or agency
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 3
thereof (collectively, the "Subsidy Payments"). The parties further acknowledge
that the Subsidy Payments have reduced and may in the future reduce Maggie's
Actual Operating Costs funded by Strouse, Adler under the Exclusive
Subcontracting Agreement. The parties hereto hereby agree that Maggie shall use
all previously received or future Subsidy Payments to reduce Actual Operating
Costs funded by Strouse, Adler under the Exclusive Subcontracting Agreement. The
parties further agree that Strouse, Adler may offset against any future
quarterly payments of the Annual Amount for 1997 or 1998 the amount of any such
Subsidy Payments which are not so used by Maggie to reduce Actual Operating
Costs.
E. The parties hereto have agreed to amend the Agreements effective as of
the date hereof as follows:
1. The term of the ESA Agreement shall be extended for a period of
twelve (12) months. Accordingly, Article VI, Paragraph A of the ESA
Agreement shall be amended and restated as follows: "Term. The term of this
----
Agreement shall commence on January 2, 1995 (the "Effective Date") and
shall continue until January 1, 1999 or such earlier date upon which it is
terminated pursuant to this Article VI or pursuant to the Option
Agreement."
2. The Annual Amount for purposes of the ESA Agreement and the
Option Agreement for the calendar year 1998 shall be designated as
$265,000. Accordingly, the definition of "Annual Amount" contained in
Article I of the ESA Agreement shall be amended and restated as
follows:```Annual Amount' means (i) for 1995, $325,000, less any sums paid
-------------
to PBS upon the execution hereof; (ii) for 1996, $350,000, (iii) for 1997,
$375,000; and (iv) for 1998, $265,000."
3. The cross reference to Section IV.B contained in Article III (e)
of the ESA Agreement shall be substituted with the proper reference to
Section IV.C. Accordingly, the second sentence of Article III (e) of the
ESA Agreement shall be amended and restated as follows: "The attendance by
Mr. Shalleck at periodic meetings pursuant to Section IV.C shall be
excluded for purposes of the foregoing sentence and PBS shall not be
entitled to reimbursement of Mr. Shalleck's travel and telephone expenses
in respect of his attendance at such periodic meetings."
4. The parties agree that the concept of Projected Operating Costs
shall not apply to reduce the Annual Amount otherwise due and payable under
the ESA Agreement for the calendar year 1998. Accordingly, the second
sentence of Article III (d) of the ESA
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 4
Agreement shall be amended and restated as follows: "The Annual Amount due
and payable hereunder for any year through the period ending December 31,
1997, but not including the year commencing on January 1, 1998, shall be
reduced by the amount, if any, by which the Actual Operating Costs,
calculated as of December 31, for such year exceed Projected Operating
Costs for such year." In addition, the parties agree that solely for
purposes of the calendar year 1998, the definition of Actual Operating
Costs under the ESA Agreement shall be as defined on a new Schedule B to be
----------
attached to the ESA Agreement. Accordingly, Article III (c) of the ESA
Agreement shall be amended and restated to read: "(c) fund all Actual
Operating Costs incurred during 1995, 1996 or 1997 in accordance with
Schedule A, and fund all Actual Operating Costs incurred during 1998 in
----------
accordance with Schedule B." In addition, a new Schedule B shall be
---------- ----------
attached to the ESA Agreement, which Schedule B shall read as follows:
----------
"SCHEDULE B
----------
A. Actual Operating Costs. For purposes of this Agreement, "Actual
----------------------
Operating Costs" means all costs or expenses reasonably and actually
incurred by Maggie in the conduct of the Business during 1998 or by
Strouse, Adler in connection with Maggie's operations during 1998,
including, without limitation, costs or expenses related to the
day-to-day upkeep, normal maintenance, insurance and taxes for the
Site, but excluding extraordinary repairs or replacement to the walls
or structural components of the improvements on the Site, plus any and
all costs and expenses, including any employment bonuses, paid by
Strouse, Adler to or on behalf of the Operations Manager in connection
with his employment.
B. Exclusions from Actual Operating Costs. Actual Operating Costs
--------------------------------------
shall not include any of the following:
(a) any Business Expansion Costs (such costs being the direct
responsibility of Strouse, Adler pursuant to Section IV.E.); or
(b) any non-cash expenses such as depreciation or amortization; or
(c) any prior period costs or expenses or other charges between PBS,
Maggie and Davedan not related to the current operation of the
Business during 1998; or
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 5
(d) any management charges or other intercompany charges, including,
without limitation, amounts due to PBS in respect of any equipment
leases or due to Davedan respecting the Lease; or
(e) any costs or expenses which are or would be subject to
indemnification by PBS pursuant to the Option Agreement; or
(f) any cost or expense related to any services provided to Maggie by
Mr. Shalleck or Sandy Shalleck (but such services may be reimbursable
under Section III(e)); or
(g) any income or similar taxes of Maggie, Davedan or PBS; or
(h) an amount equal to 50% of any payments made to Maggie's employees
in respect of severance, redundancy or other obligations upon
termination of such employees (the other 50% being paid by Maggie or
PBS but not being subject to reimbursement as an Actual Operating
Expense); or
(i) any amounts paid to repair, rebuild or restore the Assets or the
Property in the event of any Business Interruption, including the
deductible under any policy of insurance (but the proceeds of such
policy of insurance to be made available to PBS under Section 9.5 of
the Option Agreement); or
(j) any cost or expense related to the negotiation or preparation of
the Option Agreement or the Related Agreements or any amendments
thereto, or the consummation of any of the transactions contemplated
thereby; or
(k) any import duties of Maggie, Davedan or PBS on raw materials,
supplies or machinery.
C. Funding Procedure. Strouse, Adler and Maggie shall work together
-----------------
to establish and implement mutually acceptable mechanisms and
procedures for the funding of Actual Operating Costs and Business
Expansion Costs (if any)."
5. In lieu of applying the Projected Operating Costs concept in 1998,
the parties agree to apply a "Cost Savings" concept for such year.
Accordingly, a new bonus
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 6
provision shall be added to the end of Article III of the ESA Agreement to
read as follows:
"PBS shall be entitled to receive a bonus ("Bonus") for the calendar
year 1998 if Maggie's actual cost per minute of production for such
calendar year is less than $0.12. The Bonus shall be based on a
calculation of Cost Savings, determined in accordance with the
following formula:
Cost Savings = 1998 Minutes of Production x $0.12 - 1998 Production
Costs
PBS shall be entitled to receive as the Bonus the first $35,000 of any
Cost Savings and fifty percent (50%) of any amount of the Cost Savings
in excess of $35,000. If Strouse, Adler closes on the purchase of the
Assets and the Property following its exercise of the Option pursuant
to the Option Agreement prior to December 31, 1998, then the initial
$35,000 available to PBS shall be prorated based on the actual number
of weeks of production completed by Maggie in 1998. The Costs Savings
shall be calculated and the Bonus, if any, shall be paid, no later
than April 1, 1999. For purposes hereof,
`1998 Minutes of Production' shall mean the sum of the products
obtained by multiplying the dozens of each style of product
shipped from Maggie to Strouse, Adler during the calendar year
1998 times the corresponding minutes per dozen for each style of
-----
product indicated on the attached Exhibit B; provided, however,
---------
that the minutes per dozen for any style of product not indicated
on Exhibit B shall be determined by using the "General Sewing
---------
Data" methodology (GSD). Prior to production, Strouse, Adler will
notify PBS of the minutes per dozen computed using the GSD
methodology for any style of product not indicated on Exhibit B.
---------
`1998 Production Costs' shall mean all costs or expenses
reasonably and actually incurred or accrued by Maggie in the
conduct of the business or by Strouse, Adler in connection with
Maggie's operations during 1998, including without limitation or
duplication, Actual Operating Costs for 1998 (as such term has
been amended for purposes of 1998), the Annual Amount, and
amounts paid by Strouse, Adler for insurance, supplies, machine
parts and other goods and services related to the continuing
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 7
operations of Maggie less the Adjustment Amount (as such term is
----
defined below).
`Adjustment Amount' shall mean the product of (x) the Minutes
Shortfall and (y) $.069 but in no event shall the Adjustment
---
Amount exceed $48,870. For purposes of the Adjustment Amount, the
`Minutes Shortfall' shall mean the number of minutes of Maggie's
production down time during regular business hours during 1998
resulting solely from Strouse, Adler's failure (other than due to
any event beyond Strouse, Adler's reasonable control, including,
without limitation, any act of God or action of government,
strike or employee insurrection, force of nature, accident, fire,
flood or other natural disaster) to ship products to Maggie on a
timely basis, but in no event to exceed the positive remainder of
7,082,900 less the 1998 Minutes of Production."
6. The Purchase Price for the Assets and the Property upon exercise
of the Option under the Option Agreement shall be increased from $700,000
to $784,000. Accordingly, Section 3.1 of the Option Agreement shall be
amended and restated as follows: "3.1 Purchase Price. The purchase price
--------------
for the Assets and the Property upon exercise of the Option (the `Purchase
Price') shall be $784,000 plus the amount of the Remaining Subcontracting
----
Payment, if any, calculated as of the Closing Date."
7. The Expiration Date for purposes of the Option Agreement shall be
extended to May 1, 1998 or shall be the date four (4) months after receipt
of notice by Strouse, Adler from PBS of PBS' termination of the ESA
Agreement or Option Agreement, if such notice is received in 1997, or four
(4) months after receipt of notice by Strouse, Adler from PBS of PBS'
termination of the ESA Agreement or Option Agreement, if such notice is
received in 1998. Accordingly, the definition of "Expiration Date"
contained in Article I of the Option Agreement shall be amended and
restated as follows:```Expiration Date' means May 1, 1998, except that, in
---------------
the event that PBS notifies Strouse, Adler of its termination of the
Exclusive Subcontracting Agreement pursuant to Article VI.D thereof or of
this Agreement, the Expiration Date means (a) if such notice is received in
1995, the date six (6) months after receipt of such notice; and (b) if such
notice is received in 1996, 1997 or 1998, the date four (4) months after
receipt of such notice; provided, however, that, in any and all events, the
-------- -------
Expiration Date shall not be later than May 1, 1998."
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 8
8. The latest Closing Date for purposes of consummating the purchase
and sale of the Assets and Property upon exercise of the Option under the
Option Agreement shall be extended twelve (12) months. Accordingly, Section
4.1 of the Option Agreement shall be amended and restated as follows:
"Closing. The closing of the sale and purchase of the Assets and the
Property (the `Closing') shall take place at the offices of Brenner,
-------
Saltzman & Wallman, 270 Whitney Avenue, New Haven, Connecticut 06511, or
such other place as the parties may agree, on the closing date set forth in
the notice of exercise of the Option given by Strouse, Adler pursuant to
Section 2.3 (the `Closing Date'); provided, however, that such Closing Date
-------- -------
shall not be later than January 15, 1999."
9. The date prior to which PBS shall have a right to terminate the
Option Agreement upon twelve (12) months written notice shall be extended
twelve (12) months to January 16, 1998. Accordingly, Section 12.4 of the
Option Agreement shall be amended and restated as follows: "At any time
after July 1, 1995 and prior to January 16, 1998, and provided that
Strouse, Adler has not previously exercised the Option and further provided
that no loss or taking has occurred under Section 9.5, PBS may terminate
this Agreement at its option upon not less than twelve (12) months written
notice to Strouse, Adler. In the event of any termination of this Agreement
by PBS, subject to Strouse, Adler's right to exercise the Option until the
Expiration Date, all of the obligations of Strouse, Adler and the PBS
Parties hereunder and under any Related Agreement shall terminate."
F. All other terms and provisions of the ESA Agreement and the Option
Agreement shall remain in full force and effect.
G. Maggie and Davedan each hereby represent and warrant that the term of
the Lease expires no sooner than January 1, 1999. Maggie and Davedan further
covenant and agree to execute a termination of said Lease in recordable form in
accordance with the provisions of Section 4.2(b) of the Option Agreement
following exercise of the Option by Strouse, Adler.
H. The parties hereto hereby confirm that the Restrictive Covenant, the
Escrow Agreement and the Specific Performance Agreement shall remain in full
force and effect in accordance with their respective terms. The parties hereto
hereby further acknowledge and agree that the amendments to the ESA Agreement
and the Option Agreement effected hereby shall apply for all contextual purposes
to all of the other Agreements. Without limiting the generality of the
foregoing, the parties confirm that the Restricted Period for purposes of the
Restrictive Covenant shall end upon the termination of both the ESA Agreement
and the Option Agreement,
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 9
as such Agreements have been extended and otherwise amended hereby.
I. The terms and provisions of Article VII of the ESA Agreement are
herein incorporated by reference.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
PBS Enterprises Ltd.
Peter Blair Shalleck
Sandy Shalleck
Davedan Properties Ltd.
Maggie Manufacturing Co. 1997 Ltd.
Maggie Manufacturing Company Ltd.
September 17, 1997
Page 10
Please indicate your agreement with and acceptance of the foregoing by
signing in the space indicated below.
Very truly yours,
THE STROUSE, ADLER COMPANY
Paul McDonald
Chief Financial Officer
Agreed and accepted:
PBS ENTERPRISES LTD.
_______________________
By:
Its:
DAVEDAN PROPERTIES LTD.
_______________________
By:
Its:
MAGGIE MANUFACTURING COMPANY LTD.
_______________________
By:
Its:
MAGGIE MANUFACTURING CO. 1997 LTD.
_______________________
By:
Its:
_______________________ _______________________
Peter Blair Shalleck Sandy Shalleck
<PAGE>
Exhibit A
---------
Option Agreement by and among Strouse, Adler, PBS, Davedan and Maggie I ("Option
Agreement").
Exclusive Subcontracting Agreement by and among Strouse, Adler, PBS, Davedan and
Maggie I ("ESA Agreement").
Restrictive Covenant Agreement by and among Strouse, Adler, PBS, Maggie I,
Davedan, Peter and Sandy ("Restrictive Covenant").
Letter agreement by and among Strouse, Adler, Peter and Sandy ("Specific
Performance Agreement").
Escrow Agreement by and among Strouse, Adler, PBS and Gartner & Bloom, P.C. as
Escrow Agent ("Escrow Agreement").
Lease dated March 1, 1988 by and between Maggie I and Davedan ("Lease").
<PAGE>
Exhibit B
---------
<TABLE>
<S> <C> <C>
145 BLK 125.75
145 WHT 125.75
145 BSH 125.75
162 BLK 146.30
162 WHT 146.30
164 BLK 120.25
164 CHP 120.25
173 BLK 111.50
173 WHT 111.50
173 BSH 111.50
175 BLK 146.60
183 BLK 132.50
183 WHT 132.50
192 BLK 127.00
192 WHT 122.50
192 CHP 122.50
192D BLK 140.00
192D WHT 135.50
192D CHP 135.50
193 BLK 137.25
193 WHT 137.25
193 CHP 137.25
194 BLK 137.25
195 WHT 137.25
345 BLK 125.75
345 BSH 125.75
400 BLK 138.50
400 BRZ 138.50
410 BLK 166.00
410 WHT 166.00
462 BLK 153.00
462 WHT 153.00
490 BLK 152.70
492 BLK 154.75
492 WHT 154.75
492 CHP 154.75
495 BLK 167.25
545 BLK 156.25
545 WHT 156.25
575 BLK 156.75
575 WHT 156.75
</TABLE>
<PAGE>
Exhibit 10.2
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease (the "Third Amendment") made as of this 1st
day of September, 1997 by and between:
NEW ENGLAND RESOURCES LIMITED PARTNERSHIP, a Connecticut limited
partnership having an address at 151 River Road, Essex, Connecticut, 06426
(hereafter called "Landlord"); and
THE STROUSE, ADLER COMPANY, a Connecticut corporation having an address at
78 Olive Street, New Haven, Connecticut 06507 (hereafter called "Tenant").
WITNESSETH
WHEREAS, the Landlord is the owner of real estate property and the
improvements thereon known as 78-84 Olive Street, New Haven, Connecticut (the
"Premises"); and
WHEREAS, the Landlord and the Tenant entered into a certain Lease dated
October 4, 1991 (the "Original Lease"), whereby the Tenant leased a portion of
the Premises; and
WHEREAS, the Landlord and the Tenant executed a First Amendment to Lease
dated April 11, 1994 (the "First Amendment") and a Second Amendment to Lease
dated December 14, 1994 (the "Second Amendment") (the Original Lease, First
Amendment and Second Amendment are collectively referred to as the "Lease"); and
WHEREAS, the parties hereto now desire to amend the Lease again as more
fully set forth herein; and
WHEREAS, initial capitalized terms not otherwise defined in this Third
Amendment shall have the same meaning as defined in the Lease.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, the Landlord and the Tenant agree as follows:
A. DEMISED PREMISES. Tenant shall lease from the Landlord an additional
----------------
5,500 square feet located in the basement of the Building for a total of 123,000
square feet leased by Tenant from Landlord. Accordingly, the second recital of
the Lease is hereby amended and restated in its entirety to read as follows:
WHEREAS, the Landlord wishes to lease to the Tenant approximately 87,000
square feet (the "Initial Premises") of space on the third, second and
basement floors of the building located on the Premises (the "Building"),
approximately 10,500 square feet of space (the "Additional Premises")
located on the first floor of the Building, approximately 20,000 square
feet of space (the "Second Additional Premises") located
<PAGE>
on the first floor of the Building, and approximately 5,500 square feet of
space in the basement of the Building (the "Third Additional Premises")
(the Initial Premises, the Additional Premises and the Second Additional
Premises and Third Additional Premises are collectively herein referred to
as the "Demised Premises").
B. LEASE TERM. The term of the Lease for the Demised Premises (as
----------
defined in this Third Amendment) shall be extended until December 31, 2002.
Accordingly Section 1 of the Lease is hereby amended and restated in its
entirety to read as follows:
1. LEASE TERM. The term of this Lease shall end on December 31, 2002
----------
unless sooner terminated under the provisions defined in Section 21 of this
Lease.
C. NET RENT. Landlord and Tenant acknowledge that the annual net rent
---------
for the Demised Premises (except for the Third Additional Premises) is currently
$36,033 per month which amount will increase on September 1, 1997 to reflect the
lesser of 5% or changes in the CPI for the period from September 1996 through
August 1997. The Third Additional Premises is being added to the Lease without
any increase in the aggregate annual net rent payable to the Landlord but with
the effect of reducing the net amount paid per square foot for the Demised
Premises (including the Third Additional Premises). Landlord and Tenant also
agree that provided the Tenant does not remain in default in its obligations
under the Lease after applicable cure periods and does not exercise its right to
terminate under Section 21 of this Lease, the annual net rent payable in
calendar years 1998 and 1999 shall be reduced by $90,000 in the aggregate and
that the net annual rent for the Demised Premises (including the Third
Additional Premises) for the period from January 1, 2000 until December 31, 2000
shall be reduced to $2.76 per square foot and shall increase annually thereafter
by the lesser of 5% or the change in CPI for the immediately preceding year.
Accordingly, Section 2 of the Lease is amended and restated in its entirety to
read as follows:
2. Net Rent. The Tenant shall pay to Landlord an annual net rental of
--------
$432,400 (monthly installments of $36,033) for the Demised Premises
(including the Third Additional Premises) through August 31, 1997. Each
September 1st of each year during the lease term, commencing on September
1, 1997, the annual net rental for the Demised Premises for each subsequent
12-month period shall be increased over the prior year's annual net rent by
an amount equal to the product of (a) the prior year's net annual rent
times (b) the lesser of 5% or the increase in the consumer Price Index
-----
("CPI") as reported in the Wall Street Journal for the previous 12 months
-------------------
(September through August). The annual net rental for the Demised Premises
shall be hereinafter referred to as the "Net Rent" and the annual increases
in Net Rent shall continue each September 1st until the end of the term of
the Lease.
Notwithstanding the foregoing (a) provided that (i) no Event of Default by
Tenant occurs during the lease term which Event of Default is not cured
within the applicable grace period, or (ii) Tenant does not exercise its
right of termination under Section 21 of this Lease (each, a "Rent Credit
Revocation Event"), the Net Rent payable for the period from January 1,
1998 until December 31, 1999 shall be reduced (the "Rent
2
<PAGE>
Credit") by $90,000 such reduction to be taken by Tenant by reducing the
monthly installments of Net Rent payable during such period by $3,000 per
month respecting 1998 and $4,500 per month respecting 1999 and (b) the Net
Rent payable for January 1, 2000 until December 31, 2000 shall be reduced
to $2.76 per square foot for the Demised Premises and for each subsequent
year (i.e. beginning January 1, 2001) the Net Rent shall be increased
annually thereafter by an amount equal to the product of (i) the prior
year's Net Rent times (ii) the lesser of (X) 5% or (Y) the increase in the
CPI for the prior twelve month period (January through December 2000 and
January through December 2001). In the event that any Rent Credit
Revocation Event occurs prior to December 31, 2002 and in addition to
Landlord's other rights and remedies and not as liquidated damages or as a
penalty, the Rent Credit shall be null and void and the entire benefit of
the Rent Credit previously taken by the Tenant shall be immediately due and
payable to Landlord and the Net Rent for the remainder of the period until
December 31, 1999 will be recalculated without giving effect to the Rent
Credit.
D. PERCENTAGE OF PROPERTY. The addition of the Third Additional Premises
----------------------
increases Tenant's occupancy of the Building from 74.8% to 78.3% of the
Building. Accordingly, various Sections of the Lease have to be amended to
increase the Tenant's responsibility from 74.8% to 78.3% for the common charges
and other items. Accordingly, Sections 3, 7, 10 and 11 are hereby amended to
delete "74.8%" and insert "78.3%".
E FACILITIES AND SERVICES Landlord and Tenant agree to substitute the
-----------------------
word UTILITIES for FACILITIES in the title of Section 11.
F. TENANT'S RIGHT TO TERMINATE. Landlord and Tenant agree that Tenant is
---------------------------
to be granted a right to terminate this Lease and Landlord may not exercise its
right to terminate prior to December 31, 1999 and must give two (2) years notice
to Tenant. Accordingly, Section 21 is hereby amended and restated in its
entirety to read as follows:
21. SALE OF PREMISES OR TENANT. In the event that a sale of the Premises
--------------------------
is consummated, then Landlord may terminate this Lease on the condition
that Landlord provide Tenant a minimum of two years notice from the closing
of the sale of the Premises prior to effective date of such termination and
provided further that no such notice of termination from Landlord may be
given prior to December 31, 1999. In the event that a sale or transfer of
substantially all of the stock or assets of the Tenant is consummated to an
independent third party not affiliated to or with, or controlled by The
Aristotle Corporation or Aristotle Sub, Inc., then the new owner of Tenant
or Tenant's stock may terminate this Lease on the condition that Tenant
provide Landlord a minimum of twelve (12) calendar months notice prior to
the effective date of such termination and provided further that no such
notice of termination from Tenant may be given prior to December 31, 1999.
It is clearly understood that all obligations of Landlord and Tenant must
be met during the period after which notice as defined above is provided
and prior to the actual termination date of this Lease as specified in such
notice.
3
<PAGE>
G. GRACE PERIOD. Section 18(a) of the Lease is hereby deleted in its
------------
entirety and the following shall be inserted in its place and stead:
(a) A default in the due and punctual payment of any Net Rent or
Additional Rent payable under this Lease or any part thereof within fifteen
(15) days after the same shall become due and payable; or
H. MISCELLANEOUS. This Agreement constitutes the entire agreement of the
-------------
parties with respect to the Third Amendment of the Lease. Except as provided
herein, the Lease as previously amended is and remains in full force and effect
without amendment or modification.
IN WITNESS WHEREOF, the Landlord and the Tenant hereunder have hereunto set
their names and seals the day and year first above written.
SIGNED, SEALED AND DELIVERED NEW ENGLAND RESOURCES
as to the Signatures in the presence of LIMITED PARTNERSHIP
By: Howell Resource, Inc.
Its General Partner
_______________________________________ ___________________________________
Ann-Marie Howell
Its Vice President
_______________________________________
_______________________________________ THE STROUSE, ADLER COMPANY
_______________________________________ By:________________________
Its
4
<PAGE>
Exhibit 10.3
FIRST AMENDMENT TO
MASTER CREDIT AGREEMENT
-----------------------
This FIRST AMENDMENT TO MASTER CREDIT AGREEMENT (the "First Amendment") is
made as of this 19th day of September, 1997 by and between BANK OF BOSTON
CONNECTICUT, a Connecticut savings bank, with its head office located at 100
Pearl Street, Hartford, Connecticut 06103 (the "Bank") and THE STROUSE, ADLER
COMPANY, a Delaware corporation, with its chief executive office located at 78
Olive Street, New Haven, Connecticut 06507 (the "Borrower").
W I T N E S S E T H:
WHEREAS, the Bank and the Borrower entered into a certain Master Credit
Agreement dated as of October 3, 1996 (the "Credit Agreement") whereby the Bank
agreed to make loans and advances and otherwise extend credit to the Borrower;
and
WHEREAS, the Bank and the Borrower desire to amend the Credit Agreement in
certain respects; and
WHEREAS, Section 13.10. of the Credit Agreement provides that no
modification or amendment of the Credit Agreement shall be effective unless the
same shall be in writing and signed by the parties thereto;
NOW, THEREFORE, in consideration of one dollar ($1.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Bank and the Borrower hereby agree as follows:
1. Amendment of Credit Agreement. The Bank and the Borrower hereby agree to
-----------------------------
amend the Credit Agreement as follows:
(a) Section 1.29. of the Credit Agreement, entitled Commitment Amount, is
------------------
hereby deleted in its entirety and the following inserted in lieu
thereof as a new Section 1.29., also entitled Commitment Amount:
-----------------
Section 1.29. "Commitment Amount" means (i) the amount of TEN MILLION
-----------------
AND NO/100 DOLLARS ($10,000,000.00) or (ii) any lesser amount,
including zero (0), resulting from a reduction or termination of such
amount in accordance with Section 2.1.6. or Section 12.1.
(b) Section 1.39. of the Credit Agreement, entitled Deposit Account, is
----------------
hereby deleted in its entirety and is of no further force or effect
<PAGE>
2
(c) Section 1.40. of the Credit Agreement, entitled Deposit Account
---------------
Pledge, is hereby deleted in its entirety and is of no further force or
------
effect
(d) Section 1.103. of the Credit Agreement, entitled Overadvance Limit is
-----------------
hereby deleted in its entirety and the following inserted in lieu thereof
as a new Section 1.103., also entitled Overadvance Limit:
-----------------
Section 1.103. "Overadvance Limit" means, as of any date as of which
-----------------
the amount thereof shall be determined, an amount not to exceed ONE
MILLION AND NO/100 DOLLARS ($1,000,000.00) during the period
commencing as of September 19, 1997 and continuing through January 14,
1998, ONE MILLION TWO HUNDRED FIFTY THOUSAND AND N0/100 DOLLARS
($1,250,000.00) during the period commencing as of January 15, 1998
and continuing through March 14, 1998, ONE MILLION AND NO/100 DOLLARS
($1,000,000.00) during the period commencing as of March 15, 1998 and
continuing through May 14, 1998 and FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($500,000.00) during the period commencing as of May 15, 1998
and continuing through the Revolving Credit Termination Date.
(e) Section 2.1.7. of the Credit Agreement, entitled Revolving Credit Note
---------------------
is hereby deleted in its entirety and the following inserted in lieu
thereof as a new Section 2.1.7. also entitled Revolving Credit Note:
---------------------
Section 2.1.7. Revolving Credit Note. Revolving Loans shall be
---------------------
evidenced by a promissory note substantially in the form attached
hereto as Exhibit B (the "Revolving Credit Note") executed by Borrower
---------
in substitution for the $8,000,000.00 revolving credit note dated
October 3, 1996 which heretofore evidenced Revolving Loans.
(f) Section 2.4.6. of the Credit Agreement, entitled Mandatory Prepayment,
--------------------
is hereby deleted in its entirety and the following inserted in lieu
thereof as a new Section 2.4.6., also entitled Mandatory Prepayment:
--------------------
Section 2.4.6. Mandatory Prepayment. Notwithstanding any provision
--------------------
of this Agreement to the contrary, Borrower shall make a mandatory
prepayment in respect of the principal amount of the Term Loan within
one hundred twenty (120) days following the end of each Fiscal Year
commencing with the Fiscal Year ending June 30, 1998 in an amount
equal to twenty-five percent (25%) of Excess Cash Flow for such Fiscal
Year.
(g) Subparagraphs (ii) and (iii) of subsection (b) of Section 2.5.2. of
the Credit Agreement (which subparagraph (b) is mistakenly referred to as
subsection (a) within the
<PAGE>
3
Credit Agreement due to a scriveners' error) is hereby deleted in its
entirety and the following inserted in lieu thereof as new subparagraphs
(ii) and (iii):
(ii) If the Debt Service Coverage Ratio is greater than (x) 1.10 to
1.0 or (y) commencing with the Fiscal Quarter ending September 30,
1998, 1.20 to 1.0 but less than or equal to 1.25 to 1.0 and the Debt
to Worth Ratio is:
(a) greater than 5.0 to 1.0, then the the Base Rate Margin shall be
three-quarters of one percentage point (.75%) and the Eurodollar
Margin shall be two and one-half percentage points (2.50%); or
(b) less than 5.0 to 1.0 but greater than or equal to 4.0 to 1.0,
then the the Base Rate Margin shall be one-half of one percentage
point (.50%) and the Eurodollar Margin shall be two and one-quarter
percentage points (2.25%); or
(c) less than 4.0 to 1.0, then the the Base Rate Margin shall be one-
quarter of one percentage point (.25%) and the Eurodollar Margin shall
be two and one-quarter percentage points (2.0%).
(iii) If the Debt Service Coverage Ratio is (x) greater than 1.0 to
1.0 but less than or equal to 1.10 to 1.0 or (y) commencing with the
Fiscal Quarter ending September 30, 1998, greater than 1.0 to 1.0 but
less than or equal to 1.20 to 1.0 (Borrower hereby acknowledging that
this provision is intended only to provide a means to determine the
then applicable rate of interest for Base Rate Loans and shall not
limit or affect Bank's rights to require Borrower's compliance with
the financial covenant set forth in Section 9.2. hereof) and the Debt
to Worth Ratio is:
(a) greater than 5.0 to 1.0, then the the Base Rate Margin shall be
one percentage point (1.0%) and the Eurodollar Margin shall be three
percentage points (3.00%); or
(b) less than 5.0 to 1.0 but greater than or equal to 4.0 to 1.0,
then the the Base Rate Margin shall be three-quarters of one
percentage point (.75%) and the Eurodollar Margin shall be two and
one-half percentage points (2.50%); or
(c) less than 4.0 to 1.0, then the the Base Rate Margin shall be one-
half of one percentage points (.50%) and the Eurodollar Margin shall
be two percentage points (2.25%).
(h) Section 3.2.2. of the Credit Agreement is hereby deleted in its
entirety and the following inserted in lieu thereof as a new Section
3.2.2.:
<PAGE>
4
Section 3.2.2. A limited guaranty agreement executed by Aristotle
with respect to that portion of the Obligations which relate to the
Term Loan in substantially the form attached hereto as Exhibit E-1
-----------
(the "Aristotle Guaranty").
(i) Section 9.2. of the Credit Agreement, entitled Debt Service Coverage,
---------------------
is hereby deleted in its entirety and the following inserted in lieu
thereof as a new Section 9.2., also entitled Debt Service Coverage:
---------------------
Section 9.2. Debt Service Coverage. Borrower shall not permit the ratio
---------------------
of its EBITDA minus Cash Taxes and Capital Expenditures to its Total Debt
Service to be less than the following amount at the end of the following
Fiscal Quarters:
RATIO FISCAL QUARTER ENDING
1.1 to 1.0 June 30, 1997 through June 30, 1998
1.2 to 1.0 September 30, 1998 and thereafter
Borrower's compliance with this covenant shall be calculated on a rolling
basis by reference to the Fiscal Quarter then ending and the three (3)
previous Fiscal Quarters.
(j) Section 13.3. of the Credit Agreement, entitled Notices, is hereby
-------
amended to change the address for notices to the Bank as follows:
If to Bank:
Bank of Boston Connecticut
100 Pearl Street
Hartford, CT 06103
Attn: Scott S. Barnett, Vice President
(k) Exhibit B to the Credit Agreement representing the form of the
---------
$8,000,000.00 revolving credit note dated October 3, 1997 is hereby deleted
and Exhibit B attached hereto is substituted in lieu thereof.
---------
(l) All references within the Credit Agreement and the Other Documents to
the term "The First National Bank of Boston" are hereby deleted in their
entirety and the term "BankBoston, N.A." is substituted in lieu thereof.
2. Amendment Fee. In consideration of the increase in the Commitment Amount
-------------
as provided within this First Amendment, the Borrower shall pay an amendment fee
in the amount of $10,000.00 to the Bank upon the execution of this First
Amendment.
<PAGE>
5
3. Confirmation of Agreements. The Borrower and the Bank hereby agree and
--------------------------
acknowledge that, except as provided in this First Amendment, the Credit
Agreement, the Notes and the Other Documents, and the grant of the liens,
security interests and other encumbrances thereunder, and its agreements,
covenants, obligations, representations and warranties thereunder and therein
are hereby expressly ratified, confirmed and restated as of the date hereof.
4. Effect of Amendment. The Bank and the Borrower hereby agree and
-------------------
acknowledge that except as provided in this First Amendment, the Credit
Agreement remains in full force and effect and has not been modified or amended
in any respect, it being the intention of the Bank and the Borrower that this
First Amendment and the Credit Agreement be read, construed and interpreted as
one and the same instrument.
5. Capitalized Terms. All capitalized terms not otherwise defined in this
-----------------
First Amendment shall have the meanings ascribed to such terms in the Credit
Agreement.
IN WITNESS WHEREOF, the Bank and the Borrower have executed this First
Amendment as of the date first above written.
BORROWER:
THE STROUSE, ADLER COMPANY
By:__________________________________
Name:
Title:
BANK:
BANK OF BOSTON CONNECTICUT
By:__________________________________
Name:
Title:
<PAGE>
EXHIBIT B
---------
SUBSTITUTE REVOLVING CREDIT NOTE
--------------------------------
<PAGE>
EXHIBIT 10.4
Appendix 2
----------
THE ARISTOTLE CORPORATION
1997 EMPLOYEE AND DIRECTOR STOCK PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this The Aristotle Corporation 1997 Employee
and Director Stock Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
---------
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the committee of the Board of Directors to which the
---------
Board of Directors has delegated power to act under or pursuant to
the provisions of the Plan.
Common Stock means shares of the Company's common stock, $.01 par
------------
value per share.
Company means The Aristotle Corporation, a Delaware corporation.
-------
Disability or Disabled means permanent and total disability as
---------- --------
defined in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price
of the Common Stock on the Composite
<PAGE>
Tape or other comparable reporting system for the trading day
immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales
prices are not regularly reported for the Common Stock for the
trading day referred to in clause (1), and if bid and asked prices
for the Common Stock are regularly reported, the mean between the
bid and the asked price for the Common Stock at the close of trading
in the over-the-counter market for the trading day on which Common
Stock was traded immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as
the Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
---
under Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as
an officer or director of the Company or of an Affiliate),
designated by the Administrator to be eligible to be granted one or
more Stock Rights under the Plan.
Non-Qualified Option means an option which is not intended to
--------------------
qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a
----------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee or director to whom one or more
-----------
Stock Rights are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this The Aristotle Corporation 1997 Employee and Director
----
Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights
------
have been or may be granted under the Plan or any shares of capital
stock into which the Shares are changed or for which they are
exchanged within the provisions of Paragraph 3 of the Plan. The
Shares issued under the Plan may be authorized and unissued shares
or shares held by the Company in its treasury, or both.
Stock Grant means a grant by the Company of Shares under the Plan.
-----------
2
<PAGE>
Stock Grant Agreement means an agreement between the Company and a
---------------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Right means a right to Shares of the Company granted pursuant
-----------
to the Plan -- an ISO, a Non-Qualified Option or a Stock Grant.
Survivors means a deceased Participant's legal representatives
---------
and/or any person or persons who acquired the Participant's rights
to a Stock Right by will or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN.
---------------------
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of the Company in order to attract such people, to induce them to work
for the benefit of the Company or of an Affiliate and to provide additional
incentive for them to promote the success of the Company or of an Affiliate. The
Plan provides for the granting of ISOs, Non-Qualified Options and Stock Grants.
3. SHARES SUBJECT TO THE PLAN.
---------------------------
The number of Shares which may be issued from time to time pursuant to this
Plan shall be 150,000 or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the effect of any stock
split, stock dividend, combination, recapitalization or similar transaction in
accordance with Paragraph 23 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to a Stock Grant, the Shares
which were subject to such Option and any Shares so reacquired by the Company
shall be available for the granting of other Stock Rights under the Plan. Any
Option shall be treated as "outstanding" until such Option is exercised in full,
or terminates or expires under the provisions of the Plan, or by agreement of
the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
---------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in which
case the Committee shall be the Administrator. Subject to the provisions of the
Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Stock Grant
and to make all rules and determinations which it deems necessary or
advisable for the administration of the Plan;
3
<PAGE>
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees and
directors shall be granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or Stock Rights
shall be granted, provided, however, that in no event shall Stock
Rights with respect to more than 30,000 shares be granted to any
Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
------------------------------
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee or
director of the Company or of an Affiliate at the time a Stock Right is granted.
Notwithstanding the foregoing, the Administrator may authorize the grant of a
Stock Right to a person not then an employee or director of the Company or of an
Affiliate; provided, however, that the actual grant of such Stock Right shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of the delivery of the Agreement evidencing such Stock Right.
ISOs may be granted only to Key Employees. Non-Qualified Options and Stock
Grants may be granted to any Key Employee or director of the Company or an
Affiliate. The granting of any Stock Right to any individual shall neither
entitle that individual to, nor disqualify him or her from, participation in any
other grant of Stock Rights.
6. TERMS AND CONDITIONS OF OPTIONS.
--------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
4
<PAGE>
A. Non-Qualified Options: Each Option intended to be a Non-Qualified Option
---------------------
shall be subject to the terms and conditions which the Administrator
determines to be appropriate and in the best interest of the Company,
subject to the following minimum standards for any such Non-Qualified
Option:
a. Option Price: Each Option Agreement shall state the option price (per
share) of the Shares covered by each Option, which option price shall be
determined by the Administrator but shall not be less than the par value
per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which it
pertains;
c. Each Option Agreement shall state the date or dates on which it first is
exercisable and the date after which it may no longer be exercised, and
may provide that the Option rights accrue or become exercisable in
installments over a period of months or years, or upon the occurrence of
certain conditions or the attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to the
Administrator providing for certain protections for the Company and its
other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to sell or
transfer the Shares may be restricted; and
ii. The Participant or the Participant'sSurvivors may be required to
execute letters of investment intent and must also acknowledge that
the Shares will bear legends noting any applicable restrictions.
e. Directors' Options: Each director of the Company who is not an employee
-------------------
of or consultant to the Company or any Affiliate, upon first being
elected to the Board of Directors, shall be granted a Non-Qualified
Option to purchase 2,500 Shares. Each such Option shall (i) have an
exercise price equal to the Fair Market Value (per share) of the Shares
on the date of grant of the Option, (ii) have a term of ten years, and
(iii) become exercisable in full upon completion of one full year of
service on the Board of Directors after the date of grant.
Any director serving on the Board of Directors on October 30, 1997, who
is not an employee of or consultant to the Company or any Affiliate,
shall be granted a Non-Qualified Option to purchase 2,500 shares as of
such date. Each such Option shall (i) have an exercise price equal to
the Fair
5
<PAGE>
Market Value (per share) of the Shares on the date of grant of
the Option, (ii) have a term of ten years, and (iii) be immediately
exercisable in full.
On the date of each reelection to the Board of Directors, provided that
on such dates the director has been in the continued and uninterrupted
service as a director of the Company since his or her initial election
or appointment and is not an employee of or consultant to the Company or
any Affiliate, each director will be granted a Non-Qualified Option to
purchase 1,000 Shares. Each such Option shall (i) have an exercise price
equal to the Fair Market Value (per share) of the Shares on the date of
grant of the Option, (ii) have a term of ten years, and (iii) become
exercisable in full upon completion of one full year of service on the
Board of Directors after the date of grant.
Any director entitled to receive an Option under this subparagraph may
elect to decline the Option.
Except as otherwise provided in the pertinent Option Agreement, if a director
who receives Options pursuant to this subparagraph:
a. ceases to be a member of the Board of Directors for any reason
other than death or Disability, any then unexercised Options
granted to such director may be exercised by the director within a
period of ninety (90) days after the date the director ceases to be
a member of the Board of Directors, but only to the extent of the
number of Shares with respect to which the Options are exercisable
on the date the director ceases to be a member of the Board of
Directors, and in no event later than the expiration date of the
Option; or
b. ceases to be a member of the Board of Directors by reason of his or
her death or Disability, any then unexercised Options granted to
such director may be exercised by the director (or by the
director's personal representative, or the director's Survivors)
within a period of one hundred eighty (180) days after the date the
director ceases to be a member of the Board of Directors, but only
to the extent of the number of Shares with respect to which the
Options are exercisable on the date the director ceases to be a
member of the Board of Directors, and in no event later than the
expiration date of the Option.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
----
Employee and be subject to at least the following terms and conditions,
with such additional restrictions or changes as the Administrator
determines are appropriate but not in
6
<PAGE>
conflict with Section 422 of the Code
and relevant regulations and rulings of the Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards required of
Non-Qualified Options, as described in Paragraph 6(A) above, except
clauses (a) and (e) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable attribution
rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting power of
-------
all classes of stock of the Company or an Affiliate, the Option
price per share of the Shares covered by each Option shall not be
less than one hundred percent (100%) of the Fair Market Value per
share of the Shares on the date of the grant of the Option.
ii. More than ten percent (10%) of the total combined voting power of
all classes of stock of the Company an Affiliate, the Option
price per share of the Shares covered by each Option shall not be
less than one hundred ten percent (110%) of the said Fair Market
Value on the date of grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power of
-------
all classes of stock of the Company or an Affiliate, each Option
shall terminate not more than ten (10) years from the date of the
grant or at such earlier time as the Option Agreement may
provide.
ii. More than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or an Affiliate, each Option
shall terminate not more than five (5) years from the date of the
grant or at such earlier time as the Option Agreement may
provide.
d. Limitation on Yearly Exercise: The Option Agreements shall restrict the
amount of Options which may be exercisable in any calendar year (under
this or any other ISO plan of the Company or an Affiliate) so that the
aggregate Fair Market Value (determined at the time each ISO is
granted) of the stock with respect to which ISOs are exercisable for
the first time by the Participant in any calendar year does not exceed
one hundred thousand dollars ($100,000), provided that this
subparagraph (d) shall have no force or effect if its inclusion in the
Plan is not necessary for Options issued as ISOs to qualify as ISOs
pursuant to Section 422(d) of the Code.
7
<PAGE>
7. TERMS AND CONDITIONS OF STOCK GRANTS.
-------------------------------------
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per share),
if any, of the Shares covered by each Stock Grant, which purchase price
shall be determined by the Administrator but shall not be less than the
minimum consideration required by the Delaware General Corporation Law
on the date of the grant of the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of the
Company to reacquire the Shares subject to the Stock Grant, including
the time and events upon which such rights shall accrue and the
purchase price therefor, if any.
8. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
----------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the
8
<PAGE>
Administrator, by any combination of (a), (b), (c), (d) and (e) above.
Notwithstanding the foregoing, the Administrator shall accept only such payment
on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 26) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of the
Participant to whom the Option was granted, or in the event of the death of the
Participant, the Participant's Survivors, if the amendment is adverse to the
Participant, and (iii) any such amendment of any ISO shall be made only after
the Administrator, after consulting the counsel for the Company, determines
whether such amendment would constitute a "modification" of any Option which is
an ISO (as that term is defined in Section 424(h) of the Code) or would cause
any adverse tax consequences for the holder of such ISO.
9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
----------------------------------------------
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase price
for the Shares as to which such Stock Grant is being accepted shall be made (a)
in United States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock having a fair market
value equal as of the date of acceptance of the Stock Grant to the purchase
price of the Stock Grant determined in good faith by the Administrator, or (c)
at the discretion of the Administrator, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the applicable Federal rate, as defined in
9
<PAGE>
Section 1274(d) of the Code,or (d) at the discretion of the Administrator, by
any combination of (a), (b) and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which
such Stock Grant was accepted to the Participant (or to the Participant's
Survivors, as the case may be), subject to any escrow provision set forth in the
Stock Grant Agreement. In determining what constitutes "reasonably promptly," it
is expressly understood that the issuance and delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation (including,
without limitation, state securities or "blue sky" laws) which requires the
Company to take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
10. RIGHTS AS A SHAREHOLDER.
------------------------
No Participant to whom a Stock Right has been granted shall have rights as
a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option or acceptance of the Stock Grant and tender of
the full purchase price, if any, for the Shares being purchased pursuant to such
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
--------------------------------------------------
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of descent
and distribution, or (ii) as otherwise determined by the Administrator and set
forth in the applicable Option Agreement or Stock Grant Agreement. The
designation of a beneficiary of a Stock Right by a Participant shall not be
deemed a transfer prohibited by this Paragraph. Except as provided above, a
Stock Right shall only be exercisable or may only be accepted, during the
Participant's lifetime, by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.
10
<PAGE>
12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH
---------------------------------------------------------------------------
OR DISABILITY.
--------------
Except as otherwise provided in the pertinent Option Agreement in the event
of a termination of service (whether as an employee or director ) with the
Company or an Affiliate before the Participant has exercised an Option, the
following rules apply:
a. A Participant who ceases to be an employee or director of the Company
or of an Affiliate (for any reason other than termination "for cause",
Disability, or death for which events there are special rules in
Paragraphs 13, 14, and 15, respectively), may exercise any Option
granted to him or her to the extent that the Option is exercisable on
the date of such termination of service, but only within such term as
the Administrator has designated in the pertinent Option Agreement.
b. Except as provided in subparagraph (c) below, or Paragraph 14 or 15, in
no event may an Option Agreement provide, if an Option is intended to
be an ISO, that the time for exercise be later than three (3) months
after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of Paragraph
14 or 15, shall apply to a Participant who subsequently becomes
Disabled or dies after the termination of employment or director
status, provided, however, in the case of a Participant's Disability or
death within three (3) months after the termination of employment or
director status, the Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the
Participant's termination of employment, but in no event after the date
of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment or termination of director
status, but prior to the exercise of an Option, the Board of Directors
determines that, either prior or subsequent to the Participant's
termination, the Participant engaged in conduct which would constitute
"cause", then such Participant shall forthwith cease to have any right
to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment or director status with the Company or
with an Affiliate, except as the Administrator may otherwise expressly
provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a
11
<PAGE>
Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee or
director of the Company or any Affiliate.
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee or
director ) with the Company or an Affiliate is terminated "for cause" prior to
the time that all his or her outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the existence
of "cause" will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee or director of the Company or of an
Affiliate by reason of Disability may exercise any Option granted to such
Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
12
<PAGE>
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date of the Participant's termination of
employment or directorship, as the case may be, notwithstanding that the
Participant might have been able to exercise the Option as to some or all of the
Shares on a later date if the Participant had not become disabled and had
continued to be an employee or director or, if earlier, within the originally
prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE OR DIRECTOR.
---------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee or
director of the Company or of an Affiliate, such Option may be exercised by the
Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee or director or, if
earlier, within the originally prescribed term of the Option.
13
<PAGE>
16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
-------------------------------------------------
In the event of a termination of service (whether as an employee or
director) with the Company or an Affiliate for any reason before the Participant
has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work with
the Company or with an Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment or director status with the Company or with an
Affiliate, except as the Administrator may otherwise expressly provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment or director
status so long as the Participant continues to be an employee or director of the
Company or any Affiliate.
17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
--------------------------------------------------------------------------
DEATH OR DISABILITY.
--------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, in the
event of a termination of service (whether as an employee or director), other
than termination "for cause," Disability, or death for which events there are
special rules in Paragraphs 18, 19, and 20, respectively, before all Company
rights of repurchase shall have lapsed, then the Company shall have the right to
repurchase that number of Shares subject to a Stock Grant as to which the
Company's repurchase rights have not lapsed.
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE "FOR CAUSE".
-------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if the Participant's service (whether as an employee or
director) with the Company or an Affiliate is terminated "for cause":
a. All Shares subject to any Stock Grant shall be immediately subject to
repurchase by the Company at the purchase price, if any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or
14
<PAGE>
non-feasance of duty, unauthorized disclosure of confidential
information, and conduct substantially prejudicial to the business of
the Company or any Affiliate. The determination of the Administrator
as to the existence of "cause" will be conclusive on the Participant
and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would constitute
"cause," then the Company's right to repurchase all of such
Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
----------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee or director of
the Company or of an Affiliate by reason of Disability: to the extent the
Company's rights of repurchase have not lapsed on the date of Disability, they
shall be exercisable; provided, however, that in the event such rights of
repurchase lapse periodically, such rights shall lapse to the extent of a pro
rata portion of the Shares subject to such Stock Grant as would have lapsed had
the Participant not become Disabled prior to the end of the vesting period which
next ends following the date of Disability. The proration shall be based upon
the number of days of such vesting period prior to the date of Disability.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE OR DIRECTOR.
--------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee or director of the Company or of an Affiliate: to the
extent the Company's rights of repurchase have not lapsed on the date of death,
they shall be exercisable; provided, however, that in the event such rights of
repurchase lapse periodically, such rights shall lapse to the extent of a pro
rata portion of the
15
<PAGE>
Shares subject to such Stock Grant as would have lapsed had the Participant not
died prior to the end of the vesting period which next ends following the date
of death. The proration shall be based upon the number of days of such vesting
period prior to the Participant's death.
21. PURCHASE FOR INVESTMENT.
------------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise or acceptance of a Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that such
person(s) are acquiring such Shares for their own respective accounts,
for investment, and not with a view to, or for sale in connection
with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions of
the following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such
grant:
"The shares represented by this certificate have
been taken for investment and they may not be
sold or otherwise transferred by any person,
including a pledgee, unless (1) either (a) a
Registration Statement with respect to such
shares shall be effective under the Securities
Act of 1933, as amended, or (b) the Company shall
have received an opinion of counsel satisfactory
to it that an exemption from registration under
such Act is then available, and (2) there shall
have been compliance with all applicable state
securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon
such particular exercise or acceptance in compliance with the 1933 Act
without registration thereunder.
22. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
------------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised and all
Stock Grants which have not been accepted will terminate and become null and
void; provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise or accept any Stock Right to the extent
that the Stock Right is exercisable or subject to acceptance as of the date
immediately prior to such dissolution or liquidation.
16
<PAGE>
23. ADJUSTMENTS.
------------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement or Stock Grant Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise or acceptance of such Stock Right may be
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to Options to be granted to directors pursuant to
Paragraph 6(A)(e) shall also be proportionately adjusted upon the occurrence of
such events.
B. Consolidations or Mergers. If the Company is to be consolidated with or
-------------------------
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph) at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash payment equal
to the excess of the Fair Market Value of the Shares subject to such Options
(either to the extent then exercisable or, at the discretion of the
Administrator, all Options being made fully exercisable for purposes of this
Subparagraph) over the exercise price thereof.
With respect to outstanding Stock Grants, the Administrator or the
Successor Board, shall either (i) make appropriate provisions for the
continuation of such Stock Grants by substituting on an equitable basis for the
Shares then subject to such Stock Grants either the consideration payable with
respect to the outstanding Shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Stock Grants must be
accepted (to the extent then subject to acceptance) within a specified number of
days of the date of such notice, at the end of which period the offer of the
Stock Grants shall terminate; or (iii) terminate all Stock Grants in exchange
for a cash payment equal to the excess of the Fair Market Value of the Shares
subject to such Stock Grants over the purchase price thereof, if any. In
addition, in the event of an Acquisition,
17
<PAGE>
the Administrator may waive any or all Company repurchase rights with respect to
outstanding Stock Grants.
C. Recapitalization or Reorganization. In the event of a recapitalization
----------------------------------
or reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising or accepting a Stock Right shall be entitled to
receive for the purchase price, if any, paid upon such exercise or acceptance
the securities which would have been received if such Stock Right had been
exercised or accepted prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to Subparagraph A, B or C with respect to ISOs shall
be made only after the Administrator, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424(h) of the Code) or would
cause any adverse tax consequences for the holders of such ISOs. If the
Administrator determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
24. ISSUANCES OF SECURITIES.
------------------------
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company
prior to any issuance of Shares pursuant to a Stock Right.
25. FRACTIONAL SHARES.
------------------
No fractional shares shall be issued under the Plan and the person
exercising a Stock Right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
18
<PAGE>
26. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
-------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
27. WITHHOLDING.
------------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise or acceptance of a Stock Right or in connection with a
Disqualifying Disposition (as defined in Paragraph 28) or upon the lapsing of
any right of repurchase, the Company may withhold from the Participant's
compensation, if any, or may require that the Participant advance in cash to the
Company, or to any Affiliate of the Company which employs or employed the
Participant, the amount of such withholdings unless a different withholding
arrangement, including the use of shares of the Company's Common Stock or a
promissory note, is authorized by the Administrator (and permitted by law). For
purposes hereof, the fair market value of the shares withheld for purposes of
payroll withholding shall be determined in the manner provided in Paragraph 1
above, as of the most recent practicable date prior to the date of exercise. If
the fair market value of the shares withheld is less than the amount of payroll
withholdings required, the Participant may be required to advance the difference
in cash to the Company or the Affiliate employer. The Administrator in its
discretion may condition the exercise of an Option for less than the then Fair
Market Value on the Participant's payment of such additional withholding.
28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
-----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any
19
<PAGE>
sale) of such shares before the later of (a) two years after the date the Key
Employee was granted the ISO, or (b) one year after the date the Key Employee
acquired Shares by exercising the ISO. If the Key Employee has died before such
stock is sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
29. TERMINATION OF THE PLAN.
------------------------
The Plan will terminate on August 27, 2007, the date which is ten (10)
years from the earlier of the date of its adoption and the date of its approval
by the shareholders of the Company. The Plan may be terminated at an earlier
-------
date by vote of the shareholders of the Company; provided, however, that any
such earlier termination shall not affect any Option Agreements or Stock Grant
Agreements executed prior to the effective date of such termination.
30. AMENDMENT OF THE PLAN AND AGREEMENTS.
-------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code, and to the
extent necessary to qualify the shares issuable upon exercise or acceptance of
any outstanding Stock Rights granted, or Stock Rights to be granted, under the
Plan for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers. Any amendment
approved by the Administrator which the Administrator determines is of a scope
that requires shareholder approval shall be subject to obtaining such
shareholder approval. Any modification or amendment of the Plan shall not,
without the consent of a Participant, adversely affect his or her rights under a
Stock Right previously granted to him or her. With the consent of the
Participant affected, the Administrator may amend outstanding Option Agreements
and Stock Grant Agreements in a manner which may be adverse to the Participant
but which is not inconsistent with the Plan. In the discretion of the
Administrator, outstanding Option Agreements and Stock Grant Agreements may be
amended by the Administrator in a manner which is not adverse to the
Participant.
31. EMPLOYMENT OR OTHER RELATIONSHIP.
---------------------------------
Nothing in this Plan or any Option Agreement or Stock Grant Agreement shall
be deemed to prevent the Company or an Affiliate from terminating the employment
or director status of a Participant, nor to prevent a Participant from
terminating his or her own employment, consultancy or director status or to give
any Participant a right to be retained in employment or other service by the
Company or any Affiliate for any period of time.
20
<PAGE>
32. GOVERNING LAW.
--------------
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
21
<PAGE>
EXHIBIT 10.5
------------
PREFERRED STOCK PURCHASE AGREEMENT
Between
The Aristotle Corporation
and
Geneve Corporation
Dated as of October 22, 1997
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
----------------------------------
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), is dated
as of this 22nd day of October, 1997 (the "Effective Date"), between The
Aristotle Corporation, a Delaware corporation (the "Company"), and Geneve
Corporation, a Delaware corporation (the "Purchaser").
WHEREAS, the Purchaser desires to acquire and the Company is willing
to issue and sell to the Purchaser shares of Series E Convertible Preferred
Stock, $.01 par value, of the Company, subject to the terms and conditions
specified herein.
NOW, therefore, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. As used in this Agreement, references
-----------
to either gender shall include the other gender, and the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Affiliate" means an affiliate as such term is used in Rule 12b-2 of
the Exchange Act.
"Agreement" means this Preferred Stock Purchase Agreement, as amended,
modified or supplemented from time to time.
"Business Day" means any day on which commercial banks are not
authorized or required by law to close in New York, New York.
"Commission" means the United States Securities and Exchange
Commission, or any other agency successor thereto.
"Company" means and shall include The Aristotle Corporation, a
Delaware corporation, and its successors and permitted assigns.
2
<PAGE>
"Common Stock" means the common stock, $.01 par value per share, of
the Company.
"Convertible Securities" means any securities convertible into,
exchangeable for or exercisable for Voting Securities.
"Person" means an individual, corporation, partnership, association,
joint venture, trust, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Preferred Stock" means the shares of Series E Convertible Preferred
Stock, $.01 par value of the Company, issued pursuant to this Agreement,
having the powers, designations, preferences and relative, participating,
optional and other special rights set forth in the form of Certificate of
Designation attached hereto as Exhibit A (the "Certificate of
---------
Designation").
"Purchaser" means and shall include Geneve Corporation, a Delaware
corporation, and its successors and permitted assigns.
"Recapitalization Event" means any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification,
consolidation, merger or similar event involving a change in the Company's
corporate structure.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall
be in effect at the time.
"Shares" means (i) Preferred Stock and (ii) any shares of Common Stock
issued to the Purchaser in respect of the foregoing Preferred Stock as a
result of conversion or because of any Recapitalization Event.
"Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement (as defined in Section 3.01) and any other instruments or
certificates to be executed and delivered in connection with this Agreement
upon the Closing.
"Voting Securities" means any issued and outstanding shares of (i)
Common Stock, (ii) Preferred Stock, (iii) Series A Preferred Stock, $.01
par value per share; (iv) Series B Preferred Stock, $.01 par value per
share; (v) Series C Preferred Stock, $.01 par value per share; and (vi)
Series D Preferred Stock, $.01 par value per share.
3
<PAGE>
ARTICLE II
PURCHASE AND SALE OF THE PREFERRED STOCK
SECTION 2.01 Purchase and Sale of the Preferred Stock.
----------------------------------------
(a) Issuance of the Preferred Stock. Subject to the terms and
-------------------------------
conditions of this Agreement, at the Closing (as defined below) the Company
agrees to issue and sell to the Purchaser and the Purchaser agrees to purchase
from the Company, for an aggregate purchase price of two million two hundred
fifty thousand dollars ($2,250,000) (the "Aggregate Purchase Price"), such
number of shares (rounded to the nearest whole share) of Preferred Stock equal
to $2,250,000 divided by the per share price of $4.60 per share (the "Per Share
Price").
(b) Closing; Delivery of the Preferred Stock. The purchase and sale
----------------------------------------
of the Preferred Stock shall take place at a closing (the "Closing") to be held
at the offices of the Company, 78 Olive Street, New Haven, CT 06507, at 10:00
A.M. (local time) on January 2, 1998, or at such other location, time and date
as may be mutually agreed upon by the parties. At the Closing, subject to the
terms and conditions contained in this Agreement, the Company will provide a
stock certificate evidencing the Preferred Stock, registered in the name of the
Purchaser and dated as of the date of the Closing, against delivery of a
certified or official bank check payable to the order of the Company in New York
Clearing House or similar same day funds or against receipt of a wire transfer
of immediately available funds to an account of the Company specified to the
Purchaser, in an amount equal to two million two hundred fifty thousand dollars
($2,250,000), in payment of the full purchase price for the Preferred Stock.
ARTICLE III
CONDITIONS TO CLOSINGS
SECTION 3.01 Mutual Conditions to Closings. The obligation of the
-----------------------------
Purchaser to purchase and pay for, and the obligation of the Company to issue
and sell to the Purchaser, the Preferred Stock at the Closing are subject to the
following conditions:
(i) No Injunction. No injunction or order of any court or other
-------------
governmental authority restraining the consummation of the transactions
provided for herein or contemplated by the other Transaction Documents
shall be in effect;
(ii) No Termination. This Agreement shall not have been
--------------
terminated pursuant to the mutual agreement of the parties hereto;
4
<PAGE>
(iii) Registration Rights Agreement. The parties hereto shall
-----------------------------
have entered into the Registration Rights Agreement in substantially the
form attached hereto as Exhibit B (the "Registration Rights Agreement").
---------
(iv) Filing of Certificate of Designation. The Certificate of
------------------------------------
Designation shall have been filed with the Secretary of the State of
Delaware.
(v) Bank Consent and Acknowledgement. The Company shall have
--------------------------------
received as of the date hereof a consent of BankBoston Connecticut (the
"BankBoston"), pursuant to the terms and provisions of the certain Limited
Guaranty Agreement, dated October 3, 1996, by and between the Company and
BankBoston and the acknowledgement of BankBoston that BankBoston will not
seek recourse from the Special Account.
SECTION 3.02 Conditions to Purchaser's Obligations. The obligation of
-------------------------------------
the Purchaser to purchase and pay for the Preferred Stock at the Closing is
subject to the following additional conditions:
(i) Representations and Warranties. Each of the
------------------------------
representations and warranties of the Company set forth in Article IV
hereof shall be true and correct on the date of the Closing;
(ii) Executed Counterparts. The Purchaser shall have received
---------------------
prior to or at the Closing counterparts of each of the Transaction
Documents, each in form and substance reasonably satisfactory to the
Purchaser, duly executed by the Company;
(iii) Delivery of Stock Certificates. The Company shall have
------------------------------
delivered to the Purchaser at the Closing a stock certificate evidencing
the Preferred Stock, as specified in Section 2.01(b);
(iv) Opinion of Counsel. The Purchaser shall have received
------------------
prior to or at the Closing an opinion of counsel to the Company to the
representations and warranties of the Company set forth in sub-sections
4.01(a), (b), (c), (d), (f), (g) and (k) of this Agreement, provided,
however, that in rendering such opinion counsel to the Company may rely on
certificates and other documents provided by the Company;
(v) Documentation at Closing. The Purchaser shall have
------------------------
received, prior to or at the Closing, a certificate, executed by the
Secretary or Assistant Secretary of the Company and dated as of the date of
the Closing, together with and certifying as to (A) the resolutions of the
Board of Directors of the Company authorizing the execution and delivery of
this Agreement and the other Transaction Documents and the performance by
the Company of all transactions contemplated hereby and thereby; (B) a copy
of the Amended and Restated Certificate of Incorporation of the Company, as
5
<PAGE>
amended and in effect as of the date of the Closing; (C) a copy of the By-
laws of the Company, as amended and in effect as of the date of the
Closing; and (D) the names of the officers of the Company authorized to
sign the Transaction Documents together with the true signatures of such
officers;
(viii) Documents and Proceedings. All documents to be provided
-------------------------
to the Purchaser hereunder, and all corporate and other proceedings taken
or required to be taken in connection with the transactions contemplated
hereby and to be consummated at or prior to the Closing, and all documents
incident thereto, shall be satisfactory in form and substance to the
Purchaser or its counsel; and
(ix) Waiver. Any condition specified in this Section 3.02
------
may be waived by the Purchaser.
SECTION 3.03 Conditions to Company's Obligations. The obligation of
-----------------------------------
the Company to issue and sell the Preferred Stock at the Closing, is subject to
the following additional conditions:
(i) Representations and Warranties. Each of the
------------------------------
representations and warranties of the Purchaser set forth in Article IV
hereof shall be true and correct on the date of such closing;
(ii) Executed Counterparts. The Company shall have received
---------------------
prior to or at the Closing counterparts of each of the Transaction
Documents, each in form and substance reasonably satisfactory to the
Company, duly executed by the Purchaser;
(iii) Payment. The Company shall have received payment in full
-------
for the Preferred Stock in accordance with Section 2.01;
(iv) Documentation at Closing. The Company shall have
------------------------
received, prior to or at the Closing, a certificate, executed by the
Secretary or an Assistant Secretary of the Purchaser and dated as of the
date of the Closing, together with and certifying as to (A) the resolutions
of the Board of Directors of the Purchaser authorizing the execution and
delivery of this Agreement and the other Transaction Documents and the
performance by the Purchaser of all transactions contemplated hereby and
thereby; and (B) the names of the officers of the Purchaser authorized to
sign the Transaction Documents together with the true signatures of such
officers;
(v) Documents and Proceedings. All documents to be provided
-------------------------
to the Company hereunder, and all corporate and other proceedings taken or
required to be taken in connection with the transactions contemplated
hereby and to be consummated at or prior to the Closing, and all documents
incident thereto, shall be satisfactory in form and substance to the
Company or its counsel; and
6
<PAGE>
(vi) Waiver. Any condition specified in this Section 3.03 may be
------
waived by the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the Purchaser as follows:
(a) Organization and Standing of the Company. Each of the Company and
----------------------------------------
its subsidiaries is a duly organized and validly existing corporation in good
standing under the laws of the state of its incorporation and has all requisite
corporate power and authority to own and operate its assets and properties and
to conduct its business as presently conducted, except where the failure to do
so would not have a material adverse effect on the Company and its subsidiaries
taken as a whole.
(b) Corporate Action. The Company has all necessary corporate power
----------------
and has taken all corporate action required to authorize its execution and
delivery of, and its performance under, the Transaction Documents, and the
Company has all necessary corporate power and has taken all corporate action
required to authorize the issuance and sale of the Preferred Stock and to
consummate the other transactions contemplated by the Transaction Documents.
(c) Governmental Approvals. No authorization, consent, approval,
----------------------
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is necessary for, or in connection with, the issuance and sale of the
Preferred Stock on the date of the Closing or the execution and delivery by the
Company of, or for the performance by it of its obligations under, the
Transaction Documents.
(d) Capitalization. As of the date hereof, the authorized capital
--------------
stock of the Company is: (i) 3,000,000 shares of Common Stock, $.01 par value,
of which 1,097,902 shares are issued and outstanding as of the date hereof; and
(ii) 3,000,000 shares of Preferred Stock, $.01 par value, of which as of the
date hereof, (A) 73,721 shares of Series A Preferred Stock are issued and
outstanding, (B) 26,022 shares of Series B Preferred Stock are issued and
outstanding, (C) 60,756 shares of Series C Preferred Stock are issued and
outstanding, and (D) 24, 998 shares of Series D Preferred Stock are issued and
outstanding. The Preferred Stock, when issued against payment of the Aggregate
Purchase Price set forth in Section 2.01 will be duly authorized, validly issued
and fully paid and non-assessable and not subject to any lien,
7
<PAGE>
claims or encumbrances. As of the date hereof, except as set forth on the
Schedule of Exceptions, there are no options, warrants, convertible securities
or other rights to purchase shares of capital stock or other securities of the
Company which are authorized, issued or outstanding, nor is the Company
obligated in any other manner to issue shares of its capital stock or other
securities, and the Company has no obligation to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof, except as
contemplated by the Transaction Documents. Except as set forth on the Schedule
of Exceptions or as otherwise contemplated by the Transaction Documents, (i) no
person is entitled to any preemptive right, right of first refusal or similar
right with respect to the issuance of any capital stock of the Company, (ii)
there are no restrictions on the transfer of shares of capital stock of the
Company other than those imposed by relevant federal and state securities laws
and (iii) there exists no agreement between the Company's stockholders and to
which the Company is party with respect to the voting or transfer of the
Company's capital stock or with respect to any other aspect of the Company's
affairs.
(e) Registration Rights. As of the Closing Date, no person has demand
-------------------
or other rights to cause the Company to file any registration statement under
the Securities Act relating to any securities of the Company or any right to
participate in any such registration statement except as set forth in the
Schedule of Exceptions.
(f) Enforceability. The Company has duly authorized, executed and
--------------
delivered the Transaction Documents, and the Transaction Documents constitute
the legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and to general principles of equity
and limitations on availability of equitable relief, including specific
performance, and except as rights to indemnification therein may be limited by
applicable laws.
(g) Absence of Conflicts. The Company's execution, delivery and
--------------------
performance of its obligations under this Agreement do not and will not (i)
contravene its Amended and Restated Certificate of Incorporation or the Bylaws
of the Company, as amended, (ii) violate any law, rule, regulation, order,
judgment or decree applicable to or binding upon the Company or its properties,
which violation would have a material adverse effect on the Company and its
subsidiaries taken as a whole, (iii) constitute a breach or default or require
any consent under any agreement or instrument to which the Company is a party or
by which the Company or its properties is bound or affected, which breach or
default, or the absence of such consent, would have a material adverse effect on
the Company and its subsidiaries taken as a whole, or (iv) require any consent,
permit, approval, action, filing or recording except the filing of the
Certificate of Designation with the Delaware Secretary of State and the filing
of Form D with the Commission.
8
<PAGE>
(h) Financial Statements. Attached hereto as Schedule 4.01(h) are the
-------------------- ----------------
financial statements, including balance sheets, income statements, cash flows
and related notes thereto, of the Company for the fiscal years ended June 30,
1997 and 1996 (collectively, the "Financial Statements"). The Financial
Statements are correct in all material respects, present fairly the financial
condition and results of operations of the Company, as of the dates and for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP").
(i) Absence of Material Adverse Change. Since June 30, 1997, there
----------------------------------
has been no change in the assets, liabilities or financial condition of the
Company and its subsidiaries which, when taken together with all other changes
in the assets, liabilities or financial condition of the Company and its
subsidiaries, has had a material adverse effect on the business, prospects,
financial condition, operations, property or affairs of the Company and its
subsidiaries.
(j) SEC Reports.
-----------
(i) The Company has filed with the Commission all reports ("SEC Reports")
required to be filed by it during the two (2) years prior to the date hereof
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
of the SEC Reports filed by the Company comply in all material respects with the
requirements of the Exchange Act. All financial statements contained in the SEC
Reports have been prepared in accordance with GAAP consistently applied
throughout the period indicated, except that the unaudited financial statements
do not contain notes and are subject to normal audit and year-end adjustments.
Each balance sheet presents fairly in accordance with GAAP the financial
position of the Company and its subsidiaries as of the date of such balance
sheet, and each statement of operations, of stockholders' equity and of cash
flows presents fairly in accordance with GAAP the results of operations, the
stockholders' equity and the cash flows of the Company and its subsidiaries for
the periods then ended.
(ii) The SEC Reports, as of their respective dates (or, if amended, as of
the date of such amendment), and this Agreement taken together as a whole will
not, on the date of the Closing contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein, or necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.
(k) Securities Laws. Based on and assuming the accuracy of the
---------------
representations and warranties of the Purchaser contained in Section 4.02
hereof, the issuance of the Preferred Stock is exempt from the provisions of the
Securities Act. All notices, filings, registrations, or qualifications under
state securities or "blue-sky" laws which are required in connection with the
offer, issue and delivery of the Shares pursuant to this Agreement, if any, have
been or will be completed by the Company.
9
<PAGE>
(l) Closing Date. The representations and warranties of the Company
------------
contained in this Section 4.01 and elsewhere in this Agreement will be true and
correct on the date of the Closing as though then made, except as affected by
the transactions expressly contemplated by this Agreement.
(m) Consents and Approvals. The Company shall have received, and
----------------------
delivered copies to the Purchaser of, any necessary waivers, approvals,
authorizations, registrations, filings or consents.
SECTION 4.02 Representations and Warranties of the Purchaser. The
-----------------------------------------------
Purchaser represents and warrants to the Company as follows:
(a) Organization and Standing. The Purchaser is a duly organized and
-------------------------
validly existing corporation in good standing and has all requisite corporate
power and authority to own and operate its assets and properties and to conduct
its business as presently conducted, except where the failure to do so would not
have a material adverse effect on the Purchaser and its subsidiaries taken as a
whole.
(b) Corporate Action. The Purchaser has all necessary corporate power
----------------
and has taken all corporate action required to authorize its execution and
delivery of, and its performance under, the Transaction Documents to which it is
a party and has all necessary corporate power and has taken all corporate action
required to authorize its purchase of the Preferred Stock and to consummate the
other transactions contemplated by the Transaction Documents.
(c) Investment Intent. The Purchaser is acquiring the Preferred Stock
-----------------
on the date of the Closing for its own account for the purpose of investment and
not with a view to, or for sale in connection with, the distribution thereof,
and it has no present intention of distributing or selling such Preferred Stock.
The Purchaser understands that such Preferred Stock has not been registered
under the Securities Act, or the securities laws of any state or other
jurisdiction, and hereby agrees not to make any sale, transfer or other
disposition of such Preferred Stock unless either (i) such Preferred Stock have
been registered under the Securities Act and all applicable state and other
securities laws and any such registration remains in effect or (ii) the Company
shall have received an opinion of counsel in form and substance satisfactory to
the Company that registration is not required under the Securities Act or under
applicable state securities laws.
(d) Opportunity to Investigate. The Purchaser (i) has had the
--------------------------
opportunity to ask questions concerning the Company and all such questions posed
have been answered to its satisfaction; (ii) has been given the opportunity to
obtain any additional information it deems necessary to verify the accuracy of
any information obtained concerning the Company; and (iii) has such knowledge
and experience in financial and business matters that it is able to evaluate the
merits and risks of purchasing the Shares and to make an informed investment
10
<PAGE>
decision relating thereto. The Purchaser's opportunity to so investigate the
Company and information obtained therefrom shall not affect the Company's
representations and warranties set forth in this Agreement.
(e) Accredited Investor. The Purchaser is an "accredited investor" as
-------------------
such term is defined in Regulation D under the Securities Act.
(f) Enforceability. The Purchaser has duly authorized, executed and
--------------
delivered the Transaction Documents to which it is a party, and such Transaction
Documents constitute the legal, valid and binding obligations of the Purchaser,
enforceable in accordance with their respective terms, except as enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and to general
principles of equity and limitations on availability of equitable relief,
including specific performance, and except as rights to indemnification therein
may be limited by applicable laws.
(g) Closing Date. The representations and warranties of the Purchaser
------------
contained in this Section 4.02 and elsewhere in this Agreement will be true and
correct on the date of the Closing as though then made, except as affected by
the transactions expressly contemplated by this Agreement.
ARTICLE V
COVENANTS
SECTION 5.01 Performance. Each party shall perform all of its
-----------
obligations hereunder and shall, at or prior to the Closing, execute and deliver
the other Transaction Documents to which it is contemplated to be a signatory.
SECTION 5.02 Cooperation. Each party shall endeavor in good faith to
-----------
perform and fulfill all conditions and obligations on their respective parts to
be fulfilled or performed hereunder or under the other Transaction Documents, to
the end that the transactions contemplated hereby and thereby will be fully and
timely consummated.
SECTION 5.03 Broker's Fee. Each of the Company and the Purchaser
------------
hereby represents and covenants that there are no brokers or finders entitled to
compensation in connection with the sale of the Preferred Stock, and shall
indemnify each other for any such fees for which they are responsible.
SECTION 5.04 Nomination and Designation of Directors.
---------------------------------------
11
<PAGE>
(a) Effective upon the Closing, the Company shall cause the number of
members on the Company's Board of Directors to be increased by two (2) and shall
cause the Board of Directors to designate and elect two (2) designated
representatives of the Purchaser (each a "Purchaser Nominee") in order to
satisfy such vacancies in accordance with the terms and provisions of Article 6
of the Company's Amended and Restated Certificate of Incorporation.
(b) For so long as the Purchaser or its Affiliates hold (i) all of the
shares of the Preferred Stock issued to and purchased by the Purchaser pursuant
to the terms and provisions of this Agreement or all of the shares of any other
class or series of capital stock of the Company acquired by the Purchaser
pursuant to any conversion of the Preferred Stock or (ii) not less than thirty
(30%) of the Company's outstanding Voting Securities (calculated on a fully
diluted, as converted or exercised basis), at any time at which the stockholders
of the Company have the right to vote for, or consent in writing to, the
election of directors of the Company, the Company shall cause to be nominated
for election to the Board of Directors two (2) Purchaser Nominees.
(c) In the case of the death, resignation or removal of a director who had
been nominated for election or designated for such term in accordance with this
Section 5.04, the Company shall cause the Board of Directors to designate and
elect another Purchaser Nominee in order to satisfy such vacancy in accordance
with the terms and provisions of Article 6 of the Company's Certificate of
Incorporation; provided, however, that, at the time such vacancy occurs, the
Purchaser shall be the holder of such number of shares of the Voting Securities
of the Company so as to have the right to designate such Purchaser Nominee in
accordance with the terms and provisions of Section 5.04(b).
SECTION 5.05 Voting Agreements Subject to the terms and provisions of
-----------------
Section 6.01 below, if the Purchaser, or any of its Affiliates, acquires any
Voting Securities (other than the Acquisition of the Series E Preferred pursuant
to the terms and provisions of this Agreement or the conversion thereof) which,
when taken together with any Voting Securities then owned by the Purchaser and
its Affiliates, would, in the aggregate, exceed an amount equal to thirty
percent (30%) of the Company's then outstanding Voting Securities (calculated on
a fully diluted, as converted or exercised basis) (such Voting Securities owned
by the Purchaser or any of it Affiliates in excess of thirty percent (30%)
referred to herein as "Excess Shares"), the Purchaser and the Company
acknowledge and agree that the Purchaser shall exercise such voting rights and
privileges of such Excess Shares as set forth below:
(i) At any meeting of the shareholders of the Company, the Company shall
cause one preliminary calculation (each, a "Preliminary Calculation") to be made
not less than 5 minutes after the commencement of voting upon each election,
proposal or other matter (other than matters on which a class vote is required)
(each, a "Proposal") to be voted on at such meeting in order to determine the
manner in which the shares of the Voting Securities owned by holders other than
the Purchaser or any of its Affiliates ("Other Voting Securities") will be voted
at such meeting with respect to each Proposal;
12
<PAGE>
(ii) Upon completing the Preliminary Calculation and determining the
percentage of the Other Voting Securities that were voted for or against a
Proposal (and in an election, for or against the election of any person), the
Purchaser shall vote, or cause to be voted, the same percentage of the Excess
Shares for and against the Proposal as the percentage of the Other Voting
Securities in the Preliminary Calculation that were voted for and against the
Proposal.
For example, assuming the aggregate number of shares eligible to vote on a
Proposal is 100 (of which 60 are Other Voting Securities, 30 are the Voting
Securities owned by the Purchaser or its Affiliates, and 10 are Excess Shares),
for the purposes of the Preliminary Calculation only 60 shares shall be deemed
to have voted (representing the 60 shares of Other Voting Securities) with
respect to the proposal and the votes attributable to the Excess Shares would be
cast in the same proportion as the votes cast by the holders of the Other Voting
Securities (e.g., if 80% of the votes attributable to Other Voting Securities
were cast in favor of the Proposal and 20% of the votes attributable to Other
Voting Securities were cast against the Proposal, then 80% of the votes
attributable to Excess Shares would be cast in favor of the Proposal and 20% of
the votes attributable to Excess Shares would be cast against the Proposal).
Upon the determination of the votes cast in favor of and against such Proposal,
votes attributable to the Voting Securities owned by the Purchaser or its
Affiliates would be tabulated and compiled with the votes attributable to the
Other Voting Securities and the Excess Shares so as to determine whether such
proposal would be approved or disapproved.
For such purpose, the percentage of the Other Voting Securities that were
voted for or against a Proposal shall be calculated based upon (a) the total
number of outstanding shares of such series or class of Voting Securities on the
record date of the shareholders meeting, if Delaware law or the Company's
Certificate of Incorporation or By-laws requires that the Proposal be approved
by a specified percentage of all of the outstanding shares of such series or
class of Voting Securities or of the combined voting power of all outstanding
shares of Voting Securities of the Company, or (b) the number of Voting
Securities that are present (in person or by proxy) and eligible to vote on such
Proposal and voting at the meeting of the shareholders, if subclause (a) of this
Section 5.05(ii) is not applicable; and
(d) With respect to any action proposed to be taken by the written consent
of the holders of (a) any class or series of Voting Securities of the Company,
or (b) all of the Voting Securities of the Company, the same percentage of
Excess Shares shall consent to the proposed action as the percentage of the
Other Voting Securities that have consented to such action; for such purpose,
the total number of outstanding shares of Voting Securities eligible to vote on
such matter shall be determined as of the record date for the taking of such
action.
SECTION 5.06 Proceeds Account. The Company shall not use the
----------------
proceeds (the "Proceeds") of the Aggregate Purchase Price to invest in, or for
the benefit of, The Strouse, Adler Company ("Strouse") or any other entity in
the same or similar business as Strouse, and shall ensure that (i) no provider
to Strouse of funded debt, including commercial banks, or trade creditors, and
(ii) no provider to the Company of funded debt which is
13
<PAGE>
invested in, or for the benefit of, Strouse, shall have recourse to the
Proceeds. The Company shall cause the Proceeds to be maintained with a bank,
brokerage entity or any other financial institution in one or more specifically
designated accounts (collectively, the "Special Account"), provided, however, at
no time, without the Purchaser's written consent, shall the balance of the
Special Account be less than $540,000 in cash or cash equivalents. With regard
to the Proceeds in excess of $540,000, the Company shall have sole discretion
(i) to invest the funds in the Special Account as it deems prudent and in the
best interest of the Company and (ii) to use such funds for working capital and
other general corporate purposes, including, but not limited to, the acquisition
of business entities (other than Strouse or any other entity in the same or
similar business as Strouse) and the redemption of existing ASI, Inc. preferred
stock including that which is redeemable on January 1, 1998; provided, however,
that any funds so used shall be replaced by the transfer to the Special Account
of (i) the portion of the capital asset or assets, if any, purchased with funds
from the Special Account, or if there are no such assets (ii) an asset or assets
of the Company of equal or greater value (determined in good faith by the
Company), including, but not limited to an unsecured promissory note of the
Company made payable to the Special Account. If at any time between the date of
this Agreement and the Closing, the Company redeems that portion of the existing
ASI, Inc. preferred stock which is redeemable on January 1, 1998 (the "Put
Payment"), an amount equal to the Put Payment shall be deemed to have been paid
from the Special Account. Nothing set forth in this Section 5.06 or in any of
the Transaction Documents shall grant to the Purchaser a security interest or
lien rights with respect to the funds maintained in the Special Account.
SECTION 5.07 Aristotle Sub, Inc. Preferred Stock. The Company shall
-----------------------------------
cause to be taken all necessary corporate action such that, immediately prior to
the Closing, all of the then outstanding shares of preferred stock of Aristotle
Sub, Inc. shall be or become shares of preferred stock of the Company.
ARTICLE VI
LIMITATIONS AND RESTRICTIONS
SECTION 6.01 Restrictions on Certain Actions by Purchaser.
--------------------------------------------
(a) The Purchaser agrees that, commencing on the date hereof and ending on
the date which is the tenth anniversary of the Closing date, the Purchaser will
not, nor will it permit any of its Affiliates to, acquire or offer or propose to
acquire any Voting Securities or Convertible Securities (other than the
Preferred Stock purchased at the Closing) which, when taken together with any
Voting Securities and Convertible Securities then owned by the Purchaser and its
Affiliates, would, in the aggregate, exceed an amount equal to thirty percent
(30%) of the Company's then outstanding Voting Securities, unless in any such
case specifically authorized to do so by the Board of Directors of the Company,
without giving effect to the vote of the
14
<PAGE>
Purchaser Nominees, upon receipt from the Purchaser of a written request
regarding such acquisition setting forth the type, series and amount of Voting
Securities or Convertible Securities to be acquired and the anticipated time,
date and terms of such acquisition. The consent of the Board of Directors of the
Company, without giving effect to the vote of the Purchaser Nominees, regarding
such acquisition shall not be unreasonably withheld; provided, however, that
such consent may be withheld if the Board of Directors of the Company, without
giving effect to the vote of the Purchaser Nominees, shall determine in its sole
discretion that such acquisition may have a material adverse effect upon the
Company's ability to use its accrued net operating losses; provided further that
in no event shall the Board of Directors of the Company be obligated to consent
to any acquisition of any Voting Securities or Convertible Securities of the
Company which, when taken together with any Voting Securities and Convertible
Securities then owned by the Purchaser and its Affiliates, would, in the
aggregate, exceed an amount equal to forty percent (40%) of the Company's then
outstanding Voting Securities. Notwithstanding the foregoing, in order to insure
for the Company the benefits of the transactions contemplated in this Agreement,
and the covenants set forth in this Section 6.01, to the extent that Purchaser
has acquired, or does acquire, Voting Securities or Convertible Securities in
transactions other than those described in Article II hereof the Purchaser shall
sell such Voting Securities or Convertible Securities to the extent necessary to
permit the transactions contemplated herein to be consummated without violation
of the provisions of this Section 6.01.
(b) The Purchaser acknowledges and agrees that irreparable damage would
occur in the event that any of the provisions of this Section 6.01 were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Section 6.01 and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, in addition to any other remedy
to which they may be entitled at law or equity.
SECTION 6.02 Restrictions on Sales by Purchaser. The Purchaser agrees
----------------------------------
that until the tenth anniversary of the Closing hereunder, it will not, nor will
it permit any of its Affiliates to, sell, solicit an offer to sell or propose to
sell, any share of Preferred Stock purchased at such Closing except that
Purchaser may transfer shares of Preferred Stock to any of its Affiliates;
provided, however, nothing set forth in this Section 6.02 shall restrict the
Purchaser from selling shares of Preferred Stock to the Company or having shares
of Preferred Stock redeemed by the Company.
15
<PAGE>
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telecopy or facsimile transmission (receipt confirmed), (iii) sent
by international overnight or express courier, or (iv) sent by registered mail,
return receipt requested, postage prepaid.
If to the Company: The Aristotle Corporation
78 Olive Street
New Haven, Connecticut 06510
Attention: John J. Crawford
Chairman and President
Fax No.: 203-624-6129
with a copy to: Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Stanford N. Goldman, Esq.
Fax No.: 617-542-2241
If to the Purchaser: Geneve Corporation
96 Cummings Point Road
Stamford, Connecticut 06902
Attn: Steven B. Lapin, President,
and David T. Kettig, Esq.
Fax No.: 203-348-3103
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telecopy or facsimile transmission, at the time that receipt
thereof has been acknowledged by electronic confirmation or otherwise, (iii) if
sent by overnight or express courier, on the Business Day following the day such
notice is delivered to the courier service, or (iv) if sent by registered mail,
on the fifth Business Day following the day such mailing is made.
SECTION 7.02 Legends. The Purchaser acknowledges that, until registered
-------
under the Securities Act and any applicable state securities laws or transferred
pursuant to the
16
<PAGE>
provisions of Rule 144 promulgated under the Securities Act ("Rule 144"), each
certificate representing a Share, whether upon initial issuance or upon any
transfer thereof, shall bear the following legends (and the Company and its
transfer agent shall make a notation on its books of transfer to such effect),
prominently stamped or printed thereon, in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY APPLICABLE STATE OR OTHER JURISDICTION, HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES
UNDER THE ACT AND ANY SECURITIES LAWS OF ANY APPLICABLE STATE OR OTHER
JURISDICTION OR A WRITTEN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR UNDER OTHER APPLICABLE SECURITIES LAWS."
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AS SET FORTH IN SECTION 6.02 OF A CERTAIN
PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF OCTOBER 22, 1997 BY AND
AMONG THE COMPANY AND A CERTAIN STOCKHOLDER OF THE COMPANY, A COPY OF WHICH
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY OR MAY
BE OBTAINED FROM THE COMPANY UPON REQUEST AND WITHOUT CHARGE."
SECTION 7.03 Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding between the parties hereto with respect to the
provisions hereof and supersedes all prior oral or written agreements and
understandings relating to the provisions hereof. No statement, representation,
warranty, covenant or agreement of any kind not expressly set forth in this
Agreement shall affect, or be used to interpret, change or restrict, the express
terms and provisions of this Agreement.
SECTION 7.04 Modifications and Amendments. The terms and provisions of
----------------------------
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.
SECTION 7.05 Waivers and Consents. Except as other expressly provided
--------------------
herein, the terms and provisions of this Agreement may be waived, or consent for
the
17
<PAGE>
departure therefrom granted, only by written document executed by the party
entitled to the benefits of such terms or provisions. No such waiver or consent
shall be deemed to be or shall constitute a waiver or consent with respect to
any other terms or provisions of this Agreement, whether or not similar. Each
such waiver or consent shall be effective only in the specific instance and for
the purpose for which it was given, and shall not constitute a continuing waiver
or consent.
SECTION 7.06 Assignment. The rights and obligations under this Agreement
----------
may not be assigned by either party hereto without the prior written consent of
the other party (which consent shall not be unreasonably withheld, except that
the Purchaser without the consent of the Company may assign this Agreement or
any of its rights or obligations to an Affiliate of the Purchaser or to an
entity with which the Purchaser shall merge or consolidate or to which the
Purchaser shall sell or assign all or substantially all of its assets, and
except that the Company may without the consent of the Purchaser assign this
Agreement subsequent to the Closing to an entity with which the Company shall
merge or consolidate or to which the Company shall sell or assign all or
substantially all of its assets).
SECTION 7.07 Benefit. All statements, representations, warranties,
-------
covenants and agreements in this Agreement shall be binding on the parties
hereto and shall inure to the benefit of the respective successors and permitted
assigns of each party hereto. Nothing in this Agreement shall be construed to
create any rights or obligations except among the parties hereto, and no person
or entity shall be regarded as a third-party beneficiary of this Agreement.
SECTION 7.08 Governing Law. This Agreement and the rights and
-------------
obligations of the parties hereunder shall be construed in accordance with and
governed by the law of the State of Delaware, without giving effect to the
conflict of law principles thereof.
SECTION 7.09 Severability. In the event that any court of competent
------------
jurisdiction shall determine that any provision, or any portion thereof,
contained in this Agreement shall be unenforceable in any respect, then such
provision shall be deemed limited to the extent that such court deems it
enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall deem any such provision, or portion thereof, wholly
unenforceable, the remaining provisions of this Agreement shall nevertheless
remain in full force and effect.
SECTION 7.10 Interpretation. The parties hereto acknowledge and agree
--------------
that: (i) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (ii) the rule
of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
18
<PAGE>
SECTION 7.11 Headings and Captions. The headings and captions of the
---------------------
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect the meaning or construction of, any of the
terms or provisions hereof.
SECTION 7.12 Enforcement. Each of the parties hereto acknowledges and
-----------
agrees that the rights acquired by each party hereunder are unique and that
irreparable damage would occur in the event that any of the provisions of this
Agreement to be performed by the other party were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, in addition
to any other remedy to which the parties hereto are entitled at law or in
equity, each party hereto shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other party.
SECTION 7.13 No Waiver of Rights, Powers and Remedies. No failure or
----------------------------------------
delay by a party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto, shall operate as
a waiver of any such right, power or remedy of the party. No single or partial
exercise of any right, power or remedy under this Agreement by a party hereto,
nor any abandonment or discontinuance of steps to enforce any such right, power
or remedy, shall preclude such party from any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The election of
any remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
SECTION 7.14 Expenses. Each of the parties hereto shall pay its own fees
--------
and expenses in connection with this Agreement and the transactions contemplated
hereby whether or not the transactions contemplated hereby are consummated.
SECTION 7.15 Confidentiality. Each of the parties hereto agrees that it
---------------
will keep confidential and will not disclose or divulge any confidential,
proprietary or secret information that such party may obtain from financial
statements, reports and other materials submitted by the other party to such
party pursuant to this Agreement, or pursuant to visitation or inspection rights
granted hereunder; provided, however, that either party may disclose such
information (i) as has become generally available to the public, (ii) as may be
required in any report, statement or testimony submitted to any municipal, state
or Federal regulatory body having or claiming to have jurisdiction over such
party, (iii) as may be required in response to any summons or subpoena or in
connection with any litigation, (iv) in order to comply with any law, order,
regulation or ruling applicable to such party, (v) to the extent that such party
reasonably deems it necessary to enforce its rights under this Agreement, (vi)
on a confidential basis to its attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with the transactions contemplated hereby, (vii) to any prospective purchaser of
any of the Preferred Stock as long as
19
<PAGE>
such prospective purchaser agrees in writing to be bound by the provisions of
this Section 7.15, and (viii) to any Affiliate or partner of such party as long
as such Affiliate or partner agrees in writing to be bound by the provisions of
this Section 7.15.
SECTION 7.16 Publicity. No party shall issue any press release or
---------
otherwise make any public statement with respect to the execution of, or the
transactions contemplated by, this Agreement without the prior written consent
of the other party, except as may be required by applicable law, rule or
regulation; provided that once such other party has consented to a party's
--------
issuance or making of a press release or public statement, any subsequent
issuance or making of such press release or public statement by such party shall
not require the separate written consent of the other party. However, the
parties recognize that the Company is a publicly-held company obligated under
the federal securities laws to make disclosures of material events affecting it.
Consequently, if advised by counsel that such party is required to make such
announcement under Federal or state securities laws, the Company (as the case
may be) may make such announcement without the prior written or oral consent of
the other party.
SECTION 7.17 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by different parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed in their names by their duly authorized officers or
representatives effective as of the date first above written.
THE ARISTOTLE CORPORATION
By: /s/ John J. Crawford
------------------------------------
Name: John J. Crawford
Title: President
GENEVE CORPORATION
By: /s/ Steven B. Lapin
------------------------------------
Name: Steven B. Lapin
Title: President
20
<PAGE>
EXHIBIT 10.6
------------
REGISTRATION RIGHTS AGREEMENT
Between
The Aristotle Corporation
and
Geneve Corporation
Dated as of October 22, 1997
<PAGE>
THE ARISTOTLE CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), made and entered
into as of the 22nd day of October, 1997, by and among The Aristotle
Corporation, a Delaware corporation (the "Company"), and Geneve Corporation, a
Delaware corporation (the "Shareholder").
RECITALS
--------
WHEREAS, the Company is issuing up to 489,131 shares of Series E
Convertible Preferred Stock, $.01 par value, at a purchase price of $4.60 per
share to the Shareholder pursuant to the Preferred Stock Purchase Agreement of
even date herewith among the Company and the Shareholder (the "Purchase
Agreement"); and
WHEREAS, one of the conditions to the consummation of the transactions
contemplated by the Purchase Agreement is the execution and delivery of this
Agreement to provide for registration rights for the shares of Series E
Convertible Preferred Stock purchased by the Shareholder as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Plan, the parties hereto
mutually agree as follows:
1. Registration Rights.
-------------------
1.1 Definitions.
-----------
(a) "Common Stock" means the common stock, $.01 par value per share, of
------------
the Company;
(b) "Holder" means any person owning or having the right to acquire
------
Registrable Securities; and
(c) "Form S-3," "Form S-4" and "Form S-8" mean such respective forms under
-------- -------- --------
the 1933 Act as in effect on the date hereof or any successor registration forms
to Form S-3, Form S-4 and Form S-8, respectively, under the 1933 Act
subsequently adopted by the Securities and Exchange Commission ("SEC"),
regardless of its designation.
(d) "Preferred Shares" means the shares of the Series E Convertible
----------------
Preferred Stock, $.01 par value per share, of the Company, issued pursuant to
the Purchase Agreement.
<PAGE>
(e) "Register," "registered" and "registration" refer to a resale
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act and applicable rules and regulations thereunder,
and the declaration or ordering of the effectiveness of such registration
statement, or, as the context may require, under the Exchange Act or applicable
state securities laws.
(f) "Registrable Securities" means the shares of the Common Stock issued
or issuable upon conversion of the Preferred Shares. As to any particular
Registrable Securities, such securities will cease to be Registrable Securities
when: (1) they have been effectively registered under the 1933 Act and disposed
of in accordance with the registration statement covering them; (2) they are
transferred pursuant to Rule 144 (or any similar provision that is in force)
under the 1933 Act; or (3) they have been otherwise transferred and new
certificates for them not bearing a restrictive legend have been delivered by
the Company;
The number of shares of Registrable Securities then outstanding shall
be determined by adding the number of shares of Common Stock outstanding as a
result of the conversion of Preferred Shares and the number of shares of Common
Stock which are issuable upon conversion of Preferred Shares;
(g) "1933 Act" means the Securities Act of 1933, as amended, and the
--------
rules and regulations of the SEC thereunder, all as the same shall be in effect
from time to time.
(h) "1934 Act" means the Securities Exchange Act of 1934, as amended,
--------
and the rules and regulations of the SEC thereunder, all as the same shall be in
effect from time to time.
1.2 Request for Registration.
------------------------
(a) Demand Rights. (a) At any time after the second anniversary of
-------------
the date hereof, the Holders of Registrable Securities constituting a majority
of the total shares of Registrable Securities then outstanding may request the
Company to register under the Securities Act all or any portion of the shares of
Registrable Securities held by such requesting Holder or Holders for sale in the
manner specified in such notice; provided that the aggregate number of shares to
be registered pursuant to such request shall be not less than 50,000.
Notwithstanding anything to the contrary contained herein, the Company shall not
be required to cause a registration pursuant to this Subsection 1.2(a) to become
effective during the period starting with the filing of, and ending on the date
which is one hundred and eighty (180) days after the effective date of, a
registration statement filed by the Company covering a firm commitment
underwritten public offering of Common Stock under the Securities Act.
(b) Following receipt of any notice under this Section 1.2, the Company
shall immediately notify all Holders of Registrable Securities from whom notice
has not been received and such Holders shall then be entitled within twenty (20)
days after receipt of such notice from the Company to request the Company to
include in the requested registration all or any portion of their shares of
Registrable Securities. The Company shall use its best efforts to register
under the 1933 Act, for public sale in accordance with the method of disposition
specified in the notice from
2
<PAGE>
requesting Holders described in paragraph (a) above, the number of shares of
Registrable Securities specified in such notice (and in all notices received by
the Company from other Holders within twenty (20) days after the receipt of such
notice by such Holders). The Company shall be obligated to register the
Registrable Securities pursuant to this Section 1.2 on three (3) occasions only;
provided, however, that such obligation shall be deemed satisfied only when a
registration statement covering all shares of Registrable Securities specified
in notices received as aforesaid (other than shares voluntarily withdrawn by the
Holder thereof), for sale in accordance with the method of disposition specified
by the requesting Holders, shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
(c) If the Holders requesting such registration intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in paragraph (b) above. The right of any Holder to
registration pursuant to this Section 1.2 shall be conditioned upon such
Holder's agreeing to participate in such underwriting and to permit inclusion of
such Holder's Registrable Securities in the underwriting. If such method of
disposition is an underwritten public offering, the Holders of at least a
majority in interest of the shares of Registrable Securities to be sold in such
offering may designate the managing underwriter of such offering, subject to the
approval of the Company, which approval shall not be unreasonably withheld or
delayed. A Holder may elect to include in such underwriting all or a part of
the Registrable Securities it holds.
(d) A registration statement filed pursuant to this Section 1.2 may,
subject to the following provisions, include (i) shares of Common Stock for sale
by the Company for its own account, (ii) shares of Common Stock held by officers
or directors of the Company and (iii) shares of Common Stock held by persons who
by virtue of agreements with the Company are entitled to include such shares in
such registration (the "Other Shareholders"), in each case for sale in
accordance with the method of disposition specified by the requesting Holders.
If such registration shall be underwritten, the Company, such officers and
directors and Other Shareholders proposing to distribute their shares through
such underwriting shall enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected for such
underwriting
1.3 Company Registration. If at any time the Company proposes to register
--------------------
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its capital stock or other
securities under the 1933 Act in connection with the public offering of such
securities (other than a registration on Form S-8 relating solely to the sale of
securities to participants in a Company stock plan, or a registration on Form S-
4 or any successor form), the Company , at such time, promptly give each Holder
written notice of such registration. Upon the written request of any Holder
given within twenty (20) days after delivery of such notice by the Company, the
Company shall, subject to the provisions of Section 1.8, use its best efforts to
cause a registration statement covering all of the Registrable Securities that
each such Holder has requested to be registered to become effective under the
1933 Act. The Company shall be under no obligation to complete any offering of
its securities it proposes to make and shall incur no liability to any Holder
for its failure to do so.
3
<PAGE>
1.4 Obligations of the Company. Whenever required under this Section 1 to
--------------------------
use its best efforts to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, if applicable, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder use
its best efforts consistent with then applicable restrictions of SEC
registration forms to keep such registration statement effective for up to: (i)
the seventh (7th) anniversary of the date hereof if the registration is effected
on Form S-3 or (ii) nine (9) months or until the Holders have informed the
Company in writing that the distribution of their securities has been completed
if the registration is effected on a form other than Form S-3.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement, and use its best efforts to cause each such amendment to
become effective, as may be necessary to comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such reasonable number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdiction.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement, including furnishing any opinion of counsel or entering into
a lock-up agreement reasonably requested by the managing underwriter.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the 1933 Act,
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing and promptly file such amendments and supplements
which may be required pursuant to subparagraph (b) of this Section 1.4 on
account of such event and use its best efforts to cause each such amendment and
supplement to become effective.
4
<PAGE>
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters on the date that the registration statement with respect to such
securities becomes effective, a letter dated such date, from the independent
certified public accountant of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
(h) Apply for listing and use its best efforts to list the Registrable
Securities being registered on any national securities exchange on which the
Common Stock is then listed or, if the Common Stock is not then listed on a
national securities exchange, but is quoted on the automated quotation system of
the National Association of Securities Dealers, Inc., promptly file an
additional listing application with respect to the Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
1.6 Expenses of Registrations. All expenses other than underwriting
-------------------------
discounts, fees and commissions relating to Registrable Securities incurred in
connection with the registration, filing or qualification of the Registrable
Securities pursuant to Section 1.2 and 1.3 and other than counsel fees and
expenses of the Holders and underwriter counsel fees and expenses, including,
without limitation, all registration, filing and qualification fees, printing
and accounting fees and fees and disbursements of counsel for the Company shall
be borne by the Company; provided, however, that the Company shall not be
-------- -------
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2, if the registration request is subsequently withdrawn at any
time at the request of the Holders of a majority of the Registrable Securities
to be registered (in which case all participating Holders shall bear such
expenses).
1.7 Underwriting Requirements. In connection with any offering involving an
-------------------------
underwriting of securities being issued by the Company, the Company shall not be
required under Section 1.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then, subject to
the provisions of this Section 1.7, only in such quantity, if any, as, in the
opinion of the underwriters, marketing factors permit. If the managing
underwriter for the offering shall advise the Company in writing that the total
amount of securities, including Registrable Securities requested to be included
in such offering, exceeds the amount of securities proposed to be included in
such offering that can be successfully offered, then the Company shall include
in the offering only that number of such securities, including Registrable
Securities, which the managing underwriter believes marketing factors permit the
securities so included to be apportioned as follows: first all shares of Common
Stock held by officers or directors (other than Registrable
5
<PAGE>
Securities) of the Company or by Other Shareholders (other than Registrable
Securities or shares of Common Stock submitted for registration pursuant to
Section 1.3 of that certain Registration Rights Agreement dated April 11, 1994)
be excluded from such registration to the extent so required by such managing
underwriter, and unless the Holders of such shares and the Company have
otherwise agreed in writing, such exclusion shall be applied first to the shares
held by the directors and officers, and if a limitation of the number of shares
is still required by such managing underwriter, then to the shares of Common
Stock of the Other Shareholders (other than Registrable Securities or share of
Common Stock submitted for registration pursuant to Section 1.3 of that certain
Registration Rights Agreement dated April 11, 1994) to the extent required by
the managing underwriter, and if further limitation on the number of shares to
be included in the underwriting is required, then the number of shares held by
Holders that may be included in the underwriting shall be apportioned pro rata
among the selling Holders according to the total amount of securities requested
to be registered therein owned by each selling Holder or in such other
proportions as shall be mutually agreed to by such selling Holders; provided
however; that notwithstanding the exclusion of Registrable Securities owned by
the Holders, no shares of Common Stock submitted for registration pursuant to
Section 1.3 of that certain Registration Rights Agreement dated April 11, 1994
shall be excluded unless and until all shares held by Holders shall have been
excluded. In any event all securities to be sold other than Registrable
Securities and shares of Common Stock submitted for registration pursuant to
Section 1.3 of that certain Registration Rights Agreement dated April 11, 1994
will be excluded prior to any exclusion of Registrable Securities. No
Registrable Securities or any other security excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any Holder of Registrable Securities, officer, director or
Other Shareholder who has requested inclusion in such registration as provided
above, disapproves of the terms of the underwriting, such Holder of securities
may elect to withdraw therefrom by written notice to the Company and the
managing underwriter.
1.8 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under this Section 1:
(a) Company Indemnification. To the extent permitted by law, the Company
-----------------------
will indemnify and hold harmless each Holder, the officers, directors, partners,
agents and employees of each Holder, any underwriter (as defined in the 1933
Act) for such Holder, and each person, if any, who controls such Holder or
underwriter within the meaning of the 1933 Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the 1933 Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any state securities law
or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any
state securities law. The Company will reimburse each such Holder, officer,
director, partner, agent, employee, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
6
<PAGE>
investigating, defending or settling any such loss, claim, damage, liability, or
action. The indemnity agreement contained in this Section 1.8(a) shall not apply
to amounts paid in settlement of any loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company which consent
shall not be unreasonably withheld, nor shall the Company be liable to a Holder
in any such case for any such loss, claim, damage, liability, or action (i) to
the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished (or omitted
to be furnished) expressly for use in connection with such registration by or on
behalf of such Holder, underwriter or controlling person or (ii) in the case of
a sale directly by a Holder of Registrable Securities (including a sale of such
Registrable Securities through any underwriter retained by such Holder to engage
in a distribution solely on behalf of such Holder), if such untrue statement or
alleged untrue statement or omission or alleged omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus, and such
Holder failed to deliver a copy of the final or amended prospectus at or prior
to the confirmation of the sale of the Registrable Securities to the person
asserting any such loss, claim, damage or liability in any case where such
delivery is required by the Securities Act.
(b) Holder Indemnification. To the extent permitted by law, each selling
----------------------
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the 1933 Act, each agent and any
underwriter for the Company, and any other Holder selling securities in such
registration statement or any of its directors, officers, partners, agents or
employees or any person who controls such Holder or underwriter, against any
losses, claims, damages, or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, agent or underwriter or
controlling person, or other such Holder or director, officer or controlling
person may become subject, under the 1933 Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent that such Violation occurs in reliance upon and in conformity with
information furnished (or omitted to be furnished) by or on behalf of such
Holder for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, officer, director, partner, agent,
employee, or controlling person in connection with investigating, defending or
settling any such loss, claim, damage, liability, or action. The indemnity
agreement contained in this Section 1.8(b) shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld nor, in the case of a sale directly by the Company of its
securities (including a sale of such securities through any underwriter retained
by the Company to engage in a distribution solely on behalf of the Company), the
Holder be liable to the Company in any case which such untrue statement or
alleged untrue statement or omission or alleged omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus, and the
Company failed to deliver a copy of the final or amended prospectus at or prior
to the confirmation of the sale of the securities to the person asserting any
such loss, claim, damage or liability in any case where such delivery is
required by the 1933 Act.
(c) Notice, Defense and Counsel. Promptly after receipt by an indemnified
---------------------------
party under this Section 1.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying
7
<PAGE>
party under this Section 1.8, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume and control the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.8 to the extent of such prejudice, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.8.
(d) Survival of Rights and Obligations. The obligations of the Company and
----------------------------------
the Holders under this Section 1.8 shall survive the conversion, if any, of the
shares of Preferred Stock, and the completion of any offering of Registrable
Securities in a registration statement whether under this Section 1 or
otherwise.
1.9 Reports Under 1934 Act. With a view to making available to the Holders
----------------------
the benefits of Rule 144 promulgated under the 1933 Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration, and with a view to making it
possible for Holders to register the Registrable Securities pursuant to a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
1.10 Lockup Agreement. Each Holder, if requested by the Company and an
----------------
underwriter of the Company's securities, shall agree not to sell or otherwise
transfer or dispose of any Registrable Securities or other securities of the
Company held by such Holder for a specified period of time (not to exceed 180
days) following the effective date of a registration statement pursuant to which
the Company proposes to sell its securities to the public generally, provided
that all holders of at least 5% of the Common Stock (on an as-exchanged basis)
enter into similar agreements.
8
<PAGE>
1.11 Additional Grants of Registration Rights. The Company shall not
----------------------------------------
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders in this Agreement. If the
Company shall hereafter grant any registration or similar rights with respect to
securities of the Company which are more favorable than the rights granted
pursuant to this Agreement, each Holder shall immediately be vested with such
more favorable rights.
2. Miscellaneous.
-------------
2.1 Notices. All notices or other communications hereunder shall be in
-------
writing and shall be deemed to have been given when delivered by certified mail,
return receipt requested, a recognized overnight delivery service or hand
delivery to such party at the address set forth below or such other address as
such party may specify by notice to the other parties hereto:
If to the Holders, to their respective addresses as set forth in Exhibit A
---------
to this Agreement.
If to the Company, to: The Aristotle Corporation
78 Olive Street
New Haven, Connecticut 06510
Attention: John J. Crawford
Its Chairman and President
2.2 Entire Agreement. This Agreement sets forth the entire agreement and
----------------
understanding of the parties with respect to the subject matter hereof,
supersedes and rescinds any prior written or oral agreements relating to the
subject matter hereof between the parties hereto and shall not be modified
except by the execution of a written instrument signed by the parties hereto.
2.3 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the personal representatives, successors and assigns of
the respective parties hereto. The Company shall not have the right to assign
its rights or obligations hereunder or any interest herein without obtaining the
prior written consent of the Holders and the Holders may not assign or transfer
their rights under this Agreement, except to an Affiliate (as such terms is used
in Rule 12b-2 of the 1934 Act), without the prior written consent of the
Company.
2.4 Counterparts. This Agreement may be executed in counterparts, all of
------------
which together shall constitute one and the same instrument.
2.5 Governing Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws and decisions of the State of Delaware.
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first above written.
THE ARISTOTLE CORPORATION
By: /s/ John J. Crawford
---------------------------------
Name: John J. Crawford
Title: President
GENEVE CORPORATION
By: /s/ Steven B. Lapin
----------------------------------
Name: Steven B. lapin
Title: President
10
<PAGE>
Exhibit 10.7
------------
Howell Resource Partners
Alfred Kniberg
Richard Sheldon
Paul McDonald
Janney Montgomery Scott, Inc. Custodian f/b/o Paul H. McDonald
Graeme Caulfield
C. David Goldman
Louis Musante
Joyce Baran
John Peterson
September 15, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Aristotle Sub, Inc. The Aristotle Corporation The Strouse, Adler Company
78 Olive Street 78 Olive Street 78 Olive Street
New Haven, CT 06511 New Haven, CT 06511 New Haven, CT 06511
</TABLE>
Re: Amendment Agreement
-------------------
Gentlemen:
Reference is made to (a) the Pledge and Escrow Agreement dated as of April
11, 1994 (the "Original Pledge Agreement") by and among David Howell and Alfred
Kniberg (together, the "Pledgees") in their capacity as collateral agent for
Howell Resource Partners, Alfred Kniberg, Joyce Baran, Paul McDonald, Richard
Sheldon, C. David Goldman, Trustee, Louis Musante, John Peterson, Janney
Montgomery Scott, Inc., custodian f/b/o Paul McDonald and Graeme Caulfield (the
Shareholders") and Aristotle Sub, Inc. ("Newco"), as amended by a letter dated
June 27, 1995 from the Pledgees to Newco and The Aristotle Corporation
("Aristotle"), and as further amended by a letter dated October 27, 1995 from
the Waiver Group (as defined in the Original Pledge Agreement) to Newco and
Aristotle (the Original Pledge Agreement, together with such letter amendments,
being hereinafter referred to as the "Pledge Agreement"); (b) the Security
Agreement dated as of April 11, 1994 among The Strouse Adler Company
("Strouse"), and David Howell and Alfred Kniberg in their capacity as
collateral agent for the Shareholders (the "Security Agreement"); (c) the
several Stock Purchase Warrants Series A (the "Preferred Warrants") issued to
each of the Shareholders; (d) the several Stock Purchase Warrants Series B (the
"Common Warrants") issued to each of the Shareholders; (e) the several Term
Promissory Notes made by each of the Shareholders in favor of Aristotle (each, a
"Note" and collectively, the "Notes"); (f) the Registration Rights Agreement
dated as of April 11, 1994 among Aristotle and the Shareholders (the
"Registration Rights Agreement"); (g) the Pension Escrow Agreement dated as of
April 11, 1994 among Strouse and David Howell and Alfred Kniberg in their
capacity as collateral agent for the Shareholders, and the escrow agent named
therein (the Escrow Agreement"); and (h) the Capital Contribution Agreement
dated as of November 19, 1993 among Aristotle, Newco, Strouse and the
Shareholders (the "Capital
<PAGE>
Contribution Agreement"). Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to them in the Pledge Agreement,
the Security Agreement, the Preferred Warrants, the Common Warrants, the Notes,
the Registration Rights Agreement, the Escrow Agreement and the Capital
Contribution Agreement, as applicable.
The undersigned do hereby agree as follows:
1. The Pledge Agreement is hereby amended by adding the following sentence
at the end of Section 7 thereof:
Notwithstanding the foregoing sentence, the Pledgor shall have the
right to sell, assign, transfer or otherwise dispose of any of, grant an
option with respect to, or pledge or otherwise encumber or restrict any of
the Stock or any interest therein if its pays or deposits in the Account
the amount required to satisfy all of its obligations under the Put Right
and mandatory redemption obligations under its Certificate of Incorporation
then in effect with respect to the then outstanding shares of its Series A,
B and C Preferred Stock, in which event the Pledgees shall return the Stock
to the Pledgeor together with stock powers executed in blank required for
the transfer of the Stock to the Pledgor.
2. The Pledge Agreement is hereby amended by deleting the last sentence of
Section 10 thereof and substituting the following in its place:
The funds in the Account shall be available to the Pledgor to be used
solely to make payments pursuant to Put Rights then being exercised as
follows: (a) on or after January 1, 1998, $400,000 of the funds in the
Account shall be returned to the Pledgor, (b) on or after January 1, 1999,
up to an additional $200,000 of the funds in the Account shall be returned
to the Pledgor, (c) on or after January 1, 2000, up to an additional
$100,000 of the funds in the Account shall be returned to the Pledgor, and
(d) on April 11, 2001, any remaining funds in the Account shall be returned
to the Pledgor; in each case, unless an Indemnity Notice or Dispute Notice
is then outstanding with respect to said funds, in which event the funds in
the Account shall be distributed in accordance with Mutual Instructions or
an Award.
3. The Security Agreement is hereby amended by adding the following
sentence at the end of Section 3(b) thereof:
Notwithstanding the foregoing sentence, the Debtor shall have the right
to sell or otherwise dispose of any of the Collateral or any interest
therein if, in lieu of pledging substitute collateral, Aristotle or Newco
pays or deposits in the Account (as defined in the Pledge and Escrow
Agreement dated April 11, 1994 between the Collateral Agent and Sub, as
amended)the amount required to satisfy all of Newco's obligations under the
Put Right and mandatory redemption obligations under Newco's Certificate of
Incorporation then in effect with respect to the then outstanding shares of
its Series A, B and C Preferred Stock, in which event this Agreement and
the security interest in the Collateral created hereby shall terminate, and
the Secured Parties shall promptly execute and deliver
2
<PAGE>
to the Debtor such UCC-3 termination statements, certificates and other
documents or instruments as may be necessary to enable the Debtor to
terminate the security interest in the Collateral granted hereby.
4. Each Shareholder agrees that the number of Stock Units which may be
purchased on exercise of such Shareholder's Preferred Warrants as set forth of
the first page of such Shareholder's Preferred Warrants certificate and in the
definition of "Warrants" in Section 1 thereof shall be amended such that the
number of Stock Units which such Shareholder shall be entitled to purchase shall
be the number set forth opposite such Shareholder's name below:
Number of
Holder Stock Units
------ -----------
Howell Resource Partners 50,000
Albert Kniberg 13,617
Richard Sheldon 0
Paul McDonald 5,702
J.M. Scott, Inc. Custodian f/b/o 0
Paul H. McDonald
Graeme Caulfield 4,616
C. David Goldman 2,420
Louis Musante 2,420
Joyce Baran 1,724
John Peterson 0
The Amendment in this Paragraph 4 shall be null and void if Newco does not make
the payments on January 1, 1998 to redeem certain shares of Series A, B and C
Series Preferred Stock of Newco held by the Shareholders.
5. Each Shareholder agrees that such Shareholder's certificate for
Preferred Warrants is hereby amended by deleting the definition of "Preferred
Stock Exercise Rate" in Section 1 thereof and substituting the following in its
place:
3
<PAGE>
"Preferred Stock Exercise Rate" shall mean the number of shares of
Common Stock of the Company into which each share of Newco Series A, B and
C Preferred Stock may be exchanged; the initial Preferred Stock Exercise
Rate shall be 1.6666667, and such initial Preferred Stock Exercise Rate
shall be subject to the adjustments described herein.
6. Each Shareholder agrees that such Shareholder's certificate for
Preferred Warrants is hereby amended by deleting the last sentence of Section
2(a) thereof and substituting the following in its place:
As used herein, "Exercise Consideration" initially means one share of
Series A, B or C Preferred Stock of Newco (excluding the Redemption Shares,
as defined in the Restated Certificate of Incorporation of Newco) for each
1.6666667 Stock Units (the "initial Preferred Stock Exercise Rate") and
thereafter means the Preferred Stock Exercise Rate.
7. Each Shareholder agrees that such Shareholder's certificate for
Preferred Warrants is hereby amended by deleting the definition of "Exercise
Right Commencement Date" in Section 1 thereof and substituting the following in
its place:
"Exercise Right Commencement Date" shall mean (i) the earlier of the
occurrence of an Acceleration Event or (ii) January 1, 1999 with respect to
exercises as to which Series A or B Preferred Stock is the exercise
consideration and January 1, 2000 with respect to exercises as to which
Series C Preferred Stock is the exercise consideration.
8. [INTENTIONALLY OMITTED.]
9. Each Shareholder listed below surrenders for cancellation the number of
shares of Series A and/or B Preferred Stock to Newco set forth opposite such
Shareholders name below in exchange for a reduction in the principle amount of
such Shareholder's Note in the amount set forth opposite such Shareholder's name
below.
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Principle New Principle
Shareholder Surrendered Surrendered Reduction Balance of Note
- ------------------ ----------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
Albert Kniberg 0 5,706 $57,060 $92,119
Paul McDonald 1,957 1,574 $35,310 $57,020
Joyce Baran O 763 $ 7,630 $12,338
</TABLE>
In addition, each such Shareholder agrees that such Shareholder's Note is hereby
amended such that one-half of the principal amount (as reduced pursuant to the
preceding sentence) of such Note shall be due and payable on January 1, 1999 and
one-half of the principal amount (as
4
<PAGE>
reduced pursuant to the preceding sentence) of such Note shall be due and
payable on January 1, 2000.
10. The Registration Rights Agreement is hereby amended by deleting the
date "April 11, 1996" as it appears in the second line of Section 1.2(a) thereof
and substituting the date "January 1, 1999" in its place.
11. The Escrow Agreement is hereby amended by deleting subpart (iv) of
Section 7 thereof and substituting the following in its place:
(iv) September 15, 1997.
12. Each Shareholder agrees to surrender such Shareholder's certificate
for Preferred Warrants to Aristotle in exchange for a new certificate for
Preferred Warrants incorporating the amendments set forth in Paragraphs 4
through 7 of this letter agreement within ten calendar days of the execution
hereof; provided, however, that such amendments shall be effective
-----------------
notwithstanding the failure of any Shareholder to surrender such Shareholder's
certificate for Preferred Warrants to Aristotle or the failure of Aristotle to
issue a new certificate for Preferred Warrants in exchange therefore.
13. Each Shareholder agrees to surrender such Shareholder's certificate
for Common Warrants to Aristotle in exchange for a new certificate for Common
Warrants incorporating the amendment set forth in Paragraph 8 of this letter
agreement within ten calendar days of the execution hereof; provided, however,
-----------------
that such amendment shall be effective notwithstanding the failure of any
Shareholder to surrender such Shareholder's certificate for Common Warrants to
Aristotle or the failure of Aristotle to issue a new certificate for Common
Warrants in exchange therefore.
14. Each Shareholder agrees to surrender such Shareholder's certificates
for Newco Series A, B and C Preferred Stock to Newco so that Newco can reissue
certificates for such shares with appropriate legends reflecting the amendments
to Newco's Restated Certificate of Incorporation approved by Newco's
stockholders pursuant to an Action by Stockholders Without a Meeting dated
September 15, 1997 (the "Restated Certificate of Incorporation") by identifying
the Put Right Commencement Date assigned to each share and designating certain
shares of Series A, B, and C Preferred Stock as the Redemption Shares (as
defined in Newco's Restated Certificate of Incorporation), within ten calendar
days of the execution hereof; provided, however, that such amendments to Newco's
-----------------
Restated Certificate of Incorporation shall be effective and binding upon the
Shareholders and Newco notwithstanding the failure of any Shareholder to
surrender such Shareholder's certificates for Series A, B and C Preferred Stock
to Newco or the failure of Newco to issue new certificates in exchange
therefore.
15. Each Shareholder agrees to execute and deliver to Aristotle a new Note
in exchange for the cancellation of such Shareholder's original Note, such new
Note to incorporate the amendments set forth in Paragraph 9 of this letter
agreement, within ten calendar days of the execution hereof; provided, however,
-----------------
that such amendments shall be effective notwithstanding
5
<PAGE>
the failure of any Shareholder to execute and deliver to Aristotle a new Note in
exchange for the cancellation of such Shareholder's original Note.
16. Each Shareholder agrees that Aristotle and Newco shall have the right
to restructure such corporations such that the Shareholder's equity interest in
Newco shall become an equity interest in Aristotle and hereby consents to such
restructuring; provided that such restructuring qualifies as a tax free
reorganization under federal income tax rules in which the Shareholders will not
recognize any gain on the disposition at their equity interest in Newco and that
following any such restructuring such Shareholders shall be in the same position
as shareholders of Aristotle with respect to dividends, liquidation preference
and put rights and such other powers, preferences and relative, participating,
optional and other special rights and the qualifications, limitations,
restrictions and other distinguishing characteristics as they were in as holders
of the Series A, B and C Preferred Stock of Newco. The Shareholders covenant
and agree to execute and deliver such additional agreements and instruments and
take all such further action as shall be necessary or expedient to give effect
to the foregoing.
17. For purposes of Section 4.9 of the Capital Contribution Agreement, the
execution of this letter agreement by the undersigned members of the Waiver
Group shall be deemed to be the consent of or waiver from the Waiver Group with
respect to the amendments effected in the Restated Certificate of Incorporation
and the other covenants and agreements of the Shareholders set forth above.
18. Aristotle will use its reasonable best efforts to file as
expeditiously as possible with the Securities and Exchange Commission a Form S-3
registration statement covering all shares of Aristotle Common Stock which may
be received by the Shareholders on exercise of Common Warrants or Preferred
Warrants.
Except as expressly provided herein, none of the other provisions of the
Pledge Agreement, the Security Agreement, the Preferred Warrants, the Common
Warrants, the Notes, the Registration Rights Agreement, the Escrow Agreement or
the Capital Contribution Agreement are amended or waived, and the Pledge
Agreement, the Security Agreement, the Preferred Warrants, the Common Warrants,
the Notes, the Registration Rights Agreement, the Escrow Agreement and the
Capital Contribution Agreement are and remain in full force and effect.
Please indicate your agreement to the foregoing by executing this letter
agreement in the space provided below. This letter may be executed in one or
more counterparts and the facsimile of the signature of any party shall
constitute an original signature of such party. The failure by any one or more
of the Shareholders to execute this letter will not affect the validity or
enforceability of this letter against the other Shareholders who execute this
letter.
Very truly yours,
Howell Resource Partners
6
<PAGE>
/s/ David Howell
-----------------------------
By: David Howell
Its: General Partner
/s/ Alfred Kniberg
-----------------------------
Alfred Kniberg, individually and as
collateral agent under the Pledge Agreement
and Security Agreement
/s/ Richard Sheldon
-----------------------------
Richard Sheldon
/s/ Paul McDonald
-----------------------------
Paul McDonald
Janney Montgomery Scott, Inc. Custodian
f/b/o Paul McDonald
/s/ Richard T. Avallon
-----------------------------
By: Richard T. Avallon
Its:
/s/ Graeme Caulfield
-----------------------------
Graeme Caulfield
/s/ C. David Goldman
-----------------------------
C. David Goldman
/s/ Louis Musante
-----------------------------
Louis Musante
/s/ Joyce Baran
-----------------------------
Joyce Baran
/s/ John Peterson
-----------------------------
John Peterson
/s/ David Howell
-----------------------------
David Howell, as collateral agent under the
Pledge Agreement, the Security Agreement and
the Escrow Agreement
Acknowledged and Agreed to:
7
<PAGE>
ARISTOTLE SUB, INC.
By: /s/ John J. Crawford
-----------------------
John J. Crawford
President
THE STROUSE, ADLER COMPANY
By: /s/ Paul McDonald
-----------------------
THE ARISTOTLE CORPORATION
By: /s/ John J. Crawford
-----------------------
John J. Crawford
President
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 660
<SECURITIES> 400
<RECEIVABLES> 4,354
<ALLOWANCES> (128)
<INVENTORY> 11,651
<CURRENT-ASSETS> 16,834
<PP&E> 2,907
<DEPRECIATION> (1,299)
<TOTAL-ASSETS> 21,578
<CURRENT-LIABILITIES> 12,228
<BONDS> 0
1,605
0
<COMMON> 11
<OTHER-SE> 6,708
<TOTAL-LIABILITY-AND-EQUITY> 21,578
<SALES> 7,568
<TOTAL-REVENUES> 7,585
<CGS> 5,596
<TOTAL-COSTS> 1,543
<OTHER-EXPENSES> 49
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189
<INCOME-PRETAX> 257
<INCOME-TAX> 0
<INCOME-CONTINUING> 208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
