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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )*
VTX ELECTRONICS CORP.
(Name of Issuer)
Common Stock, $0.10 Par Value
(Title of Class of Securities)
918388109
(CUSIP Number)
Stephen M. Vine, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
399 Park Avenue
New York, New York 10022
(212) 872-1000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
April 3, 1996
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement /x/. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosure provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Continued on following page(s)
Page 1 of 124 Pages
Exhibit Index: Page 10
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SCHEDULE 13D
CUSIP NO. 918388109 PAGE 2 OF 124 PAGES
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
George Soros (in his capacity as the sole proprietor of Soros
Fund Management)
2 Check the Appropriate Box If a Member of a Group*
a. / /
b. / /
3 SEC Use Only
4 Source of Funds*
AF
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) / /
6 Citizenship or Place of Organization
United States
7 Sole Voting Power
Number of 0
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 0
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000(1)
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares*
/ /
13 Percent of Class Represented By Amount in Row (11)
7.32%
14 Type of Reporting Person*
IA
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- --------------------
(1) See Item 5.
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PAGE 3 OF 124 PAGES
ITEM 1. SECURITY AND ISSUER.
This statement on Schedule 13D (the "Statement") relates to shares of
common stock, $0.10 par value (the "Shares"), of VTX Electronics Corp. (the
"Issuer"). The address of the principal executive offices of the Issuer is 61
Executive Boulevard, Farmingdale, New York 11735. This statement on Schedule
13D is being filed by the Reporting Person (as defined below) to report the
acquisition of securities which, within 60 days of the date set forth on the
cover of this Statement, are convertible into Shares, as a result of which the
Reporting Person may be deemed the beneficial owner of in excess of 5% of the
outstanding Shares.
ITEM 2. IDENTITY AND BACKGROUND.
This Statement is being filed on behalf of Mr. George Soros (the
"Reporting Person") in his capacity as the sole proprietor of an investment
advisory firm conducting business under the name Soros Fund Management ("SFM").
This Statement relates to Shares acquired for the account of Quota Fund N.V., a
Netherlands Antilles investment corporation ("Quota"). Quota has its principal
office at Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. Quota
granted investment discretion to SFM pursuant to an investment advisory
contract. SFM's contract with Quota provides that SFM is responsible for
designing and implementing Quota's overall investment strategy, for conducting
direct portfolio management strategies to the extent that SFM determines that
it is appropriate to utilize its own portfolio management capabilities; for
selecting, evaluating and monitoring other investment advisors who manage
separate portfolios on behalf of Quota; and for allocating and reallocating
Quota's assets among the outside managers and itself. In connection therewith,
Quota granted investment discretion to Steel Partners Services, Ltd., a New
York corporation ("Services"), pursuant to an investment advisory contract
between Quota and Services (the "Services Contract"). The securities of the
Issuer currently held by Quota were acquired at the direction of Services, and
none of the Reporting Person, SFM or Quota currently exercises voting or
investment discretion over the Shares.
SFM is a sole proprietorship of which the Reporting Person is the sole
proprietor. SFM has its principal office at 888 Seventh Avenue, 33rd Floor,
New York, New York 10106. Its sole business is to serve, pursuant to contract,
as the principal investment manager to several foreign investment companies,
including Quota.
The principal occupation of the Reporting Person, a U.S. citizen, is
his direction of the activities of SFM, which is carried out in his capacity as
the sole proprietor of SFM at SFM's principal office. Information concerning
the identity and background of the Managing Directors of SFM is set forth in
Annex A hereto and incorporated by reference in response to this Item 2.
During the past five years, none of the Reporting Person, SFM or Quota
has been (a) convicted in a criminal proceeding, or (b) a party to any civil
proceeding as a result of which he has been subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws, or finding any
violation with respect to such laws.
Pursuant to regulations promulgated under Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Act"), and notwithstanding
that none of the Reporting Person, SFM or Quota currently exercises voting or
investment discretion over the securities of the Issuer, the Reporting Person
(as the
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sole proprietor and the person ultimately in control of SFM) may be deemed a
beneficial owner of securities, including the securities of the Issuer, held
for the account of Quota as a result of the contractual authority of SFM, upon
termination of the Services Contract, to acquire voting and dispositive power
with regard to the securities of the Issuer held by Services for the account of
Quota.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
As of November 30, 1995, Quota, at the direction of Services, and
certain other persons (together with Quota, the "Purchasers") entered into a
capitalization agreement with the Issuer, a copy of which is attached hereto as
Exhibit A (the "Capitalization Agreement"). Notwithstanding that the
Purchasers all entered into one Capitalization Agreement, none of Quota, SFM or
Mr. Soros were part of any group for purposes of Section 13(d)(3) of the Act.
Pursuant to the Capitalization Agreement, Quota acquired the following: (i)
1,250 shares of Senior Cumulative Convertible Preferred Stock, par value $0.01
per share, stated value of $100 per share, of the Issuer (the "Preferred
Stock"), (ii) Debentures (as such term is defined in the Capitalization
Agreement, the form of which is attached as Exhibit A to the Capitalization
Agreement) in the principal amount of $125,000, (iii) warrants (the "B-1
Warrants," the form of which is attached as Exhibit B-1 to the Capitalization
Agreement) to purchase 500,000 Shares and (iv) warrants (the "B-2 Warrants,"
the form of which is attached as Exhibit B-2 to the Capitalization Agreement,
together with the Preferred Stock, the Debentures and the B-1 Warrant, the
"Securities") to purchase 1,500,000 Shares. Quota expended an aggregate of
$250,000 of its working capital to acquire the Securities held for its account.
Quota expended funds from its working capital to purchase the Securities held
for its account.
As of March 20, 1996, Quota, at the direction of Services, entered
into a subscription agreement with the Issuer, a copy of which is attached
hereto as Exhibit B (the "Subscription Agreement"). Pursuant to the
Subscription Agreement, Quota purchased Debentures, dated March 20, 1996, in
the principal amount of $125,000 (the "March Debentures," a copy of which is
attached as Exhibit C hereto) and warrants (the "March Warrants," a copy of
which is attached as Exhibit D hereto, together with the March Debentures, the
"March Securities") to purchase 2,500,000 Shares. Quota expended an aggregate
of $125,000 to purchase the March Securities which it acquired pursuant to the
Subscription Agreement.
The Securities and March Securities held for the account of Quota may
be held through margin accounts maintained with Arnhold and S. Bleichroeder,
Inc. or other brokers, which extend margin credit to Quota as and when required
to open or carry positions in its margin accounts, subject to applicable
federal margin regulations, stock exchange rules and such firm's credit
policies. The positions held in the margin accounts, including the Securities,
may be pledged as collateral security for the repayment of debit balances in
the respective accounts.
ITEM 4. PURPOSE OF TRANSACTION.
Pursuant to the Capitalization Agreement, on November 30, 1995, Quota
purchased 1,250 shares of Preferred Stock. The Preferred Stock was issued
pursuant to and in accordance with the Certificate of Designation attached as
Exhibit C to the Capitalization Agreement. Pursuant to the Certificate of
Designation, the Purchasers received 1,500 votes per share of Preferred Stock.
The Purchasers, as holders of the Preferred Stock, are entitled to certain
liquidation preferences, are entitled to a quarterly dividend of $3.00 per
share of Preferred Stock (or $12 per share on an annual basis) beginning on
March
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1, 1996 and are entitled, as a class, to elect a majority of the members of the
Board of Directors of the Issuer. The Preferred Stock is required to be
redeemed by the Issuer on December 1, 2000 at the stated value of $100 per
share (the "Redemption Price") or may be redeemed at any time at the option of
the Issuer at the Redemption Price paid in cash or in Shares to be valued for
this purpose at the lower of (i) seventy percent of the then current market
price or (ii) the then current Conversion Price (as such term is defined
herein). The Preferred Stock is convertible at any time after June 1, 1996
into that number of duly paid and nonassessable whole Shares obtained by
dividing the stated value of the Preferred Stock so converted, plus the
cumulative but unpaid dividends (and the interest thereon) on such shares, by
the Conversion Price in effect at the time of conversion. The price at which
Shares shall be delivered upon conversion (the "Conversion Price") is $.25 per
Share, subject to adjustment as provided in Section 9(d) of the Capitalization
Agreement.
Pursuant to the Capitalization Agreement, on November 30, 1995, the
Issuer issued to Quota the B-1 Warrants to purchase 500,000 Shares in
accordance with the form attached as Exhibit B-1 to the Capitalization
Agreement. Pursuant to the B-1 Warrants, from June 1, 1996 to December 1,
2000, Quota is entitled to convert the B-1 Warrants into 500,000 Shares at an
exercise price of $.25 per Share (subject to adjustment for anti-dilution, as
provided in Section 5 of the B-1 Warrants).
Pursuant to the Capitalization Agreement, on November 30, 1995, the
Issuer issued to Quota the B-2 Warrants to purchase 1,500,000 Shares in
accordance with the form attached as Exhibit B-2 to the Capitalization
Agreement. Pursuant to the B-2 Warrants, from December 1, 1998 to December 1,
2005, Quota is entitled to convert the B-2 Warrants into 1,500,000 Shares at an
exercise price of $.25 per Share (subject to adjustment for anti-dilution, as
provided in Section 5 of the B-2 Warrants).
Pursuant to the Subscription Agreement, on March 20, 1996, the Issuer
issued to Quota the March Warrants to purchase 2,500,000 Shares in accordance
with the form attached as Exhibit D hereto. Pursuant to the March Warrants,
from December 1, 1998 to December 1, 2005, Quota is entitled to convert the
March Warrants into 2,500,000 Shares at an exercise price of $.125 per Share
(subject to adjustment for anti-dilution, as provided in Section 5 of the March
Warrants).
All of the Securities and the March Securities were acquired for the
account of Quota for investment purposes. As contemplated by the
Capitalization Agreement, Messrs. Kenneth Rind, Marshall Butler, Al Roth, Hiro
Hiranandani, Paul Lowell and Deborah Nabavian were named to the Board of
Directors of the Issuer. Except as set forth above and as contemplated by the
Capitalization Agreement, neither the Reporting Person, nor, to the best of his
knowledge, any of the other individuals identified in response to Item 2, has
any plans or proposals which relate to or would result in any of the
transactions described in subparagraphs (a) through (j) of Item 4 of Schedule
13D. The Reporting Person reserves the right to acquire additional securities
of the Issuer, to dispose of such securities at any time or to formulate other
purposes, plans or proposals regarding the Issuer or any of its securities, to
the extent deemed advisable in light of its general investment and trading
policies, market conditions or other factors.
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PAGE 6 OF 124 PAGES
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As a consequence of SFM's ability to terminate the Services
Contract with respect to all investments, including but not limited to those
involving the Securities and the March Securities, and acquire the voting and
dispositive power held by Services with respect to the Securities or March
Securities, notwithstanding that neither SFM nor Quota currently exercises
voting or investment discretion over the Shares or the Securities, the
Reporting Person may be deemed to be the beneficial owner of 1,000,000 Shares
(approximately 7.32% of the total number of Shares which would be outstanding
assuming the exercise or conversion of all currently convertible securities of
the Issuer held by Quota). This number consists of (i) 1,250 shares of
Preferred Stock which are convertible into 500,000 Shares and (ii) B-1 Warrants
to purchase 500,000 Shares.
Shares issuable upon exercise of the B-2 Warrants and the
March Warrants are not reported herein as being beneficially owned by the
Reporting Person because such warrants are not exercisable until December 1,
1998. The Debentures and March Debentures are also not reported herein as
being beneficially owned by the Reporting Person because neither is convertible
into Shares.
(b) The power to direct the disposition and voting of the Shares
held by Quota is currently vested in Services pursuant to the Services
Contract. SFM has the contractual authority on behalf of Quota to terminate
the investment advisory contract with Services relating to Quota and, as a
result, the Reporting Person may be deemed to have the ability to acquire the
voting and dispositive power held by Services with respect to the 1,000,000
Shares.
(c) Except as described in Item 3 and Item 4, which are
incorporated in this Item 5(c) by reference, there have been no transactions
with respect to the Shares effected during the past 60 days by the Reporting
Person, SFM or Quota.
(d) The shareholders of Quota have the right to participate in the
receipt of dividends from, or proceeds for the sale of, securities held by
Quota in accordance with their ownership interests in Quota.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS IN RELATIONSHIP WITH RESPECT
TO SECURITIES OF THE ISSUER.
Except as set forth above, the Reporting Person does not have any
contracts, arrangements, understandings or relationships with respect to any
securities of the Issuer.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
(a) Capitalization Agreement dated November 30, 1995, between VTX
Electronics Corp. and the investors set forth on the signature page thereto.
(b) Subscription Agreement dated March 20, 1996, between VTX
Electronics Corp. and Quota Fund N.V.
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(c) Debentures dated March 20, 1996, in the amount of $125,000,
purchased from VTX Electronics Corp. by Quota Fund N.V.
(d) Stock Subscription Warrants, dated March 20, 1996, to purchase
2,500,000 Shares issued to Quota Fund N.V. by VTX Electronics Corp.
(e) Power of Attorney dated October 27, 1994 granted by Mr. George
Soros in favor of Mr. Sean C. Warren.
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SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Date: April , 1996 GEORGE SOROS
---
By:
--------------------------------
Sean C. Warren
Attorney-in-Fact
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ANNEX A
The following is a list of all of the persons who serve as Managing
Directors of Soros Fund Management ("SFM"):
Scott K. H. Bessent
Walter Burlock
Stanley Druckenmiller
Jeffrey L. Feinberg
Arminio Fraga
Gary Gladstein
Robert K. Jermain
David N. Kowitz
Elizabeth Larson
Alexander C. McAree
Paul McNulty
Gabriel S. Nechamkin
Steven Okin
Dale Precoda
Lief D. Rosenblatt
Mark D. Sonnino
Filiberto H. Verticelli
Sean C. Warren
Each of the above-listed persons is a United States citizen whose principal
occupation is serving as Managing Director of SFM, and each has a business
address c/o Soros Fund Management, 888 Seventh Avenue, New York, New York
10106. During the past five years, none of the above-listed persons has been
(i) convicted in a criminal proceeding, or (ii) a party to any civil proceeding
as a result of which any such persons has been subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws, or finding any
violations with respect to such laws.
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INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C> <C>
A Capitalization Agreement dated November 30, 1995, between
VTX Electronics Corp. and the investors set forth on the
signature page thereto 11
B Subscription Agreement dated March 20, 1996, between VTX
Electronics Corp. and Quota Fund N.V. 82
C Debentures dated March 20, 1996, in the amount of $125,000,
purchased from VTX Electronics Corp. by Quota Fund N.V. 85
D Stock Subscription Warrants, dated March 20, 1996, to
purchase 2,500,000 Shares issued to Quota Fund N.V. by VTX
Electronics Corp. 110
E Power of Attorney dated October 27, 1994 granted by Mr.
George Soros in favor of Mr. Sean Warren 124
</TABLE>
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EXHIBIT A
CAPITALIZATION AGREEMENT
This Capitalization Agreement (the "Agreement") dated as of
November , 1995 by and among VTX Electronics Corp., a Delaware corporation
(the "Company") and the Investors set forth on the signature page hereto
(collectively, the "Investors" and individually, an "Investor")
WHEREAS, the Investors desire to make a capital investment in the
Company on the terms and conditions set forth in this Agreement; and
WHEREAS, the Company is desirous of Investors making such capital
investment on the terms and conditions set forth in this Agreement
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Representations and Warranties. The Company represents and
warrants to each Investor as follows:
a. Due Organization and Qualification; Business. The
Company is a duly organized and validly existing corporation in good standing
under the laws of the State of Delaware, has the power and authority to own or
hold under lease the properties it purports to own or so hold and to carry on
its business as now being conducted and presently proposed to be conducted, and
has the power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Company is duly qualified as a foreign
corporation in each jurisdiction where the nature of the business transacted by
it or the properties owned or leased by it requires the Company to be so
qualified except for jurisdictions wherein the failure to be so qualified will
not have a material adverse effect on the business, operations, properties or
assets or on the condition, financial or other, of the Company. The
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Company has paid all corporation taxes and franchise taxes payable to the State
of Delaware and in each other jurisdiction where it is qualified.
b. Litigation; Compliance with Rules, Regulations, Decrees,
etc. Except as set forth on Schedule 1(b) attached hereto, there are no
actions, suits or proceedings (whether or not purportedly on behalf of the
Company) pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries, properties or assets at law, in equity or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind; and neither the Company nor any of its
subsidiaries is in default with respect to any judgment, order, writ,
injunction, decree or award of any court, arbitrator or federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, or in violation of any rule or
regulation of any thereof, or in violation of any law, which violation would
have a material adverse effect on the business or properties of the Company.
The Company has all permits, licenses and franchises necessary or desirable in
order to conduct its business and to own and operate its property and assets.
c. Compliance with Other Instruments. Neither the
execution and delivery of this Agreement, the consummation of the transactions
herein contemplated, nor compliance with the terms, conditions and provisions
hereof and of the Preferred Stock, the Warrants and the Debentures (all as
hereinafter defined), will conflict with or result in a breach or violation of
the certificate of incorporation or by-laws of the Company or of any material
term, condition or provision of any agreement or instrument to which the
Company is now a party or by which it or any of its properties or assets may be
bound, or constitute a default thereunder, or result in the creation or
imposition of any lien upon any of the properties or assets of the Company or
any subsidiary.
d. Financial Statements. The consolidated balance sheet of
the Company as at June 30 in each of the years 1990 to 1995, inclusive, and the
related consolidated statements of operations,
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stockholder' equity and cash flows for the fiscal years then ended, accompanied
in each case by the opinion of independent public accountants previously
delivered to the Investors, as well as the unaudited financial statements as of
September 30, 1995 and 1994 (as set forth in the Form 10Q set forth below)
previously delivered to the Investors are complete and correct in all material
respects and fairly present the financial condition of the Company and its
subsidiaries and the results of the operations and changes in financial
position of the Company and its subsidiaries for the respective fiscal periods
ended on said dates, all in conformity with generally accepted accounting
principles applied on a consistent basis (except as otherwise therein or in the
notes thereto stated) throughout the fiscal periods involved.
e. Business and Properties; No Misleading Statement or
Omissions. The annual report of the Company on Form 10-K for the fiscal year
ended June 30, 1995 including all exhibits and material incorporated by
reference (the "Form 10-K") and the Report on Form 10-Q relating to the
three-month period ended September 30, 1995 (collectively with the Form 10-K,
the "Reports"), as filed with the Securities and Exchange Commission and a copy
of which has heretofore been furnished to the Investors, correctly describes
the general nature of the business conducted by the Company during the fiscal
year ended June 30, 1995 and the three-month period ended September 30, 1995,
respectively, and the information therein with respect to the principal
properties then owned or leased by the Company is correct in all material
respects. Since September 30, 1995, there has been no material change in the
general nature of the business conducted, or in the principal properties owned
or leased, by the Company. The Reports are accurate as of their respective
dates in all material respects and do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. There is no fact or circumstance now in existence and
currently known by the Company which does now, or with the passage of time,
would be reasonably anticipated to have a material adverse affect on the
Company, its business, prospects, financial condition or operations.
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f. Subsidiaries; Due Organization and Qualification. The
Form 10-K correctly and completely sets forth the name and jurisdiction of the
incorporation of each subsidiary of the Company. All outstanding shares of
stock of all classes of each subsidiary listed in the Form 10-K are owned by
the Company and have been validly issued, are fully paid and non-assessable,
and are owned free and clear of any lien, option, contractual restriction on
transfer or contractual right of any other person. Each subsidiary listed in
the Form 10-K is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its incorporation, and has the
corporate power and authority to own or hold under lease the properties it
purports to own or so hold and to carry on its business as now being conducted
and presently proposed to be conducted; each subsidiary listed in the Form 10-K
is duly qualified and is in good standing as a foreign corporation in each
jurisdiction wherein, in the judgment of the Company, the nature of the
business transacted by it or the properties owned or leased by it makes such
qualification necessary, except for jurisdictions wherein the failure to be so
qualified will not have a material adverse effect on the business, operations,
properties or assets or on the condition, financial or other, of the Company.
g. Title to Properties. The Company and its subsidiaries
have good and marketable title to, or valid and enforceable leasehold estates
in, their respective real properties and assets (including leasehold
improvements) reflected in the consolidated balance sheet as at September 30,
1995 referred to in Section 1(b) above, subject only to such defects or
irregularities of title which do not in the aggregate interfere with the
operation, value or use of such properties and assets considered as a whole and
subject to liens in favor of Congress Financial Corporation ("Congress") and
Sterling Commercial Capital, Inc., First Wall Street SBIC, L.P., Fundex Capital
Corp. and Tappan Zee Capital (collectively, the "Sterling Group") and notice
liens in favor of equipment lessors, except for properties and assets sold or
otherwise disposed of subsequent to said date in the ordinary course of
business. The Company owns,
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or has a valid leasehold in, all properties or assets reasonably necessary to
operate and conduct its business.
h. Trademarks, Patents, etc. The Company and its
subsidiaries possess such trademarks, trade names, copyrights, patents,
licenses, or rights in any thereof as are adequate in the opinion of the
Company for the conduct of their respective businesses as now conducted,
without known conflict with the rights of others except for conflicts which if
adversely determined would not, singly or in the aggregate, result in any
material adverse change in the business, operations, properties or assets or in
the condition, financial or other, of the Company.
i. Tax Liability. The Company and its subsidiaries have,
to the knowledge of their respective officers, properly prepared and filed all
tax returns required to be filed with taxing authorities prior to the date
hereof or has duly obtained extensions of time for the filing thereof and have
paid all taxes shown as due on such returns that were filed. The Company has
properly withheld all taxes required to be withheld, including, without
limitation all federal, state and local withholding taxes and FICA payments,
and, to the Company's knowledge, there are no pending audits or investigations
relating to tax matters affecting the Company or any subsidiary. The Company
has been notified of 1) a final assessment by City of Dayton, Ohio in the
amount of approximately $3,400 and, 2) an amount due to the Illinois Department
of Revenue upon audit and resolution thereof in the amount, as of September 27,
1995, of approximately $15,400.
j. Governmental Action. Except as otherwise contemplated
by this Agreement and blue sky laws, no action, authorization or approval of,
or registration, declaration or filing with, any governmental or public body or
authority is required to authorize, or is otherwise required in connection
with, the execution, delivery and performance by the Company of this Agreement
or the Debentures, other than any post event informational filing.
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k. ERISA.
(i) The Company is in compliance in all material
respects with the applicable provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
(ii) No "employee benefit plan" as defined in ERISA,
maintained by the Company or any subsidiary, as from time to time in effect
(herein called "Benefit Plans" or, individually, a "Benefit Plan") nor any
trusts created thereunder, nor any trustee or administrator thereof, has
engaged in a "prohibited transaction," as defined in ERISA, which could subject
the Company or any subsidiary, or any Benefit Plan or any such trust, or any
trustee or administrator thereof, or any party dealing with any Benefit Plan,
or any such trust to any tax or penalty on prohibited transactions. Neither
any of the Benefit Plans nor any such trusts have been terminated, or are
liable for the tax or penalty on prohibited transactions, nor has there been
any "reportable event" as defined in ERISA or any "accumulated funding
deficiency." Neither the Company nor any of its subsidiaries has incurred any
liability to the Pension Benefit Guaranty Corporation.
l. Environmental Issues.
(i) The property owned or leased by the Company or any
of its subsidiaries ("Premises") and the present and contemplated use and
occupancy thereof are in full compliance in all material respects with all
applicable federal, state and local laws, ordinances, building codes, rules and
regulations pertaining to zoning, parking, construction, building, land use and
environmental matters, including, without limitation, the provisions of the
Federal Occupation Safety and Health Act and the Environmental Protection Act,
and all applicable rules and regulations thereunder and all similar state and
local laws, rules and regulations; there are no current citations, notices or
orders of non-compliance issued to the Company or any of its subsidiaries or
relating to its business, assets, property (leased or owned), leaseholds or
equipment under any such laws, rules and regulations. The Company and each of
its subsidiaries has been issued all required federal, state and local
licenses, certificates and permits
<PAGE> 7
PAGE 17 OF 124 PAGES
relating to the business, assets, property (leased or owned) leaseholds and
equipment, and are in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations relating to air emissions,
water discharge, noise emissions, solid or liquid disposal, hazardous waste or
materials, or other environmental, health or safety matters.
(ii) (a) No hazardous or toxic substance or material
or other waste ("Hazardous Substance") as defined in or regulated under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et. seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901, et. seq.), The Oil Pollution Act of 1990
(33 U.S.C. Section 2701 et. seq.) or any other federal, state or local law,
order or regulation pertaining to health, safety, or the environment (the
"Environmental Laws") has ever been unlawfully disposed, released, discharged
or spilled on or under any part of the Premises, (b) the Premises has never
been used as a dump or landfill, (c) no litigation or administrative action or
proceeding has been commenced or, to the Company's knowledge, threatened
against the Company or any of its subsidiaries alleging a violation of any
Environmental Laws, and (d) no underground storage tank (other than fuel oil
storage tanks), equipment containing polycholorinated biophenyle, asbestos, or
urea formaldehyde is located on or under the Premises; the Premises are free
from any contamination by any Hazardous Substance and the Company is in
compliance in all material respects with all Environmental Laws affecting the
Company or the Premises.
(iii) There is not present in the Premises any friable
asbestos or any substance containing asbestos and deemed hazardous by federal,
state or local laws, rules, regulations or orders respecting such material.
m. Due Authorization of Agreement, Preferred Stock,
Debentures and Warrants.
(i) This Agreement and the transactions herein
contemplated, have been duly authorized by the Company. This Agreement has
been duly executed and delivered by the Company, no shareholder approval is
required in connection therewith, and is a valid and binding instrument,
<PAGE> 8
PAGE 18 OF 124 PAGES
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or similar
laws affecting the enforcement of creditors' rights generally and that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought; and
(ii) The Secured Subordinated Debentures in the
aggregate principal amount of $1,237,500 in the form attached hereto as Exhibit
A (the "Debentures"), and the Warrants in the forms attached hereto as Exhibits
B-1 and B-2 (the "Warrants"), have been duly authorized by the Company, and
when each is duly executed and delivered by the Company and paid for as
provided in this Agreement, will be valid and legally binding obligations of
the Company enforceable in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights generally and that
the availability of equitable remedies is subject to the discretion of the
court before which any proceeding therefor may be brought. The Preferred Stock
is convertible into, and the Warrants are exercisable for shares of Common
Stock in accordance with their terms.
o. Validity of Preferred Stock. The Certificate of
Designation, Preferences and Rights of Senior Cumulative Convertible Preferred
Stock of the Company (the "Preferred Stock") in the form attached hereto as
Exhibit C has been duly authorized by the Board of Directors of the Company and
has been duly filed with the Secretary of the State of Delaware. When the
Preferred Stock is issued by the Company to the Investors and paid for by them
as provided in this Agreement, such Preferred Stock will be duly and validly
authorized and issued, fully paid and non-assessable Preferred Stock of the
Company entitled to the rights and preferences of the Certificate of
Designation referenced above.
p. Validity of Common Stock Issuable Upon Conversion of
Preferred Stock and Exercise of Warrants. The shares of Common Stock initially
to be reserved for issuance upon conversion of the Preferred Stock and upon
exercise of the Warrants hereof have been duly and validly authorized
<PAGE> 9
PAGE 19 OF 124 PAGES
and, when so issued upon conversion in accordance with the terms of the
Preferred Stock or exercise of the Warrants, will be duly and validly issued,
fully paid and nonassessable. Schedule 1(p) hereto sets forth the Company's
outstanding stock options, exercise price, expiration date and option holders.
q. No Defaults. The Company is presently, and at all time in
the past twelve (12) months has been, in compliance and not in any violation or
default under its lending agreements with its lenders, including, without
limitation, Congress and the Sterling Group and has been in compliance with,
and not it default under, any material contract, leases, mortgages or
agreement. No event, fact or circumstance exists which, with the passage of
time or the giving of the notice, would create an event of default under any of
the above instruments. The Company is in compliance with its certificate of
incorporation and its by-laws.
r. Capitalization. The authorized and outstanding shares of
capital stock, warrants or rights to convert into or receive capital stock of
the Company (other than options which are set forth on Schedule 1(p)), are
stated on Schedule 1(r) attached hereto. All of the issued and outstanding
shares of capital stock of the Company are duly and validly issued and
outstanding, are fully paid and non-assessable. Except as stated on such
Schedule 1(r), there are no outstanding, options, warrants, or rights to
convert into or receive capital stock of the Company or securities exchangeable
for, or convertible into, capital stock of the Company. No person or entity
has demand or "piggy-back" registration rights as to any security issued or
issuable by the Company, except to the Investors as set forth in the Warrants
and the Preferred Stock. The Company has agreed to use its best efforts to
register up to 400,000 shares of Common Stock issuable upon the exercise of
certain options granted to Donald Rowley.
s. Undisclosed Liabilities; Material Changes. Except for such
claims, debts and liabilities as are reflected in the financial statements
referred to in Section 1(d) hereto and borrowings under the Company's revolving
credit agreement with Congress, the Company does not have any outstanding
indebtedness for money borrowed and is not subject to any claims or liabilities
(whether matured or
<PAGE> 10
PAGE 20 OF 124 PAGES
unmatured, liquidated or unliquidated, accrued, fixed, contingent or
otherwise), other than trade or business obligations incurred in the ordinary
course of business since the date of such financial statements, in amounts
usual and normal, both individually and in the aggregate, for the Company, all
accounting procedures and methods have been maintained in a manner consistent
with prior periods, there has been no lease, sale (other than inventory in the
ordinary course of business), or abandonment of any property or assets of the
Company, nor has there been any labor strife, strike or lock-out. Since the
date of such financial statements, there has not been any material increase in
the compensation payable or to become payable by the Company to any of its
officers, employees or agents, or any bonus payment or arrangement made to or
with any of them, other than in the ordinary course and consistent with past
practices. Since the date of such financial statements, there has not been any
payment by the Company of any dividends or any distribution by the Company to
any of its shareholders in redemption or as a purchase price of any
indebtedness (whether in payment of principle, interest or otherwise) owing to
any of them nor has there been any mortgage, pledge or subjection to a lien,
charge or encumbrance of any material kind of any of the Company's assets,
tangible or intangible.
(t) Insurance. The Company maintains insurance adequate and
reasonable for its needs and consistent with industry standards. All such
insurance is in full force and effect and the Company has received no notices
of cancellation or indication of any intention on the part of any insurance
company not to renew.
(u) Employment Contracts. Except as set forth on Schedule 1(u)
attached hereto, the Company is not a party to, or otherwise subject to, any
oral or written (i) collective bargaining agreement, (ii) contract or other
agreement for the employment of any officer or employee, (iii) profit-sharing,
bonus, deferred compensation, stock option, severance pay, pension, retirement
or similar plan or agreement (including individual agreements) providing
employee benefits.
<PAGE> 11
PAGE 21 OF 124 PAGES
(v) Future Agreements. The Company is not a party to or
otherwise subject to any oral or written (i) guarantee of any obligations for
the borrowing of money or otherwise, or any other agreement or guarantee of the
obligations of another person or entity, (ii) agreement or arrangement for the
purchase or sale of any assets of the Company other than in the ordinary course
of business or for the grant of any preferential rights to purchase any of the
Company's assets, properties or rights, (iii) agreement, contract or commitment
containing any covenant limiting the freedom of the Company to engage in any
line of business in any area of the world or to compete with any person or
entity, (iv) agreement, contract or commitment relating to the acquisition of
assets or capital stock of any business enterprise, (v) contract, agreement or
other instrument not entered at arms length and in the ordinary course of
business.
(w) Market Price of Common Stock. Schedule 1 (w) sets forth the
high, low and closing prices for the Common Stock of the Company for the
trading days November 20, to November 27, 1995 as prepared from information
provided to the Company by Troster Singer.
2. Representation and Warranty of Each Investor. Each Investor
hereby represents and warrants to the Company, as to itself, as of the date
hereof, as follows:
a. Investment. Each Investor is acquiring the Debentures,
the Preferred Stock and the Warrants and if it converts any Preferred Stock or
exercises any Warrants, the underlying Common Stock, for its own account for
investment purposes only, and not with a view to, or for resale in connection
with, any offering or distribution thereof; provided, however, it may transfer
any of the foregoing to any affiliate of itself.
b. Experience. Each Investor has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in the Debentures, Preferred
Stock and Warrants and of making an informed decision.
<PAGE> 12
PAGE 22 OF 124 PAGES
c. Financial Resources. Each Investor is able to bear the
economic risk of such investment hereof and, at the present time, is able to
afford a complete loss of such investment.
d. Restrictions on Transfer. Each Investor understands
that the Debentures, Preferred Stock and Warrants, and the shares of Common
Stock issuable upon conversion or exercise thereof, have not been registered
under the Act by reason of a specific exemption from the registration
provisions of the Act which depends upon, among other things, the bona fide
nature of such Investor's investment intent as expressed herein.
e. Litigation. There are no legal, administrative,
arbitral or other proceedings or governmental investigations pending or, to the
knowledge of such Investor, threatened against such Investor which would give
any third party the right to enjoin or rescind the transactions contemplated by
this Agreement or otherwise prevent such Investor from complying with the terms
and provisions of this Agreement.
f. Limitations and Dispositions. Each Investor
acknowledges that the securities purchased hereby must be held indefinitely
unless they are subsequently registered under the Act or an exemption from such
registration is available. Each Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act. Each Investor consents to
the affixing on certificates representing the Debentures, Preferred Stock,
Warrants and Common Stock issuable upon conversion or exercise thereof of a
legend regarding transfer restrictions.
g. Required Filings and Consents. The Investors are not
required to submit any notice, report or other filing with any governmental
authority in connection with the execution, delivery or performance of this
Agreement.
h. Due Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by each Investor, no shareholder
approval is required, and is a valid and binding instrument enforceable in
accordance with its terms.
<PAGE> 13
PAGE 23 OF 124 PAGES
i. SEC Reports; Recent Losses. Each Investor acknowledges
receipt of the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995 and the Company's Form 10-Q for the Quarter ended September 30,
1995. Each Investor acknowledges that it is aware that the Company expects to
have a significant net loss for the quarter ended December 31, 1995.
3. Purchase of Preferred Stock. Contemporaneously with the
execution and delivery of this Agreement, each Investor shall purchase, and the
Company shall issue and sell, the number of shares of Preferred Stock set forth
opposite such Investor's name on the signature page hereof (an aggregate of
12,500 shares of Preferred Stock) for a purchase price also set forth opposite
such Investor's name on the signatures page hereof.
4. Purchase of Debentures. Contemporaneously with the execution
and delivery of this Agreement, each Investor shall purchase and the Company
shall issue and sell, the principal amount of Debentures set forth opposite
such Investor's name on the signature page hereof.
5. Issuance of Warrants. Contemporaneously with the execution
and delivery of this Agreement, the Company shall issue to each Investor
Warrants to purchase the number of shares of Common Stock set forth opposite
each Investor's name on the signature page hereof.
6. Appointment of Directors; Visitation Rights. (a) The
Company represents and warrants that the entire Board of Directors of the
Company is comprised of Robert J. Eide, Donald Rowley, Steven J. Bayern, Robert
L. Frome, Paul L. McDermott, Jeffrey S. Podell and Mark Bloom. Concurrently
with the execution and delivery of this Agreement, all the directors, except
Mr. Eide shall resign, Mr. Eide shall then elect Messrs. Kenneth Rind,
Marshall Butler, Al Roth, Hiro Hiranandani, Paul Lowell and Deborah Nabavian to
fill all vacancies on the Board, and then Mr. Eide shall resign. The Company
represents and warrants that such action is consistent with the Company's
Certificate of Incorporation and By-laws and when such action is taken by the
Board of Directors, the above named individuals shall be duly elected and
acting directors of the Company.
<PAGE> 14
PAGE 24 OF 124 PAGES
(b) So long as an Investor whose initial purchase of
Securities under this Capitalization Agreement exceeds a purchase price of
$400,000 holds at least 33% of the aggregate of the Debentures, Preferred Stock
and Warrants issued to such Investor pursuant to this Capitalization Agreement,
or Common Stock issued pursuant to exercise or conversion of the foregoing, as
applicable, the Company will give to such Investor adequate notice (which shall
not be less than two weeks for regularly scheduled meetings) of, and permit a
nominee designated by such Investor, whose nominee is not serving on the Board
of Directors, to attend as an observer (who shall be considered an advisory
director), all meetings, whether in person or by telephone of the Company's
Board of Directors and all committee meetings thereof. Such Investor will be
entitled to receive all written materials and other information given to
directors in connection with such meeting at the same time such materials or
information are given to directors. If the Company proposes to take any action
by written consent in lieu of a meeting of its Board of Directors or of any
committee thereof, the Company will give actual notice, prior to the effective
date of such consent, to such Investor describing in reasonable detail the
nature and substance of such action. Any such Investor whose nominee is
serving on the Board of Directors may select a representative to attend as an
observer in said nominee's absence. Board meetings will be held at the
discretion of the Board, but not less than quarterly. Advisory directors will
receive the same compensation payable to outside directors per meeting plus
out-of-pocket costs related to such attendance.
7. Voting Proxy; Escrow Agreement.
(a) Contemporaneously with the execution and delivery of
this Agreement, the Company shall cause the Voting Proxy in the form attached
hereto as Exhibit D to be executed and delivered by the parties therein listed.
(b) By their signature below, the Investors hereby agree to
the terms and conditions of that certain Escrow Agreement dated the date hereof
among the Investors, the Company and Olshan Grundman Frome & Rosenzweig, LLP,
as Escrow Agent, a copy of which is attached hereto as Exhibit
<PAGE> 15
PAGE 25 OF 124 PAGES
E, and covenant to promptly deliver to the Escrow Agent original signed copies
of such Escrow Agreement.
8. Opinion of Counsel. Contemporaneously with the execution and
delivery of this Agreement, the Company shall provide the Investors with an
opinion of counsel in form set substantially forth as Exhibit F hereto.
9. Use of Proceeds. The Company shall use the proceeds from
sale of the Debentures, Preferred Stock and Warrants within the United States
and for working capital and other general corporate purposes. The Company
shall not use such proceeds to repurchase, redeem, or otherwise acquire
outstanding securities, for any purpose prohibited by the regulations
promulgated by the U.S. Small Business Administration under the Small Business
Investment Act of 1958, as amended, or for any other purpose prohibited by law.
The Company understands that LEG Partners SBIC, L.P. (the "SBIC Investor") is
required under such regulations to conduct a reasonable review within 90 days
after the Closing to assure that proceeds from sale of the Debentures, the
Preferred Stock and Warrants are used for the intended purposes, and the
Company agrees to cooperate with the SBIC Investor in such review, including
permitting access to the Company's records by a representative of the SBIC
Licensee. Any use of such proceeds other than as contemplated herein shall
constitute a violation of a covenant with the SBIC Investor for which the SBIC
Investor may, at its option, demand that the Company repurchase the Debentures
and/or Preferred Stock issued to the SBIC Investor pursuant to this Agreement
at a price equal to the purchase price paid for such Debentures and/or
Preferred Stock. The parties hereto agree and understand that but for the
issuance of the Warrants to the Investors, the interest on the Debentures would
have been one (1%) percent greater than as set forth in the Debentures.
10. Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements made by any party hereto
in this Agreement or in any document or certificate delivered pursuant hereto
shall survive the purchase and sale of the Debentures, Preferred
<PAGE> 16
PAGE 26 OF 124 PAGES
Stock and the issuance of the Warrants, the conversion or exercise, as the case
may be, of the foregoing and shall be unaffected by any investigation made by
or on behalf of any party hereto.
11. Miscellaneous.
(a) This Agreement shall be construed under the laws of the
State of New York without giving effect to conflict of laws rules of such
State.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
(c) If any provision of this Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, this Agreement
shall be interpreted and enforceable as if such provision were severed or
limited but only to the extent necessary to render such provision and this
Agreement enforceable.
(d) Notices shall be effective on the day delivered by hand
and receipted, the second business day after delivery to a recognized overnight
courier service or seven days after delivery to the United States Post Office
proper postage prepaid sent registered or certified mail, return receipt
requested, addressed in each case as follows:
If to the Company: 61 Executive Boulevard
Farmingdale, New York 11735
If to any Investor: At the address set forth on the
signature page hereof
(e) The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
<PAGE> 17
PAGE 27 OF 124 PAGES
(f) This Agreement may only be amended by a written
instrument executed by each of the parties hereto.
(g) This Agreement (together with the other agreements and
documents delivered pursuant to or in connection with this Agreement)
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof; and supersede all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.
(h) This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken shall
constitute one and the same agreement.
<PAGE> 18
PAGE 28 OF 124 PAGES
IN WITNESS WHEREOF, the undersigned have executed and delivered
the Agreement as of the date first above written.
VTX ELECTRONICS CORP.
BY:
---------------------------------
Name:
Title:
Agreement as to the provisions of
Section 6
- ------------------------
Robert J. Eide
- ------------------------
Donald Rowley
- ------------------------
Steven J. Bayern
- ------------------------
Robert L. Frome
- ------------------------
Paul L. McDermott
- ------------------------
Jeffrey S. Podell
- ------------------------
Mark Bloom
<PAGE> 19
PAGE 29 OF 124 PAGES
INVESTORS
Name:
-----------------------------------
By:
-----------------------------------
Signature:
-----------------------------------
Address:
---------------------------------------
---------------------------------------
---------------------------------------
Number of Shares
of Preferred Stock:
---------------------------------------
Principal Amount
of Debentures
---------------------------------------
Warrants (Form B-1)
To Purchase Number
of Shares of Common
Stock
---------------------------------------
Warrants (Form B-2)
To Purchase Number
of Shares of Common
Stock
---------------------------------------
Total Consideration:
---------------------------------------
<PAGE> 20
PAGE 30 OF 124 PAGES
EXHIBIT A
SECURED SUBORDINATED DEBENTURE
$ Farmingdale, New York
---------- November 30, 1995
VTX Electronics Corp., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company"), for
value received, hereby promises to pay to the order of Quota Fund, NV, or
registered assigns the principal amount of _________________________________
($_______) Dollars on December 1, 2000, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for public
and private debts, at the principal office of the Company, in Farmingdale, New
York and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) at said office, in like coin or currency, on the unpaid portion
of said principal amount from the date hereof, quarterly on the first day of
September, December, March and June in each year, commencing on March 1, 1996,
at the rate of interest from time to time equal to the "prime rate" as
publically announced from time to time in the Wall Street Journal plus two
percent (2%) per annum adjusted monthly on the first business day of each month
until such unpaid portion of such principal amount shall have become due and
payable and thereafter at the greater of such prime rate plus six percent (6%)
or eighteen percent (18%) per annum thereafter and, so far as may be lawful, on
any overdue installment of interest at the rate of the greater of such prime
rate plus six percent (6%) or eighteen percent (18%) per annum. This Debenture
may be prepaid at any time after one year from original issuance, in whole or
in part, with no penalty, only with the prior written consent of the Holder of
this Debenture.
Section 1. The Agreement; Exchanges and Transfers of the
Debenture.
<PAGE> 21
PAGE 31 OF 124 PAGES
Section 1.1. The Agreement. This Debenture (herein called the
"Debenture") is one of several identical Debentures in the aggregate principal
amount not to exceed $1,237,500 (collectively called the "Debentures") issued
on March , 1996.
Section 1.2. Register; Transfer or Exchange of Debentures. The
Company shall keep at its office or agency maintained in Farmingdale, New York
a register in which the Company shall provide for the registration of
Debentures and for the registration of transfer of Debentures. The Holder of
any Debenture may, at its option and either in person or by duly authorized
attorney, surrender the same for registration of transfer or exchange at such
office and, without expense to such Holder (other than transfer taxes, if any),
receive in exchange therefor a new Debenture or Debentures, dated as of the
date to which interest has been paid on the Debenture or Debentures so
surrendered, each in the principal amount of $10,000 or any integral multiple
thereof, for the same aggregate unpaid principal amount as the Debenture or
Debentures so surrendered for transfer or exchange and each registered in such
name or names as may be designated by such Holder. Every Debenture so made and
delivered in exchange for any Debenture shall in all other respects be in the
same form and have the same terms as the Debenture so surrendered for transfer
or exchange.
Section 1.3. Loss, Theft, Destruction or Mutilation of
Debentures. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of any Debenture and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity bond in such
reasonable amount as the Company may determine (or if such Debenture is held by
the original Holder, of an unsecured indemnity agreement reasonably
satisfactory to the Company) or, in the case of any such mutilation, upon
surrender and cancellation of such Debenture, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Debenture, a new
Debenture of like tenor and unpaid principal amount and dated as of the date to
which interest has been paid on the Debenture so lost, stolen, destroyed or
mutilated.
<PAGE> 22
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Section 1.4. Registered Holders. The Company may deem and
treat the person in whose name any Debenture is registered as the absolute
owner and holder of such Debenture for the purpose of receiving payment of the
principal of and interest on such Debenture and for the purpose of any notices,
waivers or consents thereunder, whether or not such Debenture shall be overdue,
and the Company shall not be affected by notice to the contrary. Payments with
respect to any Debenture shall be made only to the registered Holder thereof.
Section 2. Surrender of the Debenture.
Section 2.1. Surrender of Debentures. (a) The Company may, as
a condition of payment of all or any of the principal of, and interest on, this
Debenture, in whole or in part, require the holder to present this Debenture
for notation of such payment and, if this Debenture be paid in full, require
the surrender hereof.
(b) Anything herein to the contrary notwithstanding, the
entire principal plus accrued interest amount of this Debenture, or any part
hereof, may be surrendered to the Company by the Holder for redemption and
cancellation as payment of the exercise price of any warrant to acquire common
stock of the Company. If less than the entire principal amount of this
Debenture is so surrendered and redeemed, a new Debenture in the remaining
outstanding principal amount shall be redelivered to the Holder.
Section 3. Covenants.
Section 3.1. To Pay Principal and Interest. The Company
covenants and agrees to pay principal and interest on this Debenture in
accordance with the terms hereof.
Section 3.2. Maintenance of Company Office. The Company will
maintain an office in Farmingdale, New York in its current facility where
notices, presentations and demands to or upon the Company in respect of the
Debenture may be given or made or such other place as a majority in principal
amount of the Debentures shall consent to in writing.
<PAGE> 23
PAGE 33 OF 124 PAGES
Section 3.3. To Keep Books. The Company will, and will cause
all subsidiaries, to keep proper books of record and account in which full,
true and correct entries will be made of its transactions in accordance with
generally accepted accounting principles.
Section 3.4. Payment of Taxes; Corporate Existence; Maintenance
of Properties. The Company will, and will cause each of its subsidiaries to,
(a) pay and discharge promptly or cause to be paid and discharged promptly
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or upon any of its property, real, personal or
mixed, or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien or change upon its property; provided, however, that
neither the Company nor any subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or such subsidiary, as the case may be, shall have set aside
on its books reserves (provided for and segregated to the extent required by
generally accepted accounting principles) deemed by it adequate with respect
thereto;
(b) maintain and keep or cause to be maintained and kept its properties in
good repair, working order and condition, and from time to time make or cause
to be made all needful and proper repairs, renewals, replacements and
improvements so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
Section 3.5. To Insure. The Company will, and will cause each
of its subsidiaries to maintain insurance in such extent and against such
hazards and liabilities as is commonly maintained by companies similarly
situated.
<PAGE> 24
PAGE 34 OF 124 PAGES
Section 3.6. Sale, Merger or Consolidation by Company. The
Company will not sell, lease, transfer or otherwise dispose of any substantial
part of its properties and assets or consolidate with or merge into any person
or permit any person to merge into it.
Section 3.7. Additional Debt. The Company shall not issue or
incur any debt senior to, or parri passu with, the Debentures.
Section 4. Representations and Warranties. The Company
represents and warrants to each Holder of this Debenture, on the date of
original issuance, as follows:
Section 4.1. Due Organization and Qualification; Business. The
Company is a duly organized and validly existing corporation in good standing
under the laws of the State of Delaware, has the power and authority to own or
hold under lease the properties it purports to own or so hold and to carry on
its business as now being conducted and presently proposed to be conducted, and
has the power and authority to enter into this Debenture and to carry out the
transactions contemplated hereby. The Company is duly qualified as a foreign
corporation in each jurisdiction where the nature of the business transacted by
it or the properties owned or leased by it requires the Company to be so
qualified except for jurisdictions wherein the failure to be so qualified will
not have a material adverse effect on the business, operations, properties or
assets or on the condition, financial or other, of the Company. The Company
has paid all corporation taxes and franchise taxes payable to the State of
Delaware and in each other jurisdiction where it is qualified.
Section 4.2. Litigation; Compliance with Rules, Regulations,
Decrees, etc. Except as set forth on Schedule 4.2 attached hereto, there are
no actions, suits or proceedings (whether or not purportedly on behalf of the
Company) pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries, properties or assets at law, in equity or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind; and neither the Company nor
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any of its subsidiaries is in default with respect to any judgment, order,
writ, injunction, decree or award of any court, arbitrator or federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, or in violation of any rule or
regulation of any thereof, or in violation of any law, which violation would
have a material adverse effect on the business or properties of the Company.
The Company has all permits, licenses and franchises necessary or desirable in
order to conduct its business and to own and operate its property and assets.
Section 4.3. Compliance with Other Instruments. Neither the
execution and delivery of this Debenture, the consummation of the transactions
herein contemplated, nor compliance with the terms, conditions and provisions
hereof, will conflict with or result in a breach or violation of the
certificate of incorporation or by-laws of the Company or of any material term,
condition or provision of any agreement or instrument to which the Company is
now a party or by which it or any of its properties or assets may be bound, or
constitute a default thereunder, or result in the creation or imposition of any
lien upon any of the properties or assets of the Company or any subsidiary.
Section 4.4. Financial Statements. The consolidated balance
sheet of the Company as at June 30 in each of the years 1990 to 1995,
inclusive, and the related consolidated statements of operations, stockholder'
equity and cash flows for the fiscal years then ended, accompanied in each case
by the opinion of independent public accountants previously delivered to the
Holder of this Debenture, as well as the unaudited financial statements as of
September 30, and December 31, 1995 and 1994 (as set forth in the Form 10Q set
forth below) previously delivered to the Holder are complete and correct in all
material respects and fairly present the financial condition of the Company and
its subsidiaries and the results of the operations and changes in financial
position of the Company and its subsidiaries for the respective fiscal periods
ended on said dates, all in conformity with generally accepted accounting
principles applied on a consistent basis (except as otherwise set forth therein
or in the notes thereto stated) throughout the fiscal periods involved.
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Section 4.5. Business and Properties; No Misleading Statement
or Omissions. The annual report of the Company on Form 10-K for the fiscal
year ended June 30, 1995 including all exhibits and material incorporated by
reference (the "Form 10-K") and the Reports on Form 10-Q relating to the
three-month periods ended September 30 and December 31, 1995 (collectively with
the Form 10-K, the "Reports"), as filed with the Securities and Exchange
Commission and copies of which have heretofore been furnished to the Holder,
correctly describe the general nature of the business conducted by the Company
during the fiscal year ended June 30, 1995 and the six-month period ended
December 31, 1995, respectively, and the information therein with respect to
the principal properties then owned or leased by the Company is correct in all
material respects. Since December 31, 1995, there has been no material change
in the general nature of the business conducted, or in the principal properties
owned or leased, by the Company. The Reports are accurate as of their
respective dates in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Except as set forth in Schedule 4.5 hereto, there
is no fact or circumstance now in existence and currently known by the Company
which does now, or with the passage of time, would be reasonably anticipated to
have a material adverse affect on the Company, its business, prospects,
financial condition or operations.
Section 4.6. Subsidiaries; Due Organization and Qualification.
The Form 10-K correctly and completely sets forth the name and jurisdiction of
the incorporation of each subsidiary of the Company. All outstanding shares of
stock of all classes of each subsidiary listed in the Form 10-K are owned by
the Company and have been validly issued, are fully paid and non-assessable,
and are owned free and clear of any lien, option, contractual restriction on
transfer or contractual right of any other person. Each subsidiary listed in
the Form 10-K is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its incorporation, and has the
corporate power and authority to own
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or hold under lease the properties it purports to own or so hold and to carry
on its business as now being conducted and presently proposed to be conducted;
each subsidiary listed in the Form 10-K is duly qualified and is in good
standing as a foreign corporation in each jurisdiction wherein, in the judgment
of the Company, the nature of the business transacted by it or the properties
owned or leased by it makes such qualification necessary, except for
jurisdictions wherein the failure to be so qualified will not have a material
adverse effect on the business, operations, properties or assets or on the
condition, financial or other, of the Company.
Section 4.7. Title to Properties. The Company and its
subsidiaries have good and marketable title to, or valid and enforceable
leasehold estates in, their respective real properties and assets (including
leasehold improvements) reflected in the consolidated balance sheet as at
December 31, 1995 referred to in Section 4.4 above, subject only to such
defects or irregularities of title which do not in the aggregate interfere with
the operation, value or use of such properties and assets considered as a whole
and subject to liens in favor of Congress Financial Corporation ("Congress")
and Sterling Commercial Capital, Inc., First Wall Street SBIC, L.P., Fundex
Capital Corp. and Tappan Zee Capital (collectively, the "Sterling Group") and
notice liens in favor of equipment lessors, except for properties and assets
sold or otherwise disposed of subsequent to said date in the ordinary course of
business. The Company owns, or has a valid leasehold in, all properties or
assets reasonably necessary to operate and conduct its business.
Section 4.8. Trademarks, Patents, etc. The Company and its
subsidiaries possess such trademarks, trade names, copyrights, patents,
licenses, or rights in any thereof as are adequate in the opinion of the
Company for the conduct of their respective businesses as now conducted,
without known conflict with the rights of others except for conflicts which if
adversely determined would not, singly or in the aggregate, result in any
material adverse change in the business, operations, properties or assets or in
the condition, financial or other, of the Company.
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Section 4.9. Tax Liability. The Company and its subsidiaries
have, to the knowledge of their respective officers, properly prepared and
filed all tax returns required to be filed with taxing authorities prior to the
date hereof or have duly obtained extensions of time for the filing thereof and
have paid all taxes shown as due on such returns that were filed. The Company
has properly withheld all taxes required to be withheld, including, without
limitation all federal, state and local withholding taxes and FICA payments,
and, to the Company's knowledge, there are no pending audits or investigations
relating to tax matters affecting the Company or any subsidiary. The Company
has been notified of 1) a final assessment by City of Dayton, Ohio in the
amount of approximately $3,400 and, 2) an amount due to the Illinois Department
of Revenue upon audit and resolution thereof in the amount, as of September 27,
1995, of approximately $15,400.
Section 4.10. Governmental Action. Except as otherwise
contemplated by this Debenture and blue sky laws, no action, authorization or
approval of, or registration, declaration or filing with, any governmental or
public body or authority is required to authorize, or is otherwise required in
connection with, the execution, delivery and performance by the Company of this
Debenture, other than any post event informational filing.
Section 4.11. ERISA. (a) The Company is in compliance in all
material respects with the applicable provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA").
(b) No "employee benefit plan" as defined in ERISA,
maintained by the Company or any subsidiary, as from time to time in effect
(herein called "Benefit Plans" or, individually, a "Benefit Plan") nor any
trusts created thereunder, nor any trustee or administrator thereof, has
engaged in a "prohibited transaction," as defined in ERISA, which could subject
the Company or any subsidiary, or any Benefit Plan or any such trust, or any
trustee or administrator thereof, or any party dealing with any Benefit Plan,
or any such trust to any tax or penalty on prohibited transactions. Neither
any of the Benefit Plans nor any such trusts have been terminated, or are
liable for the tax or penalty on prohibited
<PAGE> 29
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transactions, nor has there been any "reportable event" as defined in ERISA or
any "accumulated funding deficiency." Neither the Company nor any of its
subsidiaries has incurred any liability to the Pension Benefit Guaranty
Corporation.
Section 4.12. Environmental Issues. (a) The property owned or
leased by the Company or any of its subsidiaries ("Premises") and the present
and contemplated use and occupancy thereof are in full compliance in all
material respects with all applicable federal, state and local laws,
ordinances, building codes, rules and regulations pertaining to zoning,
parking, construction, building, land use and environmental matters, including,
without limitation, the provisions of the Federal Occupation Safety and Health
Act and the Environmental Protection Act, and all applicable rules and
regulations thereunder and all similar state and local laws, rules and
regulations; there are no current citations, notices or orders of
non-compliance issued to the Company or any of its subsidiaries or relating to
its business, assets, property (leased or owned), leaseholds or equipment under
any such laws, rules and regulations. The Company and each of its subsidiaries
has been issued all required federal, state and local licenses, certificates
and permits relating to the business, assets, property (leased or owned)
leaseholds and equipment, and are in compliance in all material respects with
all applicable federal, state and local laws, rules and regulations relating to
air emissions, water discharge, noise emissions, solid or liquid disposal,
hazardous waste or materials, or other environmental, health or safety matters.
(b) (i) No hazardous or toxic substance or material or
other waste ("Hazardous Substance") as defined in or regulated under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et. seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901, et. seq.), The Oil Pollution Act of 1990
(33 U.S.C. Section 2701 et. seq.) or any other federal, state or local law,
order or regulation pertaining to health, safety, or the environment (the
"Environmental Laws") has ever been unlawfully disposed, released, discharged
or spilled on or under any part of the Premises, (ii) the Premises has never
been used as a dump or landfill, (iii) no
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litigation or administrative action or proceeding has been commenced or, to the
Company's knowledge, threatened against the Company or any of its subsidiaries
alleging a violation of any Environmental Laws, and (iv) no underground storage
tank (other than fuel oil storage tanks), equipment containing polycholorinated
biphenyl, asbestos, or urea formaldehyde is located on or under the Premises;
the Premises are free from any contamination by any Hazardous Substance and the
Company is in compliance in all material respects with all Environmental Laws
affecting the Company or the Premises.
(c) There is not present in the Premises any friable
asbestos or any substance containing asbestos and deemed hazardous by federal,
state or local laws, rules, regulations or orders respecting such material.
Section 4.13. Due Authorization of Debenture. This Debenture
and the transactions herein contemplated, have been duly authorized by the
Company, and when this Debenture has been duly executed, paid for and delivered
by the Company, no shareholder approval is required in connection therewith,
this Debenture will be a valid and legally binding obligation, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, moratorium or similar laws affecting
the enforcement of creditors' rights generally and that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought.
Section 4.14. No Defaults. The Company is presently, and at all
time in the past twelve (12) months has been, in compliance and not in any
violation or default under its lending agreements with its lenders, including,
without limitation, Congress and the Sterling Group and has been in compliance
with, and not it default under, any material contract, leases, mortgages or
agreement. No event, fact or circumstance exists which, with the passage of
time or the giving of the notice, would create an event of default under any of
the above instruments. The Company is in compliance with its certificate of
incorporation and its by- laws.
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Section 4.15. Capitalization. The authorized and outstanding
shares of capital stock, warrants or rights to convert into or receive capital
stock of the Company, are stated on Schedule 4.15 attached hereto. All of the
issued and outstanding shares of capital stock of the Company are duly and
validly issued and outstanding, are fully paid and non-assessable. Except as
stated on such Schedule 4.15, there are no outstanding, options, warrants, or
rights to convert into or receive capital stock of the Company or securities
exchangeable for, or convertible into, capital stock of the Company. No person
or entity has demand or "piggy-back" registration rights as to any security
issued or issuable by the Company, except as set forth on Schedule 4.15.
Section 4.16. Undisclosed Liabilities; Material Changes. Except
for such claims, debts and liabilities as are reflected in the financial
statements referred to in Section 4.4 hereto and borrowing under the Company's
revolving credit agreement with Congress, the Company does not have any
outstanding indebtedness for money borrowed and is not subject to any claims or
liabilities (whether matured or unmatured, liquidated or unliquidated, accrued,
fixed, contingent or otherwise), other than trade or business obligations
incurred in the ordinary course of business since the date of such financial
statements, in amounts usual and normal, both individually and in the
aggregate, for the Company, all accounting procedures and methods have been
maintained in a manner consistent with prior periods, there has been no lease,
sale (other than inventory in the ordinary course of business), or abandonment
of any property or assets of the Company, nor has there been any labor strife,
strike or lock-out. Since the date of such financial statements, there has not
been any material increase in the compensation payable or to become payable by
the Company to any of its officers, employees or agents, or any bonus payment
or arrangement made to or with any of them, other than in the ordinary course
and consistent with past practices. Since the date of such financial
statements, there has not been any payment by the Company of any dividends or
any distribution by the Company to any of its shareholders in redemption or as
a purchase price of any indebtedness (whether in payment of principle, interest
or otherwise) owing to any
<PAGE> 32
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of them nor has there been any mortgage, pledge or subjection to a lien, charge
or encumbrance of any material kind of any of the Company's assets, tangible or
intangible.
Section 4.17. Insurance. The Company maintains insurance
adequate and reasonable for its needs and consistent with industry standards.
All such insurance is in full force and effect and the Company has received no
notices of cancellation or indication of any intention on the part of any
insurance company not to renew.
Section 4.18. Employment Contracts. Except as set forth on
Schedule 4.18 attached hereto, the Company is not a party to, or otherwise
subject to, any oral or written (i) collective bargaining agreement, (ii)
contract or other agreement for the employment of any officer or employee,
(iii) profit-sharing, bonus, deferred compensation, stock option, severance
pay, pension, retirement or similar plan or agreement (including individual
agreements) providing employee benefits.
Section 4.19. Future Agreements. The Company is not a party to
or otherwise subject to any oral or written (i) guarantee of any obligations
for the borrowing of money or otherwise, or any other agreement or guarantee of
the obligations of another person or entity, (ii agreement or arrangement for
the purchase or sale of any assets of the Company other than in the ordinary
course of business or for the grant of any preferential rights to purchase any
of the Company's assets, properties or rights, (iii) agreement, contract or
commitment containing any covenant limiting the freedom of the Company to
engage in any line of business in any area of the world or to compete with any
person or entity, (iv) agreement, contract or commitment relating to the
acquisition of assets or capital stock of any business enterprise, (v)
contract, agreement or other instrument not entered at arms length and in the
ordinary course of business.
Section 4.20. Market Price of Common Stock. Schedule 4.20 sets
forth the high, low and closing prices for the Common Stock of the Company for
the trading days March 4, to March 12, 1996 as prepared from information
provided to the Company by Bloomberg Financial Markets.
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Section 5. Subordination. (a) "Senior Debt" means (i) all
indebtedness for principal and interest, including interest accruing during the
period of any bankruptcy and other amounts payable under the terms of such
Senior Debt, of the Company to Congress Financial Corporation ("Congress")
under that certain Accounts Financing Agreement (Security Agreement) dated
December 31, 1992 and the Covenant Supplement to Accounts Financing Agreement
(Security Agreement) dated December 31, 1992 and all amounts owing to Sterling
Commercial Capital, Inc., First Well Street SBIC, L.P., Fundex Capital Corp.
and Tappan Zee Capital Corp. under that certain Loan Agreement dated March 31,
1994, Mortgage dated March 31, 1994 and Security Agreement dated March 31,
1994.
(b) The Company covenants and agrees, and each Holder of
this Debenture, by his acceptance hereof likewise covenants and agrees that the
payment of the principal of, interest and all other amounts payable on this
Debenture shall be subordinated in accordance with the provisions of this
Section 5 and each holder of any of the Debenture, whether upon original issue
or upon transfer or assignment thereof, accepts and agrees to be bound by such
provisions. This Debenture, shall, to the extent and in the manner hereinafter
in this Section 5 set forth, be subordinated and subject in right of payment
to the prior payment in full of all Senior Debt of the Company.
(c) Upon any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property
or securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of the Company whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, all Senior
Debt of the Company shall first be paid in cash or cash equivalents, before the
holder of this Debenture shall be entitled to receive any assets or securities
(other than shares of stock of the Company, as reorganized or readjusted or
securities of the Company, or of any other corporation provided for by a plan
of reorganization or readjustment, junior to, or the payment of which is
subordinated at least to the extent provided in this Section 5 to the payment
of, all Senior Debt of the Company, which may at the time be outstanding or any
securities issued in respect
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thereof under any such plan of reorganization or readjustment) in respect of
the Debentures (for principal, interest or other amounts); and upon any such
dissolution or winding up or liquidation or reorganization, any payment or
distribution of assets or securities of the Company, of any kind or character,
whether in cash, property or securities (other than as aforesaid), to which the
Holders of the Debentures would be entitled, except for the provisions of this
Section 5, shall be made by the Company, or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, directly to the holders of Senior Debt of the Company, or their
representatives to the extent necessary to pay all such Senior Debt of the
Company, after giving effect to any concurrent payment or distribution to or
for the holders of such Senior Debt.
(d) No demand, declaration, acceleration or direct or
indirect payment, prepayment or enforcement of principal of this Debenture may
be made or done until the Senior Debt is finally paid in full, provided,
however, demand for payment and acceleration may be made after 180 days
following an Event of Default. Also, no direct or indirect payment of or on
account of this Debenture (including without limitation principal, interest and
premiums) shall be made if, at the time of such payment or immediately after
giving effect thereto, (i) there shall exist a default in the payment of any
amount (including without limitation principal, interest and premiums) payable
by the Company in respect of any Senior Debt (any default referred to in this
clause (i) herein called a "Monetary Default"), or (ii) the Company receives a
notice from a holder of any Senior Debt that there exists a default or an Event
of Default other than a Monetary Default in respect of any Senior Debt (any
default or Event of Default specified in this clause (ii) herein called a
"Non-Monetary Default"). If the Company receives any notice of a Non-Monetary
Default, a subsequent notice given within 360 days from the date of the giving
of the first notice relating to the same Non-Monetary Default on the same issue
of Senior Debt shall not be effective for the purposes of this paragraph.
Notwithstanding the occurrence of a Non-Monetary Default (but subject to the
provisions of Section 5(c) above and clause (i) of the second sentence of this
Section
<PAGE> 35
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5(d)), the Company shall resume payments on and distribution in respect of
interest and other amounts (but not principal) on this Debenture when: (1) the
Non-Monetary Default is cured or waived, or (2) 180 days after the giving of
the aforementioned notice of the occurrence of such Non-Monetary Default
(unless during such 180 day period the maturity of the Senior Debt is
accelerated, or such indebtedness otherwise comes due, and is not paid in
full), but in any event only if this Section 5 otherwise permits the payments
or acquisition at the time of such payment.
(e) In the event that, notwithstanding the foregoing, the
holder of any Debenture shall have received any payment or distribution of
assets or securities of the Company of any kind or character, whether in cash,
property or securities (other than as expressly permitted by this Section 5)
in contravention of the terms of the subordination contained herein before all
Senior Debt of the Company is paid in full, then and in such event, such
payment or distribution of assets or securities of the Company shall be held in
trust for and paid over or delivered to the holder of Senior Debt of the
Company, for application to the payment of all Senior Debt of the Company,
remaining unpaid to the extent necessary to pay in full in cash the principal
of and the premium (if any) and interest and such other amounts on such Senior
Debt of the Company, in accordance with its terms, after giving effect to any
concurrent payment or distribution to holders of such Senior Debt of the
Company.
(f) If any Event of Default occurs (under circumstances
when the provisions of Section 5(c) shall not be applicable) with respect to
the Company and as a result this Debenture is declared due and payable, and
such declaration has not been rescinded or annulled, all principal and premium,
if any, of all Senior Debt of the Company then due, or thereafter declared to
be due, pursuant to the terms of such Senior Debt at such time, and all
interest and such other amounts then due upon such Senior Debt shall first be
paid in full before any payment is made on account of principal or interest or
other amounts on any Debenture.
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(g) Subject to the prior payment in full of all Senior Debt
of the Company, the Holder of this Debenture shall be subrogated to the rights
of the holders of such Senior Debt to receive payments or distributions of
assets or securities of the Company with respect to payments or distributions
to the holders of Senior Debt by or on behalf of the Company to which the
Holder of this Note would be entitled except for the provisions of this Section
5, applicable to Senior Debt until the principal of and interest on the
Debenture shall be paid in full; provided, however, that all payments of
principal and interest on this Debenture which were permitted under the
provisions of this Section 5 at the time made shall remain the property of the
Holder of this Debenture and shall not be subject to recapture by the holders
of the Senior Debt. For purposes of such subrogation, no such payments or
distributions to the holders of Senior Debt by or on behalf of the Company, to
which the Holder of this Debenture would be entitled, except for the provisions
of this Section 5, and no such payments or distributions pursuant to the
provisions of this Section 5 to or for the benefit of the holders of Senior
Debt of the Company, by the Holder of Debenture, shall, as between the Company,
its creditors other than the holders of their respective Senior Debt, as the
case may be, and the Holders of this Debenture, be deemed to be a payment by
the Company, to or on account of Senior Debt and no such payments or
distribution to the Holders of Debentures by virtue of the subrogation herein
provided for shall, as between the Company, its creditors other than the
Holders of their respective Senior Debt and the Holders of the Debentures, be
deemed to be a payment by the Company, on account of such Senior Debt, it being
understood that the provisions of this Section 5 are solely for the purpose of
defining the relative rights of the Holders of the Debentures, on the one hand,
and the holders of Senior Debt of the Company, on the other hand. Nothing
contained in this is intended to or shall impair, as between the Company and
the Holders of Debentures, the obligation of the Company, which is
unconditional and absolute, to pay to the Holders of the Debentures the
principal of and interest on the Debentures, as and when the same shall become
due and payable in accordance with their terms, or to affect (except to the
extent specifically provided above in this paragraph) the relative rights of
the
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Holders of the Debentures and creditors of the Company, other than the Holders
of Senior Debt of the Company, nor shall anything herein prevent the Holder of
any Debentures from exercising all remedies otherwise permitted by applicable
law upon default under this Debenture, subject to the rights, if any, under
this Section 5, of the Holders of Senior Debt of the Company, in respect of
assets or securities of the Company, of any kind or character, whether cash,
property or securities, received upon the exercise of any such remedy.
(h) Upon any payment or distribution of assets or
securities of the Company referred to in this Section 5, the Holders of this
Debenture shall be entitled to rely upon any order or decree of a court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, and upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making any
such payment or distribution, delivered to the Holders of the Debentures for
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Debt and other indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section 5.
(i) No right of any present or future holder of any Senior
Debt of the Company, to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company, or by any act or failure to act, in good faith, by any
Holder, or by any noncompliance by the Company, with the terms, provisions and
covenants of this Debenture regardless of any knowledge thereof any such Holder
may have or otherwise be charged with.
(j) The provisions of this Section 5 are intended to be for
the benefit of, and shall be enforceable directly by, the holders of Senior
Debt of the Company.
Section 6. Events of Default.
Section 6.1. Events of Default. If one or more of the
following events, herein called Events of Default, shall happen for any reason
whatsoever and whether such happening shall be voluntary or
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involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court of any order,
rule or regulation of any administrative or governmental body) and be
continuing:
(a) Default shall be made in the payment of the principal
of any Debenture, when and as the same shall become due and payable,whether at
maturity or at a date fixed for prepayment or by acceleration or otherwise; or
(b) Default shall be made in the payment of any installment
of interest on any Debenture according to its tenor when and as the same shall
become due and payable and such default shall continue for a period of 10 days;
or
(c) Default shall be made in the due observance or
performance of any covenant, condition or agreement on the part of the Company
contained in this Debenture; or
(d) The Company shall be adjudicated a bankrupt or
insolvent, or shall consent to the appointment of a receiver, trustee or
liquidator of itself or of any material part of its property, or shall admit in
writing its inability to pay its debts generally as they come due, or shall
make a general assignment for the benefit of creditors, or shall file a
voluntary petition or an answer seeking reorganization or arrangement in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed against the
Company in any such proceeding, or shall, by voluntary petition, answer or
consent, seek relief under the provisions of any other now existing or future
bankruptcy or other similar law providing for the reorganization or winding up
of corporations, or the Company or its directors or majority stockholders shall
take action looking to the dissolution or liquidation of the Company; or
(e) An order, judgment or decree shall be entered by any
court of competent jurisdiction appointing, without the consent of the Company,
a receiver, trustee or liquidator of the Company or of any material part of its
property, and such receiver, trustee or liquidator shall not have
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been removed or discharged within 90 days thereafter, or any material part of
the property of the Company shall, in any judicial proceeding, be sequestered
and shall not be returned to the possession of the Company within 90 days
thereafter; or
(f) A petition against the Company in a proceeding under
any bankruptcy law (as now or hereinafter in effect) shall be filed and shall
not be dismissed within 30 days after such filing, or, in case the approval of
such petition by a court of competent jurisdiction is required, shall be filed
and approved by such a court as properly filed and such approval shall not be
withdrawn or the proceeding dismissed within 30 days thereafter, or if, under
the provisions of any other similar law providing for reorganization or winding
up of corporations and which may apply to the Company, any court of competent
jurisdiction, custody or control of the Company or of any material part of its
property and such jurisdiction, custody or control shall not be relinquished or
terminated within 30 days thereafter; or
(g) The Company shall (x) be declared in default in the
payment of principal or interest on any evidence of indebtedness for money
borrowed (other than the Debentures) or other material obligations and such
default shall continue for more than the period of grace, if any, therein
specified, unless such default shall have been cured or waived prior to such
indebtedness becoming or being declared to be due and payable prior to its
stated maturity, or (y) default shall continue for more than the period of
grace, if any, therein specified, or (z) default in the performance or
observance of any other term, condition or agreement contained in any such
evidence of indebtedness for money borrowed or in any agreement relating
thereto if as a result of such default such evidence of indebtedness is
declared to be due and payable prior to its stated maturity; then, in any such
event, any registered Holder or Holders of the Debentures may declare the
Debenture or Debentures held by it or them to be due and payable, together with
accrued interest thereon, thirty (30) days after such declaration, unless,
prior do the expiration of such thirty (30) day period the registered Holders
of a majority of the then outstanding principal amount of the Debentures at
such time
<PAGE> 40
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outstanding, together with the concurrence of each registered Holder owning
originally and at such time a principal amount of $150,000 or greater of
Debentures, shall waive, suspend, cancel or annul such declaration.
Section 6.2. Suits for Enforcement. In case any one or more of
the Events of Default specified in Section 6.1 shall happen and be continuing,
each Holder of a Debenture which may, pursuant to the provisions of Section
6.1, declare the Debenture or Debentures held by it to be immediately due and
payable, may proceed to protect and enforce its rights by suit in equity,
action at law and/or by other appropriate proceeding, whether for the specific
performance (to the extent permitted by law) of any covenant or agreement
contained in this Debenture, such Debenture or in aid of the exercise of any
power granted in this Debenture, such Debenture, or may proceed to enforce the
payment of such Debenture or to enforce any other legal or equitable right of
holder of such Debenture. If, pursuant to the provisions of Section 6.1 or of
this Section 6.2, the holder of any Debenture shall demand payment thereof or
take any action in respect of a default or an Event of Default, the Company
will forthwith give written notice, addressed as provided in Section 6.4, to
the other Holders of Debentures, specifying such action and the nature of the
default or Event of Default. Nothing contained in this Section 6.2 or in
Section 6.1 shall in any manner impair that absolute and unconditional right of
each holder of a Debenture to receive payment of the principal of and interest,
on such Debenture when the same shall become due and payable in accordance with
the terms thereof, and to institute suit for the enforcement of such payment.
Section 6.3. Remedies Cumulative. No remedy herein conferred
upon the Holder of any Debenture is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.
Section 6.4. Remedies Not Waived. No course of dealing between
the Company and any Holder of a Debenture shall operate as a waiver of any
right of such Holder hereunder or under such
<PAGE> 41
PAGE 51 OF 124 PAGES
Debenture, and no delay on the part of such Holder in exercising any right
hereunder or thereunder shall so operate.
Section 7. Waivers. Anything in this Debenture to the
contrary notwithstanding, upon the affirmative written consent of the
registered Holders of a majority of the then outstanding principal amount of
Debentures, plus the affirmative written consent of each registered Holder
owning originally and at such time a principal amount of $150,000 or greater of
Debentures, any provision, covenant, requirement, agreement or condition of the
Company under this Debenture may be waived or amended at any time or from time
to time and such waiver or amendment shall be binding upon all Holders and all
Debentures.
Section 8. Security. This Debenture is secured by that
certain Security Agreement dated as of March 1, 1996 made by the Company for
the benefit of the holders of the Debentures.
Section 9. Costs of Collection. In case of a default in the
payment of any principal of or interest on this Debenture, the Company will pay
to the Holder hereof such further amount as shall be sufficient to cover the
costs and expenses of collection, including (without limitation) reasonable
attorneys' fees.
Section 10. Legend. Each Debenture shall bear the following
legend:
The Securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or registered or
qualified under the "blue sky" laws of any State. The securities may not be
pledged, hypothecated, assigned, sold or transferred unless registered under
that Act and registered or qualified under the blue sky laws as may be
applicable or unless, in the opinion of counsel reasonably satisfactory to the
Company, exemptions from such laws are available.
Section 11. Covenants Bind Successors and Assigns. All the
covenants, stipulations, promises and agreements in this Debenture contained by
or on behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
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Section 12. Governing Law. This Debenture shall be governed
by and construed in accordance with the laws of the State of New York.
Section 13. Notice. Any notice pursuant to this Debenture
shall be effected on the day delivered by hand and receipted, the second
business day after delivery to a recognized overnight courier service or seven
days after delivery to the United States Post Office, proper postage prepaid
sent registered or certified mail, return receipt requested, addressed as
follows:
If to the holder at the address shown on the register maintained
by the Company pursuant to Section 1.2 of this Debenture.
If to the Company:
61 Executive Boulevard
Farmingdale, New York 11735
Section 14. Waiver of Jury Trial. THE COMPANY HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR
RELATING TO THIS DEBENTURE AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED
BEFORE A JUDGE SITTING WITHOUT A JURY.
Section 15. Headings. The headings of the sections and
subsections of this Debenture are inserted for convenience only and do not
constitute a part of this Debenture.
<PAGE> 43
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IN WITNESS WHEREOF, VTX Electronics Corp. has caused this
Debenture to be signed in its corporate name by one of its officers thereunto
duly authorized and this Debenture to be dated as of the day and year first
above written.
VTX ELECTRONICS CORP.
By:
---------------------------------
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PAGE 54 OF 124 PAGES
EXHIBIT B-1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF
AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
STOCK SUBSCRIPTION WARRANT
TO PURCHASE [NUMBER] SHARES OF COMMON STOCK OF
VTX ELECTRONICS CORP, A DELAWARE CORPORATION
(THE "COMPANY")
DATE OF INITIAL ISSUANCE: NOVEMBER 30, 1995
THIS CERTIFIES THAT, for value received, [NAME] or registered assigns
(hereinafter called the "Holder") is entitled to purchase from the Company
during the Term of this Warrant at the times provided for herein, the number of
shares of Common Stock, par value $.10 per share, of the Company (the "Common
Stock") as specified herein, at the Warrant Price (as hereinafter defined),
payable in the manner specified herein. The exercise of this Warrant shall be
subject to the provisions, limitations and restrictions herein contained.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated and capitalized terms used herein but not defined shall have
the meanings ascribed thereto in the Capitalization Agreement dated as of
November 30, 1995 by and among the Company and the Investors named therein (the
"Capitalization Agreement"):
COMMON STOCK - shall mean and include the Company's authorized Common
Stock, par value $.10 per share, as constituted at the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
which has the right to participate in the distribution of earnings and assets
of the Company without limit to amount or percentage.
SECURITIES ACT - the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
TERM OF THIS WARRANT - shall mean the period beginning on June 1, 1996 and
ending on December 1, 2000.
WARRANT PRICE - is defined in Section 2.1 hereof.
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WARRANT RIGHTS - the rights of the Holder to purchase shares of Common
Stock upon exercise of this Warrant, which rights shall not relate to shares of
Common Stock already purchased pursuant to this Warrant.
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.
SECTION 2. EXERCISE OF WARRANT.
2.1. RIGHT TO EXERCISE. At any time and from time to time during the Term
of this Warrant, the Holder may exercise this Warrant, in whole or part(s) to
purchase the number of shares of Common Stock set forth on the cover page
hereof, subject to adjustment as provided in Section 5. The Warrant Price
shall be $.25 per share subject to adjustment as provided in Section 5 and may
be paid either in cash or by presentation for surrender, cancellation and
redemption of a principal and accrued interest amount of Secured Subordinated
Debenture of the Company equal to the aggregate Warrant Price.
2.3. PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant the
Holder shall deliver to the Company at its office referred to in Section 9
hereof at any time and from time to time during the Term of this Warrant: the
Notice of Exercise in the form attached hereto and the payment of the aggregate
Warrant Price with respect to the Warrants exercised. In the event of any
exercise of these rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in the
name of the Holder or such other name or names as may be designated by the
Holder, shall be delivered to the Holder hereof within a reasonable time, not
exceeding fifteen (15) days, after the rights represented by this Warrant shall
have been so exercised. The person in whose name any certificate for shares of
Common Stock is issued upon exercise of this Warrant shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Notice of Exercise was delivered and payment of the Warrant Price and any
applicable taxes was made, irrespective of the date of delivery of such
certificate, except that, if the date of such delivery and payment is a date
when the stock transfer books of the Company are closed, such person shall be
deemed to have become the holder of such shares at the close of business on the
next succeeding date on which the stock transfer books are open.
2.4. TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS."
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PAGE 56 OF 124 PAGES
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby) shall also bear such legend unless, in the
opinion of counsel for the holder thereof (which counsel shall be reasonably
satisfactory to counsel for the Company) the securities represented thereby are
not, at such time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO COMMON STOCK. The Company covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance and receipt by the
Company of the Warrant Price, be validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that it will pay when due and payable
any and all federal and state taxes which may be payable in respect of the
issue of this Warrant, or any Common Stock or certificates therefor issuable
upon the exercise of this Warrant. The Company further covenants and agrees
that the Company will at all times have authorized and reserved, free from
preemptive rights, a sufficient number of shares of Common Stock to provide for
the exercise of the rights represented by this Warrant, provided, however, that
of the time of issuance of this Warrant the Company does not have sufficient
authorized common stock for all outstanding securities or options convertible
into common stock. The Company covenants to seek approval for an increase in
authorized common stock for the shareholders of the Company at its next Annual
Meeting. The Company further covenants and agrees that if any shares of
capital stock to be reserved for the purpose of the issuance of shares upon the
exercise of this Warrant require registration with or approval of any
governmental authority under any federal or state law before such shares may be
validly issued or delivered upon exercise, then the Company will in good faith
and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If and so long as the Common Stock issuable upon
the exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of such Common
Stock issuable upon exercise of this Warrant.
SECTION 4. OWNERSHIP.
4.1 REGISTER; TRANSFER OR EXCHANGE OF WARRANTS. The Company shall keep at
its office maintained in Farmingdale, New York a register in which the Company
shall provide for the registration of Warrants and for the registration of
transfer of Warrants. The Holder of any Warrant may, at its option and either
in person or by duly authorized attorney, surrender the same for registration of
transfer or exchange at such office and, without expense to such Holder (other
than transfer taxes, if any), receive in exchange therefor a new Warrant or
Warrants, dated as of the date to which transfer is effectuated, for the same
aggregate amount of shares as the Warrant or Warrants so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Warrant so made and delivered in exchange for
any Warrant shall in all other respects be in the same form and have the same
terms as the Warrant so surrendered for transfer or exchange.
4.2. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary until presentation of this Warrant for registration of
transfer as provided in this Section 4.
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4.3. TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
subject to applicable federal and state securities laws, transferable in whole
or in part upon the books of the Company by the Holder hereof in person or by
duly authorized attorney, and a new Warrant or Warrants, of the same tenor as
this Warrant but registered in the name of the transferee or transferees shall
be made and delivered by the Company upon surrender of this Warrant duly
endorsed. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft or destruction, and, in such case, of indemnity or
security reasonably satisfactory to it, and upon surrender of this Warrant if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant; provided that if the Holder hereof is an instrumentality
of a state or local government or an institutional holder or a nominee for such
an instrumentality or institutional holder, an irrevocable agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section
4, and no evidence of loss or theft or destruction shall be necessary. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any transfer or replacement. Except as otherwise provided
above, in the case of the loss, theft or destruction of a Warrant, the Company
shall pay all expenses, taxes and other charges payable in connection with any
transfer or replacement of this Warrant, other than stock transfer taxes (if
any) payable in connection with a transfer of this Warrant, which shall be
payable by the Holder.
SECTION 5 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON
STOCK OR WARRANTS.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class) or distribute evidences of indebtedness or
assets, (ii) sub-divide its outstanding shares of Common Stock (iii) combine
its outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the conversion privilege and Warrant Price in effect
immediately prior to such action shall be adjusted so that the holders of any
Warrants thereafter surrendered for exercise shall be entitled to receive the
number of shares of capital stock of the Company which he or she would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subsection (a), the holder of any shares of this Warrant thereafter surrendered
for exercise shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors (whose reasonable
determination shall be made in good faith) shall determine the allocation of
the adjusted conversion price between or among shares of such classes of
capital stock.
In the event the Company shall at any time, issue or sell any
shares of Common Stock or rights, warrants or securities convertible into
Common Stock (any such sale or issuance, being herein called a "Change of
Shares"), then, and thereafter upon each further Change of Shares, the Warrant
Price in effect immediately prior to such Change of Shares shall be changed to
a price (including any applicable fraction of a cent) equal to the lowest of
(i) the per share consideration receivable by the Company on account of such
Change of Shares, (ii) the lowest then current exercise or conversion price on
any Warrants or convertible securities, or (iii) the Warrant Price determined
by multiplying the Warrant Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding
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immediately after the issuance of such additional shares (assuming full
exercise, conversion or subscription of all rights, warrants or securities
convertible into Common Stock). In addition, the number of shares of common
stock into which this Warrant is convertible into shall be adjusted by
multiplying the number of shares this Warrant is convertible into by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares (assuming full exercise, conversion or subscription of all rights,
warrants or securities convertible into Common Stock). Such adjustments (both
price and number of shares) shall be made successively whenever such and
issuance is made.
In case the Corporation shall at any time issue or sell shares of capital
stock (other than Common Stock), or warrants, rights to subscribe or securities
convertible into capital stock (excluding those referred to above), then in
each such case the Warrant Price shall be adjusted so the same shall equal the
lowest of (i) the per share consideration receivable by the Company on account
of such issuance or sale, (ii) the lowest then current exercise or conversion
price on any Warrants or convertible securities, or (iii) the price determined
by multiplying the Warrant Price in effect immediately prior to the date of
such distribution by a fraction the numerator of which shall be the current
market price per share (determined pursuant to Section 5(g) below) of the
Common Stock on the record date mentioned below multiplied by the total number
of shares of Common Stock then outstanding, less than the fair market value (as
determined by the Board of Directors of the Company in good faith) of the
capital stock, subscription rights, assets or evidence of indebtedness so
distributed and the denominator shall be such current market price per share of
Common Stock multiplied by the total number of shares of Common Stock then
outstanding. In addition, the number of share of common stock into which this
Warrant is convertible into shall be adjusted by multiplying the number of
shares this Warrant is convertible into by fraction, the numerator of which
shall be current market price per share (determined pursuant to Section 5(g)
below) of the Common Stock on the record date mentioned below multiplied by the
total number of shares of Common Stock then outstanding and the denominator of
which shall be the current market price per share of Common Stock multiplied by
the total number of shares of Common Stock then outstanding, less the fair
market value (as determined by the Board of Directors of the Company in good
faith) of the capital stock, subscription rights, assets or evidence of
indebtedness so distributed. Such adjustments (both price and number of
shares) shall become effective retroactively immediately after the record date
for the determination of stockholders entitled to receive such distribution.
The provisions of this Section 5 shall not operate to increase the Warrant
Price or reduce the number of shares of Common Stock purchasable upon the
exercise of any Warrant.
(b) The Company may elect, upon any adjustment of the Warrant
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the Warrant Price in
effect immediately after such adjustment.
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(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger of the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Warrant. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) After each adjustment of the Warrant Price pursuant to this
Section 5, the Company will promptly prepare a certificate signed by the
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
any Assistant Secretary, of the Company setting forth: (i) the Warrant Price
as so adjusted, (ii) the number of shares of Common Stock purchasable upon
exercise of each Warrant after such adjustment, and, if the Company shall have
elected to adjust the number of Warrants, the number of Warrants to which the
registered holder of each Warrant shall then be entitled.
(e) For purposes of Section 5(a) and 5(b) hereof, the following
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 the
account of the Company and the sale or issuance of such treasury shares or
the distribution of any such treasury shares shall not be considered a
Change of Shares for purposes of said sections.
(B) No adjustment of the Warrant Price shall be made unless
such adjustment would require a decrease of a least $.0001 in such price;
provided that any adjustments which by reason of this clause (B) are not
required to 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 $.0001 in the Warrant Price
then in effect hereunder.
(f) If and whenever the Company shall grant to all holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for carrying a right, warrant or option to purchase Common
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Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding,
the rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number or whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 5 (f), that
exercise of Warrants is permissible during periods prior to the Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of
the Warrants shall be in lieu of any adjustment which otherwise might be called
for pursuant to this Section 5.
(g) For the purpose of any computation under this Section 5 the
current market price per share of Common Stock on any date shall be deemed to
be the lower of (i) the closing price on the record date for determining the
holders of Warrants entitled to receive any adjustment or any computation or
(ii) average of the daily closing prices for 30 consecutive business days
commencing 45 business days before the day in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the American Stock Exchange or,
if the Common Stock is not listed or admitted to trading on such exchange, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if not listed or admitted to trading on any national
securities and exchange, the average of the closing bid and asked prices as
reported by the National Association of Securities Dealers Automated Quotation
System, or if not so reported, the average of the closing bid and asked prices
as furnished by any firm acting at that time as a market maker in the Common
Stock selected from time to time by the Company for this purpose.
SECTION 6. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors
of the Company shall declare any dividend or other distribution on its Common
Stock except out of earned surplus or by way of a stock dividend payable in
shares of its Common Stock, the Company shall mail notice thereof to the Holder
hereof not less than fifteen (15) days prior to the record date fixed for
determining shareholders entitled to participate in such dividend or other
distribution, and the Holder hereof shall not participate in such dividend or
other distribution unless this Warrant may be exercised, in whole or in part,
pursuant to Section 2.1 of this Warrant, and is exercised prior to such record
date. The provisions of this Section 6 shall not apply to distributions made
in connection with transactions covered by Section 5.
SECTION 7. FRACTIONAL SHARES. Fractional shares shall not be issued upon
the exercise of this Warrant but in any case where the Holder would, except for
the provisions of this Section 7, be entitled under the terms hereof to receive
a fractional share upon the exercise of this Warrant, the Company shall, upon
the exercise of this Warrant, pay a sum in cash equal to the excess of the
value of such fractional share (determined in such reasonable manner as may be
prescribed in good faith by the Board of Directors of the Company).
SECTION 8. REGISTRATION RIGHTS; ETC.
8.1. CERTAIN DEFINITIONS. As used in this Section 8, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
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"Registrable Securities" shall mean this Warrant or the Warrant Shares
issued or issuable upon exercise of this Warrant.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 8.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses".
"Holder" shall mean any holder of outstanding Warrant Shares or Registrable
Securities which (except for purposes of determining "Holders" under Section
8.6 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company who
are entitled by contract with the Company to have securities included in a
registration of the Company's securities.
8.2. COMPANY REGISTRATION; DEMAND REGISTRATION.
(a) NOTICE OF REGISTRATION. If the Company shall determine to register
any of its securities either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, other
than a registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales,
the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt
to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as
set forth in Section 8.2(b) below.
(b) UNDERWRITING. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company
shall so advise the Holders as part of the written notice given pursuant to
Section 8.2(a)(i). In such event, the right of any Holder to registration
pursuant to Section 8.2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, directors and officers and the Other Shareholders distributing their
securities through such underwriting)
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enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 8.2, if the underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude from such registration and underwriting some of the
Registrable Securities which would otherwise be underwritten pursuant hereto
provided, however, that in no event shall the Registrable Securities
underwritten pursuant hereto constitute less than one-third of such offering.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration at the time of filing the registration statement.
If any Holder of Registrable Securities or any officer, director or Other
Shareholder disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(c) Notwithstanding anything to the contrary set forth above, each Holder
shall also have the unqualified and unconditional right at any time and from
time to time subsequent to December 1, 1997 to demand the registration of
Registrable Securities, in which case the Company shall proceed with such
registration as provided in this Section 8.
8.3 EXPENSES OF REGISTRATION. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Section 8.2 hereof. All Selling Expenses
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
8.4 REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Section 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable Securities
under the securities laws or blue-sky laws of such jurisdictions as any Holder
may request; provided, however, that the Company shall not be obligated to
register or qualify such Registrable Securities in any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in order to effect such registration, qualification or compliance
unless the Company is already subject to service in
<PAGE> 53
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such jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder.
8.5 INDEMNIFICATION.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 8, will indemnify and hold
harmless each Holder, each of its officers, directors and partners, and each
party controlling such Holder, and each underwriter, if any, and each party who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
the Securities Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each party controlling such Holder, each such underwriter and each party who
controls any such underwriter, for any legal and any other expenses incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based solely upon
written information furnished to the Company by such Holder or underwriter, as
the case may be, and stated to be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities held
by such person are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers and each underwriter, if any, of
the Company's securities covered by such a registration statement, each party
who controls the Company or such underwriter, each other such Holder and Other
Shareholder and each of their respective officers, directors and partners, and
each party controlling such Holder or Other Shareholder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document solely in reliance upon and in conformity
with written information furnished to the Company by such Holder or Other
Shareholder and stated to be specifically for use therein; provided, however,
that the obligations of such Holders and Other Shareholders hereunder shall be
limited to an amount equal to the proceeds to each such Holder or Other
Shareholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall
<PAGE> 54
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permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 8. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
8.6 INFORMATION BY HOLDER. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
8.7 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities
Act and the Securities Exchange Act of 1934, as amended, at any time after it
has become subject to such reporting requirements; and
(c) So long as the Holder owns any Registrable Securities, furnish to the
Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement in connection with an offering of its Securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without
registration.
SECTION 9. NOTICES. Any notice or other document required or permitted to
be given or delivered to the Holder or the Company shall be effected on the
seventh day following delivery to the United States Post Office, proper postage
prepaid, sent by certified or registered mail return receipt requested, or on
the day delivered by hand and receipted, or on the second business day after
delivery to a recognized overnight courier service, addressed to the Holder at
the address thereof specified in the Capitalization Agreement or to such other
address as shall have been furnished to the Company in writing by the Holder
<PAGE> 55
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or the Company at 61 Executive Boulevard, Farmingdale, New York 11735 or to
such other address as shall have been furnished in writing to the Holder by the
Company.
SECTION 10. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 11. LAW GOVERNING. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York.
SECTION 12. MISCELLANEOUS. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for
purposes of reference only and shall not affect the meaning or construction of
any of the provisions hereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this day of March 1996.
VTX ELECTRONICS CORP.
By:
---------------------------------
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[FORM OF ELECTION TO EXERCISE]
TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO EXERCISE THE WARRANT
To :
------------
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase _______ shares of Common Stock issuable upon the exercise of such
Warrant and requests that Certificate for such shares be issued in the name of:
- -------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------
(Please insert social security or other identifying number)
- -------------------------------------------------------------------
(Please insert number of shares exercised)
- -------------------------------------------------------------------
Please insert Warrant Price Paid
- -------------------------------------------------------------------
(Please specify whether payment is in cash or Debentures)
If such number of Warrant shall not be all the Warrant evidenced by the
accompanying Warrant, a new Warrant for the balance remaining of such Warrant
shall be registered in the name of and delivered to:
- ------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------
(Please insert social security or other identifying number)
Dated: , .
---------------- ----
[HOLDER]
By
---------------------------
<PAGE> 58
PAGE 68 OF 124 PAGES
EXHIBIT B-2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF
AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
STOCK SUBSCRIPTION WARRANT
TO PURCHASE [NUMBER] SHARES OF COMMON STOCK OF
VTX ELECTRONICS CORP, A DELAWARE CORPORATION
(THE "COMPANY")
DATE OF INITIAL ISSUANCE: NOVEMBER 30, 1995
THIS CERTIFIES THAT, for value received, [Name] or registered assigns
(hereinafter called the "Holder") is entitled to purchase from the Company
during the Term of this Warrant at the times provided for herein, the number of
shares of Common Stock, par value $.10 per share, of the Company (the "Common
Stock") as specified herein, at the Warrant Price (as hereinafter defined),
payable in the manner specified herein. The exercise of this Warrant shall be
subject to the provisions, limitations and restrictions herein contained.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated and capitalized terms used herein but not defined shall have
the meanings ascribed thereto in the Capitalization Agreement dated as of
November 30, 1995 by and among the Company and the Investors named therein (the
"Capitalization Agreement"):
COMMON STOCK - shall mean and include the Company's authorized Common
Stock, par value $.10 per share, as constituted at the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
which has the right to participate in the distribution of earnings and assets
of the Company without limit to amount or percentage.
SECURITIES ACT - the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
TERM OF THIS WARRANT - shall mean the period beginning on December 1, 1998
and ending on December 1, 2005.
WARRANT PRICE - is defined in Section 2.1 hereof.
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WARRANT RIGHTS - the rights of the Holder to purchase shares of Common
Stock upon exercise of this Warrant, which rights shall not relate to shares of
Common Stock already purchased pursuant to this Warrant.
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.
SECTION 2. EXERCISE OF WARRANT.
2.1. RIGHT TO EXERCISE. At any time and from time to time during the Term
of this Warrant, the Holder may exercise this Warrant, in whole or part(s) to
purchase the number of shares of Common Stock set forth on the cover page
hereof, subject to adjustment as provided in Section 5. The Warrant Price
shall be $.25 per share subject to adjustment as provided in Section 5 and may
be paid either in cash or by presentation for surrender, cancellation and
redemption of a principal and accrued interest amount of Secured Subordinated
Debenture of the Company equal to the aggregate Warrant Price.
2.3. PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant the
Holder shall deliver to the Company at its office referred to in Section 9
hereof at any time and from time to time during the Term of this Warrant: the
Notice of Exercise in the form attached hereto and the payment of the aggregate
Warrant Price with respect to the Warrants exercised. In the event of any
exercise of these rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in the
name of the Holder or such other name or names as may be designated by the
Holder, shall be delivered to the Holder hereof within a reasonable time, not
exceeding fifteen (15) days, after the rights represented by this Warrant shall
have been so exercised. The person in whose name any certificate for shares of
Common Stock is issued upon exercise of this Warrant shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Notice of Exercise was delivered and payment of the Warrant Price and any
applicable taxes was made, irrespective of the date of delivery of such
certificate, except that, if the date of such delivery and payment is a date
when the stock transfer books of the Company are closed, such person shall be
deemed to have become the holder of such shares at the close of business on the
next succeeding date on which the stock transfer books are open.
2.4. TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS."
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Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby) shall also bear such legend unless, in the
opinion of counsel for the holder thereof (which counsel shall be reasonably
satisfactory to counsel for the Company) the securities represented thereby are
not, at such time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO COMMON STOCK. The Company covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance and receipt by the
Company of the Warrant Price, be validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that it will pay when due and payable
any and all federal and state taxes which may be payable in respect of the
issue of this Warrant, or any Common Stock or certificates therefor issuable
upon the exercise of this Warrant. The Company further covenants and agrees
that the Company will at all times have authorized and reserved, free from
preemptive rights, a sufficient number of shares of Common Stock to provide for
the exercise of the rights represented by this Warrant, provided, however, that
of the time of issuance of this Warrant the Company does not have sufficient
authorized common stock for all outstanding securities or options convertible
into common stock. The Company covenants to seek approval for an increase in
authorized common stock for the shareholders of the Company at its next Annual
Meeting. The Company further covenants and agrees that if any shares of
capital stock to be reserved for the purpose of the issuance of shares upon the
exercise of this Warrant require registration with or approval of any
governmental authority under any federal or state law before such shares may be
validly issued or delivered upon exercise, then the Company will in good faith
and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If and so long as the Common Stock issuable upon
the exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of such Common
Stock issuable upon exercise of this Warrant.
SECTION 4. OWNERSHIP.
4.1 REGISTER; TRANSFER OR EXCHANGE OF WARRANTS. The Company shall keep at
its office maintained in Farmingdale, New York a register in which the Company
shall provide for the registration of Warrants and for the registration of
transfer of Warrants. The Holder of any Warrant may, at its option and either
in person or by duly authorized attorney, surrender the same for registration of
transfer or exchange at such office and, without expense to such Holder (other
than transfer taxes, if any), receive in exchange therefor a new Warrant or
Warrants, dated as of the date to which transfer is effectuated, for the same
aggregate amount of shares as the Warrant or Warrants so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Warrant so made and delivered in exchange for
any Warrant shall in all other respects be in the same form and have the same
terms as the Warrant so surrendered for transfer or exchange.
4.2. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 4.
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4.3. TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
subject to applicable federal and state securities laws, transferable in whole
or in part upon the books of the Company by the Holder hereof in person or by
duly authorized attorney, and a new Warrant or Warrants, of the same tenor as
this Warrant but registered in the name of the transferee or transferees shall
be made and delivered by the Company upon surrender of this Warrant duly
endorsed. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder, an irrevocable agreement of indemnity
by such Holder shall be sufficient for all purposes of this Section 4, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly canceled by the Company upon the surrender hereof in connection with
any transfer or replacement. Except as otherwise provided above, in the case of
the loss, theft or destruction of a Warrant, the Company shall pay all expenses,
taxes and other charges payable in connection with any transfer or replacement
of this Warrant, other than stock transfer taxes (if any) payable in connection
with a transfer of this Warrant, which shall be payable by the Holder.
SECTION 5 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON
STOCK OR WARRANTS.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class) or distribute evidences of indebtedness or
assets, (ii) sub-divide its outstanding shares of Common Stock (iii) combine
its outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the conversion privilege and Warrant Price in effect
immediately prior to such action shall be adjusted so that the holders of any
Warrants thereafter surrendered for exercise shall be entitled to receive the
number of shares of capital stock of the Company which he or she would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subsection (a), the holder of any shares of this Warrant thereafter surrendered
for exercise shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors (whose reasonable
determination shall be made in good faith) shall determine the allocation of
the adjusted conversion price between or among shares of such classes of
capital stock.
In the event the Company shall at any time, issue or sell any
shares of Common Stock or rights, warrants or securities convertible into
Common Stock (any such sale or issuance, being herein called a "Change of
Shares"), then, and thereafter upon each further Change of Shares, the Warrant
Price in effect immediately prior to such Change of Shares shall be changed to
a price (including any applicable fraction of a cent) equal to the lowest of
(i) the per share consideration receivable by the Company on account of such
Change of Shares, (ii) the lowest then current exercise or conversion price on
any Warrants or convertible securities, or (iii) the Warrant Price determined
by multiplying the Warrant Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding
<PAGE> 62
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immediately after the issuance of such additional shares (assuming full
exercise, conversion or subscription of all rights, warrants or securities
convertible into Common Stock). In addition, the number of shares of common
stock into which this Warrant is convertible into shall be adjusted by
multiplying the number of shares this Warrant is convertible into by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares (assuming full exercise, conversion or subscription of all rights,
warrants or securities convertible into Common Stock). Such adjustments (both
price and number of shares) shall be made successively whenever such and
issuance is made.
In case the Corporation shall at any time issue or sell shares of capital
stock (other than Common Stock), or warrants, rights to subscribe or securities
convertible into capital stock (excluding those referred to above), then in
each such case the Warrant Price shall be adjusted so the same shall equal the
lowest of (i) the per share consideration receivable by the Company on account
of such issuance or sale, (ii) the lowest then current exercise or conversion
price on any Warrants or convertible securities, or (iii) the price determined
by multiplying the Warrant Price in effect immediately prior to the date of
such distribution by a fraction the numerator of which shall be the current
market price per share (determined pursuant to Section 5(g) below) of the
Common Stock on the record date mentioned below multiplied by the total number
of shares of Common Stock then outstanding, less than the fair market value (as
determined by the Board of Directors of the Company in good faith) of the
capital stock, subscription rights, assets or evidence of indebtedness so
distributed and the denominator shall be such current market price per share of
Common Stock multiplied by the total number of shares of Common Stock then
outstanding. In addition, the number of share of common stock into which this
Warrant is convertible into shall be adjusted by multiplying the number of
shares this Warrant is convertible into by fraction, the numerator of which
shall be current market price per share (determined pursuant to Section 5(g)
below) of the Common Stock on the record date mentioned below multiplied by the
total number of shares of Common Stock then outstanding and the denominator of
which shall be the current market price per share of Common Stock multiplied by
the total number of shares of Common Stock then outstanding, less the fair
market value (as determined by the Board of Directors of the Company in good
faith) of the capital stock, subscription rights, assets or evidence of
indebtedness so distributed. Such adjustments (both price and number of
shares) shall become effective retroactively immediately after the record date
for the determination of stockholders entitled to receive such distribution.
The provisions of this Section 5 shall not operate to increase the Warrant
Price or reduce the number of shares of Common Stock purchasable upon the
exercise of any Warrant.
(b) The Company may elect, upon any adjustment of the Warrant
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the Warrant Price in
effect immediately after such adjustment.
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(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger of the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Warrant. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) After each adjustment of the Warrant Price pursuant to this
Section 5, the Company will promptly prepare a certificate signed by the
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
any Assistant Secretary, of the Company setting forth: (i) the Warrant Price
as so adjusted, (ii) the number of shares of Common Stock purchasable upon
exercise of each Warrant after such adjustment, and, if the Company shall have
elected to adjust the number of Warrants, the number of Warrants to which the
registered holder of each Warrant shall then be entitled.
(e) For purposes of Section 5(a) and 5(b) hereof, the following
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 the
account of the Company and the sale or issuance of such treasury shares or
the distribution of any such treasury shares shall not be considered a
Change of Shares for purposes of said sections.
(B) No adjustment of the Warrant Price shall be made unless
such adjustment would require a decrease of a least $.0001 in such price;
provided that any adjustments which by reason of this clause (B) are not
required to 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 $.0001 in the Warrant Price
then in effect hereunder.
(f) If and whenever the Company shall grant to all holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for carrying a right, warrant or option to purchase Common
<PAGE> 64
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Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding,
the rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number or whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 5 (f), that
exercise of Warrants is permissible during periods prior to the Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of
the Warrants shall be in lieu of any adjustment which otherwise might be called
for pursuant to this Section 5.
(g) For the purpose of any computation under this Section 5 the
current market price per share of Common Stock on any date shall be deemed to
be the lower of (i) the closing price on the record date for determining the
holders of Warrants entitled to receive any adjustment or any computation or
(ii) average of the daily closing prices for 30 consecutive business days
commencing 45 business days before the day in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the American Stock Exchange or,
if the Common Stock is not listed or admitted to trading on such exchange, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if not listed or admitted to trading on any national
securities and exchange, the average of the closing bid and asked prices as
reported by the National Association of Securities Dealers Automated Quotation
System, or if not so reported, the average of the closing bid and asked prices
as furnished by any firm acting at that time as a market maker in the Common
Stock selected from time to time by the Company for this purpose.
SECTION 6. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of
the Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than fifteen (15) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant may be exercised, in whole or in part, pursuant to Section
2.1 of this Warrant, and is exercised prior to such record date. The provisions
of this Section 6 shall not apply to distributions made in connection with
transactions covered by Section 5.
SECTION 7. FRACTIONAL SHARES. Fractional shares shall not be issued upon
the exercise of this Warrant but in any case where the Holder would, except for
the provisions of this Section 7, be entitled under the terms hereof to receive
a fractional share upon the exercise of this Warrant, the Company shall, upon
the exercise of this Warrant, pay a sum in cash equal to the excess of the value
of such fractional share (determined in such reasonable manner as may be
prescribed in good faith by the Board of Directors of the Company).
SECTION 8. REGISTRATION RIGHTS; ETC.
8.1. CERTAIN DEFINITIONS. As used in this Section 8, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
<PAGE> 65
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"Registrable Securities" shall mean this Warrant or the Warrant Shares
issued or issuable upon exercise of this Warrant.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 8.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses".
"Holder" shall mean any holder of outstanding Warrant Shares or Registrable
Securities which (except for purposes of determining "Holders" under Section
8.6 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company who
are entitled by contract with the Company to have securities included in a
registration of the Company's securities.
8.2. COMPANY REGISTRATION; DEMAND REGISTRATION.
(a) NOTICE OF REGISTRATION. If the Company shall determine to register
any of its securities either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, other
than a registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales,
the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt
to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as
set forth in Section 8.2(b) below.
(b) UNDERWRITING. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company
shall so advise the Holders as part of the written notice given pursuant to
Section 8.2(a)(i). In such event, the right of any Holder to registration
pursuant to Section 8.2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, directors and officers and the Other Shareholders distributing their
securities through such underwriting)
<PAGE> 66
PAGE 76 OF 124 PAGES
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 8.2, if the underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude from such registration and underwriting some of the
Registrable Securities which would otherwise be underwritten pursuant hereto
provided, however, that in no event shall the Registrable Securities
underwritten pursuant hereto constitute less than one- third of such offering.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration at the time of filing the registration statement.
If any Holder of Registrable Securities or any officer, director or Other
Shareholder disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(c) Notwithstanding anything to the contrary set forth above, each Holder
shall also have the unqualified and unconditional right at any time and from
time to time subsequent to December 1, 1997 to demand the registration of
Registrable Securities, in which case the Company shall proceed with such
registration as provided in this Section 8.
8.3 EXPENSES OF REGISTRATION. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Section 8.2 hereof. All Selling Expenses
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
8.4 REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Section 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable Securities
under the securities laws or blue-sky laws of such jurisdictions as any Holder
may request; provided, however, that the Company shall not be obligated to
register or qualify such Registrable Securities in any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in order to effect such registration, qualification or compliance
unless the Company is already subject to service in
<PAGE> 67
PAGE 77 OF 124 PAGES
such jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder.
8.5 INDEMNIFICATION.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 8, will indemnify and hold
harmless each Holder, each of its officers, directors and partners, and each
party controlling such Holder, and each underwriter, if any, and each party who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
the Securities Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each party controlling such Holder, each such underwriter and each party who
controls any such underwriter, for any legal and any other expenses incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based solely upon
written information furnished to the Company by such Holder or underwriter, as
the case may be, and stated to be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities held
by such person are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers and each underwriter, if any, of
the Company's securities covered by such a registration statement, each party
who controls the Company or such underwriter, each other such Holder and Other
Shareholder and each of their respective officers, directors and partners, and
each party controlling such Holder or Other Shareholder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document solely in reliance upon and in conformity
with written information furnished to the Company by such Holder or Other
Shareholder and stated to be specifically for use therein; provided, however,
that the obligations of such Holders and Other Shareholders hereunder shall be
limited to an amount equal to the proceeds to each such Holder or Other
Shareholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall
<PAGE> 68
PAGE 78 OF 124 PAGES
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 8. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
8.6 INFORMATION BY HOLDER. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
8.7 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities
Act and the Securities Exchange Act of 1934, as amended, at any time after it
has become subject to such reporting requirements; and
(c) So long as the Holder owns any Registrable Securities, furnish to the
Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement in connection with an offering of its Securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without
registration.
SECTION 9. NOTICES. Any notice or other document required or permitted to
be given or delivered to the Holder or the Company shall be effected on the
seventh day following delivery to the United States Post Office, proper postage
prepaid, sent by certified or registered mail return receipt requested, or on
the day delivered by hand and receipted, or on the second business day after
delivery to a recognized overnight courier service, addressed to the Holder at
the address thereof specified in the Capitalization Agreement or to such other
address as shall have been furnished to the Company in writing by the Holder
<PAGE> 69
PAGE 79 OF 124 PAGES
or the Company at 61 Executive Boulevard, Farmingdale, New York 11735 or to
such other address as shall have been furnished in writing to the Holder by the
Company.
SECTION 10. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 11. LAW GOVERNING. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York.
SECTION 12. MISCELLANEOUS. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for
purposes of reference only and shall not affect the meaning or construction of
any of the provisions hereof.
<PAGE> 70
PAGE 80 OF 124 PAGES
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this day of March 1996.
VTX ELECTRONICS CORP.
By:
---------------------------------
<PAGE> 71
PAGE 81 OF 124 PAGES
[FORM OF ELECTION TO EXERCISE]
TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO EXERCISE THE WARRANT
To :
------------
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase _______ shares of Common Stock issuable upon the exercise of such
Warrant and requests that Certificate for such shares be issued in the name of:
- -------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------
(Please insert social security or other identifying number)
- -------------------------------------------------------------------
(Please insert number of shares exercised)
- -------------------------------------------------------------------
Please insert Warrant Price Paid
- -------------------------------------------------------------------
(Please specify whether payment is in cash or Debentures)
If such number of Warrant shall not be all the Warrant evidenced by the
accompanying Warrant, a new Warrant for the balance remaining of such Warrant
shall be registered in the name of and delivered to:
- ------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------
(Please insert social security or other identifying number)
Dated: , .
---------------- ----
[HOLDER]
By
----------------------------------
<PAGE> 72
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SENIOR CUMULATIVE
CONVERTIBLE PREFERRED STOCK
OF
VTX ELECTRONICS CORP.
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
VTX Electronics Corp. a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
FOURTH of its Certificate of Incorporation and in accordance with the provisions
of Section 151 of the General Corporation Law of the State of Delaware, its
Board of Directors has adopted the following resolution creating a series of its
Preferred Stock, par value $.01 per share, designated as Senior Cumulative
Convertible Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred
Stock of the Corporation be hereby created and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
SECTION 1. Designation and Amount. The shares of such series
shall be designated as Senior Cumulative Convertible Preferred Stock (the
"Senior Preferred Stock") and the number of shares constituting such series
shall be 15,000 and the stated
<PAGE> 73
value of the Senior Preferred Stock shall be $100 per share.
SECTION 2. VOTING The Senior Preferred Stock shall have the
following voting rights:
(A) On all matters, other than the election of directors, the
holders of Senior Preferred Stock shall vote together with the Common Stock as
one class, but shall have 1,500 of votes per share of Senior Preferred Stock.
(B) The holders of Senior Preferred Stock, voting as a class,
shall in each year elect seventy-five (75%) percent of the members of the Board
of Directors of the Corporation.
(C) The Corporation shall not, without the affirmative consent
of the holders of a majority of the Senior Preferred Stock, in any manner alter
or change the designations, or the powers, preferences, rights, qualifications,
limitations, or restrictions or increase the number of authorized shares of the
Senior Preferred Stock in any manner.
(D) The Corporation shall not, without the affirmative consent
of the holders of a majority of the Senior Preferred Stock, issue any preferred
stock or other equity securities senior to, or pari passu with, the Senior
Preferred Stock whether as to dividends, distribution or liquidation, or
otherwise.
2
<PAGE> 74
SECTION 3. Dividends. In each year the holders of the Senior
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors of the Corporation, out of funds legally available for that
purpose, quarterly dividends payable in cash on December 1, March 1, June 1 and
September 1 in each year (each such date being referred to herein as "Quarterly
Dividend Payment Date"), commencing March 1, 1996, in an amount equal to $3 per
share (that is, $12 per share on an annual basis).
In the case of the original issuance of shares of Senior
Preferred Stock, dividends shall begin to accrue and be cumulative from the date
of issue. In the case of shares of Senior Preferred Stock issued in exchange for
issued Senior Preferred Stock, dividends shall begin to accrue and be cumulative
from the Quarterly Dividend Payment Date next preceding the date of issue of
such shares to which such dividends have been paid, unless the date of issue is
a Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Senior Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall be cumulative from such Quarterly Dividend
Payment Date; provided , however, that if dividends shall not be paid on such
Quarterly Dividend Payment Date, then dividends shall accrue and be cumulative
from the Quarterly Dividend Payment Date to which such dividends have been paid.
Accrued but unpaid dividends shall compound at 12% per annum compounded
annually.
3
<PAGE> 75
Dividends paid on shares of Senior Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such shares
shall be allocated pro-rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of Senior Preferred Stock entitled to receive payment
of a dividend declared thereon, which record date shall be no more than sixty
days prior to the date fixed for the payment thereof.
Whenever quarterly dividends payable on the Senior Preferred
Stock as provided in this Section 3 are in arrears, thereafter and until
dividends, including all accrued dividends, on shares of the Senior Preferred
Stock outstanding shall have been paid in full or declared and set apart for
payment, the Corporation shall not (A) pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Senior Preferred Stock, (B) pay dividends on
or make any other distributions on any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution, or winding up) with the Senior
Preferred Stock, except dividends paid ratably on the Senior Preferred Stock and
all such parity stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of all such shares are then entitled,
(C) redeem or purchase or otherwise acquire for consideration any stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or winding
up) with
4
<PAGE> 76
the Senior Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking on a parity or
junior to the Senior Preferred Stock, (D) purchase or otherwise acquire for
consideration any shares of the Senior Preferred Stock, unless required or as
provided in Section 5, or any shares of stock ranking on a parity with the
Senior Preferred Stock, except with respect to the exchange of any Stock ranking
below the Senior Preferred Stock as to liquidation or dividends for debt of the
Corporation. The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could purchase such shares at such time and
in such manner.
SECTION 4. [Intentionally Omitted]
SECTION 5. Redemption by Corporation. The Corporation
shall redeem shares of Senior Preferred Stock pursuant to the
following provisions:
(A) The Corporation shall, on December 1, 2000 redeem all the
then outstanding shares of Senior Preferred Stock at the stated value thereof
(namely $100 per share); provided, however, that at the Corporation's option it
may pay such redemption price in cash or in Common Stock to be valued for this
purpose at the lower of (i) seventy (70%) percent of the then current market
price
5
<PAGE> 77
or (ii) the then current Conversion Price (as herein provided). If contrary to
the provisions hereof any shares of Senior Preferred Stock are not redeemed,
such shares as have not been so redeemed shall accrue a dividend at a rate equal
to eighteen percent (18%) time compounded annually and for each month such
Senior Preferred Stock is not redeemed the Conversion Price (as hereinafter
defined) shall be lowered to the lower of the Conversion Price in effect at the
date of scheduled redemption or the market price. For purposes of this Section,
"market price" of the Common Stock shall be the lower of (i) the market price on
the record date for the redemption, or in the case of a reduction in the
conversion price, on the last trading day of each month, or (ii) average of the
daily closing prices for 30 consecutive business days commencing 45 business
prior to the redemption date. The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sale takes place
on such day, the average of the reported closing bid and asked prices regular
way, in either case on the American Stock Exchange or, if the Common Stock is
not listed or admitted to trading on such exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted for trading
or, if not listed or admitted to trading on any national securities exchange the
average of the closing bid and asked prices on reported by the National
Association of Securities Dealers Automated Quotation System or if not so
reported, by the average of the closing bid and asked prices furnished by a firm
acting at that time as a market maker in the Common Stock selected
6
<PAGE> 78
by the Company for this purpose.
(B) Notice of any redemption of the Senior Preferred Stock
shall be mailed at least thirty, but no more than sixty, days prior to the date
fixed for redemption to each holder of Senior Preferred Stock to be redeemed, at
such holder's address as it appears on the books of the Corporation. In
accordance to facilitate the redemption of the Senior Preferred Stock, the Board
of Directors may fix a record date for the determination of holders of Senior
Preferred Stock to be redeemed, or may cause the transfer book of the
Corporation to be closed for the transfer of the Senior Preferred Stock, not
more than sixty days prior to the date fixed for such redemption;
(C) Upon any notice of redemption being sent to the holders of
Senior Preferred Stock, notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding, the rights to receive dividends thereon
shall cease to accrue from and after the date of redemption designated in the
notice of redemption and all rights of the holders of the shares of the Senior
Preferred Stock called for redemption shall cease and terminate, excepting only
the right to receive the redemption price therefor.
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SECTION 6. Reacquired Shares. Any shares of the Senior
Preferred Stock redeemed or purchased otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions or restrictions on issuance
set forth in the Corporation's Certificate of Incorporation.
SECTION 7. Liquidation, Dissolution or Winding Up. (a) Upon
any liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (A) to the holders of Common Stock of the Corporation and other
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Senior Preferred Stock unless, prior thereto, the holders of
Senior Preferred Stock shall have received $100 per share, plus an amount equal
to cumulative unpaid dividends thereon, including accrued dividends, whether or
not declared, to the date of such payment or (B) to the holders of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Senior Preferred Stock, except distributions made ratably on the
Senior Preferred Stock and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
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SECTION 8. Conversion.
(a) Conversions. Subject to and upon compliance with the
provisions of this Section, at the option of any holder of Senior Preferred
Stock such holder may convert his or her Senior Preferred Stock and cumulative
but unpaid dividends including the interest thereon, at any time subsequent to
June 1, 1996 into that number of duly paid and nonassessable whole shares of
common stock obtained by dividing the stated value of the Senior Preferred Stock
so converted, plus the cumulative but unpaid dividends (and the interest
thereon) on such shares, by the Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. Upon conversion of any shares of
Senior Preferred Stock that portion so converted shall result in satisfaction
and redemption of such Senior Preferred Stock so converted.
The price at which shares of Common Stock shall be delivered
upon conversion (herein called the "Conversion Price") shall initially be $.25
per share of Common Stock. The Conversion Price shall be adjusted in certain
instances as provided in Section 9(d).
(b) Manner of Exercising Conversion Privilege. In order to
exercise the conversion privilege, the holder of any shares of Senior Preferred
Stock to be converted shall surrender the certificates representing such Senior
Preferred Stock at the principal office of the Corporation, accompanied by
written notice
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to the Corporation, at said office that the holder elects to convert such Senior
Preferred Stock or, if less than the entire amount of shares represented by such
certificate the amount thereof is to be converted, the portion thereof to be
converted. Such notice shall also state the name or names in which the
certificate or certificates for shares of Common Stock issuable on such
conversion are to be issued, otherwise they shall be issuable in the same name
as the registration of such Senior Preferred Stock, be accompanied by
instruments of transfer, in form satisfactory to the Corporation and to any
person authorized by the Corporation to deliver Common Stock on conversion of
Senior Preferred Stock (herein referred to as the "conversion agent"), duly
executed by the holder or his duly authorized attorney. Except as otherwise
provided in this Section 9(b), no payment or adjustment shall be made on account
of any dividends on the Common Stock issued upon conversion but accrued
dividends shall be payable upon conversion.
Senior Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day of acceptance of such
Senior Preferred Stock for conversion in accordance with the foregoing
provisions, and at such time the rights of the holders of the converted portion
shall cease and the persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holders of such
Common Stock at such times; provided, however, that any such surrender on any
date when the stock transfer books of the Corporation shall be closed shall
constitute the person or persons
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in whose name or names the certificate or certificates for such shares are to be
issued as the record holder or holders thereof for all purposes at the opening
of business on the next succeeding day on which such stock transfer books are
open and the Senior Preferred Stock surrendered shall not be deemed to have been
converted, in whole or in part as the case may be, until such date for the
purpose of determining whether any dividends is payable thereon, and such
conversion date, the Corporation shall issue and shall deliver at said office or
agency a certificate or certificates for the number of full shares of Common
Stock issuable upon conversion, together with payment in lieu of any fraction of
a share, as provided in Section 9(c).
In the case of any certificates of Senior Preferred Stock
which is converted in part only, upon such conversion the Corporation shall
execute and deliver to or upon the written order of the holder thereof, at the
expense of the Corporation, a new certificate of certificates of Senior
Preferred Stock in an amount equal to the unconverted portion of such
certificates of Senior Preferred Stock.
(c) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of any Senior Preferred Stock. Instead of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of any Senior Preferred Stock (or specified portions thereof), the
Corporation shall pay a cash adjustment in respect of such fraction.
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(d) Adjustments. The initial conversion price specified in
Section 9(a) and any adjusted conversion price shall be subject to adjustment
from time to time as follows:
(A) In case the Corporation shall (i) pay a dividend
or make a distribution in shares of its capital stock (whether shares of Common
Stock or of capital stock of any other class) or distribute evidences of its
indebtedness or assets, (ii) sub-divide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Corporation, the conversion privilege and the
conversion price in effect immediately prior to such action shall be adjusted so
that the holders of any Senior Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of capital stock of
the Corporation which he would have owned immediately following such action had
such Senior Preferred Stock been converted immediately prior thereto. An
adjustment made pursuant to this subsection (A) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this subsection (A), the holder of any shares of
Senior Preferred Stock thereafter surrendered for conversion shall become
entitled to receive shares of two or more classes of capital stock of the
Corporation, the Board of Directors
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(whose determination shall be made in good faith) shall determine the allocation
of the adjusted conversion price between or among shares of such classes of
capital stock.
(B) In case the Corporation shall issue or sell subsequent to
December 1, 1997 Common Stock, rights, warrants or securities entitling the
holder thereof to subscribe for, purchase or convert into shares of Common Stock
then, on the record date mentioned below, the conversion price of the Common
Stock shall be adjusted so that such price shall equal the lowest of (i) the per
share consideration received by the Corporation on account of such issuance or
sale (ii) the lowest then current exercise or conversion price on any warrants
or convertible securities, or (iii) the price determined by multiplying the
conversion price in effect immediately prior to the date of issuance of such
Common Stock, rights, warrants or securities by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding immediately
prior to issuance of such Common Stock rights, warrants or securities and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to issuance of such Common Stock rights, warrants or
securities plus the number of additional shares of Common Stock issued, offered
for subscription or purchase (or into which the convertible securities so
offered are convertible). Such adjustment shall become effective retroactively
immediately after the record date for the determination of stockholders entitled
to receive such rights or
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warrants.
(C) In case the Corporation, subsequent to December 1, 1997,
shall issue or sell shares of its capital stock (other than Common Stock), or
rights to subscribe to the foregoing (excluding those referred to in subsection
(B) above), then in each such case the conversion price shall be adjusted so
that the same shall equal the lowest of (i) the per share consideration
receivable by the Corporation on account of such issuance or sale, (ii) the
lowest then current exercise or conversion price on any Warrants or convertible
securities or (iii) the price determined by multiplying the conversion price in
effect immediately prior to the date of such distribution by a fraction of which
the numerator shall be the current market price per share (determined as
provided in subsection (D) below) of the Common Stock on the record date
mentioned below multiplied by the number of shares of Common Stock then
outstanding, less the then fair market value (as reasonably determined by the
Board of Directors, of the Corporation in good faith) of the capital stock,
subscription rights, assets or evidences of indebtedness so issued or
distributed and the denominator shall be such current market price per share of
the Common Stock multiplied by the number of shares of Common Stock then
outstanding. Such adjustment shall become effective retroactively immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
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(D) For the purpose of any computation under subsection (C)
above, the current market price per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices for 30 consecutive business
days commencing 45 business days before the day in question. The closing price
for each day shall be the last reported sales price regular way or, in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices regular way, in either case on the American Stock Exchange
or, if the common Stock is not listed or admitted to trading on such exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading on any
national securities and exchange, the average of the closing bid and asked
prices as reported by the National Association of Securities Dealers Automated
Quotation System, or if not so reported, the average of the closing bid and
asked prices as furnished by any firm acting at that time as a market maker in
the Common Stock selected from time to time by the Corporation for this purpose.
(E) No adjustment in the conversion price shall operate to
increase the conversion price and no adjustment shall be made unless it results
in a decrease of at least $.0001 in such price; provided, however, that any
adjustments which by reason of this subsection (E) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
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(F) In the event that at any time as a result of an adjustment
made pursuant to subsection (A) above, the holder of any shares of Senior
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive any share of the Corporation other than share of its Common Stock,
thereafter the conversion price of such other shares so receivable upon
conversion of any shares of Senior Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained subsections
(A) through (E) above, and the provisions of this Section 9 with respect to the
Common Stock shall apply on like terms to any such other shares.
(G) In case of any consolidation of the Corporation with, or
merger of the Corporation into, any other corporation (other than a
consolidation or merger in which the Corporation is the continuing corporation),
or in the case of any sale or transfer of all or substantially all of the assets
of the Corporation, the corporation formed by such consolidation or the
corporation into which the Corporation shall have been merged or the corporation
which shall have acquired such assets, as the case may be, shall execute and
deliver to holders of all outstanding shares of Senior Preferred Stock written
evidence providing that the holder of all outstanding shares of Senior Preferred
Stock shall have the right thereafter to convert such shares of Senior Preferred
Stock into the kind and amount of share of stock and other securities and
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property which are receivable or which, but for the failure to distribute to the
holders of Common Stock all or substantially all of the consideration receivable
upon such sale or transfer of assets, would be receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such shares of Senior Preferred Stock might have been
converted immediately prior to such sale or transfer. Such written evidence
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The provisions of
this Section 9(D) shall similarly apply to successive consolidations, mergers,
sales or transfers.
(e) Notice of Adjusted Conversion Price. Whenever the
Conversion Price is adjusted as herein provided, the Corporation shall compute
the adjusted Conversion Price in accordance with Section 9(d) and shall prepare
a certificate signed by the Chief Financial Officer or President of the
Corporation setting forth the adjusted Conversion Price and showing in
reasonable detail the fact upon which such adjustment is based, and such
certificate shall forthwith be delivered to the registered Holders of all Senior
Preferred Stock.
(f) Notice of Certain Corporate Action. In case
(a) the Corporation shall declare a dividend (or any
other distribution) on its Common Stock payable otherwise than
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in cash; or
(b) the Corporation shall authorize the granting to
the holders of its Common Stock of its rights to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
(c) of any capital reorganization or of any
reclassification of the Common Stock of the Corporation (other than a
subdivision or combination of its outstanding shares of Common Stock), or of any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required, or of the sale or
transfer of all or substantially all of the assets of the Corporation; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; then the Corporation shall cause
to be delivered to the Holders of all Senior Preferred Stock at least 20 days
(or 10 days in any case specified in clause (a) or (b) above) prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of which the holder of Common
Stock of record to be entitled to such dividend, distribution or rights are to
be determined, or (y) the date on which such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up as
expected to become effective, and the date as of which it is expected that
holders of
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Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
(g) Corporation to Provide Stock. The Corporation shall at all
times reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock or out of Common Stock held in its treasury
for the purpose of effecting the conversion of Senior Preferred Stock, the full
number of shares of Common Stock then issuable upon the conversion of all
outstanding Senior Preferred Stock.
Before taking any action that would cause an adjustment
reducing the Conversion Price below the then par value (if any) of the shares of
Common Stock issuable upon conversion of the Senior Preferred Stock the
Corporation shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of such Common Stock at such
Conversion Price.
If any shares of Common Stock reserved for conversions of
Senior Preferred Stock requires listing upon any national securities exchange
before such shares may be delivered upon conversion, the Corporation shall in
good faith, and as expeditiously as possible, endeavor to cause such shares to
be duly listed.
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(h) Taxes on Conversion. The Corporation shall pay any and all
taxes that may be payable in respect of the issue or delivery of shares of
Common Stock on conversion of Senior Preferred Stock. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the holders of Senior Preferred Stock to be converted, and no
such issuance or delivery shall be made unless and until the person requesting
such issuance has paid to the Corporation the amount of any such tax, or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(i) Covenant as to Stock. The Corporation covenants that all
shares of Common Stock which shall be issued upon conversion of Senior Preferred
Stock will upon issuance be fully paid and nonassessable and, except as provided
in Section 9(h), the Corporation will pay all taxes, liens and charges,
including any legal or accounting fees and expenses with respect to the issuance
thereof.
SECTION 8. Notices of Corporate Action. In the event of:
(A) any taking by the Corporation of a record of the holders
of its Common Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a dividend payable solely in cash
or shares of Common Stock)
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or other distribution, or any right or warrant to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right;
(B) any capital reorganization, reclassification or
recapitalization of the Corporation (other than a subdivision or combination of
the outstanding shares of its Common Stock), any consolidation or merger
involving the Corporation and any other person (other than a consolidation or
merger with a wholly-owned subsidiary of the Corporation, provided that the
Corporation is the surviving or the continuing Corporation and no change occurs
in the Common Stock), or any transfer of all or substantially all the assets of
the Corporation to any other person; or
(C) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then, and in each such case, the Corporation shall cause to be mailed to the
holders of record of the outstanding shares of the Senior Preferred Stock, at
least 20 days (or 10 days in case of any event specified in clause (A) above)
prior to the applicable record or effective date hereinafter specified, a notice
stating (i) the date or expected date on which any such record is to be taken
for the purpose of such dividend, distribution or right or (ii) the date or
expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger,
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transfer, dissolution, liquidation or winding up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding up.
SECTION 9. Registration Rights; Etc.
(A) Certain Definitions. As used in this Section 9, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Registrable Securities" shall mean the shares of
Common Stock issuable or issued upon conversion of any Senior Preferred Stock.
The terms "registered," "registered" and
"registration" shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the effectiveness of such registration
statement.
"Registration Expenses" shall mean all expenses
incurred by the Corporation in compliance with (B) hereof other than Selling
Expenses, including, without limitation, all
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registration and filing fees, printing expenses, fees and disbursements of
counsel for the Corporation, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Corporation, which shall be paid in
any event by the Corporation).
"Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities, all fees and disbursements of counsel for any Holder and any blue
sky fees and expenses excluded from the definition of "Registration Expenses."
"Holder" shall mean any holder of any Senior
Preferred Stock or outstanding Registrable Securities who received such
Registrable Securities directly from the Corporation upon conversion of any
Senior Preferred Stock.
"Other Shareholders" shall mean holders of
securities of the Corporation who are entitled by contract with the Corporation
to have securities included in a registration of the Corporation's securities.
(B) Corporation Registration; Demand Registration.
(i) Notice of Registration. If the
Corporation shall determine to register any of its securities either for its own
account or the account of a security holder or holders exercising their
respective demand registration rights, other than a registration relating solely
to employee benefit
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plans, or a registration relating solely to a Commission Rule 145 transaction,
or a registration on any registration form which does not permit secondary
sales, the Corporation will:
(x) promptly give to the Holder written notice thereof (which shall
include a list of the jurisdictions in which the Corporation intends to attempt
to qualify such securities under the applicable blue sky or other state
securities laws); and
(y) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
by any Holder within fifteen (15) days after receipt of the written notice from
the Corporation described in clause (x) above, except as set forth below.
(ii) Underwriting. If the registration of which
the Corporation gives notice is for a registered public offering involving an
underwriting, the Corporation shall so advise the Holder as part of the written
notice given pursuant to (B) above. In such event, the right of any Holder to
registration pursuant to (B) above shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Corporation, directors and officers and the Other
Shareholders distributing their securities through such underwriting) enter into
an underwriting agreement in
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customary form with the underwriter or underwriters selected for underwriting by
the Corporation.
Notwithstanding any other provision of this (B), if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
or all of the Registrable Securities which would otherwise be underwritten
pursuant hereto provided, however, that in no event shall the Registrable
Securities underwritten pursuant hereto constitute less than one-third of such
offering. The Corporation shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the following registration and underwriting shall be allocated in
the following manner. The number of shares that may be included in the
registration and underwriting on behalf of such Holders, directors and officers
and Other Shareholder shall be allocated among such Holder, directors and
officers and Other Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which they had
requested to be included in such registration at the time of filing the
registration statement.
If any Holder of Registrable Securities or any officer,
director or Other Shareholder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice
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to the Corporation and the underwriter. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(iii) Notwithstanding anything to the contrary set forth
above, each Holder shall also have the unqualified and unconditional right at
any time and from time to time subsequent to December 1, 1997 to demand the
registration of Registrable Securities, in which case the Corporation shall
proceed with such registration as provided in this Section 9.
(C) Expenses of Registration. The Corporation shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Corporation pursuant to (B) hereof. All
Selling Expenses shall be borne by the holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
(D) Registration Procedures. In the case of each registration
effected by the Corporation pursuant to this Section 9, the Corporation will
advise each Holder in writing as to the initiation of each registration and as
to the completion thereof. The Corporation will, at its expense:
(i) keep such registration effective for a period
of one hundred twenty (120) days or until the Holder or Holders have completed
the distribution described in the registration statement relating thereto,
whichever first occurs:
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(ii) furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably request;
and
(iii) use its best efforts to register or qualify
the Registrable Securities under the securities laws or blue-sky laws of such
jurisdictions as any Holder may reasonably request under the circumstances;
provided, however, that the Corporation shall not be obligated to register or
qualify such Registrable Securities in any particular jurisdiction in which the
Corporation would be required to execute a general consent to service of process
in order to effect such registration, qualification or compliance, unless the
Corporation is already subject to service in such jurisdiction and except as may
be required by the Securities Act or applicable rules or regulations thereunder.
(E) Indemnification.
(i) The Corporation, with respect to each
registration, qualification and compliance effected pursuant to this Section 9,
will indemnify and hold harmless each Holder, each of its officers, directors
and partners, and each party controlling such Holder, and each underwriter, if
any, and each party who controls any underwriter, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement,
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notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Corporation of the Securities
Act or any rule or regulation thereunder applicable to the Corporation and
relating to action or inaction required of the Corporation in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and each party controlling
such Holder, each such underwriter and each party who controls any such
underwriter, for any legal and any other expenses incurred in connection with
investigating or defending any such claim, loss damage, liability or action;
provided that the Corporation will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based solely upon written information
furnished to the Corporation by such Holder or underwriter, as the case may be,
and stated to be specifically for use therein.
(ii) Each Holder and Other Shareholder will, if
Registrable Securities held by him or her are included in the securities
offering as to which such registration, qualification or compliance is being
effected, indemnify and hold harmless the Corporation, each of its directors and
officers and each underwriter, if any, of the Corporation's securities covered
by such a registration statement, each party who controls the
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Corporation or such underwriter, each other such Holder and Other Shareholder
and each of their respective officers, directors and partners, and each party
controlling such Holder or Other Shareholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Corporation and such Holders, Other
Shareholders, directors, officers, partners, parties, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document solely in reliance
upon and in conformity with written information furnished to the Corporation by
such Holder or Other Shareholder and stated to be specifically for use therein;
provided, however, that the obligations of such Holders and Other Shareholders
hereunder shall be limited to an amount equal to the proceeds to each such
Holder or Other Shareholder of securities sold as contemplated herein.
(iii) Each party entitled to indemnification under
this (E) (the "Indemnified Party") shall give notice to the party
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required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnification Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or any litigation resulting therefrom, shall be approved by the Indemnifying
Party (whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense (unless the
Indemnified Party shall have been advised by counsel that actual or potential
differing interest or defenses exist or may exist between the Indemnifying Party
and the Indemnified Party, in which case such expense shall be paid by the
Indemnifying Party), and provided further that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 9. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
(F) Information by Holder. Each Holder of Registrable
Securities, and each Other Shareholder holding securities included
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in any registration statement, shall furnish to the Corporation such information
regarding such Holder or Other Shareholder as the Corporation may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 9.
(G) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of the Registrable Securities to the public without registration, the
Corporation agrees to:
(i) Make and keep public information available, as
those terms are understood an defined in Rule 144 under the Securities Act, at
all times from and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by the Corporation for an
offering of its securities to the general public;
(ii) Use its best efforts to file with the
Commission in a timely manner all reports and other documents required of the
Corporation under the Securities Act and the Securities Exchange Act of 1934, as
amended, at any time after it has become subject to such reporting requirements;
and
(iii) So long as the Holder owns any Registrable
Securities, furnish to the Holder forthwith upon request a written statement by
the Corporation as to its compliance with the reporting requirements of Rule 144
(at any time from and after ninety (90) days following the effective date of the
first
31
<PAGE> 103
registration statement in connection with an offering of its Securities to the
general public), and of the Securities Act and the Securities Exchange Act of
1934, as amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Corporation, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
IN WITNESS WHEREOF, said VTX Electronics Corp. has caused this
Certificate of Designation, Preferences and Rights of Senior Preferred Stock to
be duly executed by its President and attested to by its Secretary and caused
its corporate seal to be affixed thereto on November , 1995.
Attest: VTX Electronics Corp.
By:
- -------------------- --------------------
32
<PAGE> 1
PAGE 82 OF 124 PAGES
EXHIBIT B
VTX ELECTRONICS CORP.
(A DELAWARE CORPORATION)
SUBSCRIPTION AGREEMENT
SECTION 1
1.1. Subscription. The undersigned hereby subscribes for and
agrees to purchase a Debenture dated March 1, 1996 (the "Debenture") and
Warrants (the "Warrants") issued by VTX Electronics Corp. (the "Company") as
more fully described in the Solicitation Letter from the company accompanying
this Subscription Agreement (the "subscription Agreement").
1.2. Purchase. The undersigned confirms having sent either a
wire transfer or enclosing a check, in the amount indicated on the signature
page hereof to the account set forth on the signature page hereof. The
undersigned understands that there is a minimum investment required of the
undersigned. In the event that the aggregate minimum of $1,237,500 for the
entire offering is not obtained, all funds will be returned.
1.3. Acceptance or rejection of Subscription.
(a) The undersigned understands and agrees that the
management of the Company reserves the right to reject this subscription in
whole or in part, if in its judgement it deems such action in the best
interests of the Company.
(b) In the event the undersigned's subscription is
accepted, management shall accept the undersigned's subscription by executing a
Debenture and Warrants on payee's behalf as set forth in the Subscription
Agreement.
SECTION 2
2.1. Investor Representations and Warranties. The
undersigned hereby acknowledges, represents and warrants to, and agrees with the
Company as follows:
(a) The undersigned is investing in the Debentures and
warrants for his or its own account, for investment purposes only, and not with
a view to or for the resale, distribution or fractionalization thereof, in
whole or in part, and no other person has a direct or indirect beneficial
interest in the Debenture or the Warrants.
(b) The undersigned acknowledges his or its understanding
that the offering and sale of the Debentures and Warrants is intended to be
exempt from registration under the Securities Act of 1933, as amended (the
"Act"), by virtue of Section 4(2) of the Act. In furtherance thereof, the
undersigned represents and warrants to and agrees with the company as follows:
<PAGE> 2
PAGE 83 OF 124 PAGES
(i) The undersigned has the financial ability to bear
the economic risk of his or its investment in the Debentures and Warrants
(including its possible loss), has adequate means of providing for his or its
current needs and personal contingencies and has no need for liquidity with
respect to his or its investment in the Debentures and Warrants.
(ii) The undersigned has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of an investment in the debentures and Warrants and has obtained, in his
or its judgment, sufficient information from the company to evaluate the merits
and risks of an investment in the Debentures and Warrants.
(c) The Undersigned:
(i) has been provided an opportunity to obtain any
additional information beyond what is contained in the Solicitation Letter
(including the material enclosed therewith) concerning the Company and all
other information to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense;
(ii) has been given the opportunity to
ask questions of, and receive answers from the management of the Company
concerning matters pertaining to this investment in order to evaluate the
merits and risk of an investment in the Debentures and Warrants; and
(iii) has determined that the Debentures and Warrants
are a suitable investment for the undersigned and that at this time the
undersigned could bear a complete loss of such investment.
(d) The undersigned is an "accredited investor" as such
term is defined in Regulation D promulgated by the Securities and exchange
commission under the Act.
(e) The undersigned represents, warrants and agrees that
the undersigned will not sell or otherwise transfer the Debenture or the
Warrants without registration under the Act or an exemption therefrom, and
fully understands and agrees that the undersigned must bear the economic risk
of such investment for an indefinite period of time because, among other
reasons, the Debenture and Warrants have not been registered under the Act or
under the securities laws of certain states and, therefore, cannot be resold,
pledged, assigned or otherwise disposed of unless it is subsequently
registered under the Act and under applicable securities laws of such states or
an exemption from such registration is available.
<PAGE> 3
PAGE 84 OF 124 PAGES
IN WITNESS WHEREOF, the undersigned has (have) executed this
Subscription Agreement on this day of March 1996.
$
--------------------------------------
Total Amount of Debenture
IF SUBSCRIBER IS INDIVIDUAL:
- ----------------------------------- ------------------------------------
Print Name Signature
IF SUBSCRIBER IS AN ENTITY:
By:
- ---------------------------------- ----------------------------------
Print Name of Entity Authorized Signature
-------------------------------------
Print Name of
Authorize Signatory
-------------------------------------
Title
IF THERE IS A JOINT SUBSCRIBER:
- ---------------------------------- -------------------------------------
Print Name of Signature of
Joint Subscriber Joint Subscriber
* * * * *
Subscription accepted as of the day of March 1996.
VTX ELECTRONICS CORP.
By:
_____________________________
Albert Roth, President
<PAGE> 1
PAGE 85 OF 124 PAGES
EXHIBIT C
SENIOR SECURED SUBORDINATED DEBENTURE
$125,000 Farmingdale,
New York
March 20, 1996
VTX Electronics Corp., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company"), for
value received, hereby promises to pay to the order of Quota Fund, NV or
registered assigns the principal amount of One Hundred Twenty Five Thousand
($125,000) Dollars on March 1, 2001, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for public
and private debts, at the principal office of the Company, in Farmingdale, New
York and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) at said office, in like coin or currency, on the unpaid portion
of said principal amount from the date hereof, quarterly on the first day of
September, December, March and June in each year, commencing on June 30, 1996,
at the rate of interest from time to time equal to the "prime rate" as
publically announced from time to time in the Wall Street Journal plus two
percent (2%) per annum adjusted monthly on the first business day of each month
until such unpaid portion of such principal amount shall have become due and
payable and thereafter at the greater of such prime rate plus six percent (6%)
or eighteen percent (18%) per annum thereafter and, so far as may be lawful, on
any overdue installment of interest at the rate of the greater of such prime
rate plus six percent (6%) or eighteen percent (18%) per annum and provided,
further, that if this Debenture is not secured by a mortgage (which may be a
second mortgage) by April 1996, the interest rate on this Debenture shall
increase to the above referenced "prime rate" plus seven percent (7%) provided,
further, however, that in the event a senior mortgagee having a mortgage loan
to the Company of at least $1,500,000 in original principal amount shall
prohibit the granting of a mortgage
<PAGE> 2
PAGE 86 OF 124 PAGES
to the holders of the Debentures, the interest rate shall remain at the "prime
rate" plus two (2%) percent. This Debenture may be prepaid at any time after
one year from original issuance, in whole or in part, with no penalty, only
with the prior written consent of the Holder of this Debenture.
Section 1. The Agreement; Exchanges and Transfers of the
Debenture.
Section 1.1. The Agreement. This Debenture (herein called the
"Debenture") is one of several identical Debentures in the aggregate principal
amount not to exceed $1,237,500 (collectively called the "Debentures") issued
on March , 1996.
Section 1.2. Register; Transfer or Exchange of Debentures. The
Company shall keep at its office or agency maintained in Farmingdale, New York
a register in which the Company shall provide for the registration of
Debentures and for the registration of transfer of Debentures. The Holder of
any Debenture may, at its option and either in person or by duly authorized
attorney, surrender the same for registration of transfer or exchange at such
office and, without expense to such Holder (other than transfer taxes, if any),
receive in exchange therefor a new Debenture or Debentures, dated as of the
date to which interest has been paid on the Debenture or Debentures so
surrendered, each in the principal amount of $10,000 or any integral multiple
thereof, for the same aggregate unpaid principal amount as the Debenture or
Debentures so surrendered for transfer or exchange and each registered in such
name or names as may be designated by such Holder. Every Debenture so made and
delivered in exchange for any Debenture shall in all other respects be in the
same form and have the same terms as the Debenture so surrendered for transfer
or exchange.
Section 1.3. Loss, Theft, Destruction or Mutilation of
Debentures. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of any Debenture and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity bond in such
reasonable amount as the Company may determine (or if such Debenture is held by
the original Holder, of an unsecured indemnity agreement reasonably
satisfactory to the Company) or, in
<PAGE> 3
PAGE 87 OF 124 PAGES
the case of any such mutilation, upon surrender and cancellation of such
Debenture, the Company will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Debenture, a new Debenture of like tenor and unpaid
principal amount and dated as of the date to which interest has been paid on
the Debenture so lost, stolen, destroyed or mutilated.
Section 1.4. Registered Holders. The Company may deem and
treat the person in whose name any Debenture is registered as the absolute
owner and holder of such Debenture for the purpose of receiving payment of the
principal of and interest on such Debenture and for the purpose of any notices,
waivers or consents thereunder, whether or not such Debenture shall be overdue,
and the Company shall not be affected by notice to the contrary. Payments with
respect to any Debenture shall be made only to the registered Holder thereof.
Section 2. Surrender of the Debenture.
Section 2.1. Surrender of Debentures. (a) The Company may, as
a condition of payment of all or any of the principal of, and interest on, this
Debenture, in whole or in part, require the holder to present this Debenture
for notation of such payment and, if this Debenture be paid in full, require
the surrender hereof.
(b) Anything herein to the contrary notwithstanding, the
entire principal plus accrued interest amount of this Debenture, or any part
hereof, may be surrendered to the Company by the Holder for redemption and
cancellation as payment of the exercise price of any warrant to acquire common
stock of the Company. If less than the entire principal amount of this
Debenture is so surrendered and redeemed, a new Debenture in the remaining
outstanding principal amount shall be redelivered to the Holder.
Section 3. Covenants.
Section 3.1. To Pay Principal and Interest. The Company
covenants and agrees to pay principal and interest on this Debenture in
accordance with the terms hereof.
<PAGE> 4
PAGE 88 OF 124 PAGES
Section 3.2. Maintenance of Company Office. The Company will
maintain an office in Farmingdale, New York in its current facility where
notices, presentations and demands to or upon the Company in respect of the
Debenture may be given or made or such other place as a majority in principal
amount of the Debentures shall consent to in writing.
Section 3.3. To Keep Books. The Company will, and will cause
all subsidiaries, to keep proper books of record and account in which full,
true and correct entries will be made of its transactions in accordance with
generally accepted accounting principles.
Section 3.4. Payment of Taxes; Corporate Existence; Maintenance
of Properties. The Company will, and will cause each of its subsidiaries to,
(c) pay and discharge promptly or cause to be paid and discharged promptly
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or upon any of its property, real, personal or
mixed, or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien or change upon its property; provided, however, that
neither the Company nor any subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or such subsidiary, as the case may be, shall have set aside
on its books reserves (provided for and segregated to the extent required by
generally accepted accounting principles) deemed by it adequate with respect
thereto;
(d) maintain and keep or cause to be maintained and kept its properties in
good repair, working order and condition, and from time to time make or cause
to be made all needful and proper repairs, renewals, replacements and
improvements so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
<PAGE> 5
PAGE 89 OF 124 PAGES
Section 3.5. To Insure. The Company will, and will cause each
of its subsidiaries to maintain insurance in such extent and against such
hazards and liabilities as is commonly maintained by companies similarly
situated.
Section 3.6. Sale, Merger or Consolidation by Company. The
Company will not sell, lease, transfer or otherwise dispose of any substantial
part of its properties and assets or consolidate with or merge into any person
or permit any person to merge into it.
Section 3.7. Additional Debt. The Company shall not issue or
incur any debt senior to, or parri passu with, the Debentures.
Section 4. Representations and Warranties. The Company
represents and warrants to each Holder of this Debenture, on the date of
original issuance, as follows:
Section 4.1. Due Organization and Qualification; Business. The
Company is a duly organized and validly existing corporation in good standing
under the laws of the State of Delaware, has the power and authority to own or
hold under lease the properties it purports to own or so hold and to carry on
its business as now being conducted and presently proposed to be conducted, and
has the power and authority to enter into this Debenture and to carry out the
transactions contemplated hereby. The Company is duly qualified as a foreign
corporation in each jurisdiction where the nature of the business transacted by
it or the properties owned or leased by it requires the Company to be so
qualified except for jurisdictions wherein the failure to be so qualified will
not have a material adverse effect on the business, operations, properties or
assets or on the condition, financial or other, of the Company. The Company
has paid all corporation taxes and franchise taxes payable to the State of
Delaware and in each other jurisdiction where it is qualified.
Section 4.2. Litigation; Compliance with Rules, Regulations,
Decrees, etc. Except as set forth on Schedule 4.2 attached hereto, there are
no actions, suits or proceedings (whether or not purportedly on behalf of the
Company) pending or, to the knowledge of the Company, threatened
<PAGE> 6
PAGE 90 OF 124 PAGES
against the Company or any of its subsidiaries, properties or assets at law,
in equity or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind; and neither the Company nor any
of its subsidiaries is in default with respect to any judgment, order, writ,
injunction, decree or award of any court, arbitrator or federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, or in violation of any rule or
regulation of any thereof, or in violation of any law, which violation would
have a material adverse effect on the business or properties of the Company.
The Company has all permits, licenses and franchises necessary or desirable in
order to conduct its business and to own and operate its property and assets.
Section 4.3. Compliance with Other Instruments. Neither the
execution and delivery of this Debenture, the consummation of the transactions
herein contemplated, nor compliance with the terms, conditions and provisions
hereof, will conflict with or result in a breach or violation of the
certificate of incorporation or by-laws of the Company or of any material term,
condition or provision of any agreement or instrument to which the Company is
now a party or by which it or any of its properties or assets may be bound, or
constitute a default thereunder, or result in the creation or imposition of any
lien upon any of the properties or assets of the Company or any subsidiary.
Section 4.4. Financial Statements. The consolidated balance
sheet of the Company as at June 30 in each of the years 1990 to 1995,
inclusive, and the related consolidated statements of operations, stockholder'
equity and cash flows for the fiscal years then ended, accompanied in each case
by the opinion of independent public accountants previously delivered to the
Holder of this Debenture, as well as the unaudited financial statements as of
September 30, and December 31, 1995 and 1994 (as set forth in the Form 10Q set
forth below) previously delivered to the Holder are complete and correct in all
material respects and fairly present the financial condition of the Company
<PAGE> 7
PAGE 91 OF 124 PAGES
and its subsidiaries and the results of the operations and changes in financial
position of the Company and its subsidiaries for the respective fiscal periods
ended on said dates, all in conformity with generally accepted accounting
principles applied on a consistent basis (except as otherwise set forth therein
or in the notes thereto stated) throughout the fiscal periods involved.
Section 4.5. Business and Properties; No Misleading Statement
or Omissions. The annual report of the Company on Form 10-K for the fiscal
year ended June 30, 1995 including all exhibits and material incorporated by
reference (the "Form 10-K") and the Reports on Form 10-Q relating to the
three-month periods ended September 30 and December 31, 1995 (collectively with
the Form 10-K, the "Reports"), as filed with the Securities and Exchange
Commission and copies of which have heretofore been furnished to the Holder,
correctly describe the general nature of the business conducted by the Company
during the fiscal year ended June 30, 1995 and the six-month period ended
December 31, 1995, respectively, and the information therein with respect to
the principal properties then owned or leased by the Company is correct in all
material respects. Since December 31, 1995, there has been no material change
in the general nature of the business conducted, or in the principal properties
owned or leased, by the Company. The Reports are accurate as of their
respective dates in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Except as set forth in Schedule 4.5 hereto, there
is no fact or circumstance now in existence and currently known by the Company
which does now, or with the passage of time, would be reasonably anticipated to
have a material adverse affect on the Company, its business, prospects,
financial condition or operations.
Section 4.6. Subsidiaries; Due Organization and Qualification.
The Form 10-K correctly and completely sets forth the name and jurisdiction of
the incorporation of each subsidiary of the Company. All outstanding shares of
stock of all classes of each subsidiary listed in the Form 10-K
<PAGE> 8
PAGE 92 OF 124 PAGES
are owned by the Company and have been validly issued, are fully paid and
non-assessable, and are owned free and clear of any lien, option, contractual
restriction on transfer or contractual right of any other person. Each
subsidiary listed in the Form 10-K is a duly organized and validly existing
corporation in good standing under the laws of the jurisdiction of its
incorporation, and has the corporate power and authority to own or hold under
lease the properties it purports to own or so hold and to carry on its business
as now being conducted and presently proposed to be conducted; each subsidiary
listed in the Form 10-K is duly qualified and is in good standing as a foreign
corporation in each jurisdiction wherein, in the judgment of the Company, the
nature of the business transacted by it or the properties owned or leased by it
makes such qualification necessary, except for jurisdictions wherein the
failure to be so qualified will not have a material adverse effect on the
business, operations, properties or assets or on the condition, financial or
other, of the Company.
Section 4.7. Title to Properties. The Company and its
subsidiaries have good and marketable title to, or valid and enforceable
leasehold estates in, their respective real properties and assets (including
leasehold improvements) reflected in the consolidated balance sheet as at
December 31, 1995 referred to in Section 4.4 above, subject only to such
defects or irregularities of title which do not in the aggregate interfere with
the operation, value or use of such properties and assets considered as a whole
and subject to liens in favor of Congress Financial Corporation ("Congress")
and Sterling Commercial Capital, Inc., First Wall Street SBIC, L.P., Fundex
Capital Corp. and Tappan Zee Capital (collectively, the "Sterling Group") and
notice liens in favor of equipment lessors, except for properties and assets
sold or otherwise disposed of subsequent to said date in the ordinary course of
business. The Company owns, or has a valid leasehold in, all properties or
assets reasonably necessary to operate and conduct its business.
Section 4.8. Trademarks, Patents, etc. The Company and its
subsidiaries possess such trademarks, trade names, copyrights, patents,
licenses, or rights in any thereof as are adequate in the
<PAGE> 9
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opinion of the Company for the conduct of their respective businesses as now
conducted, without known conflict with the rights of others except for
conflicts which if adversely determined would not, singly or in the aggregate,
result in any material adverse change in the business, operations, properties
or assets or in the condition, financial or other, of the Company.
Section 4.9. Tax Liability. The Company and its subsidiaries
have, to the knowledge of their respective officers, properly prepared and
filed all tax returns required to be filed with taxing authorities prior to the
date hereof or have duly obtained extensions of time for the filing thereof and
have paid all taxes shown as due on such returns that were filed. The Company
has properly withheld all taxes required to be withheld, including, without
limitation all federal, state and local withholding taxes and FICA payments,
and, to the Company's knowledge, there are no pending audits or investigations
relating to tax matters affecting the Company or any subsidiary. The Company
has been notified of 1) a final assessment by City of Dayton, Ohio in the
amount of approximately $3,400 and, 2) an amount due to the Illinois Department
of Revenue upon audit and resolution thereof in the amount, as of September 27,
1995, of approximately $15,400.
Section 4.10. Governmental Action. Except as otherwise
contemplated by this Debenture and blue sky laws, no action, authorization or
approval of, or registration, declaration or filing with, any governmental or
public body or authority is required to authorize, or is otherwise required in
connection with, the execution, delivery and performance by the Company of this
Debenture, other than any post event informational filing.
Section 4.11. ERISA. (a) The Company is in compliance in all
material respects with the applicable provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA").
(b) No "employee benefit plan" as defined in ERISA,
maintained by the Company or any subsidiary, as from time to time in effect
(herein called "Benefit Plans" or, individually, a "Benefit Plan") nor any
trusts created thereunder, nor any trustee or administrator
<PAGE> 10
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thereof, has engaged in a "prohibited transaction," as defined in ERISA, which
could subject the Company or any subsidiary, or any Benefit Plan or any such
trust, or any trustee or administrator thereof, or any party dealing with any
Benefit Plan, or any such trust to any tax or penalty on prohibited
transactions. Neither any of the Benefit Plans nor any such trusts have been
terminated, or are liable for the tax or penalty on prohibited transactions,
nor has there been any "reportable event" as defined in ERISA or any
"accumulated funding deficiency." Neither the Company nor any of its
subsidiaries has incurred any liability to the Pension Benefit Guaranty
Corporation.
Section 4.12. Environmental Issues. (a) The property owned or
leased by the Company or any of its subsidiaries ("Premises") and the present
and contemplated use and occupancy thereof are in full compliance in all
material respects with all applicable federal, state and local laws,
ordinances, building codes, rules and regulations pertaining to zoning,
parking, construction, building, land use and environmental matters, including,
without limitation, the provisions of the Federal Occupation Safety and Health
Act and the Environmental Protection Act, and all applicable rules and
regulations thereunder and all similar state and local laws, rules and
regulations; there are no current citations, notices or orders of
non-compliance issued to the Company or any of its subsidiaries or relating to
its business, assets, property (leased or owned), leaseholds or equipment under
any such laws, rules and regulations. The Company and each of its subsidiaries
has been issued all required federal, state and local licenses, certificates
and permits relating to the business, assets, property (leased or owned)
leaseholds and equipment, and are in compliance in all material respects with
all applicable federal, state and local laws, rules and regulations relating to
air emissions, water discharge, noise emissions, solid or liquid disposal,
hazardous waste or materials, or other environmental, health or safety matters.
(b) (i) No hazardous or toxic substance or material or
other waste ("Hazardous Substance") as defined in or regulated under the
Comprehensive Environmental Response,
<PAGE> 11
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Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et.
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et.
seq.), The Oil Pollution Act of 1990 (33 U.S.C. Section 2701 et. seq.) or any
other federal, state or local law, order or regulation pertaining to health,
safety, or the environment (the "Environmental Laws") has ever been unlawfully
disposed, released, discharged or spilled on or under any part of the Premises,
(ii) the Premises has never been used as a dump or landfill, (iii) no
litigation or administrative action or proceeding has been commenced or, to the
Company's knowledge, threatened against the Company or any of its subsidiaries
alleging a violation of any Environmental Laws, and (iv) no underground storage
tank (other than fuel oil storage tanks), equipment containing polycholorinated
biphenyl, asbestos, or urea formaldehyde is located on or under the Premises;
the Premises are free from any contamination by any Hazardous Substance and the
Company is in compliance in all material respects with all Environmental Laws
affecting the Company or the Premises.
(c) There is not present in the Premises any friable
asbestos or any substance containing asbestos and deemed hazardous by federal,
state or local laws, rules, regulations or orders respecting such material.
Section 4.13. Due Authorization of Debenture. This Debenture
and the transactions herein contemplated, have been duly authorized by the
Company, and when this Debenture has been duly executed, paid for and delivered
by the Company, no shareholder approval is required in connection therewith,
this Debenture will be a valid and legally binding obligation, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, moratorium or similar laws affecting
the enforcement of creditors' rights generally and that the availability of
equitable remedies is subject to the discretion of the court before which any
proceeding therefor may be brought.
<PAGE> 12
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Section 4.14. No Defaults. The Company is presently, and at all
time in the past twelve (12) months has been, in compliance and not in any
violation or default under its lending agreements with its lenders, including,
without limitation, Congress and the Sterling Group and has been in compliance
with, and not it default under, any material contract, leases, mortgages or
agreement. No event, fact or circumstance exists which, with the passage of
time or the giving of the notice, would create an event of default under any of
the above instruments. The Company is in compliance with its certificate of
incorporation and its by-laws.
Section 4.15. Capitalization. The authorized and outstanding
shares of capital stock, warrants or rights to convert into or receive capital
stock of the Company, are stated on Schedule 4.15 attached hereto. All of the
issued and outstanding shares of capital stock of the Company are duly and
validly issued and outstanding, are fully paid and non-assessable. Except as
stated on such Schedule 4.15, there are no outstanding, options, warrants, or
rights to convert into or receive capital stock of the Company or securities
exchangeable for, or convertible into, capital stock of the Company. No person
or entity has demand or "piggy-back" registration rights as to any security
issued or issuable by the Company, except as set forth on Schedule 4.15.
Section 4.16. Undisclosed Liabilities; Material Changes. Except
for such claims, debts and liabilities as are reflected in the financial
statements referred to in Section 4.4 hereto and borrowing under the Company's
revolving credit agreement with Congress, the Company does not have any
outstanding indebtedness for money borrowed and is not subject to any claims or
liabilities (whether matured or unmatured, liquidated or unliquidated, accrued,
fixed, contingent or otherwise), other than trade or business obligations
incurred in the ordinary course of business since the date of such financial
statements, in amounts usual and normal, both individually and in the
aggregate, for the Company, all accounting procedures and methods have been
maintained in a manner consistent with prior periods, there has been no lease,
sale (other than inventory in the ordinary course of business),
<PAGE> 13
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or abandonment of any property or assets of the Company, nor has there been any
labor strife, strike or lock-out. Since the date of such financial statements,
there has not been any material increase in the compensation payable or to
become payable by the Company to any of its officers, employees or agents, or
any bonus payment or arrangement made to or with any of them, other than in the
ordinary course and consistent with past practices. Since the date of such
financial statements, there has not been any payment by the Company of any
dividends or any distribution by the Company to any of its shareholders in
redemption or as a purchase price of any indebtedness (whether in payment of
principle, interest or otherwise) owing to any of them nor has there been any
mortgage, pledge or subjection to a lien, charge or encumbrance of any material
kind of any of the Company's assets, tangible or intangible.
Section 4.17. Insurance. The Company maintains insurance
adequate and reasonable for its needs and consistent with industry standards.
All such insurance is in full force and effect and the Company has received no
notices of cancellation or indication of any intention on the part of any
insurance company not to renew.
Section 4.18. Employment Contracts. Except as set forth on
Schedule 4.18 attached hereto, the Company is not a party to, or otherwise
subject to, any oral or written (i) collective bargaining agreement, (ii)
contract or other agreement for the employment of any officer or employee,
(iii) profit-sharing, bonus, deferred compensation, stock option, severance
pay, pension, retirement or similar plan or agreement (including individual
agreements) providing employee benefits.
Section 4.19. Future Agreements. The Company is not a party to
or otherwise subject to any oral or written (i) guarantee of any obligations
for the borrowing of money or otherwise, or any other agreement or guarantee of
the obligations of another person or entity, (ii) agreement or arrangement for
the purchase or sale of any assets of the Company other than in the ordinary
course of business or for the grant of any preferential rights to purchase any
of the Company's assets, properties or rights,
<PAGE> 14
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(iii) agreement, contract or commitment containing any covenant limiting the
freedom of the Company to engage in any line of business in any area of the
world or to compete with any person or entity, (iv) agreement, contract or
commitment relating to the acquisition of assets or capital stock of any
business enterprise, (v) contract, agreement or other instrument not entered at
arms length and in the ordinary course of business.
Section 4.20. Market Price of Common Stock. Schedule 4.20 sets
forth the high, low and closing prices for the Common Stock of the Company for
the trading days March 4, to March 12, 1996 as prepared from information
provided to the Company by Bloomberg Financial Markets.
Section 5. Subordination. (a) "Senior Debt" means (i) all
indebtedness for principal and interest, including interest accruing during the
period of any bankruptcy and other amounts payable under the terms of such
Senior Debt, of the Company to Congress Financial Corporation ("Congress")
under that certain Accounts Financing Agreement (Security Agreement) dated
December 31, 1992 and the Covenant Supplement to Accounts Financing Agreement
(Security Agreement) dated December 31, 1992 and all amounts owing to Sterling
Commercial Capital, Inc., First Well Street SBIC, L.P., Fundex Capital Corp.
and Tappan Zee Capital Corp. under that certain Loan Agreement dated March 31,
1994, Mortgage dated March 31, 1994 and Security Agreement dated March 31,
1994.
(b) The Company covenants and agrees, and each Holder of
this Debenture, by his acceptance hereof likewise covenants and agrees that the
payment of the principal of, interest and all other amounts payable on this
Debenture shall be subordinated in accordance with the provisions of this
Section 5 and each holder of any of the Debenture, whether upon original issue
or upon transfer or assignment thereof, accepts and agrees to be bound by such
provisions. This Debenture, shall, to the extent and in the manner hereinafter
in this Section 5 set forth, be subordinated and subject in right of payment
to the prior payment in full of all Senior Debt of the Company.
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(c) Upon any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property
or securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of the Company whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, all Senior
Debt of the Company shall first be paid in cash or cash equivalents, before the
holder of this Debenture shall be entitled to receive any assets or securities
(other than shares of stock of the Company, as reorganized or readjusted or
securities of the Company, or of any other corporation provided for by a plan
of reorganization or readjustment, junior to, or the payment of which is
subordinated at least to the extent provided in this Section 5 to the payment
of, all Senior Debt of the Company, which may at the time be outstanding or any
securities issued in respect thereof under any such plan of reorganization or
readjustment) in respect of the Debentures (for principal, interest or other
amounts); and upon any such dissolution or winding up or liquidation or
reorganization, any payment or distribution of assets or securities of the
Company, of any kind or character, whether in cash, property or securities
(other than as aforesaid), to which the Holders of the Debentures would be
entitled, except for the provisions of this Section 5, shall be made by the
Company, or by any receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, directly to the holders of
Senior Debt of the Company, or their representatives to the extent necessary to
pay all such Senior Debt of the Company, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Debt.
(d) No demand, declaration, acceleration or direct or
indirect payment, prepayment or enforcement of principal of this Debenture may
be made or done until the Senior Debt is finally paid in full, provided,
however, demand for payment and acceleration may be made after 180 days
following an Event of Default. Also, no direct or indirect payment of or on
account of this Debenture (including without limitation principal, interest and
premiums) shall be made if, at the time
<PAGE> 16
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of such payment or immediately after giving effect thereto, (i) there shall
exist a default in the payment of any amount (including without limitation
principal, interest and premiums) payable by the Company in respect of any
Senior Debt (any default referred to in this clause (i) herein called a
"Monetary Default"), or (ii) the Company receives a notice from a holder of any
Senior Debt that there exists a default or an Event of Default other than a
Monetary Default in respect of any Senior Debt (any default or Event of Default
specified in this clause (ii) herein called a "Non-Monetary Default"). If the
Company receives any notice of a Non-Monetary Default, a subsequent notice
given within 360 days from the date of the giving of the first notice relating
to the same Non-Monetary Default on the same issue of Senior Debt shall not be
effective for the purposes of this paragraph. Notwithstanding the occurrence
of a Non-Monetary Default (but subject to the provisions of Section 5(c) above
and clause (i) of the second sentence of this Section 5(d)), the Company shall
resume payments on and distribution in respect of interest and other amounts
(but not principal) on this Debenture when: (1) the Non-Monetary Default is
cured or waived, or (2) 180 days after the giving of the aforementioned notice
of the occurrence of such Non-Monetary Default (unless during such 180 day
period the maturity of the Senior Debt is accelerated, or such indebtedness
otherwise comes due, and is not paid in full), but in any event only if this
Section 5 otherwise permits the payments or acquisition at the time of such
payment.
(e) In the event that, notwithstanding the foregoing, the
holder of any Debenture shall have received any payment or distribution of
assets or securities of the Company of any kind or character, whether in cash,
property or securities (other than as expressly permitted by this Section 5)
in contravention of the terms of the subordination contained herein before all
Senior Debt of the Company is paid in full, then and in such event, such
payment or distribution of assets or securities of the Company shall be held in
trust for and paid over or delivered to the holder of Senior Debt of the
Company, for application to the payment of all Senior Debt of the Company,
remaining unpaid to
<PAGE> 17
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the extent necessary to pay in full in cash the principal of and the premium
(if any) and interest and such other amounts on such Senior Debt of the
Company, in accordance with its terms, after giving effect to any concurrent
payment or distribution to holders of such Senior Debt of the Company.
(f) If any Event of Default occurs (under circumstances
when the provisions of Section 5(c) shall not be applicable) with respect to
the Company and as a result this Debenture is declared due and payable, and
such declaration has not been rescinded or annulled, all principal and premium,
if any, of all Senior Debt of the Company then due, or thereafter declared to
be due, pursuant to the terms of such Senior Debt at such time, and all
interest and such other amounts then due upon such Senior Debt shall first be
paid in full before any payment is made on account of principal or interest or
other amounts on any Debenture.
(g) Subject to the prior payment in full of all Senior Debt
of the Company, the Holder of this Debenture shall be subrogated to the rights
of the holders of such Senior Debt to receive payments or distributions of
assets or securities of the Company with respect to payments or distributions
to the holders of Senior Debt by or on behalf of the Company to which the
Holder of this Note would be entitled except for the provisions of this Section
5, applicable to Senior Debt until the principal of and interest on the
Debenture shall be paid in full; provided, however, that all payments of
principal and interest on this Debenture which were permitted under the
provisions of this Section 5 at the time made shall remain the property of the
Holder of this Debenture and shall not be subject to recapture by the holders
of the Senior Debt. For purposes of such subrogation, no such payments or
distributions to the holders of Senior Debt by or on behalf of the Company, to
which the Holder of this Debenture would be entitled, except for the provisions
of this Section 5, and no such payments or distributions pursuant to the
provisions of this Section 5 to or for the benefit of the holders of Senior
Debt of the Company, by the Holder of Debenture, shall, as between the Company,
its creditors other than the holders of their respective Senior Debt, as the
case may be, and the Holders of this Debenture, be
<PAGE> 18
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deemed to be a payment by the Company, to or on account of Senior Debt and no
such payments or distribution to the Holders of Debentures by virtue of the
subrogation herein provided for shall, as between the Company, its creditors
other than the Holders of their respective Senior Debt and the Holders of the
Debentures, be deemed to be a payment by the Company, on account of such Senior
Debt, it being understood that the provisions of this Section 5 are solely for
the purpose of defining the relative rights of the Holders of the Debentures,
on the one hand, and the holders of Senior Debt of the Company, on the other
hand. Nothing contained in this is intended to or shall impair, as between
the Company and the Holders of Debentures, the obligation of the Company, which
is unconditional and absolute, to pay to the Holders of the Debentures the
principal of and interest on the Debentures, as and when the same shall become
due and payable in accordance with their terms, or to affect (except to the
extent specifically provided above in this paragraph) the relative rights of
the Holders of the Debentures and creditors of the Company, other than the
Holders of Senior Debt of the Company, nor shall anything herein prevent the
Holder of any Debentures from exercising all remedies otherwise permitted by
applicable law upon default under this Debenture, subject to the rights, if
any, under this Section 5, of the Holders of Senior Debt of the Company, in
respect of assets or securities of the Company, of any kind or character,
whether cash, property or securities, received upon the exercise of any such
remedy.
(h) Upon any payment or distribution of assets or
securities of the Company referred to in this Section 5, the Holders of this
Debenture shall be entitled to rely upon any order or decree of a court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, and upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making any
such payment or distribution, delivered to the Holders of the Debentures for
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Debt and other indebtedness of the Company,
the amount thereof
<PAGE> 19
PAGE 103 OF 124 PAGES
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section 5.
(i) No right of any present or future holder of any Senior
Debt of the Company, to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company, or by any act or failure to act, in good faith, by any
Holder, or by any noncompliance by the Company, with the terms, provisions and
covenants of this Debenture regardless of any knowledge thereof any such Holder
may have or otherwise be charged with.
(j) The provisions of this Section 5 are intended to be for
the benefit of, and shall be enforceable directly by, the holders of Senior
Debt of the Company.
Section 6. Events of Default.
Section 6.1. Events of Default. If one or more of the
following events, herein called Events of Default, shall happen for any reason
whatsoever and whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court of any order, rule or regulation of
any administrative or governmental body) and be continuing:
(a) Default shall be made in the payment of the principal
of any Debenture, when and as the same shall become due and payable,whether at
maturity or at a date fixed for prepayment or by acceleration or otherwise; or
(b) Default shall be made in the payment of any installment
of interest on any Debenture according to its tenor when and as the same shall
become due and payable and such default shall continue for a period of 10 days;
or
(c) Default shall be made in the due observance or
performance of any covenant, condition or agreement on the part of the Company
contained in this Debenture; or
<PAGE> 20
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(d) The Company shall be adjudicated a bankrupt or
insolvent, or shall consent to the appointment of a receiver, trustee or
liquidator of itself or of any material part of its property, or shall admit in
writing its inability to pay its debts generally as they come due, or shall
make a general assignment for the benefit of creditors, or shall file a
voluntary petition or an answer seeking reorganization or arrangement in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed against the
Company in any such proceeding, or shall, by voluntary petition, answer or
consent, seek relief under the provisions of any other now existing or future
bankruptcy or other similar law providing for the reorganization or winding up
of corporations, or the Company or its directors or majority stockholders shall
take action looking to the dissolution or liquidation of the Company; or
(e) An order, judgment or decree shall be entered by any
court of competent jurisdiction appointing, without the consent of the Company,
a receiver, trustee or liquidator of the Company or of any material part of its
property, and such receiver, trustee or liquidator shall not have been removed
or discharged within 90 days thereafter, or any material part of the property
of the Company shall, in any judicial proceeding, be sequestered and shall not
be returned to the possession of the Company within 90 days thereafter; or
(f) A petition against the Company in a proceeding under
any bankruptcy law (as now or hereinafter in effect) shall be filed and shall
not be dismissed within 30 days after such filing, or, in case the approval of
such petition by a court of competent jurisdiction is required, shall be filed
and approved by such a court as properly filed and such approval shall not be
withdrawn or the proceeding dismissed within 30 days thereafter, or if, under
the provisions of any other similar law providing for reorganization or winding
up of corporations and which may apply to the Company, any court of competent
jurisdiction, custody or control of the Company or of any material part of its
<PAGE> 21
PAGE 105 OF 124 PAGES
property and such jurisdiction, custody or control shall not be relinquished or
terminated within 30 days thereafter; or
(g) The Company shall (x) be declared in default in the
payment of principal or interest on any evidence of indebtedness for money
borrowed (other than the Debentures) or other material obligations and such
default shall continue for more than the period of grace, if any, therein
specified, unless such default shall have been cured or waived prior to such
indebtedness becoming or being declared to be due and payable prior to its
stated maturity, or (y) default shall continue for more than the period of
grace, if any, therein specified, or (z) default in the performance or
observance of any other term, condition or agreement contained in any such
evidence of indebtedness for money borrowed or in any agreement relating
thereto if as a result of such default such evidence of indebtedness is
declared to be due and payable prior to its stated maturity; then, in any such
event, any registered Holder or Holders of the Debentures may declare the
Debenture or Debentures held by it or them to be due and payable, together with
accrued interest thereon, thirty (30) days after such declaration, unless,
prior do the expiration of such thirty (30) day period the registered Holders
of a majority of the then outstanding principal amount of the Debentures at
such time outstanding, together with the concurrence of each registered Holder
owning originally and at such time a principal amount of $150,000 or greater of
Debentures, shall waive, suspend, cancel or annul such declaration.
Section 6.2. Suits for Enforcement. In case any one or more of
the Events of Default specified in Section 6.1 shall happen and be continuing,
each Holder of a Debenture which may, pursuant to the provisions of Section
6.1, declare the Debenture or Debentures held by it to be immediately due and
payable, may proceed to protect and enforce its rights by suit in equity,
action at law and/or by other appropriate proceeding, whether for the specific
performance (to the extent permitted by law) of any covenant or agreement
contained in this Debenture, such Debenture or in aid of the exercise of any
<PAGE> 22
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power granted in this Debenture, such Debenture, or may proceed to enforce the
payment of such Debenture or to enforce any other legal or equitable right of
holder of such Debenture. If, pursuant to the provisions of Section 6.1 or of
this Section 6.2, the holder of any Debenture shall demand payment thereof or
take any action in respect of a default or an Event of Default, the Company
will forthwith give written notice, addressed as provided in Section 6.4, to
the other Holders of Debentures, specifying such action and the nature of the
default or Event of Default. Nothing contained in this Section 6.2 or in
Section 6.1 shall in any manner impair that absolute and unconditional right of
each holder of a Debenture to receive payment of the principal of and interest,
on such Debenture when the same shall become due and payable in accordance with
the terms thereof, and to institute suit for the enforcement of such payment.
Section 6.3. Remedies Cumulative. No remedy herein conferred
upon the Holder of any Debenture is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.
Section 6.4. Remedies Not Waived. No course of dealing between
the Company and any Holder of a Debenture shall operate as a waiver of any
right of such Holder hereunder or under such Debenture, and no delay on the
part of such Holder in exercising any right hereunder or thereunder shall so
operate.
Section 7. Waivers. Anything in this Debenture to the
contrary notwithstanding, upon the affirmative written consent of the
registered Holders of a majority of the then outstanding principal amount of
Debentures, plus the affirmative written consent of each registered Holder
owning originally and at such time a principal amount of $150,000 or greater of
Debentures, any provision, covenant, requirement, agreement or condition of the
Company under this Debenture may be waived
<PAGE> 23
PAGE 107 OF 124 PAGES
or amended at any time or from time to time and such waiver or amendment shall
be binding upon all Holders and all Debentures.
Section 8. Security. This Debenture is secured by that
certain Security Agreement dated as of March 1, 1996 made by the Company for
the benefit of the holders of the Debentures.
Section 9. Costs of Collection. In case of a default in the
payment of any principal of or interest on this Debenture, the Company will pay
to the Holder hereof such further amount as shall be sufficient to cover the
costs and expenses of collection, including (without limitation) reasonable
attorneys' fees.
Section 10. Legend. Each Debenture shall bear the following
legend:
The Securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or registered or
qualified under the "blue sky" laws of any State. The securities may not be
pledged, hypothecated, assigned, sold or transferred unless registered under
that Act and registered or qualified under the blue sky laws as may be
applicable or unless, in the opinion of counsel reasonably satisfactory to the
Company, exemptions from such laws are available.
Section 11. Covenants Bind Successors and Assigns. All the
covenants, stipulations, promises and agreements in this Debenture contained by
or on behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
Section 12. Governing Law. This Debenture shall be governed
by and construed in accordance with the laws of the State of New York.
Section 13. Notice. Any notice pursuant to this Debenture
shall be effected on the day delivered by hand and receipted, the second
business day after delivery to a recognized overnight courier service or seven
days after delivery to the United States Post Office, proper postage prepaid
sent registered or certified mail, return receipt requested, addressed as
follows:
<PAGE> 24
PAGE 108 OF 124 PAGES
If to the holder at the address shown on the register maintained
by the Company pursuant to Section 1.2 of this Debenture.
If to the Company:
61 Executive Boulevard
Farmingdale, New York 11735
Section 14. Waiver of Jury Trial. THE COMPANY HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR
RELATING TO THIS DEBENTURE AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED
BEFORE A JUDGE SITTING WITHOUT A JURY.
Section 15. Headings. The headings of the sections and
subsections of this Debenture are inserted for convenience only and do not
constitute a part of this Debenture.
<PAGE> 25
PAGE 109 OF 124 PAGES
IN WITNESS WHEREOF, VTX Electronics Corp. has caused this
Debenture to be signed in its corporate name by one of its officers thereunto
duly authorized and this Debenture to be dated as of the day and year first
above written.
VTX ELECTRONICS CORP.
By:
---------------------------------
<PAGE> 1
PAGE 110 OF 124 PAGES
EXHIBIT D
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF
AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
STOCK SUBSCRIPTION WARRANT
TO PURCHASE 2,500,000 SHARES OF COMMON STOCK OF
VTX ELECTRONICS CORP, A DELAWARE CORPORATION
(THE "COMPANY")
DATE OF INITIAL ISSUANCE: MARCH , 1996
THIS CERTIFIES THAT, for value received, Quota Fund N.V. or registered
assigns (hereinafter called the "Holder") is entitled to purchase from the
Company during the Term of this Warrant at the times provided for herein, the
number of shares of Common Stock, par value $.10 per share, of the Company (the
"Common Stock") as specified herein, at the Warrant Price (as hereinafter
defined), payable in the manner specified herein. The exercise of this Warrant
shall be subject to the provisions, limitations and restrictions herein
contained.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated
COMMON STOCK - shall mean and include the Company's authorized Common
Stock, par value $.10 per share, as constituted at the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
which has the right to participate in the distribution of earnings and assets
of the Company without limit to amount or percentage.
SECURITIES ACT - the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
TERM OF THIS WARRANT - shall mean the period beginning on December 1, 1998
and ending on December 1, 2005.
WARRANT PRICE - is defined in Section 2.1 hereof.
WARRANT RIGHTS - the rights of the Holder to purchase shares of Common
Stock upon exercise of this Warrant, which rights shall not relate to shares of
Common Stock already purchased pursuant to this Warrant.
<PAGE> 2
PAGE 111 OF 124 PAGES
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.
SECTION 2. EXERCISE OF WARRANT.
2.1. RIGHT TO EXERCISE. At any time and from time to time during the Term
of this Warrant, the Holder may exercise this Warrant, in whole or part(s) to
purchase the number of shares of Common Stock set forth on the cover page
hereof, subject to adjustment as provided in Section 5. The Warrant Price
shall be $.25 per share subject to adjustment as provided in Section 5 and may
be paid either in cash or by presentation for surrender, cancellation and
redemption of a principal and accrued interest amount of Secured Subordinated
Debenture of the Company equal to the aggregate Warrant Price.
2.3. PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant the
Holder shall deliver to the Company at its office referred to in Section 9
hereof at any time and from time to time during the Term of this Warrant: the
Notice of Exercise in the form attached hereto and the payment of the aggregate
Warrant Price with respect to the Warrants exercised. In the event of any
exercise of these rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in the
name of the Holder or such other name or names as may be designated by the
Holder, shall be delivered to the Holder hereof within a reasonable time, not
exceeding fifteen (15) days, after the rights represented by this Warrant shall
have been so exercised. The person in whose name any certificate for shares of
Common Stock is issued upon exercise of this Warrant shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Notice of Exercise was delivered and payment of the Warrant Price and any
applicable taxes was made, irrespective of the date of delivery of such
certificate, except that, if the date of such delivery and payment is a date
when the stock transfer books of the Company are closed, such person shall be
deemed to have become the holder of such shares at the close of business on the
next succeeding date on which the stock transfer books are open.
2.4. TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby) shall also bear such legend unless, in the
opinion of counsel for
<PAGE> 3
PAGE 112 OF 124 PAGES
the holder thereof (which counsel shall be reasonably satisfactory to counsel
for the Company) the securities represented thereby are not, at such time,
required by law to bear such legend.
SECTION 3. COVENANTS AS TO COMMON STOCK. The Company covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance and receipt by the
Company of the Warrant Price, be validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that it will pay when due and payable
any and all federal and state taxes which may be payable in respect of the
issue of this Warrant, or any Common Stock or certificates therefor issuable
upon the exercise of this Warrant. The Company further covenants and agrees
that the Company will at all times have authorized and reserved, free from
preemptive rights, a sufficient number of shares of Common Stock to provide for
the exercise of the rights represented by this Warrant, provided, however, that
of the time of issuance of this Warrant the Company does not have sufficient
authorized common stock for all outstanding securities or options convertible
into common stock. The Company covenants to seek approval for an increase in
authorized common stock for the shareholders of the Company at its next Annual
Meeting. The Company further covenants and agrees that if any shares of
capital stock to be reserved for the purpose of the issuance of shares upon the
exercise of this Warrant require registration with or approval of any
governmental authority under any federal or state law before such shares may be
validly issued or delivered upon exercise, then the Company will in good faith
and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be. If and so long as the Common Stock issuable upon
the exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of such Common
Stock issuable upon exercise of this Warrant.
SECTION 4. OWNERSHIP.
4.1 REGISTER; TRANSFER OR EXCHANGE OF WARRANTS. The Company shall keep at
its office maintained in Farmingdale, New York a register in which the Company
shall provide for the registration of Warrants and for the registration of
transfer of Warrants. The Holder of any Warrant may, at its option and either
in person or by duly authorized attorney, surrender the same for registration of
transfer or exchange at such office and, without expense to such Holder (other
than transfer taxes, if any), receive in exchange therefor a new Warrant or
Warrants, dated as of the date to which transfer is effectuated, for the same
aggregate amount of shares as the Warrant or Warrants so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Warrant so made and delivered in exchange for
any Warrant shall in all other respects be in the same form and have the same
terms as the Warrant so surrendered for transfer or exchange.
4.2. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary until presentation of this Warrant for registration of
transfer as provided in this Section 4.
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4.3. TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
subject to applicable federal and state securities laws, transferable in whole
or in part upon the books of the Company by the Holder hereof in person or by
duly authorized attorney, and a new Warrant or Warrants, of the same tenor as
this Warrant but registered in the name of the transferee or transferees shall
be made and delivered by the Company upon surrender of this Warrant duly
endorsed. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft or destruction, and, in such case, of indemnity or
security reasonably satisfactory to it, and upon surrender of this Warrant if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant; provided that if the Holder hereof is an instrumentality
of a state or local government or an institutional holder or a nominee for such
an instrumentality or institutional holder, an irrevocable agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section
4, and no evidence of loss or theft or destruction shall be necessary. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any transfer or replacement. Except as otherwise provided
above, in the case of the loss, theft or destruction of a Warrant, the Company
shall pay all expenses, taxes and other charges payable in connection with any
transfer or replacement of this Warrant, other than stock transfer taxes (if
any) payable in connection with a transfer of this Warrant, which shall be
payable by the Holder.
SECTION 5 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON
STOCK OR WARRANTS.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class) or distribute evidences of indebtedness or
assets, (ii) sub-divide its outstanding shares of Common Stock (iii) combine
its outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the conversion privilege and Warrant Price in effect
immediately prior to such action shall be adjusted so that the holders of any
Warrants thereafter surrendered for exercise shall be entitled to receive the
number of shares of capital stock of the Company which he or she would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subsection (a), the holder of any shares of this Warrant thereafter surrendered
for exercise shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors (whose reasonable
determination shall be made in good faith) shall determine the allocation of
the adjusted conversion price between or among shares of such classes of
capital stock.
In the event the Company shall at any time, issue or sell any
shares of Common Stock or rights, warrants or securities convertible into
Common Stock (any such sale or issuance, being herein called a "Change of
Shares"), then, and thereafter upon each further Change of Shares, the Warrant
Price in effect immediately prior to such Change of Shares shall be changed to
a price (including any applicable fraction of a cent) equal to the lowest of
(i) the per share consideration receivable by the Company on account of such
Change of Shares, (ii) the lowest then current exercise or conversion price on
any Warrants or convertible securities, or (iii) the Warrant Price determined
by multiplying the Warrant Price in effect immediately prior thereto by a
fraction, the numerator of which shall be
<PAGE> 5
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the sum of the number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares (assuming full exercise, conversion or
subscription of all rights, warrants or securities convertible into Common
Stock). In addition, the number of shares of common stock into which this
Warrant is convertible into shall be adjusted by multiplying the number of
shares this Warrant is convertible into by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares (assuming full
exercise, conversion or subscription of all rights, warrants or securities
convertible into Common Stock). Such adjustments (both price and number of
shares) shall be made successively whenever such and issuance is made.
In case the Corporation shall at any time issue or sell shares of capital
stock (other than Common Stock), or warrants, rights to subscribe or securities
convertible into capital stock (excluding those referred to above), then in
each such case the Warrant Price shall be adjusted so the same shall equal the
lowest of (i) the per share consideration receivable by the Company on account
of such issuance or sale, (ii) the lowest then current exercise or conversion
price on any Warrants or convertible securities, or (iii) the price determined
by multiplying the Warrant Price in effect immediately prior to the date of
such distribution by a fraction the numerator of which shall be the current
market price per share (determined pursuant to Section 5(g) below) of the
Common Stock on the record date mentioned below multiplied by the total number
of shares of Common Stock then outstanding, less than the fair market value (as
determined by the Board of Directors of the Company in good faith) of the
capital stock, subscription rights, assets or evidence of indebtedness so
distributed and the denominator shall be such current market price per share of
Common Stock multiplied by the total number of shares of Common Stock then
outstanding. In addition, the number of share of common stock into which this
Warrant is convertible into shall be adjusted by multiplying the number of
shares this Warrant is convertible into by fraction, the numerator of which
shall be current market price per share (determined pursuant to Section 5(g)
below) of the Common Stock on the record date mentioned below multiplied by the
total number of shares of Common Stock then outstanding and the denominator of
which shall be the current market price per share of Common Stock multiplied by
the total number of shares of Common Stock then outstanding, less the fair
market value (as determined by the Board of Directors of the Company in good
faith) of the capital stock, subscription rights, assets or evidence of
indebtedness so distributed. Such adjustments (both price and number of
shares) shall become effective retroactively immediately after the record date
for the determination of stockholders entitled to receive such distribution.
The provisions of this Section 5 shall not operate to increase the Warrant
Price or reduce the number of shares of Common Stock purchasable upon the
exercise of any Warrant.
(b) The Company may elect, upon any adjustment of the Warrant
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such
<PAGE> 6
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adjustment and the denominator of which shall be the Warrant Price in effect
immediately after such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger of the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Warrant. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) After each adjustment of the Warrant Price pursuant to this
Section 5, the Company will promptly prepare a certificate signed by the
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
any Assistant Secretary, of the Company setting forth: (i) the Warrant Price
as so adjusted, (ii) the number of shares of Common Stock purchasable upon
exercise of each Warrant after such adjustment, and, if the Company shall have
elected to adjust the number of Warrants, the number of Warrants to which the
registered holder of each Warrant shall then be entitled.
(e) For purposes of Section 5(a) and 5(b) hereof, the following
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 the
account of the Company and the sale or issuance of such treasury shares or
the distribution of any such treasury shares shall not be considered a
Change of Shares for purposes of said sections.
(B) No adjustment of the Warrant Price shall be made unless
such adjustment would require a decrease of a least $.0001 in such price;
provided that any adjustments which by reason of this clause (B) are not
required to be made at the time of and together with the next
<PAGE> 7
PAGE 116 OF 124 PAGES
subsequent adjustment which, together with any adjustment(s) so carried
forward, shall require an increase or decrease of at least $.0001 in the
Warrant Price then in effect hereunder.
(f) If and whenever the Company shall grant to all holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for carrying a right, warrant or option to purchase Common Stock,
the Company shall concurrently therewith grant to each Registered Holder as of
the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number or whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 5 (f), that
exercise of Warrants is permissible during periods prior to the Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of
the Warrants shall be in lieu of any adjustment which otherwise might be called
for pursuant to this Section 5.
(g) For the purpose of any computation under this Section 5 the
current market price per share of Common Stock on any date shall be deemed to
be the lower of (i) the closing price on the record date for determining the
holders of Warrants entitled to receive any adjustment or any computation or
(ii) average of the daily closing prices for 30 consecutive business days
commencing 45 business days before the day in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the American Stock Exchange or,
if the Common Stock is not listed or admitted to trading on such exchange, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if not listed or admitted to trading on any national
securities and exchange, the average of the closing bid and asked prices as
reported by the National Association of Securities Dealers Automated Quotation
System, or if not so reported, the average of the closing bid and asked prices
as furnished by any firm acting at that time as a market maker in the Common
Stock selected from time to time by the Company for this purpose.
SECTION 6. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors
of the Company shall declare any dividend or other distribution on its Common
Stock except out of earned surplus or by way of a stock dividend payable in
shares of its Common Stock, the Company shall mail notice thereof to the Holder
hereof not less than fifteen (15) days prior to the record date fixed for
determining shareholders entitled to participate in such dividend or other
distribution, and the Holder hereof shall not participate in such dividend or
other distribution unless this Warrant may be exercised, in whole or in part,
pursuant to Section 2.1 of this Warrant, and is exercised prior to such record
date. The provisions of this Section 6 shall not apply to distributions made
in connection with transactions covered by Section 5.
SECTION 7. FRACTIONAL SHARES. Fractional shares shall not be issued upon
the exercise of this Warrant but in any case where the Holder would, except for
the provisions of this Section 7, be entitled under the terms hereof to receive
a fractional share upon the exercise of this Warrant, the Company shall, upon
the exercise of this Warrant, pay a sum in cash equal to the excess of the
value of such fractional share (determined in such reasonable manner as may be
prescribed in good faith by the Board of Directors of the Company).
<PAGE> 8
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SECTION 8. REGISTRATION RIGHTS; ETC.
8.1. CERTAIN DEFINITIONS. As used in this Section 8, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean this Warrant or the Warrant Shares
issued or issuable upon exercise of this Warrant.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 8.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses".
"Holder" shall mean any holder of outstanding Warrant Shares or Registrable
Securities which (except for purposes of determining "Holders" under Section
8.6 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company who
are entitled by contract with the Company to have securities included in a
registration of the Company's securities.
8.2. COMPANY REGISTRATION; DEMAND REGISTRATION.
(a) NOTICE OF REGISTRATION. If the Company shall determine to register
any of its securities either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, other
than a registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales,
the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt
to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a
<PAGE> 9
PAGE 118 OF 124 PAGES
written request or requests, made by any Holder within fifteen (15) days
after receipt of the written notice from the Company described in clause
(i) above, except as set forth in Section 8.2(b) below.
(b) UNDERWRITING. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company
shall so advise the Holders as part of the written notice given pursuant to
Section 8.2(a)(i). In such event, the right of any Holder to registration
pursuant to Section 8.2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, directors and officers and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting
by the Company.
Notwithstanding any other provision of this Section 8.2, if the underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude from such registration and underwriting some of the
Registrable Securities which would otherwise be underwritten pursuant hereto
provided, however, that in no event shall the Registrable Securities
underwritten pursuant hereto constitute less than one-third of such offering.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration at the time of filing the registration statement.
If any Holder of Registrable Securities or any officer, director or Other
Shareholder disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(c) Notwithstanding anything to the contrary set forth above, each Holder
shall also have the unqualified and unconditional right at any time and from
time to time subsequent to December 1, 1997 to demand the registration of
Registrable Securities, in which case the Company shall proceed with such
registration as provided in this Section 8.
8.3 EXPENSES OF REGISTRATION. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Section 8.2 hereof. All Selling Expenses
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
8.4 REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Section 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. The Company will, at its expense:
<PAGE> 10
PAGE 119 OF 124 PAGES
(a) keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable Securities
under the securities laws or blue-sky laws of such jurisdictions as any Holder
may request; provided, however, that the Company shall not be obligated to
register or qualify such Registrable Securities in any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in order to effect such registration, qualification or compliance
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act or applicable rules or
regulations thereunder.
8.5 INDEMNIFICATION.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 8, will indemnify and hold
harmless each Holder, each of its officers, directors and partners, and each
party controlling such Holder, and each underwriter, if any, and each party who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
the Securities Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each party controlling such Holder, each such underwriter and each party who
controls any such underwriter, for any legal and any other expenses incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based solely upon
written information furnished to the Company by such Holder or underwriter, as
the case may be, and stated to be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities held
by such person are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers and each underwriter, if any, of
the Company's securities covered by such a registration statement, each party
who controls the Company or such underwriter, each other such Holder and Other
Shareholder and each of their respective officers, directors and partners, and
each party controlling such Holder or Other Shareholder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
<PAGE> 11
PAGE 120 OF 124 PAGES
statements therein not misleading, and will reimburse the Company and such
Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document solely in reliance upon and in conformity
with written information furnished to the Company by such Holder or Other
Shareholder and stated to be specifically for use therein; provided, however,
that the obligations of such Holders and Other Shareholders hereunder shall be
limited to an amount equal to the proceeds to each such Holder or Other
Shareholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense (unless the Indemnified
Party shall have been advised by counsel that actual or potential differing
interests or defenses exist or may exist between the Indemnifying Party and the
Indemnified Party, in which case such expense shall be paid by the Indemnifying
Party), and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 8. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
8.6 INFORMATION BY HOLDER. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
8.7 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities
Act and the Securities Exchange Act of 1934, as amended, at any time after it
has become subject to such reporting requirements; and
<PAGE> 12
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(c) So long as the Holder owns any Registrable Securities, furnish to the
Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement in connection with an offering of its Securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without
registration.
SECTION 9. NOTICES. Any notice or other document required or permitted to
be given or delivered to the Holder or the Company shall be effected on the
seventh day following delivery to the United States Post Office, proper postage
prepaid, sent by certified or registered mail return receipt requested, or on
the day delivered by hand and receipted, or on the second business day after
delivery to a recognized overnight courier service, addressed to the Holder at
the address thereof specified in the Capitalization Agreement or to such other
address as shall have been furnished to the Company in writing by the Holder or
the Company at 61 Executive Boulevard, Farmingdale, New York 11735 or to such
other address as shall have been furnished in writing to the Holder by the
Company.
SECTION 10. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 11. LAW GOVERNING. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York.
SECTION 12. MISCELLANEOUS. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for
purposes of reference only and shall not affect the meaning or construction of
any of the provisions hereof.
<PAGE> 13
PAGE 122 OF 124 PAGES
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this day of March 1996.
VTX ELECTRONICS CORP.
By:
---------------------------------
<PAGE> 14
PAGE 123 OF 124 PAGES
[FORM OF ELECTION TO EXERCISE]
TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO EXERCISE THE WARRANT
To :
------------
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase _______ shares of Common Stock issuable upon the exercise of such
Warrant and requests that Certificate for such shares be issued in the name of:
- -------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------
(Please insert social security or other identifying number)
- -------------------------------------------------------------------
(Please insert number of shares exercised)
- -------------------------------------------------------------------
Please insert Warrant Price Paid
- -------------------------------------------------------------------
(Please specify whether payment is in cash or Debentures)
If such number of Warrant shall not be all the Warrant evidenced by the
accompanying Warrant, a new Warrant for the balance remaining of such Warrant
shall be registered in the name of and delivered to:
- ------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------
(Please insert social security or other identifying number)
Dated: , .
---------------- ----
[HOLDER]
By
----------------------------------
<PAGE> 1
PAGE 124 OF 124 PAGES
EXHIBIT E
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, GEORGE SOROS, hereby make, constitute
and appoint SEAN C. WARREN as my agent and attorney in fact for the purpose of
executing in my name or in my personal capacity all documents, certificates,
instruments, statements, filings and agreements ("documents") to be filed with
or delivered to any foreign or domestic governmental or regulatory body or
required or requested by any other person or entity pursuant to any legal or
regulatory requirement relating to the acquisition, ownership, management or
disposition of securities or other investments, and any other documents
relating or ancillary thereto, including but not limited to, all documents
relating to filings with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934
(the "Act") and the rules and regulations promulgated thereunder, including:
(1) all documents relating to the beneficial ownership of securities required
to be filed with the SEC pursuant to Section 13(d) or Section 16(a) of the Act
including, without limitation: (a) any acquisition statements on Schedule 13D
or Schedule 13G and any amendments thereto, (b) any joint filing agreements
pursuant to Rule 13d-1(f) and (c) any initial statements of, or statements of
changes in, beneficial ownership of securities on Form 3, Form 4 or Form 5 and
(2) any information statements on Form 13F required to be filed with the SEC
pursuant to Section 13(f) of the Act.
All past acts of the attorney-in-fact in furtherance of the foregoing are
hereby ratified and confirmed.
This power of attorney shall be valid from the date hereof until revoked by me.
IN WITNESS WHEREOF, I have executed this instrument this 27th day of October,
1994.
/s/ George Soros
------------------------
GEORGE SOROS
