SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 1998
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
0-19263
(Commission File No.)
SUPREMA SPECIALTIES, INC.
(Exact name of registrant as specified in its charter)
New York 11-2662625
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 East 35th Street, Paterson, New Jersey 07543
(Address of principal executive offices including zip code)
(973) 684-2900
(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value;
Share Purchase Rights
(Title of Class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of August 14, 1998 was $12,902,463.
As of August 14, 1998, there were 4,562,800 shares of the registrant's
Common Stock outstanding.
Documents Incorporated by Reference:
Suprema Specialties, Inc.'s definitive Proxy Statement for the annual
meeting of shareholders to be held in November 1998 which will be filed on or
before October 12, 1998 is incorporated by reference into Part III of this Form
10-K Annual Report.
<PAGE>
PART I
Item 1. Business
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking information involves
important known and unknown risks and uncertainties that could significantly
affect actual results, performance or achievements of the Company in the future
and, accordingly, such actual results, performance or achievements may
materially differ from those expressed or implied in any forward-looking
statements made by or on behalf of the Company. These risks and uncertainties
include, but are not limited to, those relating to the Company's growth
strategy, customer concentration, outstanding indebtedness, seasonality,
expansion and other activities of competitors, changes in federal or state laws
and the administration of such laws, protection of trademarks and other
proprietary rights, and the general condition of the economy and its effect on
the securities markets and other risks detailed in the Company's other filings
with the Securities and Exchange Commission. The words "believe," "expect,"
"anticipate," "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date the statement
was made.
General
Suprema Specialties, Inc. and its wholly owned subsidiaries (hereinafter
referred to collectively as the "Company") manufactures, processes and markets a
variety of premium, gourmet natural cheese products, using fine quality imported
and domestic cheeses.
The Company manufacturers bulk cheeses at its facilities in Manteca,
California and Ogdensburg, New York and purchases bulk cheeses from foreign
sources (primarily from Europe and to a lesser extent, South America) and
domestic sources. Bulk cheese is repackaged and sold to food service
distributors and food manufacturers under the Suprema Di Avellino(R) name or on
a private label basis or is grated or shredded and packaged by the Company and
sold to retail customers under the Suprema Di Avellino(R) name. The Company
packages its products for retail sale in convenient, easy to use, tamper
evident, resealable, clear plastic cups, bags and shakers.
The Company commenced operations in 1983 and currently markets and
distributes its products nationally.
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<PAGE>
Products
The Company's product line, which it principally markets under the Suprema
Di Avellino(R) brand name, currently consists primarily of grated and shredded
imported and domestic parmesan and romano cheeses, imported pecorino (sheep's
milk) romano cheese (including "lite" versions of these products containing less
fat and fewer calories), bulk mozzarella, ricotta and provolone cheese products.
Its cheese products are natural, containing no preservatives, additives,
sweeteners, dehydrated fillers or artificial flavorings. These cheese products
are often used as cooking ingredients and as flavor enhancements and complements
to other foods, such as pastas, meat sauces, soups and salads.
The Company sells its cheese products to food service industry
distributors, which distribute cheese products to restaurants, hotels and
caterers; food manufacturers; and supermarkets and other retail customers,
including grocery stores, delicatessens and gourmet shops. The Company's
supermarket customers include several regional chain stores, such as King
Kullen, Shop-Rite, BJ's, Food Town, Stop'N Shop, D'Agostino's and Giant. For the
years ended June 30, 1997 and June 30, 1998, sales of bulk cheese products to
food service industry distributors and food manufacturers under the Suprema Di
Avellino(R) name or on a private label basis accounted for 54% and 41%,
respectively, of the Company's revenues in each period.
For retail sales, the Company packages a significant portion of its
products in resealable tamper-evident transparent plastic cups and eight ounce
shakers, permitting consumers to reseal the package which the Company believes
maximizes freshness and enhances visual appeal.
The Company also sells certain of its products in shrink-wrapped plastic
packaging and in plastic pillow packs. These packs range in size from one to ten
pounds or can be packaged in customized sizes for food service distributors and
food manufacturers.
Production
The Company has increasingly emphasized the marketing and sale of domestic
Italian variety cheese products manufactured at its Manteca, California facility
and, it's Ogdensburg New York facility. For the years ended June 30, 1997 and
June 30, 1998, respectively, sales of mozzarella, ricotta and provolone cheese
products manufactured at such facilities accounted for approximately 54.7% and
71.8%, respectively, of the Company's revenues. The Company also processes
natural cheese products, which involves shredding, grating and packaging, at its
facility in Paterson, New Jersey. These facilities serve as distribution
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points for various geographic markets throughout the United States.
The Company's East Coast production facility is located in Paterson, New
Jersey and is equipped with state of the art equipment for grating, shredding
and packaging the Company's products. The Company currently operates this
facility at approximately 63% of full productive capacity.
The Company employs a Director of Operations at each facility. The
Company's Directors of Operations make preproduction inspections of each
product, and monitor critical manufacturing and processing functions. Random
samples of each product are regularly sent to outside laboratories, which
perform routine physical, chemical and micro-biological tests of products.
Customers
The Company sells its cheese products directly and through distributors to
supermarkets and other retail customers, including grocery stores, delicatessens
and gourmet shops; food service industry distributors, which distribute the
products to, among others, restaurants, hotels and caterers; and food
manufacturers. The Company's products sold to food service industry distributors
and food manufacturers are sold principally in bulk. The Company's supermarket
customers include several regional chain stores, such as King Kullen, Shop-Rite,
BJ's, Foodtown, Stop'N Shop, D'Agostino's, Super Valu, and Giant.
For the fiscal years ended June 30, 1997 and June 30, 1998, sales of cheese
products to retailers accounted for approximately 10% and 6%, respectively, of
the Company's revenues; sales to food service companies accounted for
approximately 83% and 88%, respectively, of the Company's revenues; and sales to
food manufacturers accounted for approximately 7% and 6% respectively, of the
Company's revenues.
For the fiscal year ended June 30, 1998, A&J Cheese Company accounted for
18% of the Company's revenues, and for the fiscal year ended June 30, 1997, A&J
Cheese Company and Lisanti Foods of New Jersey accounted for 14% and 10% of the
Company's revenues respectively.
Marketing, Sales and Advertising
The Company currently employs regional sales representatives to market its
products to retail customers primarily in New York, New England and California,
and one national representative who is responsible for sales of the Company's
products to the food service industry. In addition, the Company engages
independent food brokers throughout the United States for
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<PAGE>
marketing to both retail and food service customers. Food brokers, who are paid
on a commission basis, and salaried sales representatives, are generally
responsible in their respective geographic markets for identifying customers,
soliciting customer orders and inspecting merchandise on supermarket shelves. To
achieve greater market penetration, the Company will continue to strengthen and
expand its sales force and food broker network. The Company also employs a Vice
President-Sales, who is responsible for managing and coordinating the entire
sales program. This includes making sales presentations to food brokers and
working with regional sales representatives and food brokers in the marketing
and selling of products to, and the maintenance of relationships with, retail
customers.
The Company believes that product recognition by customers, consumers and
food brokers is an important factor in the marketing of the Company's products.
Accordingly, the Company promotes its products and brand name through the use of
promotional materials, including full color product brochures, circulars, free
standing product displays and newspaper inserts. The Company also employs a Vice
President of Market Development in an effort to increase product recognition in
various geographic markets.
The Company generally sells its cheese products pursuant to customer
purchase orders and fills orders within approximately seven days of receipt.
Because orders are filled shortly after receipt, backlog is not material to the
Company's business. Substantially all of the Company's products are delivered to
customers by independent trucking companies.
Suppliers
For the fiscal years ended June 30, 1997 and June 30, 1998, the Company's
largest supplier, a milk cooperative, accounted for approximately 31% and 25%,
respectively, of all purchases. The Company does not usually maintain contracts
with its suppliers. The Company believes that there are numerous alternative
sources of supply available to it, including for products currently provided by
its largest supplier.
For the years ended June 30, 1997 and June 30, 1998, approximately 7% and
5%, respectively, of the Company's supply requirements were manufactured by
foreign producers in Europe and South America. Currently, the Company imports
certain of its bulk cheese directly from foreign suppliers and, to a lesser
extent, also purchases through domestic importers. The Company purchases cheese
supplies in large quantities in order to obtain volume discounts and places its
orders for import bulk cheese approximately four to six months in advance of
anticipated production requirements.
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<PAGE>
The Company is subject to various risks inherent in dependence on foreign
sources of supply, including economic or political instability, shipping delays,
fluctuations in foreign currency exchange rates, custom duties and import quotas
and other trade restrictions, all of which could have a significant impact on
the Company's ability to obtain supplies and deliver finished products on a
timely and competitive basis. Cheese imported from Argentina is currently
subject to United States import quotas and custom duties. There are currently no
quotas or custom duties imposed on pecorino romano cheese imported into the
United States from Italy, although there are quotas and duties imposed on
parmesan cheese imported from Italy.
The Company also purchases certain of its cheese requirements from domestic
sources. The Company manufactures certain of its cheese requirements primarily
for sale to the food service industry. For the fiscal years ended June 30, 1997
and June 30, 1998, approximately 93% and 95%, respectively, of the Company's
supply requirements were manufactured by the Company or purchased from domestic
sources.
Trademarks
In September, 1992, the Company registered the name "Suprema Di
Avellino(R)" with the United States Patent and Trademark Office.
Government Regulation
The Company is subject to extensive regulation by the United States Food
and Drug Administration (the "FDA"), the United States Department of
Agriculture, and by other state and local authorities in jurisdictions in which
the Company's products are manufactured, processed or sold, regarding the
importation, manufacturing, processing, packaging, storage, distribution and
labeling of the Company's products. Applicable statutes and regulations
governing cheese products include "standards of identity" for the content of
specific types of cheese; nutritional labeling and serving size requirements;
and general "Good Manufacturing Practices" with respect to production processes.
The Company's manufacturing and processing facilities are subject to compliance
with federal and state regulations regarding work safety and environmental
matters. The Company's manufacturing and processing facilities and products are
subject to periodic inspection by federal, state and local authorities. The
Company believes that it is currently in substantial compliance with all
material governmental laws and regulations and maintains all material permits
and licenses relating to its operations.
Advertising relating to the Company's products is subject to review of the
Federal Trade Commission and state
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<PAGE>
agencies to monitor and prevent unfair or deceptive trade practices.
Competition
The Company faces significant competition in the marketing and sales of its
products. The Company's wholesale products compete with other products on the
basis of price, quality and service. The Company's retail products compete for
consumer recognition and shelf space with cheese products which have achieved
significant national, regional and local brand name recognition and consumer
loyalty including such product brands as Kraft, Sorrento, Sargento and Polly-O.
The Company also competes with other importers of foreign cheese and companies
manufacturing substitute cheese products. These products are marketed by
companies with significantly greater financial, manufacturing, marketing,
distribution, personnel and other resources than the Company, thereby permitting
such companies to procure supermarket shelf space and to implement extensive
advertising and promotional programs, both generally and in response to efforts
by additional competitors to enter into new markets. The food industry is also
characterized by the frequent introduction of new products, accompanied by
substantial promotional campaigns. The Company's products are positioned as
premium, gourmet products and, accordingly, are generally higher in price than
certain similar competitive products. The Company believes the principal
competitive factors in the marketing of cheese products are quality, freshness,
price, product recognition, packaging convenience and ease of use.
As is the case with other companies marketing cheese products, the Company
is subject to evolving consumer preferences and nutritional and health-related
concerns. The Company believes that the absence of preservatives, additives,
sweeteners, dehydrated fillers or artificial flavorings increases the
attractiveness of its products to consumers. In addition, the Company has
introduced certain "lite" cheese products containing less fat and fewer
calories. The Company will continue to endeavor to respond to certain consumer
concerns about dairy products, such as the cholesterol, calories, sodium,
lactose and fat content of such products. The Company expects to see increased
competition from other companies whose products or marketing strategies address
these consumer concerns.
Employees
As of August 14, 1998, the Company had 140 full-time employees of which 9
are employed in executive capacities and management positions, 21 are engaged in
sales and marketing and administrative capacities and 110 are engaged in
production and operations. In June, 1997, the employees of Suprema Specialties
West, Inc. which represent approximately 50% of the total
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workforce, elected to form a Union. In December 1997, the Company formalized a
contract with its employees which remains in effect through December 31, 1999.
The Company considers its relations with its employees to be good.
Item 2. Properties
The Company operates three facilities: manufacturing facilities in Manteca,
California and Ogdensburg, New York and its executive offices and production
facility in Paterson, New Jersey. The Company's facility in Paterson, New
Jersey, consists of an aggregate of approximately 32,000 square feet and
contains the Company's executive offices as well as production, storage and
shipping facilities has been expanded to include a refrigerated/freezer storage
facility. On March 29, 1996, the Company purchased its Paterson production
facility which it previously had leased. The purchase was financed through a
mortgage on the property. Proceeds of the loan were $1,050,000 of which
approximately $686,250 was used to pay the remaining obligation to the landlord.
The five year note bears interest of 8.51% per annum, is being amortized at a
fifteen year rate and requires a balloon payment at the end of year five of
approximately $840,000.
The Company's facility in Manteca, California, which consists of an
aggregate of approximately 75,000 square feet and contains a cheese
manufacturing operation, as well as storage and shipping facilities, is occupied
under a net lease which expires on August 31, 2005, and which may be extended at
the option of the Company for two (2) additional five-year periods subject to
further extension as set forth below. The basic annual rental (exclusive of
insurance and taxes) is $576,000, subject to adjustment for increases in the
Consumer Price Index during the renewal term. The rent is based on a formula
relating to the Landlord's cost of construction of the additional space.
The Company's facility in Ogdensburg, New York, which consists of an
aggregate of approximately 72,000 square feet and contains a cheese
manufacturing operation, as well as storage and shipping facilities, is occupied
under an operating lease which commenced in August 1996 and expires July 31,
2017. However, at each five year anniversary of the commencement of the lease;
July 31, 2002, July 31, 2007, and July 31, 2012 the Company may elect to
terminate the lease. Minimum monthly base rental is $4,000 plus a fee of $.06
per hundred weight of whole milk sold and delivered, provided that in no event
shall the minimum monthly rent exceed $8,000.
The Company leases, generally with options to purchase, substantially all
of the equipment at these manufacturing and processing facilities, subject to
lease agreements currently
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providing for annual aggregate payments of approximately $2,285,000.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended June 30, 1998.
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock has been traded in the over-the-counter market
and quoted on the NASDAQ System under the symbol "CHEZ" since April 25, 1991. On
March 22, 1993, the Company's stock commenced trading on the NASDAQ National
Market System. The following table sets forth the high and low closing bid
prices of the Company's Common Stock for the periods indicated below. The
following quotes represent inter-dealer quotations without adjustment for retail
markups, markdowns or commissions and may not necessarily represent the prices
of actual transactions.
Common Stock
------------
High Low
---- ---
Fiscal Year ending June 30, 1997
First Quarter 6 1/2 5 1/8
Second Quarter 5 7/8 4 3/8
Third Quarter 5 3/8 3 9/16
Fourth Quarter 4 1/2 3
Fiscal Year ending June 30, 1998
First Quarter 4 1/4 3 1/4
Second Quarter 3 7/8 2 25/32
Third Quarter 4 15/16 3 1/4
Fourth Quarter 4 7/16 3 3/8
The closing price of the Common Stock on August 14, 1998 was 3 1/2.
As of August 14, 1998, the number of record holders of the Company's Common
Stock was 92. The Company believes that this number does not include an
estimated 1,000 beneficial owners of the Company's Common Stock who currently
hold such securities in the name of depository institutions.
In August 1994, the Company completed a private placement of 500,000 shares
of Series A Convertible Preferred Stock at a purchase price of $3.00 per share
with gross proceeds of $1,500,000 and net cash proceeds of approximately
$1,300,000. Each share of Preferred Stock was convertible into one share of
Common Stock. The Preferred Stock bore a cumulative 10% dividend, payable
quarterly. During fiscal year 1996, the Company paid $146,250 of dividends on
the preferred stock. In
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June 1996 all of the shares of Preferred Stock were converted into Common Stock.
In June 1996, the Company completed a public offering for 1,500,000 shares
of its common stock of which 1,000,000 shares were issued by the Company and
500,000 shares were offered by selling shareholders upon conversion of 500,000
shares of the Company's convertible preferred stock (see above), at a purchase
price of $5.50 per share. Gross proceeds payable to the Company from the
offering was approximately $5,500,000 and net proceeds to the Company was
approximately $4,481,350. The Company received no proceeds from the shares sold
by selling shareholders. In association with the Company's public offering, the
Company granted to the underwriter an option to purchase an aggregate of 225,000
shares of the Company's common stock at the price of $5.50 per share to cover
over-allotments. In July, 1996, the underwriter exercised its option. Gross
proceeds payable to the Company from the issuance was approximately $1,237,500
and net proceeds to the Company was approximately $1,021,791.
The Company has neither paid nor declared any cash dividends on its shares
of Common Stock. The Board of Directors of the Company does not presently
anticipate that cash dividends will be paid on its shares of Common Stock in the
foreseeable future. In addition, the Company's agreement with its bank prohibits
the payment of cash dividends. The Company anticipates that any funds derived
from operations in the foreseeable future will be required to be devoted to the
development of the Company's business.
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Selected Financial Data
The following selected consolidated financial information is derived from,
and should be read in connection with, the consolidated financial statements of
the Company contained elsewhere herein.
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
Earnings Statement
Data:
<S> <C> <C> <C> <C> <C>
Net Sales $ 108,140 $ 88,311 $ 65,104 $ 52,109 $ 31,996
Earnings before
cumulative
effect of
accounting
change and
extraordinary
loss on
extinguishment
of debt 2,417 121 1,409 912 504
Net Earnings 1,406 121 1,409 912 429
Earnings Per
Share before
cumulative
effect of
accounting
change and
extraordinary
loss on
extinguishment
of debt (Basic) .53 .03 .46 .32 .23
Earnings Per Share before
cumulative
effect of
accounting
change and
extraordinary
loss on
extinguishment
of debt
(Diluted) .51 .02 .40 .32 .23
Net earnings per
share (Basic) .31 .03 .46 .32 .20
Net earnings per
share (Diluted) .30 .02 .40 .32 .20
</TABLE>
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<TABLE>
<CAPTION>
Weighed Average
Common Shares
Outstanding
(Basic)(1) 4,563 4,552 2,768 2,352 2,171
Weighed Average
Common Shares
Outstanding
(Diluted)(2) 4,745 5,040 3,195 2,369 2,191
<CAPTION>
June 30,
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
Balance Sheet
Data:
<S> <C> <C> <C> <C> <C>
Total Assets $61,846 $47,043 $41,663 $27,212 $16,746
Working Capital 43,391 32,546 19,374 11,209 8,384
Long Term
Obligations
(including
capital lease
obligations
and current portion 35,493 23,772 18,482 13,310 7,099
Total
Liabilities 45,151 31,754 27,577 19,811 11,600
Warrants -- 1,171 1,171 -- --
Stockholders'
Equity 16,695 15,289 14,086 7,401 5,146
</TABLE>
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(1) See Footnote 11 to Notes to Consolidated Financial Statements.
(2) See Footnote 11 to Notes to Consolidated Financial Statements.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of revenues represented by certain items reflected in the Company's Statements
of Earnings.
<TABLE>
<CAPTION>
Percentage of Revenues
Year Year Year
Ended Ended Ended
June 30, June 30, June 30,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net Sales ...................................................... 100.0% 100.0% 100.0%
Cost of sales .................................................. 82.7 83.0 78.9
-------- -------- --------
Gross margin ................................................... 17.3 17.0 21.1
Selling and shipping
expenses ....................................................... 7.4 10.4 12.5
General and administrative
expenses ....................................................... 3.4 2.5 2.8
Interest expense ............................................... 2.7 2.5 2.8
Other (Income)/Expense ......................................... -- 1.4 (.5)
-------- -------- --------
Earnings before income taxes
and extraordinary item ......................................... 3.8 .2 3.7
Income taxes ................................................... 1.6 .1 1.5
-------- -------- --------
Earnings before extraordinary
item ........................................................... 2.2 .1 2.2
Extraordinary loss on
extinguishment of debt .........................................
(0.9) -- --
Net Income 1.3 .1 2.2
======== ======== ========
</TABLE>
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Fiscal Year Ended June 30, 1998 Compared to Year Ended June 30, 1997.
Revenues for the fiscal year ended June 30, 1998 were approximately
$108,140,000, as compared to approximately $88,311,000 for the fiscal year ended
June 30, 1997, an increase of approximately $19,829,000, or 22.5%. This increase
reflects higher sales volume for food service products manufactured by the
Company.
The Company's gross margin increased by approximately $3,697,000, from
approximately $15,048,000 for the year ended June 30, 1997 to approximately
$18,745,000 for the year ended June 30, 1998, primarily as a result of the
increased sales volume. The Company's gross margin as a percentage of sales
increased from 17.0% in the year ended June 30, 1997 to 17.3% in the year ended
June 30, 1998. The increase in gross margin as a percentage of net sales was due
primarily to lower costs of raw materials during fiscal year ended June 30,
1998, partially offset by higher costs associated with the Ogdensburg New York
manufacturing facility and the shift toward lower margin sales associated with
the food service and food ingredient markets.
Selling and shipping expenses decreased by approximately $1,151,000 from
approximately $9,176,000 during the fiscal year ended June 30, 1997 to
approximately $8,025,000 during the fiscal year ended June 30, 1998. As a
percentage of sales, selling and shipping expenses decreased from 10.4% for the
fiscal year ended June 30, 1997 to 7.4% for the fiscal year ended June 30, 1998.
The decrease in selling and shipping expenses was primarily due to the unusual
charge associated with the write-off of the marketing service agreements in
fiscal 1997, (see note 5 to the financial statements) of approximately $944,000
as such amounts no longer had continuing value as a result of declining
relevance of these product lines, as well as a decrease in freight expenses due
to the Ogdensburg facility coming on line.
General and administrative ("G&A") expenses increased from approximately
$2,181,000 in fiscal 1997 to approximately $3,636,000 in fiscal 1998. As a
percentage of sales, G&A expenses increased from 2.5% in fiscal 1997 to 3.4% in
fiscal 1998. The increase in general and administrative expenses is primarily
due to an increase in personnel and other administrative expenses in association
with the Company's sales growth.
Net interest expense increased to approximately $2,917,000 for the year
ended June 30, 1998 from approximately $2,231,000 for the year ended June 30,
1997. The increase was primarily the result of the Company's expanded borrowing
requirements necessary to finance working capital needs partially offset by a
decrease in capital lease interest expense due to the sale leaseback transaction
completed during the fourth quarter of fiscal 1997.
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<PAGE>
Other income changed from a loss of approximately $1,259,000 in fiscal year
1997 to $0 in fiscal year 1998. The loss in fiscal year 1997 was attributable to
the sale of the Company's assets in association with the sale leaseback
transaction the Company completed during the fourth quarter of fiscal 1997 (see
note 4 to the financial statements).
The provision for income taxes for the year ended June 30, 1998 increased
by approximately $1,670,000 compared to fiscal year 1997 primarily as a result
of increased taxable income and an increase in the effective tax rate from 40
percent to 42 percent.
The Company took an extraordinary charge on the extinguishment of the
Subordinated Debt Notes net of tax of approximately $1,011,000 during the
quarter ended December 31, 1997 (See Note 7). The charge was the result of
prepayment penalties related to the early extinguishment of the subordinated
debt and associated fees.
Net earnings applicable to common stock before the extraordinary charge on
the extinguishment of the subordinated debt increased by approximately
$2,296,000 to approximately $2,417,000 in fiscal year 1998 from approximately
$121,000 in fiscal year 1997 due to the reasons discussed above.
Net earnings applicable to common stock increased by approximately
$1,285,000 to approximately $1,406,000 in fiscal year 1998 from approximately
$121,000 in fiscal year 1997 due to the reasons discussed above.
Fiscal Year Ended June 30, 1997 Compared to Year Ended June 30, 1996.
Revenues for the fiscal year ended June 30, 1997 were approximately
$88,311,000, as compared to approximately $65,104,000 for the fiscal year ended
June 30, 1996, an increase of approximately $23,207,000, or 35.6%. This increase
reflects higher sales volume for food service products manufactured by the
Company.
The Company's gross margin increased by approximately $1,303,000, from
approximately $13,745,000 for the year ended June 30, 1996 to approximately
$15,048,000 for the year ended June 30, 1997, primarily as a result of the
increased sales volume. The Company's gross margin as a percentage of sales
decreased from 21.1% in the year ended June 30, 1996 to 17.0% in the year ended
June 30, 1997. The decrease in gross margin as a percentage of net sales was due
primarily to higher costs of raw materials during fiscal year ended June 30,
1997, costs associated with the Ogdensburg New York manufacturing facility and
the shift toward lower margin sales associated with the food service and food
ingredient markets.
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Selling and shipping expenses increased by approximately $1,051,000 from
approximately $8,125,000 during the fiscal year ended June 30, 1996 to
approximately $9,176,000 during the fiscal year ended June 30, 1997. The
increase in selling and shipping expenses was primarily due to the unusual
charge associated with the write-off of the marketing service agreements (see
note 5 to the financial statements) of approximately $944,000 as such amounts no
longer need continuing value as a result of declining relevance of these product
lines, partially offset by a decrease in freight expenses due to the Ogdensburg
facility coming on line. As a percentage of sales, selling and shipping expenses
decreased from 12.5% for the fiscal year ended June 30, 1996 to 10.4% for the
fiscal year ended June 30, 1997. This decrease is primarily due to the Company's
increased revenue growth along with a decrease in the Company's freight
expenses, partially offset by the unusual charge associated with the write-off
of the marketing service agreements.
General and administrative ("G&A") expenses increased from approximately
$1,807,000 in fiscal 1996 to approximately $2,181,000 in fiscal 1997, or
$374,000. The increase in general and administrative expenses is primarily due
to an increase in personnel. As a percentage of sales, G&A expenses decreased
from 2.8% in fiscal 1996 to 2.5% in fiscal 1997. This decrease is primarily due
to the Company's increased revenue growth during the fiscal year ended June 30,
1997.
Net interest expense increased to approximately $2,232,000 for the year
ended June 30, 1997 from approximately $1,812,000 for the year ended June 30,
1996. The increase was the result of the Company's expanded borrowing and lease
financing requirements necessary to finance working capital needs and capital
expansion for the Manteca California and the Ogdensburg New York manufacturing
facilities.
Other income decreased from approximately $412,000 in fiscal year 1996 to a
loss of approximately $1,259,000 in fiscal year 1997, primarily as a result of
other income associated with the payment in full of the note pertaining to the
licensing agreement during fiscal year 1996 as compared to the loss on the sale
of the Company's assets in association with the sale leaseback transaction the
Company completed during the fourth quarter of fiscal 1997 (see note 4 to the
financial statements) of approximately $1,259,000.
The provision for income taxes for the year ended June 30, 1997 decreased
by approximately $923,000 compared to fiscal year 1996 as a result of the above.
Net earnings applicable to common stock decreased to approximately $121,000
in fiscal year 1997 from approximately $1,409,000 in fiscal year 1996 due to the
reasons discussed above.
-16-
<PAGE>
Liquidity and Capital Resources
At June 30, 1998, the Company had working capital of approximately
$43,391,000 as compared to approximately $32,546,000 in June 1997, an increase
of approximately $10,845,000. The increase in working capital is the result of
the Company's net income as well as increased borrowings of $8,105,000. The cash
was invested in the increased accounts receivable and inventory levels in
support of the Company's increased sales volume.
The Company has a bank revolving credit facility that, in September 1998,
was amended and increased the bank's potential commitment to $26,000,000. The
rate of interest on amounts borrowed under the revolving credit facility is
LIBOR plus 200 basis points. The revolving credit loan agreement expires on
November 2, 1999. Advances under this facility are initially limited to 80% of
eligible accounts receivable, and 40% of inventory except packaging material, as
defined in the agreement. The agreement contains restrictive covenants,
including the maintenance of total debt to tangible net worth and debt service
coverage ratios, minimum levels of tangible net worth, and capital expenditure
limitations. As of June 30, 1998, the Company is in compliance with these
covenants. At June 30, 1998, the Company had $21,262,000 outstanding under the
long-term revolving credit facility with approximately $3,738,000 remaining as
available to borrow under the facility.
In October 1997, the Company entered into an agreement with Fleet Bank,
N.A. pursuant to which the bank provided bridge financing of $10 million to the
Company. Approximately $6.7 million of the proceeds from the loan was used to
retire $5.0 million of subordinated debt with CoreStates Enterprise Fund and
repurchase from CoreStates warrants to purchase 354,990 shares of Suprema's
common stock. The balance of the proceeds was used for general working capital
purposes. As a result of prepayment penalties related to the early
extinguishment of the CoreStates debt and associated fees, Suprema took an
extraordinary charge of $1.7 million (approximately $1.0 million net of tax)
during the second quarter ended December 31, 1997. In March 1998, the Company
entered into a Loan and Security Agreement with Albion Alliance Mezzanine Fund,
L.P. and an affiliate (the "Fund") (see note 7) pursuant to which the Fund
loaned $10.5 million to the Company. Proceeds of the loan were used to retire
the bridge financing agreement with Fleet bank, N.A. entered into in October
1997.
In May, 1997 the Company entered into an agreement with Fleet Capital
Leasing Corporation under which the Company sold to Fleet Capital its interests
in certain production and operating equipment for $9,565,000. Under the
agreement, the Company will lease back the equipment for a period of eight years
under an operating lease. The Company extinguished the existing capital lease
obligations and fees pertaining to the equipment
-17-
<PAGE>
and, as a result, realized net proceeds to the Company of approximately
$3,711,000.
Prior to May 1997, the Company typically financed equipment purchases
through capital lease financing transactions. At June 30, 1998, the Company had
obligations of approximately $2,767,054 under capital leases, including $330,000
under capital leases entered into in fiscal year 1998. The additional capital
lease obligations entered into in fiscal year 1998 is in connection with the
expansion of the Company's Manteca California facility.
In June 1996, the Company completed a public offering for 1,500,000 shares
of its $.01 par value common stock of which 1,000,000 shares were issued by the
Company and 500,000 shares were offered by selling shareholders upon conversion
of 500,000 shares of the Company's convertible preferred stock, at a purchase
price of $5.50 per share. Gross proceeds payable to the Company from the
offering were approximately $5,500,000 and net proceeds to the Company were
approximately $4,481,000. The Company received no proceeds from the shares sold
by the selling shareholders. In association with the Company's secondary public
offering, the Company granted to the underwriter an option to purchase an
aggregate of 225,000 shares of the Company's common stock at the price of $5.50
per share to cover over-allotments. In July 1996, the underwriter exercised its
option to purchase 225,000 shares of the Company's common stock at the price of
$5.50 per share to cover over-allotments. Gross proceeds from the issuance was
approximately $1,237,500 and net proceeds to the Company was approximately
$1,024,000.
In March, 1996, the Company purchased its Paterson production facility
which it previously had leased, financed by a mortgage from Fleet Bank, N.A.
Proceeds of the loan amounted to $1,050,000, of which $686,000 was used to pay
the Company's remaining obligation to the landlord. The balance of the proceeds
was used to complete the expansion of the Paterson facility to include a
freezer/cooler refrigerated storage facility. The five year note which bears
interest at 8.51% per annum is being amortized at a fifteen year rate with a
balloon payment of approximately $840,000 due on March 29, 2001. At June 30,
1998, the Company had an obligation of approximately $964,000 under the
mortgage.
Management believes that the Company has adequate working capital to meet
its reasonably foreseeable cash requirements.
Net cash used by operating activities for the year ended June 30, 1998 was
approximately $7,056,000, as compared with approximately $8,148,000 in the prior
year. The use of cash in operations was primarily the result of increases in
inventory, and accounts receivable in support of the Company's increased sales
volume, partially offset by net earnings as adjusted for
-18-
<PAGE>
non-cash expenses, and increases in accounts payable, income taxes payable,
other accrued expenses and other current liabilities. The cash used in
operations was financed through cash flow and from financing activities. Net
cash used in investing activities for the year ended June 30, 1998 was
approximately $1,039,000 as compared with $2,852,000 in the prior year. The
investing activities relate to continued expenditures for fixed assets
(including capital equipment utilized in the Company's California and New York
manufacturing facilities). As a result, at June 30, 1998, the Company had cash
of $489,890, as compared to $480,225 for the prior year.
As of August 14, 1998, the Company has made no additional commitments for
capital expenditures. In August 1998, the Board of Directors approved a stock
repurchase program to acquire of up to $1,600,000 of the Company's common stock.
Foreign Currency
The Company is subject to various risks inherent in dependence on foreign
sources of supply, including economic or political instability, shipping delays,
fluctuations in foreign currency exchange rates, custom duties and import quotas
and other trade restrictions, all of which could have a significant impact on
the Company's ability to obtain supplies and deliver finished products on a
timely and competitive basis. The Company has no material hedged monetary
assets, liabilities or commitments denominated in currencies other than the
United States dollar.
Effect of New Accounting Pronouncements
In June 1997, SFAS 130, "Reporting Comprehensive Income", and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components and SFAS 131 requires disclosure of reportable
operating segments. In February 1998, SFAS 132,"Employer's Disclosures about
Pensions and Other Post-Retirement Plans," was issued. SFAS 132 standardized
pension disclosures. These statements are effective for the Company's 1999
fiscal year. The Company will be reviewing these pronouncements to determine
their applicability to the Company, if any.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 standardizes accounting and reporting for
derivative instruments and for hedging activities. This statement is effective
for the Company's 2000 fiscal year. The Company is reviewing this pronouncement
to determine its applicability to the Company, if any.
-19-
<PAGE>
Year 2000 Issue
The Company has assessed the potential issues associated with the year 2000
and believes that its costs to address such issues would not be material. The
Company anticipates that all of its operating systems are Year 2000 compliant.
The Company also believes that costs or consequences of an incomplete or
untimely resolution would not result in the occurrence of a material event or
uncertainity reasonably likely to have a material adverse effect on the Company.
However, the Company has not determined whether its principal suppliers and
customers are Year 2000 compliant. In the event any of the Company's principal
suppliers and customers are not year 2000 compliant it may have a material
adverse affect on the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data of the Company
are included following Part IV of this report.
Item 9. Changes in and Disclosure with Accountants on
Accounting and Financial Disclosure
None.
-20-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
The information called for by this Item will be reported in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held in
November 1998 which will be filed on or before October 12, 1998 and is
incorporated herein by reference.
Item 11. Executive Compensation
The information called for by this Item will be reported in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held in
November 1998 which will be filed on or before October 12, 1998 and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this Item will be reported in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held in
November 1998 which will be filed on or before October 12, 1998 and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by this Item will be reported in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held in
November 1998 which will be filed on or before October 12, 1998 and is
incorporated herein by reference.
-21-
<PAGE>
<TABLE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statement / Schedules
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets - June 30, 1998 and 1997 F-2
Consolidated Statements of Earnings - For the Years Ended June 30, 1998,
1997 and 1996 F-3
Consolidated Statements of Stockholders' Equity - For the Years Ended
June 30, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows - For the Years Ended June 30, 1998,
1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6 - F-17
Report of Independent Certified Public Accountants on Supplemental
Schedules F-18
Schedule II - Valuation and Qualifying Accounts and Reserves - For the
Years Ended June 30, 1998, 1997 and 1996 F-1
</TABLE>
(a) Exhibits
Exhibit No.
3.1 Certificate of Incorporation, as amended*
3.2 By-laws of the Registrant*
3.3 Amendment to Certificate of Incorporation.
4.1 Rights Agreement, dated as of March 6, 1996, between the Company and
Continental Stock Transfer & Trust Company**
10.1 Stock Option Plan*
- ----------
* Incorporated by reference to the registrant's registration statement on
Form S-18, SEC File No. 33-39076-NY
** Incorporated by reference to the registrant's registration Report on Form
8-K dated March 18, 1996.
-22-
<PAGE>
10.2 Lease, Option and Assignment to Purchase the Company's Paterson,
New Jersey facility and amendment thereto.*
10.3 Employment Agreement by and between the Company and Mark
Cocchiola.*
10.4 Employment Agreement by and between the Company and Paul
Lauriero.*
10.11 Revolving Loan, Guaranty and Security Agreement by and among the
Company, Suprema Specialties West, Inc. and National Westminister
Bank NJ dated as of February 15, 1994, as amended***
10.14 Form of Equipment Lease between the Company and BLT Leasing Corp.
dated December 28, 1992.****
10.16 Amendment to Lease and Purchase Agreement, dated October 4, 1994
between East 35th Street Associates and the Company.*****
10.17 Loan and Security Agreement among CoreStates, Enterprise and the
Company and Suprema Specialties West, Inc. dated October 25,
1995.****
10.18 Lease between Cape Vincent Milk Producers Cooperative, Inc.,
Marble City Bulk Milk Producers Cooperative, Inc., Northern New
York Bulk Milk Producers Cooperative, Inc., Seaway Bulk Milk
Producers Cooperative Inc., and the Company, dated May 21, 1996.
10.19 Master Equipment Lease Agreement No. 32399 between Fleet Capital
Corporation and Suprema Specialties, Inc. dated May 29,1997
10.20 Securities Purchase Agreement, dated as of March 9, 1998,
between the Company and Alliance Capital Management, L.P.
(without exhibits)
10.21 Note Agreement, dated as of March 9, 1998, between the Company
and each of Albion Alliance Mezzanine Fund, L.P. and The
Equitable Life Assurance Society of the United States.
- ----------
*** Incorporated by reference to the registrant's Report on Form 10-Q for the
quarter ended December 31, 1995.
**** Incorporated by reference to the registrant's Annual Report on form 10-K
for the year ended June 30, 1994.
***** Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended June 30, 1993.
-23-
<PAGE>
10.22 Warrant Agreement, dated as of March 9, 1998, between the Company
and Albion Alliance Mezzanine Fund, L.P. and The
Equitable Life Assurance Society of the United States.
21. Subsidiaries of the Registrant
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule.
(b) Report on Form 8-K.
No reports on Form 8-K were filed by the Company during its fiscal quarter
ended June 30, 1998.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUPREMA SPECIALTIES, INC.
By: /s/ Mark Cocchiola
----------------------------
Mark Cocchiola, President
Dated: September 23 , 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Mark Cocchiola Chairman of the Board, Sept. 23, 1998
- ---------------------
Mark Cocchiola President, Chief
Executive Officer and
Director (Principal
Executive Officer)
/s/ Paul Lauriero Executive Vice Sept. 23, 1998
- ---------------------
Paul Lauriero President and Director
/s/ Steven Venechanos Chief Financial Sept. 23, 1998
- ---------------------
Steven Venechanos Officer and
Secretary
/s/ Marco Cocchiola Director Sept. 23, 1998
- ---------------------
Marco Cocchiola
/s/ Rudolph Acosta Director Sept. 23, 1998
- ---------------------
Rudolph Acosta
/s/ Paul DeSocio Director Sept. 23, 1998
- ---------------------
Paul DeSocio
/s/ William Gascoigne Director Sept. 23, 1998
- ---------------------
William Gascoigne
-23-
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Suprema Specialties, Inc. and Subsidiaries
Paterson, New Jersey
We have audited the accompanying consolidated balance sheets of Suprema
Specialties, Inc. and Subsidiaries, as of June 30, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Suprema Specialties,
Inc. and Subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Woodbridge, New Jersey
August 12, 1998
F-1
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------------------
1998 1997
---- ----
ASSETS
Current:
<S> <C> <C>
Cash $ 489,890 $ 480,225
Accounts receivable, net of allowances of $470,290
at June 30, 1998 and 1997, respectively 23,239,810 14,667,008
Inventories 28,511,930 22,462,421
Income taxes receivable - 921,243
Prepaid expenses and other current assets 688,117 679,781
Deferred income taxes 188,000 168,348
----------- -----------
TOTAL CURRENT ASSETS 53,117,747 39,379,026
PROPERTY, PLANT AND EQUIPMENT, net 6,999,695 6,135,082
OTHER ASSETS 1,728,616 1,528,434
----------- -----------
$61,846,058 $47,042,542
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable $ 7,469,422 $ 5,411,478
Current portion of long-term obligations 500,964 402,877
Mortgage payable - current 43,457 39,875
Income taxes payable 245,498 --
Accrued expenses and other
current liabilities 1,467,034 805,754
Deferred income taxes -- 172,653
----------- -----------
TOTAL CURRENT LIABILITIES 9,726,375 6,832,637
DEFERRED INCOME TAXES 475,340 420,952
REVOLVING CREDIT LOAN 21,262,000 15,589,856
SUBORDINATED DEBT 10,500,000 4,303,670
LONG-TERM CAPITAL LEASES 2,266,090 2,470,599
MORTGAGE PAYABLE 921,413 964,870
----------- -----------
45,151,218 30,582,584
----------- -----------
WARRANTS (subject to mandatory redemption) -- 1,171,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Redeemable, convertible preferred stock, $.01 par
value, 2,500,000 shares authorized, none issued
and outstanding at June 30, 1998 and 1997 -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 4,562,800 issued and outstanding 45,628 45,628
Additional paid-in capital 11,243,347 11,243,347
Retained earnings 5,405,865 3,999,983
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 16,694,840 15,288,958
----------- -----------
$61,846,058 $47,042,542
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended June 30,
-----------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 108,140,007 $ 88,311,454 $ 65,103,914
Cost of sales 89,395,062 73,263,129 51,358,460
------------- ------------- -------------
Gross margin 18,744,945 15,048,325 13,745,454
------------- ------------- -------------
Expenses:
Selling and shipping expenses 8,024,823 9,175,567 8,125,052
General and administrative
expenses 3,636,090 2,180,576 1,807,275
------------- ------------- -------------
11,660,913 11,356,143 9,932,327
------------- ------------- -------------
Income from operations 7,084,032 3,692,182 3,813,127
Other income (expense):
Interest, net of interest income of $0,
$3,000 and $27,000 in 1998, 1997 and
1996, respectively (2,916,992) (2,231,820) (1,812,342)
Other -- (1,259,081) 412,500
------------- ------------- -------------
(2,916,992) (3,490,901) (1,399,842)
------------- ------------- -------------
Earnings before income taxes and
extraordinary item 4,167,040 201,281 2,413,285
Income taxes 1,750,157 80,500 1,004,000
------------- ------------- -------------
Earnings before extraordinary item 2,416,883 120,781 1,409,285
Extraordinary item - loss on extinguishment
of debt (net of income tax of $762,000) 1,011,001 -- --
------------- ------------- -------------
Net earnings $ 1,405,882 $ 120,781 $ 1,409,285
============= ============= =============
Preferred stock dividends -- -- (146,250)
Net earnings applicable to
common stock 1,405,882 120,781 1,263,035
Basic earnings per share
before extraordinary item $ .53 $ .03 $ .46
============= ============= =============
Basic earnings per share related
to extraordinary item $ (.22) $ -- $ --
============= ============= =============
Basic earnings per share $ .31 $ .03 $ .46
============= ============= =============
Diluted earnings per share
before extraordinary item $ .51 $ .02 $ .40
============= ============= =============
Diluted earnings per share related
to extraordinary item $ (.21) $ -- $ --
============= ============= =============
Diluted earnings per share $ .30 $ .02 $ .40
============= ============= =============
Basic weighted average shares outstanding 4,562,800 4,552,146 2,768,100
============= ============= =============
Diluted weighted average shares
outstanding 4,744,919 5,039,995 3,195,358
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series A
Preferred stock Common stock
----------------------- ------------------------- Additional
paid-in Retained
Shares Amount Shares Amount capital earnings
----------- ---------- ------------ ----------- ------------ -------------
Balance, June 30,
<S> <C> <C> <C> <C> <C> <C>
1995 500,000 $1,108,977 2,450,000 $ 24,500 $ 3,651,528 $ 2,616,167
Issuance of shares on
conversion of
marketing service
agreements -- -- 306,900 3,070 937,114 --
Issuance of shares on
cashless exercise
of warrants -- -- 43,293 432 (432) --
Dividends on
preferred stock -- -- -- -- -- (146,250)
Net proceeds from
shares issued
during secondary
offering -- -- 1,000,000 10,000 4,471,350 --
Conversion of Series
"A" convertible
preferred stock
into common stock (500,000) (1,108,977) 500,000 5,000 1,103,977 --
Net earnings -- -- -- -- -- 1,409,285
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30,
1996 -- -- 4,300,193 43,002 10,163,537 3,879,202
Net proceeds from
underwriters over
allotment -- -- 225,000 2,250 1,021,791 --
Exercise of stock
options and
warrants -- -- 37,607 376 58,019 --
Net earnings -- -- -- -- -- 120,781
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30,
1997 -- -- 4,562,800 45,628 11,243,347 3,999,983
Net earnings -- -- -- -- -- 1,405,882
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30,
1998 -- -- 4,562,800 $ 45,628 $ 11,243,347 $ 5,405,865
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
-----------------------------------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings $ 1,405,882 $ 120,781 $ 1,409,285
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization 647,946 1,233,080 1,086,949
Provision for doubtful accounts -- -- 82,030
Loss on sale leaseback transaction -- 1,259,085 --
Write-off of prepaid commissions/licensing fees -- 943,863 --
Deferred income taxes (88,784) (199,500) 301,000
Other income -- -- (412,500)
Extraordinary loss on extinguishment of debt 1,011,001 -- --
(Increase) decrease in assets:
Accounts receivable (8,572,802) (5,861,207) (3,537,008)
Inventories (6,049,509) (5,561,066) (6,548,379)
Prepaid expenses and other current assets (8,336) 330,945 124,788
Prepaid income taxes 921,243 (717,225) --
Other assets (49,133) 1,403,907 (1,470,571)
Increase (decrease) in liabilities:
Accounts payable 2,057,944 (1,092,998) 1,763,990
Income taxes payable 1,007,498 (244,413) (291,319)
Accrued expenses and other current
liabilities 661,280 236,252 204,690
------------ ------------ ------------
Net cash used in operating activities (7,055,770) (8,148,496) (7,287,045)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (1,039,215) (2,852,287) (1,606,755)
Proceeds from note receivable -- -- 637,500
------------ ------------ ------------
Net cash used in investing activities (1,039,215) (2,852,287) (969,255)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan 29,554,981 36,791,000 18,175,000
Repayment of revolving credit loan (23,882,837) (28,941,144) (18,135,000)
Proceeds from subordinated loan 10,500,000 -- 5,000,000
Proceeds from mortgage -- -- 1,050,000
Proceeds from secondary offering/options -- 1,082,436 4,481,350
Deferred financing costs in connection with new
subordinated debt (797,584) -- --
Principal payments of mortgage (39,875) (36,588) (8,667)
Principal payments of capital leases (436,422) (6,420,125) (2,125,428)
Payments to retire subordinated loan and repurchase
warrants (6,793,613) -- --
Proceeds from sale-leaseback -- 9,565,000 --
Costs in connection with sale-leaseback -- (1,088,436) --
Payment of preferred dividend -- (146,250)
------------ ------------ ------------
Net cash provided by financing activities 8,104,650 10,952,143 8,291,005
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 9,665 (48,640) 34,705
CASH, beginning of period 480,225 528,865 494,160
------------ ------------ ------------
CASH, end of period $ 489,890 $ 480,225 $ 528,865
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized of $55,000
in 1998, $51,996 in 1997 and $253,000 in 1996) $ 2,669,167 $ 2,403,700 $ 1,900,630
Income taxes 32,070 1,233,187 1,019,439
Noncash investing and financing transactions:
Purchases of property and equipment through
capital leases 330,000 3,653,262 2,156,010
Issuance of common stock upon conversion of
marketing service agreements -- -- 940,186
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 1 - ORGANIZATION AND BUSINESS DESCRIPTION
Suprema Specialties, Inc., a New York corporation incorporated on August 15,
1983 and its subsidiaries (the "Company") manufacture, process and market a
variety of premium, gourmet natural cheese products.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the financial statements of
Suprema Specialties, Inc. and its wholly-owned subsidiaries, Suprema Specialties
West, Inc. and Suprema Specialties Northeast, Inc. All intercompany transactions
and balances have been eliminated in consolidation.
Inventory
Inventories are valued at the lower of cost (determined by the first-in,
first-out method) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is being provided
by use of the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the shorter of the
term of the lease, including renewal options, or the useful lives of the assets.
Equipment under capitalized leases is being amortized over the useful lives of
the assets.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"), was adopted as of July 1, 1996. SFAS 121 standardized the
accounting practices for the recognition and measurement of impairment losses on
certain long-lived assets. The adoption of SFAS 121 was not material to the
results of operations or financial position.
Product Introduction Costs
The Company incurs certain costs in connection with expanding its market
position in the United States. These costs, referred to in the industry as
"slotting" are deferred and amortized over the stated program period, generally
ranging from one to twelve months.
Revenue Recognition
The Company records revenues when products are shipped. Customers do not have
the right to return products shipped.
Advertising Cost
The Company expenses advertising costs as incurred and cooperative advertising
costs when related revenue is recognized. Advertising costs amounted to
approximately $2,864,000, $3,004,000 and $3,431,000 in 1998, 1997 and 1996,
respectively.
Research and Development
Research and development expenditures which are insignificant for the Company's
projects are expensed as incurred.
F-6
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
Income taxes are recorded in accordance with SFAS No. 109, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
Stock Options
The Company follows SFAS No. 123 by making the required pro forma note
disclosures only.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Risks and Uncertainties
In December 1997, the Company formalized a two year collective bargaining
agreement with the employees of Suprema Specialties West, which represent 50% of
the total workforce, which expires on December 1, 1999. The Company considers
its relations with its employees to be good.
Earnings Per Share
Effective July 1, 1997, the Company adopted SFAS 128, "Earnings Per Share."
Earnings per share have been restated for all periods presented. Diluted
earnings per share are not materially different then previously reported primary
earnings per share as computed under Accounting Principals Board #15.
Effect of New Accounting Pronouncements
In June 1997, SFAS 130, "Reporting Comprehensive Income," and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components and SFAS 131 requires disclosure of reportable
operating segments. In February 1998, SFAS 132, "Employer's Disclosures About
Pensions and Other PostRetirement Plans," was issued. SFAS 132 standardize
pension disclosures. These statements are effective for the Company's 1999
fiscal year. The Company does not expect the adoption of these statements to
have a material effect on the financial statements.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 standardizes accounting and reporting for
derivative instruments and for hedging activities. This statement is effective
in the Company's 2000 fiscal year. The Company will be reviewing this
pronouncement to determine its applicability to the Company, if any.
F-7
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 3 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 3,640,655 $ 2,236,541
Finished goods 24,046,053 19,293,624
Packaging 825,222 932,256
-------- --------
$28,511,930 $22,462,421
=========== ===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<CAPTION>
June 30,
-----------------------------------
1998 1997
---- ----
Property and plant $ 1,545,900 $ 1,525,705
Equipment 4,937,767 4,205,016
Leasehold improvements 1,182,662 1,158,797
Furniture and fixtures 183,075 176,687
Delivery equipment 48,178 48,179
Construction in progress 590,259 4,242
-------- ------
8,487,841 7,118,626
Less: Accumulated depreciation and
amortization 1,488,146 983,544
---------- --------
$ 6,999,695 $ 6,135,082
=========== ===========
</TABLE>
In May 1997, the Company entered into a sale-leaseback transaction whereby fixed
assets with a net book value of $10,824,082 were sold for $9,565,000 and leased
back under operating leases. In connection with this transaction, $4,847,382 of
capital leases were paid in full. A loss of $1,259,081 resulted from this
transaction which is reflected as other expense. The Company incurred costs of
$1,088,436 primarily related to prepayment penalties on the capital leases.
These costs have been included in other assets and will be amortized over eight
years, the life of the lease.
Included in property, plant and equipment are plant and equipment acquired under
capital leases with an initial cost of $3,419,067 and $3,087,041 and accumulated
amortization of $539,313 and $26,828 as of June 30, 1998 and 1997, respectively.
F-8
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 5 - MARKETING SERVICE AGREEMENTS
The Company entered into marketing service agreements with unaffiliated third
parties expiring at various dates through June 1998, pursuant to which the
Company was provided with certain marketing and program support services,
including the payment of advertising promotional expenditures by such parties
(no amounts were provided during 1995 through 1997) in exchange for commissions
based on Company sales of specified products. In addition, two of the agreements
provided that after an initial period (as defined in the agreements) the Company
or the providers of the marketing services have the right to convert some or all
of the remaining estimated commissions to common stock of the Company at the
market price at the time of conversion. Such conversion right was limited to no
more than 10% and 2 1/2%, as specified in each of the agreements, of the
Company's common stock issued and outstanding at the time of the conversion. For
the years ended June 30, 1997 and 1996, commission expenses related to the
marketing agreements, were approximately $794,000 and $598,000, respectively.
On August 14, 1995, two of these providers informed the Company they were
exercising their conversion feature in the agreements. As a result, the Company
issued 306,900 shares of common stock in September 1995. The shares were
recorded at approximate fair value at the date the notice of conversion was
received. The corresponding amount was reflected in other assets and was being
amortized over the remaining term of the related agreements, as the applicable
sales revenue is recorded.
During fiscal 1994, the Company made payments under the marketing services
agreements leading to a prepaid position of $430,000, which is included in other
current assets. In December 1995, an additional $300,000 was prepaid as final
settlement of the remaining agreements. This amount was being charged to expense
over the remaining three years of the related agreements as the applicable sales
revenue was recorded. In connection with the amendment of two of its Marketing
Service Agreements, the Company granted warrants to purchase 50,000 shares of
the Company's common stock in September 1994. The warrants were exercisable at
$3.00 per share and terminated on June 30, 1998.
In the fourth quarter of 1997, as a result of a review of the Company's retail
cheese business, it was determined the remaining asset amounts, $943,863, no
longer had continuing value. These amounts were written off and were included in
selling and shipping expenses.
NOTE 6 - INCOME TAXES
The provision for income taxes consists of the following:
June 30,
-----------------------------------------------
1998 1997 1996
---- ---- ----
Current:
Federal $1,460,119 $ 233,000 $ 555,000
State 378,822 57,000 148,000
---------- --------- ---------
1,838,941 280,000 703,000
---------- --------- ---------
Deferred:
Federal (70,494) (169,600) 255,800
State (18,290) (29,500) 45,200
---------- --------- ----------
(88,784) (199,500) 301,000
---------- --------- ----------
Provision for income taxes $1,750,157 $ 80,500 $1,004,000
========== ========= ==========
F-9
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 6 - INCOME TAXES (continued)
The following reconciles income taxes at the U.S. statutory rate to the
provision for income taxes:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed tax expense at statutory rates $1,416,800 $ 68,000 $ 821,000
State taxes, net of federal tax benefit 262,100 10,500 109,000
Travel and entertainment expenses not
deductible 17,000 2,000 67,000
Officers life insurance not deductible 5,400 3,500 7,000
Other, net 48,857 (3,500) -
----------- -------- ----------
$1,750,157 $ 80,500 $1,004,000
=========== ======== ==========
Deferred income taxes arise from the difference between book and tax accounting
for depreciation, the write-offs of uncollectible accounts receivable and
product introduction costs.
The net deferred tax liabilities are comprised of the following components as of
June 30, 1998 and 1997:
<CAPTION>
June 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Depreciation $ 40,000 $ 40,000
Product introduction costs 44,913 118,200
Deferred sale leaseback costs 390,427 435,400
Capital loss carryforward 755,307 755,307
-------- --------
1,230,647 1,348,907
Accounts receivable reserve (188,000) (168,300)
--------- ---------
1,042,647 1,180,607
Less: Valuation allowance (755,307) (755,307)
--------- ---------
$ 287,340 $ 425,300
========= =========
</TABLE>
A valuation allowance has been provided against the loss on sale of capital
assets due to the Company's current inability to realize this asset.
NOTE 7 - LONG-TERM DEBT
Revolving Credit Loan
In September 1998, the long-term revolving credit facility (the "Facility")
between the Company and a bank was amended to increase the line for up to
$26,000,000 through November 1999. The rate of interest on amounts borrowed
under the Facility is the adjusted LIBOR rate, as defined, plus 2% (7.69% as of
June 30, 1998). The Facility is collateralized by all existing and acquired
assets of the Company, as defined in the Facility agreement, and is guaranteed
by Suprema Specialties West, Inc. and Suprema Specialties Northeast, Inc. In
connection with obtaining the Facility, the Company and Suprema Specialties
Northeast, Inc. has agreed to pay a commitment fee on the average daily unused
portion of the Facility, equal to 1/4 of 1% per annum. Advances under this
Facility are limited to 80% of eligible accounts receivable, 40% of all
inventory except packaging material, as defined in the Facility agreement. The
Facility agreement contains restrictive financial covenants, including the
maintenance of specified total debt to net worth ratios, minimum levels of
tangible net worth, and debt service coverage ratios, as defined, and a
restriction on dividends to common shareholders. As of June 30, 1998, the
Company was in compliance with these covenants.
F-10
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 7 - LONG-TERM DEBT (continued)
Revolving Credit Loan (cont)
At June 30, 1998, the Company had approximately $3,738,000 available for
borrowing under the Facility.
Subordinated Debt Facility
In October 1995, the Company entered into a Loan and Security Agreement with
CoreStates Enterprise Fund (the "Fund"), a division of CoreStates Bank, N.A.,
pursuant to which the Fund loaned $5,000,000 to the Company. The loan was
secured by a subordinated security interest in substantially all of the assets
of the Company and was subordinated to the loan of the Company's senior lender.
The loan bore interest at 11 3/4% per annum. In connection with the execution
and delivery of the Loan Agreement, the Company delivered a Warrant to the Fund
exercisable for nominal additional consideration for 354,990 shares of the
Company's Common Stock. After October 1, 2000, or upon the occurrence of certain
other rights, the Fund had the right to put the Warrant to the Company on a
formula basis. The Warrant was recorded at its relative fair value at date of
issue, $1,100,000. The corresponding debt discount was being amortized over the
life of the loan on the interest rate method. At June 30, 1997, the value of the
put option was approximately $1,171,000.
In October 1997, the Company entered into an agreement with another bank
pursuant to which the bank provided bridge financing of $10 million to the
Company. Approximately $6.7 million of the proceeds was used to retire the $5.0
million subordinated debt and the repurchase of warrants attached to the
subordinated debt. The balance of the proceeds was used for general working
capital purposes. These transactions resulted in an extraordinary loss of
approximately $1,011,000, net. The extraordinary loss was comprised of (i) the
prepayment penalty of $1,279,000 and the write-off of deferred financing costs
and debt discount of $494,000, net of the combined tax benefit of $762,000. The
fair value of the warrants was determined pursuant to the contractually agreed
value among the relevant parties.
In March 1998, the Company entered into a Loan and Security Agreement with
Albion Alliance Mezzanine Fund, L.P. and The Equitable Life Assurance Society of
the United States (the "Fund") pursuant to which the Fund loaned $10,500,000 to
the Company. The loan is unsecured and is subordinated to the loan of the
Company's senior lender. The loan bears interest at 16 1/2% per annum. Interest
is payable monthly at the rate of 12% with the balance deferred until February
1, 2003 when it is due in full. The principal amount of the loan is payable in
three installments of $3,500,000 on each March 1, beginning in the year 2004. In
addition, in connection with the execution and delivery of the Loan Agreement,
the Company delivered a Warrant to the Fund to purchase 105,000 shares of the
Company's Common Stock at an exercise price of $4.12 per share. The warrant is
exercisable until March 1, 2006.
Mortgage Payable
On March 29, 1996, the Company purchased its Paterson production facility which
it previously had leased. The purchase was financed through a mortgage on the
property. Proceeds of the loan were $1,050,000, of which $686,250 was used to
pay the remaining obligation to the landlord. The balance of the proceeds was
used to complete the expansion of a 7,800 square foot refrigerated storage
facility. The five year note which bears interest at 8.51% per annum is being
amortized at a fifteen year rate and requires a balloon payment at the end of
year five of approximately $840,000.
F-11
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 7 - LONG-TERM DEBT (continued)
Mortgage Payable
Principal payments on long-term debt over the next five years and thereafter are
as follows:
1999 $ 43,457
2000 21,309,361
2001 874,052
Thereafter 10,500,000
-----------
$32,726,870
===========
The fair value of the long-term debt and capital leases approximates the
recorded value based on borrowing rates currently available for loans with
similar terms and maturities.
NOTE 8 - CAPITAL LEASES
There are various equipment and furniture and fixtures financed under capital
leases. These leases have interest rates ranging from 6.7% to 11.5%. At June 30,
1998, the Company's future minimum lease payments under capital leases are as
follows:
1999 $ 804,197
2000 800,313
2001 800,313
2002 642,431
2003 590,629
Thereafter 91,701
-----------
Total minimum lease payments 3,729,584
Less: amount representing interest 962,530
-----------
Present value of minimum lease payments 2,767,054
Less: current portion 500,964
-----------
Long-term portion of capital leases $ 2,266,090
===========
NOTE 9 - LEASE COMMITMENTS
The Company rents warehouse space and certain equipment under lease arrangements
classified as operating leases. The lease for the production facilities in
Manteca, which was renewed in December 1994, expires 10 years from the date of
completion of construction of each segment of the facility with two five year
renewal options. The Company also leases its Ogdensburg facility. The lease is
for 5 years with three 5 year renewals at the Company's option. Rent expense was
approximately $2,400,000, $922,000 and $922,000 for the years ended June 30,
1998, 1997 and 1996, respectively. Future minimum rental payments under
non-cancelable operating leases are: 1999 - $2,363,837; 2000 - $2,395,560; 2001
- - $2,395,560; 2002 - $2,347,560; 2003 - $2,347,560 and thereafter - $4,432,250.
NOTE 10 - STOCKHOLDERS' EQUITY
In June 1996, the Company completed a public offering for 1,500,000 shares of
its $.01 par value common stock of which 1,000,000 shares were issued by the
Company and 500,000 shares were offered by selling shareholders upon conversion
of 500,000 shares of the Company's convertible preferred stock at a purchase
price of $5.50 per share. Gross proceeds from the offering was approximately
$4,481,350. The Company received no proceeds from the shares issued during the
offering from those shares offered by the selling shareholders.
F-12
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 10 - STOCKHOLDERS' EQUITY (continued)
In 1997, an additional 225,000 shares of Common Stock were sold pursuant to the
exercise of the underwriters' over-allotment option which generated net proceeds
of approximately $1,024,000.
Issuance of Preferred Stock
In August 1994 the Company completed a private placement of 500,000 shares of
Series A convertible preferred stock (the "Preferred Stock") for gross proceeds
of $1,500,000 or $3.00 per share. Each share of Preferred Stock was convertible
into one share of common stock at any time prior to redemption at a conversion
price of $3.00 per share. The Preferred Stock was redeemable at the Company's
option any time after the first anniversary of the closing provided the daily
average of the high and low price of the Company's common stock equals or
exceeds $5 per share for 10 consecutive days. Quarterly dividends were payable
in cash at an annual dividend rate of 10%.
In June 1996, these shares were converted into common stock.
Stock Option Plan
On February 11, 1991, the Company adopted the 1991 Stock Option Plan (the
"Plan") pursuant to which officers, directors and key employees of the Company
are eligible to receive incentive and/or non-qualified stock options. The Plan,
which expires in February 2001, is administered by the board of directors. The
selection of participants, allotment of shares, determination of price and other
conditions of the grant of options is determined by the board at its sole
discretion in order to attract and retain persons instrumental to the success of
the Company. Incentive stock options granted under the Plan vest evenly over the
first three years and are exercisable for a period of up to ten years from the
date of grant at an exercise price which is not less than the fair market value
of the common stock on the date of grant, except that the term of an incentive
stock option granted under the Plan to a shareholder owning more than 10% of the
outstanding common stock may not exceed five years and its exercise price may
not be less than 110% of the fair market value of the common stock on the date
of the grant.
In November 1995, the Company amended this 1991 Stock Option Plan (the "Plan")
to increase the maximum number of shares as to which options may be granted
under the Plan from 450,000 to 900,000. Stock option transactions under the Plan
are summarized as follows:
1991 Weighted Average
Plan (#) Exercise Price ($)
-------- ------------------
Outstanding at June 30, 1995 249,000 $3.26
Granted 105,000 $4.55
Exercised --
Forfeited (8,000) $3.06
--------
Outstanding at June 30, 1996 346,000 $3.66
Granted 176,000 $3.84
Exercised (13,500) $3.08
Forfeited --
--------
Outstanding at June 30, 1997 508,500 $3.73
Granted 243,000 $3.25
Exercised -- --
Forfeited -- --
--------
Outstanding at June 30, 1998 751,500 $3.58
======== =====
F-13
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 10 - STOCKHOLDERS' EQUITY (continued)
Stock Option Plan (continued)
# shares
Options exercisable at June 30, 1998 356,000 $3.61
Weighted - average fair value of
options granted during fiscal 1996 105,000 $2.35
Weighted - average fair value of
options granted during fiscal 1997 176,000 $2.21
Weighted - average fair value of
options granted during fiscal 1998 243,000 $1.22
The following table summarizes information about stock options outstanding at
June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number of Weighted- Weighted- Weighted-
Range of Options Average Average Number Average
Exercise Outstanding Remaining Con- Exercise Exercisable Exercise
Prices ($) at 6/30/98 tractual Life Price ($) at 6/30/98 price ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.50 to 4.00 631,500 8.0 years 3.37 227,778 3.32
4.00 to 5.63 120,000 7.3 years 4.65 78,334 4.64
- -----------------------------------------------------------------------------------------------------------------------------
2.50 to 5.63 751,500 7.9 years 3.58 356,112 3.61
=============================================================================================================================
</TABLE>
The Corporation has adopted the disclosures only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost been recognized for the stock option
plans been determined based on the fair value at the date of grant consistent
with the provisions of SFAS No. 123, the Corporation's net earnings and net
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------
1998 1997 1996
---- ---- ----
Net earnings, before extraordinary item
<S> <C> <C> <C>
- as reported $2,416,883 $120,781 $1,409,285
Net earnings, before extraordinary item
- pro forma 2,105,023 (25,500) 1,344,770
Basic earnings per share, before extra-
ordinary item - as reported .53 .03 .46
Basic earnings per share, before extra-
ordinary item - pro forma .46 (.01) .43
Diluted earnings per share, before extra-
ordinary item - as reported .51 .02 .40
Diluted earnings per share, before extra-
ordinary item - pro forma .44 (.01) .37
</TABLE>
F-14
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 10 - STOCKHOLDERS' EQUITY (continued)
Stock Option Plan (continued)
The fair market value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants: expected volatility of 35% in 1996 and 1997 and 46%
in 1998, risk free interest rate of 5.9% in 1996 and 6.7% in 1997 and 5.8% in
1998; expected lives of 10 years; and no dividend yield.
Warrants
In connection with entering into a consulting agreement with the investment
banker which acted as sales agent for the private placement of Preferred Stock
discussed above, on April 28, 1994 and June 30, 1994, the investment banker was
granted two warrants to purchase 45,000 and 40,000 shares, respectively, of the
Company's $0.01 par value common stock. Each warrant terminates 5 years from its
issue date, and carries a $3.00 exercise price.
As of June 30, 1994 and 1993, a total of 260,000 and 175,000 warrants,
respectively, have been issued to unaffiliated parties at exercise prices
ranging from $3.00 to $5.08 per share. At June 30, 1998, these warrants are
exercisable at prices ranging from $3.00 to $5.08 per share.
As discussed in Note 7, the Company granted warrants in March 1998, to purchase
105,000 shares of common stock exercisable at $4.12 per share through March
2006.
NOTE 11 - EARNINGS PER SHARE
Basic and diluted earnings per share for each of the three years ended June 30,
1998, 1997 and 1996 are calculated as follows:
<TABLE>
<CAPTION>
Net Income Shares Per share
(Numerator) (Denominator) Amount
-----------------------------------------------------------
For the year ended June 30, 1998:
<S> <C> <C> <C>
Basic earnings per share $1,406,882 4,562,800 .31
Effect of assumed conversion of -- 182,119 .01
employee stock options
-----------------------------------------------------------
Diluted earnings per share $1,406,882 4,744,919 .30
===========================================================
For the year ended June 30, 1997:
Basic earnings per share $120,781 4,552,146 .03
Effect of assumed conversion of -- 487,849 .01
employee stock options and warrants
-----------------------------------------------------------
Diluted earnings per share $120,781 5,039,995 .02
===========================================================
For the year ended June 30, 1996 (pro forma):
Basic earnings per share $1,263,035 2,768,100 .46
Effect of assumed conversion of -- 427,258 .06
employee stock options and
warrants
-----------------------------------------------------------
Diluted earnings per share $1,263,035 3,195,358 .40
===========================================================
</TABLE>
F-15
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 11 - EARNINGS PER SHARE (continued)
The earnings per share computation for the year ended June 30, 1996 was based
upon the 2,450,000 shares outstanding at the beginning of the year plus a
pro-ration of the 306,900 shares issued in connection with the conversion of the
two marketing service agreements, a proration of 43,293 shares issued in
connection with the cashless option exercise pertaining to underwriters warrants
and a proration of 1,500,000 shares issued in the Company's secondary public
offering.
The earnings per share computation for the year ended June 30, 1997 was based
upon 4,300,193 shares outstanding at the beginning of the year, plus a proration
225,000 shares arising from the issuance of common stock issued upon exercise of
the underwriters over allotment option in the Company's secondary public
offering. This circulation does not include 287,000 options because the effect
is anti-dilutive.
The earnings per share computation for the year ended June 30, 1998 was based
upon 4,562,800 shares outstanding during the year. Other common stock
equivalents were excluded from the calculation since they were anti-dilutive.
This calculation does not include 569,400 options because the effect is
anti-dulutive.
NOTE 12 - CONCENTRATION OF CREDIT RISK
The Company provides credit to customers on an unsecured basis after evaluating
customer credit worthiness. Since the Company sells to a broad range of
customers concentrations of credit risk are very limited. The Company also
provides a reserve for bad debts for accounts receivable where there is a
possibility for loss.
The Company maintains demand deposits with major banks. At June 30, 1998 and
1997, all of the Company's cash was held in one major bank.
NOTE 13 - MAJOR CUSTOMERS
During the fiscal year ended June 30, 1998, the Company had sales to a major
customer of approximately $19,600,000, representing approximately 18% of net
sales. At June 30, 1998, three customers represented 33%, 17% and 14% of
accounts receivable.
During the fiscal year ended June 30, 1997, the Company had sales to two major
customers of approximately $12,125,000 and $9,099,000 representing approximately
14% and 10% of net sales, respectively. At June 30, 1997, one customer
represented 19% of accounts receivable, no other customers exceeded 10%.
During the fiscal year ended June 30, 1996, the Company had sales to two major
customers of approximately $8,394,000 and $7,982,000 representing approximately
13% and 12% of net sales, respectively.
F-16
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=========================================================================
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the 1998, 1997
and 1996 fiscal years (in thousands of dollars except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 25,156 $ 26,113 $ 26,407 $ 30,464
Gross profit 4,272 4,471 4,725 5,277
Income from operations 1,450 1,657 1,830 2,147
Earnings before extraordinary 478 610 635 694
item
Extraordinary item, net -- (1,011) -- --
Net earnings 478 (401) 635 694
Net earnings per share before .10 .13 .14 .16
extraordinary item
Extraordinary item -- (.22) -- --
Net earnings per share .10 (.09) .14 .16
1997
- -------------------------------------------------------------------------------------------------------------------------
Net sales 21,922 22,307 21,786 22,296
Gross profit 3,945 3,724 3,971 3,408
Income from operations (Note 5) 1,053 1,815 1,298 (474)
Net earnings 308 417 388 (992)
Net earnings per share .06 .08 .08 (.20)
=========================================================================================================================
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Suprema Specialties, Inc. and Subsidiaries
Paterson, New Jersey
The audits referred to in our report dated August 12, 1998 relating to the
consolidated financial statements of Suprema Specialties, Inc. and Subsidiaries,
which is contained in Item 8 of this Form 10-K, included the audits of the June
30, 1998, 1997 and 1996 financial statement schedule listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Woodbridge, New Jersey
August 12, 1998
F-18
<PAGE>
<TABLE>
<CAPTION>
Schedule II
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JUNE 30, 1996, 1997 AND 1998
Balance @ Charged to Charged to Balance @
Beginning of Costs and Other Deductions End of
Description Period Expenses (1) Accounts (2) Period
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996
Accounts receivable
allowance $380,290 $128,000 $ -- $ -- $508,290
======== ======== ======== ======== ========
YEAR ENDED JUNE 30, 1997
Accounts receivable
allowance 508,290 -- -- 38,000 470,290
======== ======== ======== ======== ========
YEAR ENDED JUNE 30, 1998
Accounts receivable
allowance $470,290 $ -- $ -- $ -- $470,290
======== ======== ======== ======== ========
</TABLE>
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
F-19
================================================================================
SUPREMA SPECIALTIES, INC.
-----------------------
SECURITIES PURCHASE AGREEMENT
-----------------------
DATED AS OF MARCH 9, 1998
$10,500,000 16.5% SENIOR SUBORDINATED NOTES DUE MARCH 1, 2006
105,000 WARRANTS TO PURCHASE COMMON STOCK
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURCHASE AND SALE OF SECURITIES........................................ 1
1.1 Issue of Securities by the Company............................... 1
1.2 The Closing...................................................... 2
1.3 Original Issue Discount.......................................... 2
2. WARRANTIES AND REPRESENTATIONS OF THE COMPANY.......................... 3
2.1 Nature of Business............................................... 3
2.2 Financial Statements; Debt; Material Adverse Change.............. 3
2.3 Subsidiaries and Affiliates...................................... 4
2.4 Title to Properties.............................................. 5
2.5 Taxes............................................................ 5
2.6 Pending Litigation............................................... 6
2.7 Corporate Organization and Authority............................. 6
2.8 Charter Instruments, Other Agreements............................ 6
2.9 Restrictions on the Company...................................... 7
2.10 Compliance with Law.............................................. 7
2.11 Pension Plans.................................................... 7
2.12 Environmental Compliance......................................... 8
2.13 Due Authorization; Enforceability................................ 9
2.14 Governmental Consent to Sale of Purchased Securities............. 10
2.15 Hart-Scott-Rodino Compliance..................................... 10
2.16 No Defaults...................................................... 10
2.17 Private Offering of Purchased Securities......................... 11
2.18 Use of Proceeds.................................................. 11
2.19 Capitalization................................................... 11
2.20 Solvency......................................................... 12
2.21 Full Disclosure.................................................. 13
3. REPRESENTATIONS OF THE PURCHASER....................................... 13
3.1 Purchase for Investment.......................................... 13
3.2 ERISA............................................................ 13
3.3 Accredited Investor.............................................. 15
4. CLOSING CONDITIONS..................................................... 15
4.1 Opinions of Counsel.............................................. 15
4.2 Warranties and Representations True; Compliance.................. 16
4.3 Officers' Certificates........................................... 16
4.4 Legality......................................................... 16
4.5 Financing Documents.............................................. 16
4.6 Reservation of Shares............................................ 17
4.7 Certain Consents................................................. 17
4.8 Private Placement Numbers........................................ 17
4.9 Transaction Fee.................................................. 17
4.10 Fees and Expenses................................................ 18
4.11 Other Purchaser.................................................. 18
4.12 Proceedings Satisfactory......................................... 18
i
<PAGE>
TABLE OF CONTENTS (Cont.)
PAGE
5. INTERPRETATION OF THIS AGREEMENT....................................... 18
5.1 Terms Defined.................................................... 18
5.2 Other Definitions................................................ 20
5.3 Section Headings and Table of Contents and Construction.......... 20
5.4 Governing Law.................................................... 20
6. MISCELLANEOUS.......................................................... 21
6.1 Communications................................................... 21
6.2 Reproduction of Documents........................................ 21
6.3 Survival......................................................... 21
6.4 Successors and Assigns........................................... 22
6.5 Amendment and Waiver............................................. 22
6.6 Expenses......................................................... 22
6.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc............... 22
6.8 Indemnification of The Purchaser................................. 23
6.9 Entire Agreement................................................. 24
6.10 Execution in Counterpart......................................... 24
Annex 1 -- Information as to Purchasers
Annex 2 -- Payment Instructions at Closing; Address of Company
for Notices
Annex 3 -- Information as to Company
Exhibit 1.1(a) -- Form of Note Agreement
Exhibit 1.1(b) -- Form of Warrant Agreement
Exhibit 4.1(a) -- Form of Opinion of Company Counsel
Exhibit 4.1(b) -- Form of Opinion of Purchasers' Counsel
Exhibit 4.3(a) -- Form of Officers' Certificate
Exhibit 4.3(b) -- Form of Secretary's Certificate
Exhibit 4.3(c) -- Form of Subsidiary Guarantor Secretary's Certificate
Exhibit 4.5(c) -- Form of Subsidiary Guaranty
ii
<PAGE>
SUPREMA SPECIALTIES, INC.
SECURITIES PURCHASE AGREEMENT
$10,500,000 16.5% SENIOR SUBORDINATED NOTES DUE MARCH 1, 2006
105,000 WARRANTS TO PURCHASE COMMON STOCK
Dated as of March 9, 1998
[Separately addressed to each of the Purchasers
Listed on Annex 1 hereto]
Ladies and Gentlemen:
SUPREMA SPECIALTIES, INC. (together with any successors and assigns who
become such in accordance herewith, the "Company"), a New York corporation,
hereby agrees with you as set forth below.
1. PURCHASE AND SALE OF SECURITIES
1.1 Issue of Securities by the Company.
(a) Issue of Notes. The Company will authorize the issue of Ten
Million Five Hundred Thousand Dollars ($10,500,000) in aggregate principal
amount of its 16.5% Senior Subordinated Notes due March 1, 2006 (all such
notes, whether initially issued, or issued in exchange or substitution for,
any such note, in each case in accordance with the Note Agreement,
collectively, the "Notes"). The Notes shall be issued pursuant to a Note
Agreement (as may be amended, restated or otherwise modified from time to
time in accordance with the terms thereof, the "Note Agreement") in the
form of Exhibit . The Notes shall be in the form of Attachment A to the
Note Agreement, and shall have the terms as provided in the Note Agreement
and in the Notes.
(b) Issue of Warrants. The Company will authorize the issue of an
aggregate of one hundred five thousand (105,000) Warrants (the "Warrants")
to purchase shares of Common Stock. The Warrants shall be issued pursuant
to a Warrant Agreement (as may be amended, restated or otherwise modified
from time to time in accordance with the terms thereof, the "Warrant
Agreement") in the form of Exhibit . The certificates representing the
Warrants (the "Warrant Certificates") shall be in the form of Attachment A
to the Warrant Agreement, and the Warrants shall have the terms provided in
the Warrant Certificates and the Warrant Agreement.
1
<PAGE>
1.2 The Closing.
(a) Purchase and Sale of Purchased Securities. The Company hereby
agrees to sell to you and you hereby agree to purchase from the Company, in
accordance with the provisions hereof, the aggregate principal amount of
Notes set forth below your name on Annex 1 and the aggregate amount of
Warrants set forth below your name on Annex 1, at an aggregate purchase
price for such Notes and Warrants equal to one hundred percent (100%) of
the principal amount of Notes to be purchased.
(b) The Closing. The closing (the "Closing") of the sale of the
Purchased Securities will be held at 10:00 a.m., local time, on March 10,
1998 or such other time and date as the Company, you and the Other
Purchaser shall agree (the "Closing Date"), at the office of Tenzer
Greenblatt LLP, 405 Lexington Avenue, 23rd Floor, New York, New York. At
the Closing:
(i) the Company will deliver to you one or more Notes (as set
forth below your name on Annex 1), in the denominations indicated on
Annex 1, in the aggregate principal amount of your purchase, dated the
Closing Date and registered in the name of the holder indicated on
Annex 1; and
(ii) the Company will deliver to you one or more Warrant
Certificates (as set forth below your name on Annex 1), representing
the number of Warrants indicated on such Annex 1 and registered in the
name of the holder indicated on Annex 1;
against payment by federal funds wire transfer in immediately available
funds of the purchase price therefor, as directed by the Company on Annex
2, which shall be an account at a bank located in the United States of
America.
(c) Other Purchaser. Contemporaneously with the execution and delivery
hereof, the Company is entering into a separate Securities Purchase
Agreement identical (except for the name and signature of the purchaser) to
this Agreement (this Agreement and such other separate Securities Purchase
Agreement, each as from time to time amended or modified, being herein
sometimes referred to as the "Securities Purchase Agreements") with another
purchaser (the "Other Purchaser") listed on Annex 1, providing for the sale
to the Other Purchaser of the Purchased Securities set forth below its name
on such Annex. The sales of the Purchased Securities to you and to the
Other Purchaser are separate sales.
1.3 Original Issue Discount.
You and the Company agree that:
(a) the portion of the purchase price attributable to the Notes is Ten
Million Four Hundred Fifty Thousand Dollars ($10,450,000); and
(b) the portion of the purchase price attributable to the Warrants,
and therefore, the amount of original issue discount attributable, as a
result of the delivery of the Warrants, to the Notes issued by the Company
in accordance with the terms and
2
<PAGE>
conditions of this Agreement, is equal to Fifty Thousand Dollars ($50,000).
Such portion of the purchase price attributable to the Warrants is less
than the product of:
(i) one-quarter of one percent (0.25%) of the stated redemption
price at maturity (as such term is defined in section 1273(a) of the
IRC) of such Note; multiplied by
(ii) the number of complete years to maturity of such Note.
You and the Company agree to use the foregoing for all United States federal,
state and local income tax purposes with respect to the transactions
contemplated by the Financing Documents. You and the Company acknowledge that
such original issue discount represents the Fair Market Value of the Warrants as
of the Closing Date.
2. WARRANTIES AND REPRESENTATIONS OF THE COMPANY
To induce you to enter into this Agreement and to purchase and pay for the
Purchased Securities to be delivered to you at the Closing, the Company warrants
and represents, as of the Closing Date, as follows:
2.1 Nature of Business.
The Offering Memorandum describes correctly in all material respects the
general nature of the business and principal Properties and assets of the
Company.
2.2 Financial Statements; Debt; Material Adverse Change.
(a) Financial Statements. The Company has provided you with the
historical financial statements of the Company contained in the Offering
Memorandum and those described on Part 2.2(a) of Annex 3. Such financial
statements present fairly in all material respects the financial position
of the Company and the Subsidiaries on a consolidated basis as of the
respective dates specified in such Part and the results of their
consolidated operations and cash flows for the respective periods so
specified in conformity with GAAP applied on a consistent basis throughout
the periods involved.
(b) Debt. Part 2.2(b) of Annex 3 lists all Debt of the Company and the
Subsidiaries as of the Closing Date, both before and after giving effect to
the transactions contemplated by the Financing Documents, and provides the
following information with respect to each item of such Debt: the obligor,
each guarantor thereof and each other Person similarly liable in respect
thereof, the holder thereof, the aggregate amount of all commitments
thereunder (and the allocation of such commitments, if any, as among
revolving credit Debt, term loan or similar Debt and other credits such as
letter of credit or banker's acceptance facilities), the outstanding amount
thereunder and under each individual facility thereunder, the current
portion of the outstanding amount, the final maturity, required sinking
fund payments, and a description of the collateral securing such Debt.
(c) Liens. Part 2.2 (c) of Annex 3 lists all Liens securing Debt of
the Company and the Subsidiaries in existence as of the Closing Date, both
before and after
3
<PAGE>
giving effect to the transactions contemplated by the Financing Documents,
and provides the following information with respect to each Lien: the
holder thereof, the outstanding amount of the Debt secured by such Lien and
a description of the collateral.
(d) Contingent Obligations. There are no Guaranties or other
contingent obligations in respect of which disclosure is required, or for
which provisions are required to be made, in the consolidated financial
statements of the Company and the Subsidiaries in accordance with GAAP,
other than those so disclosed, and for which such provision has been made,
in the financial statements referred to in Section 2.2(a).
(e) Material Adverse Change. Since June 30, 1997, there has been no
change in the business, operations, profits, financial condition,
Properties or business prospects of the Company and the Subsidiaries,
except changes that, in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(f) Projections. The Company has delivered to you projected financial
statements of the Company contained in the Offering Memorandum (including,
without limitation, those entitled "Project Cheese" reflecting the
Management Case and dated October 27, 1997) (collectively, the
"Projections"). The assumptions used in preparation of the Projections were
reasonable when made and continue to be reasonable. Such Projections have
been prepared by the executive and financial personnel of the Company and
the Subsidiaries in the light of the business of the Company and the
Subsidiaries. Such Projections have been prepared in good faith, have a
reasonable basis and represent the good faith opinion of the Company as to
the projected results of the operations of the Company and the
Subsidiaries. No material facts have occurred since the preparation of the
Projections that, if the Company were to prepare new projections on the
Closing Date, would cause such new projections, taken as a whole, to be
materially different from the Projections, and the Company and the
Subsidiaries do not have, on the Closing Date, any material obligations
(whether accrued, matured, absolute, actual, contingent or otherwise) that
are not reflected in the Projections.
(g) Investments. Part 2.2(g) of Annex 3 lists all Investments of the
Company and the Subsidiaries outstanding on the Closing Date which, but for
clause (h) of the definition of Restricted Investments, would be classified
as Restricted Investments in accordance with the provisions of the Note
Agreement.
2.3 Subsidiaries and Affiliates.
(a) Ownership of Subsidiaries. Part 2.3(a) of Annex 3 sets forth for
each Subsidiary:
(i) its full legal name;
(ii) its jurisdiction of incorporation or organization; and
(iii) the percentage of the Voting Stock of which is held by the
Company and each other Subsidiary.
4
<PAGE>
(b) Affiliates. Part 2.3(b) of Annex 3 sets forth the name of each
Affiliate (other than members of the families of officers and directors of
the Company) and the nature of the affiliation of such Affiliate.
2.4 Title to Properties.
(a) General. Each of the Company and the Subsidiaries has good and
marketable title to all of the Property reflected in the most recent
balance sheet referred to in Section 2.2(a) (except as sold or otherwise
disposed of in the ordinary course of business), free from Liens not
otherwise permitted by provisions of the Note Agreement. Each of the
Company and the Subsidiaries has maintained and kept, or caused to be
maintained and kept, its respective properties in good repair, working
order and condition (ordinary wear and tear excepted).
(b) Leases. All leases necessary for the conduct of the business of
the Company and the Subsidiaries are valid and subsisting and are in full
force and effect, except for such failures to be valid and subsisting that,
in the aggregate for all such failures, could not reasonably be expected to
have a Material Adverse Effect. Each such lease grants to the Company or
the Subsidiary party thereto the right to the quiet enjoyment of the
premises leased thereunder during the term thereof.
(c) Intellectual Property. Each of the Company and the Subsidiaries
owns, possesses or has the right to use all of the intellectual property,
licenses, patents, copyrights, trademarks, service marks and trade names
necessary for the present and currently planned future conduct of its
business, without any known conflict with the rights of others, except for
such failures to own, possess, or have the right to use, that, in the
aggregate for all such failures, could not reasonably be expected to have a
Material Adverse Effect.
2.5 Taxes.
(a) Returns Filed; Taxes Paid. All tax returns required to be filed by
the Company, any Subsidiary and each other Person with which the Company or
any Subsidiary files or has filed a consolidated return in any jurisdiction
have in fact been filed on a timely basis. All taxes, assessments, fees and
other governmental charges upon the Company and any such Person, and upon
any of their respective Properties, income or franchises, that are due and
payable have been paid, except for such failures to pay that, in the
aggregate for all such Persons, could not reasonably be expected to have a
Material Adverse Effect. The Company knows of no proposed additional tax
assessment against it or any such Person that could reasonably be expected
to have a Material Adverse Effect.
(b) Book Provisions Adequate. The amount of the liability for taxes
reflected in each of the balance sheets referred to in Section 2.2(a) is in
each case an adequate provision for taxes as of the dates of such balance
sheets (including, without limitation, any payment due pursuant to any tax
sharing agreement) as are or may become payable by any one or more of the
Company and the other Persons consolidated with the Company in such
financial statements in respect of all tax periods ending on or prior to
such dates.
5
<PAGE>
2.6 Pending Litigation.
(a) Pending Litigation. There are no proceedings, actions or
investigations pending or, to the Company's knowledge, threatened, against
or affecting the Company or any of the Subsidiaries in any court or before
any Governmental Authority or arbitration board or tribunal that, in the
aggregate for all such proceedings, actions and investigations, could
reasonably be expected to have a Material Adverse Effect.
(b) No Violations. Neither the Company nor any Subsidiary is in
violation of any judgment, order, writ, injunction or decree of any court,
Governmental Authority, arbitration board or tribunal that, in the
aggregate for all such violations, could reasonably be expected to have a
Material Adverse Effect.
2.7 Corporate Organization and Authority.
Each of the Company and each Subsidiary:
(a) is a corporation duly incorporated, validly existing and in good
standing under the laws of its state of incorporation;
(b) has all corporate power and authority necessary to own and operate
its Properties and to carry on its business as now conducted and as
presently proposed to be conducted;
(c) has all licenses, certificates, permits, franchises and other
governmental authorizations necessary to own and operate its Properties and
to carry on its business as now conducted and as presently proposed to be
conducted, except where the failure to have such licenses, certificates,
permits, franchises and other governmental authorizations, in the aggregate
for all such failures, could not reasonably be expected to have a Material
Adverse Effect; and
(d) has duly qualified or has been duly licensed, and is authorized to
do business and is in good standing, as a foreign corporation, in each
state in the United States of America and in each other jurisdiction where
it is required to do so, except where the failure to be so qualified or
licensed and authorized and in good standing, in the aggregate for all such
failures, could not reasonably be expected to have a Material Adverse
Effect.
2.8 Charter Instruments, Other Agreements.
Neither the Company nor any Subsidiary is in violation in any respect of:
(a) any term of its certificate of incorporation or bylaws; or
(b) any term in any agreement or other instrument to which it is a
party or by which it or any of its Property may be bound, except for such
violations that, in the aggregate for all such violations, could not
reasonably be expected to have a Material Adverse Effect.
6
<PAGE>
2.9 Restrictions on the Company.
Neither the Company nor any Subsidiary:
(a) is a party to any contract or agreement that restricts its right
or ability to incur Debt or to issue Rights of the Company, as the case may
be, other than the Financing Documents and the agreements listed on Part
2.9 (a) of Annex 3, none of which restricts the issuance and sale of the
Notes or the Warrants by the Company or the execution and delivery by the
Company and the Subsidiary Guarantors of, or compliance with, the
Securities Purchase Agreements or the other Financing Documents to which
each is a party; or
(b) has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its Property, whether now
owned or hereafter acquired, to be subject to a Lien not permitted by the
provisions of the Note Agreement.
True, correct and complete copies of each of the agreements, if any, listed on
Part 2.9(a) of Annex 3 have been provided to you.
2.10 Compliance with Law.
Neither the Company nor any Subsidiary is in violation of any law,
ordinance, governmental rule or regulation to which it is subject, except for
such violations that, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
2.11 Pension Plans.
(a) Operation of Plans; Liabilities. The Company and each ERISA
Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not
resulted in and could not reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred
any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the IRC relating to employee benefit plans (as defined in
section 3 of ERISA), and no event, transaction or condition has occurred or
exists that could reasonably be expected to result in the incurrence of any
such liability by the Company or any ERISA Affiliate, or in the imposition
of any Lien on any of the rights, Properties or assets of the Company or
any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or
to such penalty or excise tax provisions or to section 401(a)(29) or 412 of
the IRC, other than such liabilities or Liens as individually or in the
aggregate would not have a Material Adverse Effect.
(b) Relationship of Benefit Liabilities to Plan Assets. The present
value of the aggregate benefit liabilities under each of the Plans (other
than Multiemployer Plans), determined as of the end of such Plan's most
recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets
of such Plan allocable to such benefit liabilities. The term "benefit
liabilities" has the
7
<PAGE>
meaning specified in section 4001 of ERISA and the terms "current value"
and "present value" have the meaning specified in section 3 of ERISA.
(c) Withdrawal Liabilities. The Company and its ERISA Affiliates have
not incurred withdrawal liabilities (and are not subject to contingent
withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans, other than such liabilities as individually or in the
aggregate would not have a Material Adverse Effect.
(d) Postretirement Benefit Obligations. The expected postretirement
benefit obligation (determined as of the last day of the Company's most
recently ended fiscal year in accordance with Financial Accounting
Standards Board Statement No. 106, without regard to liabilities
attributable to continuation coverage mandated by section 4980B of the IRC)
of the Company will not have a Material Adverse Effect.
(e) Prohibited Transactions. The execution and delivery of the
Financing Documents and the issuance and sale of the Purchased Securities
hereunder will not involve any transaction that is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax
could be imposed pursuant to section 4975(c)(1)(A)-(D) of the IRC. The
representation by the Company in the foregoing sentence is made in reliance
upon and subject to the accuracy of your representation in Section 3.2 as
to the Sources of the funds used to pay the purchase price of the Purchased
Securities to be purchased by you.
(f) Foreign Pension Plans. The Company does not have or maintain, and
is not required to contribute to, any Foreign Pension Plan.
2.12 Environmental Compliance.
(a) Compliance -- Except as disclosed on Part 2.12(a) of Annex 3, each
of the Company and the Subsidiaries is in compliance with all Environmental
Protection Laws in effect in each jurisdiction where it is presently doing
business or is located, other than any non-compliance which could not
reasonably be expected to have a Material Adverse Effect.
(b) Liability -- Except as disclosed on Part 2.12(b) of Annex 3,
neither the Company nor any Subsidiary is subject to any liability under
any Environmental Protection Law that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(c) Notices -- Except as disclosed on Part 2.12(c) of Annex 3, neither
the Company nor any Subsidiary has received any:
(i) written notice from any Governmental Authority by which any
of its present or previously-owned or leased real Properties has been
designated, listed, or identified in any manner by any Governmental
Authority charged with administering or enforcing any Environmental
Protection Law as a hazardous substance disposal or removal site,
"Super Fund" clean-up site, or candidate for removal or closure
pursuant to any Environmental Protection Law;
8
<PAGE>
(ii) written notice of any Lien arising under or in connection
with any Environmental Protection Law that has attached to any
revenues of, or to, any of its owned or leased real Properties; or
(iii) summons, citation, notice, directive, letter, or other
written communication from any Governmental Authority concerning any
intentional or unintentional action or omission by the Company or any
Subsidiary in connection with its ownership or leasing of any real
Property resulting in the releasing, spilling, leaking, pumping,
pouring, emitting, emptying, dumping, or otherwise disposing of any
hazardous substance into the environment resulting in any material
violation of any Environmental Protection Law;
which, in any such case, relates to or makes reference to an event or
condition which could reasonably be expected to have a Material Adverse
Effect.
2.13 Due Authorization; Enforceability.
(a) Sale of Purchased Securities is Legal and Authorized. The
issuance, sale and delivery of the Notes and the Warrants by the Company,
the execution and delivery by the Company of the Financing Documents to
which it is a party and compliance by the Company with all of the
provisions of such Financing Documents:
(i) is within the corporate powers of the Company; and
(ii) is legal and does not conflict with, result in any breach of
any of the provisions of, constitute a default under, or result in the
creation of any Lien upon any Property of the Company under the
provisions of:
(A) any agreement, charter instrument, bylaw or other
instrument to which the Company is a party or by which the
Company is or may be bound;
(B) any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company or
any of its Property; or
(C) any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any of its
Property.
(b) Obligations are Enforceable. The Company has duly authorized by
all necessary action on its part each of the Financing Documents to which
it is a party. Each of such Financing Documents has been executed and
delivered by one or more duly authorized officers of the Company, and
constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except that:
(i) the enforceability thereof may be limited by applicable
bankruptcy, reorganization, arrangement, insolvency, moratorium, or
other similar laws affecting the enforceability of creditors' rights
generally and subject to the availability of equitable remedies; and
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(ii) rights to indemnity and contribution contained therein may
be limited by applicable law or public policy.
2.14 Governmental Consent to Sale of Purchased Securities.
(a) Neither the offer, issuance, sale or delivery of the Notes or the
Warrants, nor the execution and delivery of any Financing Document by the
Company, nor the performance of the obligations of the Company thereunder,
is such as to require a consent, approval or authorization of, or
pre-filing, registration or qualification with, any Governmental Authority
on the part of the Company as a condition thereto, except for such
consents, approvals, authorizations, pre-filings, registrations and
qualifications described on Part 2.14(a) of Annex 3, all of which have been
obtained on or prior to the Closing Date.
(b) Neither the issuance and sale of the Notes and the Warrants, nor
the incurrence of the Debt and the other obligations represented thereby,
nor the execution and delivery by the Company of the Financing Documents to
which it is a party or the performance of its obligations hereunder and
thereunder:
(i) is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as
amended, the Transportation Acts of the United States of America (49
U.S.C.), as amended, or the Federal Power Act, as amended; or
(ii) violates any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company.
2.15 Hart-Scott-Rodino Compliance.
The Warrants are "convertible voting securities" as such term is defined in
16 C.F.R. ss.801.1(f)(2) which do not entitle you to presently vote in respect
of the election of directors of the Company. Assuming that, notwithstanding the
fact that the Warrants are not currently exercisable on the Closing Date, the
Warrants were all exercised on the Closing Date, you would not hold (as such
term is defined in 16 C.F.R. ss.801.1(c)) on the Closing Date either:
(a) fifteen percent (15%) or more of the total number of shares of the
Common Stock of the Company; or
(b) Common Stock having a Fair Market Value of Fifteen Million Dollars
($15,000,000) or more.
2.16 No Defaults.
No event has occurred and no condition exists that, upon the execution and
delivery of the Financing Documents and the issuance and sale of the Purchased
Securities, would constitute a Default or an Event of Default.
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2.17 Private Offering of Purchased Securities.
(a) Number of Offerees. Neither the Company, nor to its knowledge
Fleet Corporate Finance (the only agent, broker or dealer retained by the
Company in connection with the sale of the Purchased Securities) nor any
other Person acting on behalf of the Company has offered any of the
Purchased Securities or any Security of the Company similar to either the
Notes or the Warrants for sale to, or solicited offers to buy any thereof
from, or otherwise approached or negotiated with respect thereto with, any
prospective purchaser, other than the number of institutional "accredited
investors" (as defined in Regulation D under the Securities Act) (including
you) set forth on Part 2.17(a) of Annex 3, each of whom was offered all or
a portion of the Purchased Securities at private sale for investment.
(b) Conduct of Sale. Neither the Company, nor to its knowledge Fleet
Corporate Finance nor any other Person acting on behalf of the Company in
connection with the transactions contemplated by the Financing Documents
(including, without limitation, the offering and sale of the Purchased
Securities) has engaged in any conduct or entered into any agreements or
understandings so as to subject the transactions contemplated by the
Financing Documents to the registration provisions of section 5 of the
Securities Act, to the provisions of the Trust Indenture Act of 1939, as
amended, or to the registration, qualification or other similar provisions
of any securities or "blue sky" law of any applicable state.
2.18 Use of Proceeds.
(a) Use of Proceeds. The Company shall apply the proceeds from the
sale of the Purchased Securities as specified on Part 2.18(a) of Annex 3.
(b) Margin Regulations. None of the transactions contemplated in any
of the Financing Documents (including, without limitation, the use of the
proceeds from the sale of the Purchased Securities) violates, will violate
or will result in a violation of section 7 of the Exchange Act, or any
regulation issued pursuant thereto, including, without limitation,
Regulation G, Regulation T or Regulation X of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Chapter II.
(c) Absence of Foreign or Enemy Status. Neither the sale of the
Purchased Securities nor the use of proceeds from the sale thereof will
result in a violation of any of the foreign assets control regulations of
the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended), or any ruling issued thereunder or any enabling legislation or
Presidential Executive Order in connection therewith.
2.19 Capitalization.
(a) Capitalization. Part 2.19(a) of Annex 3 correctly sets forth,
after giving effect to the issuance of the Purchased Securities and the
consummation of all other transactions contemplated by the Securities
Purchase Agreements on the Closing Date:
(i) the authorized and outstanding shares of the Capital Stock,
Rights and other Securities of the Company (specifying the type, class
or series of all
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such Capital Stock and other Securities and whether such Capital Stock
and other Securities are voting or non-voting) and, in the case of any
Rights, the number of shares of Common Stock into which such Rights
are currently exercisable or convertible;
(ii) for all such shares of Capital Stock, Rights and other
Securities of the Company, descriptions of the terms thereof; and
(iii) all obligations (contingent or otherwise) of the Company to
repurchase or otherwise acquire or retire any shares of Capital Stock
or Rights of the Company.
All such outstanding shares of Capital Stock have been duly authorized and
validly issued and are fully paid, non-assessable and free and clear of any
Lien. There are no preemptive rights, subscription rights, or other
contractual rights similar in nature to preemptive rights with respect to
any Capital Stock of the Company.
(b) Reservation of Common Stock. The Company has authorized and
unissued, and has reserved for issuance, a sufficient number of shares of
Common Stock to permit, after giving effect to the transactions
contemplated by the Financing Documents, the exercise of all of the
Warrants and all other Rights exercisable or convertible into Common Stock.
Each share of Common Stock reserved for issuance upon exercise of the
Warrants, when issued, will be fully paid and nonassessable, free and clear
of any Lien and not subject to any preemptive rights.
(c) Stockholders Agreements. Other than the Warrant Agreement and as
specified on Part 2.19(c) of Annex 3, there is no other agreement or
understanding known to the Company between or among any holders of the
Capital Stock or Rights of the Company regarding the Capital Stock of the
Company. The Company has provided you with true, accurate and complete
copies of all agreements referred to in Part 2.19(c) of Annex 3.
2.20 Solvency.
(a) Assets Greater than Liabilities. The fair value of the business
and assets of the Company (and of the Company and the Subsidiaries, on a
consolidated basis) exceeds, as of and after giving effect to the
transactions consummated on the Closing Date, the liabilities of the
Company (including, without limitation, the Notes and all other Debt of the
Company (and, as the case may be, of the Company and the Subsidiaries, on a
consolidated basis)) as of such time.
(b) Meeting Liabilities. After giving effect to the transactions
contemplated by the Financing Documents, the Company (and the Company and
the Subsidiaries, on a consolidated basis):
(i) will not be engaged in any business or transaction, or about
to engage in any business or transaction, for which the Company (or,
as the case may be, the Company and the Subsidiaries, on a
consolidated basis) has unreasonably small assets or capital (within
the meaning of the Uniform
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Fraudulent Transfer Act, the Uniform Fraudulent Conveyance Act and
section 548 of the Federal Bankruptcy Code); and
(ii) will be able to pay its debts as they mature.
(c) Intent. The Company is entering into the Financing Documents with
no intent to hinder, delay, or defraud either current creditors or future
creditors of the Company.
2.21 Full Disclosure.
Neither the statements made in this Agreement, the Offering Memorandum, the
financial statements referred to in Section 2.2(a), nor any other written
statement furnished by or on behalf of the Company to you in connection with the
negotiation or the closing of the sale of the Purchased Securities, taken as a
whole, contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein and herein, taken as a whole,
not misleading. There is no fact that the Company has not disclosed to you in
writing that has had or, so far as the Company can now reasonably foresee, could
reasonably be expected to have, a Material Adverse Effect.
3. REPRESENTATIONS OF THE PURCHASER
3.1 Purchase for Investment.
You represent to the Company that you are a financially sophisticated
institutional investor that is experienced in financial matters and you are
purchasing the Purchased Securities listed on Annex 1 below your name for your
own account, or for the account of one or more separate accounts maintained by
you, for investment and with no present intention of, or view to, distributing
such Purchased Securities or any part thereof except in compliance with the
Securities Act, but without prejudice to your right at all times to:
(a) sell or otherwise dispose of all or any part of the Purchased
Securities under a registration statement filed under the Securities Act,
or in a transaction exempt from the registration requirements of such Act,
including a transaction pursuant to Rule 144A; and
(b) have control over the disposition of all of your assets to the
fullest extent required by any applicable law.
It is understood that, in making the representations set out in Section
2.13(a) and Section 2.14, the Company is relying, to the extent applicable, upon
your representation as aforesaid.
3.2 ERISA.
You represent that at least one of the following statements is an accurate
representation as to each source of funds (a "Source") to be used by you to pay
the purchase price of the Purchased Securities:
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(a) General Account -- you are an insurance company and the Source is
an "insurance company general account," as such term is defined in DOL
Prohibited Transaction Class Exemption 95-60 (issued July 12, 1995) ("PTCE
95-60"), and there is no employee benefit plan, treating as a single plan
all plans maintained by the same employer (and affiliates thereof as
defined in section V(a)(1) of PTCE 95-60) or by the same employee
organization, with respect to which the amount of the general account
reserves and liabilities for all contracts held by or on behalf of such
plan, exceeds 10% of the total reserves and liabilities of such general
account as determined under PTCE 95-60 (exclusive of separate account
liabilities) plus surplus, as set forth in the National Association of
Insurance Commissioners Annual Statement filed with your state of domicile;
or
(b) Separate Account -- the Source is a separate account:
(i) 10% Pooled Separate Account -- that is an insurance company
pooled separate account, within the meaning of DOL Prohibited
Transaction Class Exemption 90-1 (issued January 29, 1990), and to the
extent that there are any plans whose assets in such separate account
exceed ten percent (10%) of the assets of such separate account, you
have disclosed the names of such plans to the Company in writing; or
(ii) Identified Plan Assets -- that is comprised of employee
benefit plans identified by you in writing and with respect to which
the Company hereby warrants and represents that, as of the Closing
Date, neither the Company nor any ERISA Affiliate is a "party in
interest" (as defined in section 3 of ERISA) or a "disqualified
person" (as defined in section 4975 of the Code) with respect to any
plan so identified; or
(iii) Guarantied Separate Account -- that is maintained solely in
connection with fixed contractual obligations of an insurance company,
under which any amounts payable, or credited, to any employee benefit
plan having an interest in such account and to any participant or
beneficiary of such plan (including an annuitant) are not affected in
any manner by the investment performance of the separate account (as
provided by 29 CFR ss.2510.3- 101(h)(1)(iii)); or
(c) QPAM -- the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that are
included in such investment fund, when combined with the assets of all
other employee benefit plans established or maintained by the same employer
or by an affiliate (within the meaning of section V(c)(1) of the QPAM
Exemption) of such employer or by the same employee organization and
managed by such QPAM, exceed twenty percent (20%) of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling or
controlled by the QPAM (applying the definition of "control" in section
V(e) of the QPAM Exemption) owns a five percent (5%) or more interest in
the Company and:
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(i) the identity of such QPAM; and
(ii) the names of all employee benefit plans whose assets are
included in such investment fund
have been disclosed to the Company in writing; or
(d) Governmental Plans -- the Source is a governmental plan; or
(e) Identified Plans -- the Source is one or more employee benefit
plans, or a separate account or trust fund comprised of one or more
employee benefit plans, each of which has been identified to the Company in
writing; or
(f) Exempt Plans -- the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this Section , the terms "employee benefit plan", "governmental plan"
and "separate account" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
It is understood that, in making the representations set out in Section
2.11(e), Section 2.13(a) and Section 2.14, the Company is relying, to the extent
applicable, upon your representation as aforesaid.
3.3 Accredited Investor.
You are an "accredited investor" as that term is defined in Rule 501(a)(1)
of Regulation D under the Securities Act. You have had the opportunity to
receive such information concerning the Company, and to ask such questions of
officers and other representatives of the Company, as you believe is necessary
for you to complete your evaluation of the Company.
4. CLOSING CONDITIONS
Your obligations under this Agreement, including, without limitation, the
obligation to purchase and pay for the Purchased Securities, are subject to the
following conditions precedent, and the failure by the Company to satisfy all
such conditions shall relieve you, at your election, of all such obligations.
4.1 Opinions of Counsel.
You shall have received from
(a) Tenzer Greenblatt LLP, special counsel for the Company and the
Subsidiary Guarantors; and
(b) Hebb & Gitlin, your special counsel;
closing opinions, each dated as of the Closing Date, and substantially in the
respective forms set forth in Exhibit 4.1(a) and Exhibit 4.1(b) and as to such
other matters as you may reasonably
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request. This Section 4.1 shall constitute direction by the Company to such
counsel named in Section 4.1(a) to deliver such closing opinion to you.
4.2 Warranties and Representations True; Compliance.
(a) Warranties and Representations True. The warranties and
representations contained in Section 2 shall be true on the Closing Date
with the same effect as though made on and as of that date.
(b) Compliance with this Agreement and Financing Documents. The
Company shall have performed and complied with all agreements and
conditions contained herein and in the other Financing Documents to which
it is a party that are required to be performed or complied with by the
Company on or prior to the Closing Date, and such performance and
compliance shall remain in effect on the Closing Date.
4.3 Officers' Certificates.
You shall have received:
(a) Officers' Certificate -- a certificate from the Company dated the
Closing Date and signed (on behalf of the Company) by two (2) Senior
Officers of the Company, substantially in the form of Exhibit 4.3(a);
(b) Company Secretary's Certificate -- a certificate dated the Closing
Date and signed (on behalf of the Company) by the Secretary or an Assistant
Secretary of the Company, substantially in the form of Exhibit 4.3(b); and
(c) Subsidiary Guarantor Secretary's Certificates -- a certificate
from each Subsidiary Guarantor, dated the Closing Date and signed (on
behalf of such Subsidiary Guarantor) by the Secretary or an Assistant
Secretary of such Subsidiary Guarantor, substantially in the form of
Exhibit 4.3(c).
4.4 Legality.
The Notes and the Warrants shall on the Closing Date qualify as a legal
investment for you under applicable insurance law (without regard to any
"basket" or "leeway" provisions), and the acquisition thereof shall not subject
you to any penalty or other onerous condition pursuant to any such law or
regulation, and you shall have received such evidence as you may reasonably
request to establish compliance with this condition.
4.5 Financing Documents.
(a) Note Agreement; Notes. The Company shall have executed and
delivered to you the Note Agreement. The Company shall have issued to you
Notes in the respective principal amounts set forth below your name on
Annex 1.
(b) Warrant Agreement; Warrant Certificates. The Company shall have
executed and delivered to you the Warrant Agreement. The Company shall have
issued to you Warrants in the respective amounts set forth below your name
on Annex 1.
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(c) Subsidiary Guaranty. Each of Suprema Specialties West, Inc. and
Suprema Specialties Northeast, Inc. shall have executed and delivered to
you the Unconditional Guaranty (as may be amended, restated or otherwise
modified from time to time in accordance with the terms thereof, the
"Subsidiary Guaranty") in the form of Exhibit 4.5(c).
4.6 Reservation of Shares.
The shares of Common Stock issuable upon exercise of each Warrant shall
have been duly authorized and reserved for issuance.
4.7 Certain Consents.
(a) Senior Agent. The Senior Agent and the Company shall have executed
and delivered to you an agreement, in form and substance acceptable to you,
consenting to the transactions contemplated by the Financing Documents,
permitting the Company to incur and have outstanding the indebtedness and
all other obligations in respect of the Note Agreement, the Warrant
Agreement and the Notes, the issuance and sale of the Notes and the
Warrants and the issuance of Common Stock to the holders of the Warrants
upon exercise of the Warrants, permitting each Subsidiary Guarantor to
enter into the Subsidiary Guaranty, and waiving any default or event of
default which might have occurred by virtue of the execution and delivery
of this Agreement and the other Financing Documents.
(b) Other Equity Holders. The holders of each series of the
Outstanding Warrants, and any other class of Capital Stock the consent of
the holders of which is required to enter into the transactions
contemplated by the Financing Documents or having any anti-dilution,
preemptive right, redemption right or similar right in respect of any of
the transactions contemplated by the Financing Documents, shall have
executed and delivered to you agreements, in form and substance acceptable
to you, consenting to the transactions contemplated by the Financing
Documents, permitting the Company to incur and have outstanding the
obligations in respect of the Warrant Agreement, the issuance and sale of
the Warrants and the issuance of Common Stock to the holders of the
Warrants upon exercise of the Warrants, and waiving any anti-dilution
adjustment, preemptive right, redemption right or similar right any such
holder may have in respect of any of the foregoing transactions.
4.8 Private Placement Numbers.
The Company shall have obtained or caused to be obtained private placement
numbers for the Notes and the Warrants from the CUSIP Service Bureau of Standard
& Poor's, a division of McGraw-Hill, Inc. and you shall have been informed of
such private placement numbers. The Company shall have informed you in writing
of the CUSIP number for the Common Stock.
4.9 Transaction Fee.
The Company shall have paid to Albion Alliance LLC, by wire transfer of
immediately available funds as set forth on Annex 1, a transaction fee in the
amount of one percent (1%) of the aggregate principal amount of Notes purchased
by you at the Closing.
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4.10 Fees and Expenses.
All fees and disbursements required to be paid pursuant to Section 6.6
shall have been paid in full.
4.11 Other Purchaser.
The Other Purchaser shall not have failed to execute and deliver the Note
Agreement, the Warrant Agreement or any other Financing Document to be executed
and delivered by it, or to accept delivery of or make payment for the Notes and
the Warrants to be purchased by it on the Closing Date.
4.12 Proceedings Satisfactory.
All proceedings taken in connection with the issuance and sale of the
Purchased Securities and all documents and papers relating thereto shall be
satisfactory to you and your special counsel. You and your special counsel shall
have received copies of such documents and papers as you or they may reasonably
request in connection therewith or in connection with your special counsel's
closing opinion, all in form and substance satisfactory to you and your special
counsel.
5. INTERPRETATION OF THIS AGREEMENT
5.1 Terms Defined.
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
Agreement, this -- means this Securities Purchase Agreement, as it may be
amended, restated or otherwise modified from time to time.
Closing -- Section 1.2(b).
Closing Date -- Section 1.2(b).
Company -- has the meaning specified in the introductory sentence.
Financing Documents -- means and includes the Securities Purchase
Agreements, the Note Agreement, the Notes, the Subsidiary Guaranty, the Warrant
Agreement, the Warrants, the Warrant Certificates and the other agreements,
certificates and instruments to be executed pursuant to the terms of each of the
foregoing, as each may be amended, restated or otherwise modified from time to
time.
Foreign Pension Plan -- means any plan, fund or other similar program:
(a) established or maintained outside of the United States of America
by the Company or any Subsidiary primarily for the benefit of the employees
(substantially all of whom are aliens not residing in the United States of
America) of the Company or such Subsidiary, which plan, fund or other
similar program provides for retirement income for
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such employees or results in a deferral of income for such employees in
contemplation of retirement; and
(b) not otherwise subject to ERISA.
Note Agreement -- Section 1.1(a).
Notes -- Section 1.1(a).
Offering Memorandum -- means the Confidential Private Placement Memorandum
of Fleet Corporate Finance, dated October 1997, relating to the offering of the
Purchased Securities, together with the exhibits thereto (including, without
limitation, the Projections and the Company's Annual Reports on Form 10-K for
the fiscal years ended June 30, 1997 and June 30, 1996).
Other Purchaser -- Section 1.2(c).
Outstanding Warrants -- means and includes all warrants to purchase Common
Stock outstanding on the date hereof and prior to the issuance of the Warrants.
Projections -- Section 2.2(f).
PTCE 95-60 -- Section 3.2(a).
Purchased Securities -- means the Notes and the Warrants to be purchased by
you and the Other Purchaser pursuant to Section 1.2 of this Agreement and the
other Securities Purchase Agreement.
Purchasers -- means, collectively, you, the Other Purchaser, and your and
its respective successors and assigns.
QPAM Exemption -- means Prohibited Transaction Class Exemption 84-14 issued
by the DOL.
Rule 144A -- means Rule 144A promulgated under the Securities Act, 17
C.F.R. ss.230.144A, as such rule may be amended from time to time.
Securities Purchase Agreements -- Section 1.2(c).
Source -- Section 3.2.
Subsidiary Guarantor -- means, at any time, each Person that at such time
is a guarantor under the Subsidiary Guaranty.
Subsidiary Guaranty -- Section 4.5(c).
Warrant Agreement -- Section 1.1(b).
Warrant Certificates -- Section 1.1(b).
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Warrants -- Section 1.1(b).
5.2 Other Definitions.
The following terms shall have the respective meanings ascribed to such
terms in the Note Agreement:
Affiliate Investment
Capital Stock IRC
Common Stock Lien
Debt Material Adverse Effect
Default Multiemployer Plan
DOL Person
ERISA Plan
ERISA Affiliate Property
Environmental Protection Law Restricted Investment
Event of Default Rights
Exchange Act Securities Act
Fair Market Value Security
GAAP Senior Agent
Guaranty Senior Officer
Governmental Authority Subsidiary
Hazardous Materials Voting Stock
5.3 Section Headings and Table of Contents and Construction.
(a) Section Headings and Table of Contents, etc. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement
appear as a matter of convenience only, do not constitute a part hereof and
shall not affect the construction hereof. The words "herein," "hereof,"
"hereunder" and "hereto" refer to this Agreement as a whole and not to any
particular Section or other subdivision. References to Sections are, unless
otherwise specified, references to Sections of this Agreement. References
to Annexes and Exhibits are, unless otherwise specified, references to
Annexes and Exhibits attached to this Agreement.
(b) Construction. Each covenant contained herein shall be construed
(absent an express contrary provision herein) as being independent of each
other covenant contained herein, and compliance with any one covenant shall
not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
5.4 Governing Law.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF
ANY OTHER JURISDICTION.
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6. MISCELLANEOUS
6.1 Communications.
(a) Method; Address. All communications hereunder shall be in writing
and shall be delivered either by nationwide overnight courier or by
facsimile transmission (confirmed by delivery by nationwide overnight
courier sent on the day of the sending of such facsimile transmission).
Communications to the Company shall be addressed as set forth on Annex 2,
or at such other address of which the Company shall have notified you and
the Other Purchaser. Communications to you shall be addressed as set forth
on Annex 1.
(b) When Given. Any communication addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the
address of the addressee (whether or not delivery is accepted) or received
by the telecopy machine of the recipient. Any communication not so
addressed and delivered shall be ineffective.
(c) Service of Process. Notwithstanding the foregoing provisions of
this Section 6.1, service of process in any suit, action or proceeding
arising out of or relating to this Agreement or any document, agreement or
transaction contemplated hereby shall be delivered in the manner provided
in Section 6.7(c).
6.2 Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by you at the closing of your purchase of the Purchased
Securities (except the Purchased Securities themselves), and financial
statements, certificates and other information previously or hereafter furnished
to you, may be reproduced by the Company or you by any photographic,
photostatic, microfilm, micro-card, miniature photographic, digital or other
similar process and you may destroy any original document so reproduced. Any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Company or you in
the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Nothing in this Section shall prohibit the Company or you from contesting the
accuracy or validity of any such reproduction.
6.3 Survival.
All warranties, representations, certifications and covenants made by the
Company herein or in any certificate or other instrument delivered by the
Company on behalf of the Company hereunder shall be considered to have been
relied upon by you and shall survive the delivery to you of the Purchased
Securities regardless of any investigation made by you or on your behalf. All
statements in any certificate or other instrument delivered by or on behalf of
the Company pursuant to the terms hereof shall constitute warranties and
representations by the Company hereunder.
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6.4 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of you and your successors and assigns, and shall
be enforceable by you, such successor or assignee whether or not an express
assignment to such holder of rights hereunder shall have been made by you or
your successor or assign. Anything contained in this Section notwithstanding,
the Company may not assign any of its respective rights, duties or obligations
hereunder or under any of the other Financing Documents without your prior
written consent.
6.5 Amendment and Waiver.
This Agreement may be amended, and the observance of any term hereof may be
waived, with (and only with) the written consent of the Company and you.
6.6 Expenses.
Whether or not the Notes and the Warrants are sold, the Company shall pay,
at the Closing (if the Notes and the Warrants are sold, and otherwise upon
receipt of any statement or invoice therefor), all reasonable fees, expenses and
costs incurred by you relating hereto, including, without limitation, the
statement presented at the Closing by your special counsel for reasonable fees
and disbursements incurred in connection herewith, each additional statement for
reasonable fees and disbursements (promptly upon receipt thereof) of your
special counsel rendered after the Closing in connection with the issuance of
the Notes and the Warrants, and all expenses incurred by you or on your behalf
or the Company's behalf in complying with each of the conditions to the Closing
set forth in Section 4.
6.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc.
(a) Waiver of Jury Trial. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED
HEREBY.
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE DOCUMENTS, AGREEMENTS
OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE
OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT
BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK COUNTY, NEW
YORK, OR ANY NEW YORK STATE COURT LOCATED IN NEW YORK COUNTY, NEW YORK AS
SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF
EACH SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES AND
AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF
MOTION, AS A DEFENSE OR
22
<PAGE>
OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION
OF ANY SUCH COURT. IN ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT,
AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT, AND
HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY AGREES THAT
PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT
PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT,
AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING
TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH
HEREUNDER OR UNDER ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT
OF PROCESS SO SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A
DELIVERY RECEIPT FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY
COMMERCIAL DELIVERY SERVICE.
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT
YOUR ABILITY TO SERVE ANY WRITS, PROCESS OR SUMMONSES IN ANY MANNER
PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER THE COMPANY IN
SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE PERMITTED BY
APPLICABLE LAW.
6.8 Indemnification of The Purchaser.
From and at all times after the date of this Agreement, and in addition to
all of your other rights and remedies against the Company, the Company agrees to
indemnify and hold harmless you and each of your directors, officers, partners,
employees, agents, investment advisors and affiliates against any and all claims
(whether valid or not), losses, damages, liabilities, costs and expenses of any
kind or nature whatsoever (including, without limitation, reasonable attorneys'
fees, costs and expenses), incurred by or asserted against you or any such
director, officer, partner, employee, agent, investment advisor or affiliate,
from and after the date hereof, whether direct or indirect, as a result of or
arising from or in any way relating to any suit, action or proceeding (including
any inquiry or investigation) by any Person, whether threatened or initiated,
asserting a claim for any legal or equitable remedy against any Person under any
statute or regulation, including, but not limited to, any federal or state
securities laws, or under any common law or equitable cause or otherwise,
arising from or in connection with the negotiation, preparation, execution,
performance or enforcement of this Agreement or the other Financing Documents or
any transactions contemplated herein or therein, or any of the transactions
contemplated hereunder, whether or not you or any such director, officer,
partner, employee, agent, investment advisor or affiliate is a party to any such
action, proceeding, suit or the target of any such inquiry or investigation;
provided, however, that no indemnified party shall have the
23
<PAGE>
right to be indemnified hereunder for any liability resulting from the willful
misconduct or gross negligence of such indemnified party or breach by such
indemnified party of its own obligations under this Agreement. All of the
foregoing losses, damages, costs and expenses shall be payable as and when
incurred upon the demand of the indemnified party. The obligations of the
Company and your rights under this Section 6.8 shall survive the termination of
this Agreement.
6.9 Entire Agreement.
This Agreement constitutes the final written expression of all of the terms
hereof and is a complete and exclusive statement of those terms.
6.10 Execution in Counterpart.
This Agreement may be executed in one or more counterparts and shall be
effective when at least one counterpart shall have been executed by each party
hereto, and each set of counterparts that, collectively, show execution by each
party hereto shall constitute one duplicate original.
[Remainder of page intentionally blank. Next page is signature page.]
24
<PAGE>
If this Agreement is satisfactory to you, please so indicate by signing the
acceptance at the foot of a counterpart hereof and returning such counterpart to
the Company, whereupon this Agreement shall become binding among us in
accordance with its terms.
Very truly yours,
SUPREMA SPECIALTIES, INC.
By:
----------------------------------
Name:
Title:
Accepted:
[Separately executed by each of the following Purchasers]
<PAGE>
ANNEX 1
INFORMATION AS TO PURCHASERS
================================================================================
Purchaser Name ALBION ALLIANCE MEZZANINE FUND, L.P.
- --------------------------------------------------------------------------------
Name in which Note and ALBION ALLIANCE MEZZANINE FUND, L.P.
Warrants are Registered
- --------------------------------------------------------------------------------
Subordinated Note R-1: $8,500,000
Registration Number;
Principal Amount of Note
Warrant Certificate WR-1: 85,000 Warrants
Registration Number;
Number of Warrants
- --------------------------------------------------------------------------------
Payment of Transaction
Fee
Albion Alliance LLC
Payee name and c/o Alliance Capital Management, L.P.
Address 135 West 50th Street, 6th Floor
New York, NY 10020
Attn: Cash Operations
Federal Funds Wire Transfer
Method
IBJ Schroder Bank & Trust Co.
Account Information ABA# 026 007 825
Account #01098103
For the Account of: Albion Alliance LLC
(Tax I.D. No. 13-3903734)
- --------------------------------------------------------------------------------
Accompanying Information Name of Company: SUPREMA SPECIALTIES, INC.
Description of
Security: 16.5% Senior Subordinated
Notes due March 1, 2006
PPN: 86859F A* 8
Reference "Payment of Transaction Fee"
- --------------------------------------------------------------------------------
Address for All Other Albion Alliance Mezzanine Fund, L.P.
Notices c/o Albion Alliance LLC
1345 Avenue of the Americas, 41st Floor
New York, NY 10105
Attention: William Gobbo, Jr.
(212) 969-1547 - Phone
(212) 969-1529 - Fax
- --------------------------------------------------------------------------------
Annex 1-1
<PAGE>
ANNEX 1
INFORMATION AS TO PURCHASERS (Cont.)
================================================================================
Other Instructions Signature Page Format:
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC, its General Partner
By
---------------------------------------
Name:
Title:
- --------------------------------------------------------------------------------
Instructions re: Delivery of The Equitable Life Assurance Society
Note and Warrant of the United States
Certificate Attn: Cheryl Weitman, 12th Floor
1290 Avenue of the Americas
New York, NY 10104
- --------------------------------------------------------------------------------
Tax Identification Number 13-3975300
================================================================================
Annex 1-2
<PAGE>
ANNEX 1
INFORMATION AS TO PURCHASERS (Cont.)
================================================================================
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
- --------------------------------------------------------------------------------
Name in which Note and THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
Warrants are Registered UNITED STATES
- --------------------------------------------------------------------------------
Subordinated Note R-2: $2,000,000
Registration Number;
Principal Amount of Note
Warrant Certificate WR-2: 20,000 Warrants
Registration Number;
Number of Warrants
- --------------------------------------------------------------------------------
Accompanying Information Name of Company: SUPREMA SPECIALTIES, INC.
Description of
Security: 16.5% Senior Subordinated
Notes due March 1, 2006
PPN: 86859F A* 8
Reference "Payment of Transaction Fee"
- --------------------------------------------------------------------------------
Address for All Other The Equitable Life Assurance Society of
Notices the United States
c/o Alliance Capital Management, L.P.
1345 Avenue of the Americas, 41st Floor
New York, NY 10105
Attention: Alliance Corporate Finance
Group Inc.
(212) 969-1547 - Phone
(212) 969-1529 - Fax
- --------------------------------------------------------------------------------
Other Instructions Signature Page Format:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
By
---------------------------------------
Name:
Title:
- --------------------------------------------------------------------------------
Instructions re: Delivery of The Equitable Life Assurance Society
Note and Warrant of the United States
Certificate 1290 Avenue of the Americas
New York, NY 10104
Attn: Lydia Pitts
212) 314-3902 - Phone
- --------------------------------------------------------------------------------
Annex 1-3
<PAGE>
ANNEX 1
INFORMATION AS TO PURCHASERS (Cont.)
================================================================================
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
- --------------------------------------------------------------------------------
Tax Identification Number 13-5570651
================================================================================
Annex 1-4
<PAGE>
ANNEX 2
PAYMENT INSTRUCTIONS AT CLOSING;
ADDRESS OF COMPANY FOR NOTICES
Payment instructions at Closing:
Fleet Bank
Glenn Rock, New Jersey
ABA No.: 021200339
Account No.: 4190201495
Account Name: Suprema Specialties, Inc.
Address of Company for Notices:
Suprema Specialties
510 East 35th Street
P.O. Box 280 Park Station
Paterson, New Jersey 07543
Attn: President
Annex 2-1
<PAGE>
ANNEX 3
INFORMATION AS TO COMPANY
Part 2.2(a) -- Financial Statements
None.
Part 2.2(b) -- Debt
================================================================================
Nature of Obligation Creditor Principal Amount
================================================================================
Capital Leases* CIT Group $454,960.00
- --------------------------------------------------------------------------------
Capital Leases* Gramercy Leasing $33,643.00
- --------------------------------------------------------------------------------
Capital Leases* AT&T $4,171.00
- --------------------------------------------------------------------------------
Capital Leases* Execulease $2,042,454.00
- --------------------------------------------------------------------------------
Capital Leases* Wasco $40,075.00
- --------------------------------------------------------------------------------
Capital Leases* Execulease $136,412.00
- --------------------------------------------------------------------------------
Mortgage** Fleet Bank $975,162.00
- --------------------------------------------------------------------------------
Senior Credit Agreement*** Fleet Bank outstanding:
$19,294,760.00
commitment:
$20,000,000.00
- --------------------------------------------------------------------------------
Notes Equitable Life/Albion $10,500,000.00
Alliance
================================================================================
Total $33,481,637.00
================================================================================
Final maturities and prepayments:
Maturities of the Debt are as described in Note 7 to the Consolidated
Financial Statements of the Company, as included in its Annual Report on Form
10-K for the fiscal year ended June 30, 1997 included in the Offering
Memorandum.
Collateral:
* - Each indicated obligation is secured by the Property so financed.
** - Secured by a mortgage on the Company's Paterson, New Jersey facility.
*** - Secured by the Inventory, Receivables and substantially all other
Property.
Annex 3-1
<PAGE>
Part 2.2(c) -- Liens
None other than as disclosed in Part 2.2(b) of this Annex 3.
Part 2.2(g) -- Investments
None
Part 2.3(a) -- Ownership of Subsidiaries
================================================================================
Legal Name of Subsidiary Jurisdiction of Percent owned by
Incorporation the Company
================================================================================
Suprema Specialties West, Inc. California 100%
- --------------------------------------------------------------------------------
Suprema Specialties Northeast, New York 100%
Inc.
================================================================================
Part 2.3(b) -- Affiliates
================================================================================
Affiliate Nature of Affiliation
================================================================================
Mark Cocchiola Chairman, Chief Executive Officer,
President and holder of greater than 5% of
the Common Stock
- --------------------------------------------------------------------------------
Paul Lauriero Executive Vice President, Director and
holder of greater than 5% of the Common
Stock
- --------------------------------------------------------------------------------
Marco Cocchiola Director
- --------------------------------------------------------------------------------
Dr. Rudolph Acosta Director
- --------------------------------------------------------------------------------
Paul DeSocio Director
- --------------------------------------------------------------------------------
William C. Gascoigne Director
- --------------------------------------------------------------------------------
Steven Venechanos Chief Financial Officer
- --------------------------------------------------------------------------------
Anthony Distinti Vice President -- Human Resources
- --------------------------------------------------------------------------------
Thomas F. Egan Senior Vice President
================================================================================
Annex 3-2
<PAGE>
Part 2.9(a) -- Restrictions on the Company
None
Part 2.12(a) -- Environmental Compliance
None
Part 2.12(b) -- Environmental Liability
None
Part 2.12(c) -- Environmental Notices
None
Part 2.14(a) -- Governmental Consent to Sale of Purchased Securities
None
Part 2.17(a) -- Offerees
The Purchasers and 18 other institutional investors
Part 2.18(a) -- Use of Proceeds
Prepayment of bridge financing incurred to prepay $5,000,000 in
subordinated Debt previously owing to CoreStates Bank, N.A., and general
corporate purposes.
Part 2.29(a) -- Capitalization
Authorized Capitalization:
Common Stock: 10,000,000 shares
Series A Preferred Stock: 2,500,000 shares
Outstanding Capitalization:
Common Stock (at October 10, 1997): 4,560,144
Series A Preferred Stock: None
A description of the outstanding Rights is as follows:
Annex 3-3
<PAGE>
INSERT PAGE PROVIDED BY THE COMPANY!!!!!!
Annex 3-4
<PAGE>
Part 2.19(a) -- Capitalization (continued)
None of the holders of any of the Rights has any anti-dilution, preemptive
right, redemption right or similar right in respect of any of the transactions
contemplated by the Financing Documents.
Part 2.19(c) -- Stockholders Agreements
None.
Annex 3-5
SUPREMA SPECIALTIES, INC.
---------------------------------------------------
NOTE AGREEMENT
---------------------------------------------------
DATED AS OF MARCH 9, 1998
$10,500,000 16.5% SENIOR SUBORDINATED NOTES DUE MARCH 1, 2006
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PAYMENTS...................................................................................... 1
1.1 Interest Payments.................................................................... 1
1.2 Capitalized Interest Amounts......................................................... 2
1.3 Scheduled Principal Payments......................................................... 2
1.4 Optional Principal Payments.......................................................... 3
1.5 Offer to Pay Upon Change in Management............................................... 4
1.6 Delivery of Subordinated Notes in Payment of Warrant Purchase Price.................. 5
1.7 Application of Payments; Payments Among Noteholders.................................. 5
1.8 Notation of Notes on Payment......................................................... 6
1.9 No Other Payments of Principal; Acquisition of Notes................................. 7
1.10 Manner of Payments................................................................... 7
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES................................................. 8
2.1 Registration of Notes................................................................ 8
2.2 Exchange of Notes.................................................................... 8
2.3 Replacement of Notes................................................................. 8
2.4 Issuance Taxes....................................................................... 9
3. GENERAL COVENANTS............................................................................. 9
3.1 Payment of Taxes and Claims.......................................................... 9
3.2 Maintenance of Properties; Corporate Existence; etc.................................. 10
3.3 Payment of Notes and Maintenance of Office........................................... 10
3.4 Pension Plans........................................................................ 11
3.5 Private Offering..................................................................... 11
3.6 Subsidiary Guaranty.................................................................. 11
4. FINANCIAL COVENANTS........................................................................... 12
4.1 Mergers and Consolidations........................................................... 12
4.2 Disposition of Assets, Subsidiary Stock.............................................. 13
4.3 Liens................................................................................ 15
4.4 Net Worth............................................................................ 17
4.5 Fixed Charge Coverage................................................................ 18
4.6 Ratio of Debt to Pro Forma Consolidated Cash Flow.................................... 18
4.7 Incurrence of Debt................................................................... 18
4.8 Restricted Payments, Restricted Repurchases and Restricted
Investments.......................................................................... 21
4.9 Seniority to Junior Subordinated Debt................................................ 22
4.10 Line of Business..................................................................... 22
4.11 Transactions with Affiliates......................................................... 23
5. REPORTING COVENANTS........................................................................... 23
5.1 Financial and Business Information................................................... 23
5.2 Extension of Time to File SEC Reports................................................ 26
5.3 Officer's Certificates............................................................... 26
5.4 Accountants' Certificates............................................................ 27
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.5 Inspection........................................................................... 27
5.6 Confidential Information............................................................. 27
6. EVENTS OF DEFAULT............................................................................. 29
6.1 Events of Default.................................................................... 29
6.2 Default Remedies..................................................................... 31
6.3 Annulment of Acceleration of Notes................................................... 33
7. SUBORDINATION................................................................................. 34
7.1 General.............................................................................. 34
7.2 Insolvency........................................................................... 34
7.3 Proofs of Claim...................................................................... 34
7.4 Payment Default in Respect of Senior Debt............................................ 35
7.5 Significant Nonpayment Default in Respect of Senior Debt............................. 35
7.6 Enforcement Notice................................................................... 36
7.7 Standstill........................................................................... 36
7.8 Turnover of Payments................................................................. 37
7.9 Subordination Unaffected by Certain Events........................................... 37
7.10 Waiver and Consent................................................................... 38
7.11 Reinstatement of Subordination....................................................... 38
7.12 Obligations Not Impaired............................................................. 38
7.13 Payment of Senior Debt; Subrogation.................................................. 39
7.14 Reliance of Holders of Senior Debt................................................... 39
7.15 Identity of Holders of Senior Debt................................................... 39
7.16 Amendments to Senior Credit Facility................................................. 39
8. INTERPRETATION OF THIS AGREEMENT.............................................................. 40
8.1 Terms Defined........................................................................ 40
8.2 Other Definitions.................................................................... 62
8.3 Accounting Principles................................................................ 62
8.4 Directly or Indirectly............................................................... 63
8.5 Section Headings and Table of Contents and Construction.............................. 63
8.6 Governing Law........................................................................ 63
8.7 General Interest Provisions.......................................................... 63
9. MISCELLANEOUS................................................................................. 65
9.1 Communications....................................................................... 65
9.2 Reproduction of Documents............................................................ 65
9.3 Survival; Entire Agreement........................................................... 66
9.4 Successors and Assigns............................................................... 66
9.5 Amendment and Waiver................................................................. 66
9.6 Expenses............................................................................. 68
9.7 Waiver of Jury Trial; Consent to Jurisdiction, etc................................... 69
9.8 Execution in Counterpart............................................................. 70
Annex 1 -- Addresses of Purchasers; Payment Instructions
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (continued)
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Annex 2 -- Address of Company
Annex 3 -- Existing Liens, Debt and Investments
Attachment A -- Form of Note
</TABLE>
iii
<PAGE>
NOTE AGREEMENT
NOTE AGREEMENT, dated as of March 9, 1998, among SUPREMA SPECIALTIES, INC.,
a New York corporation (together with its successors and assigns, the
"Company"), ALBION ALLIANCE MEZZANINE FUND, L.P., and THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES (each, together with its successors and
assigns, a "Purchaser" and collectively, the "Purchasers").
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreements, the Purchasers
have agreed to purchase from the Company, and the Company has agreed to sell to
the Purchasers, Ten Million Five Hundred Thousand Dollars ($10,500,000) in
aggregate principal amount of the Notes; and
WHEREAS, the Company and the Purchasers wish to enter into this Agreement
to govern the terms of the Notes;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties to this Agreement hereby agree as follows:
PAYMENTS
Interest Payments
Interest (computed on the basis of a 360-day year of twelve 30-day months)
shall accrue on the unpaid principal balance of the Notes from time to time
outstanding from and including the date thereof at the rate of sixteen and fifty
one-hundredths percent (16.5%) per annum, payable monthly on the first day of
each calendar month in each year (each an "Interest Payment Date"), commencing
April 1, 1998, until the principal thereof shall have become due and payable,
and to the extent permitted by law in respect of any Note on any overdue payment
of principal, any overdue payment of interest and any overdue payment of any
Prepayment Compensation Amount, payable, on demand, at a rate per annum equal to
the lesser of:
(a) the highest rate allowed by applicable law; and
(b) the greater of:
(i) eighteen and fifty one-hundredths percent (18.5%); and
(ii) the sum of two percent (2%) plus the rate of interest
publicly announced from time to time by Morgan Guaranty Trust Company
of New York in New York, New York as its "base" or "prime" rate.
Capitalized Interest Amounts
On any Interest Payment Date on or prior to January 1, 2003, in lieu of
making the entire interest payment on a Note in cash, the Company shall:
1
<PAGE>
(b) pay on such Interest Payment Date, in cash, that portion of the
interest accrued on the outstanding principal amount of such Note to such
Interest Payment Date as would have accrued at the rate of twelve percent
(12.00%) per annum; and
(c) both:
(i) pay on such Interest Payment Date, in cash, none, any part or
all of the interest accrued on such principal to such Interest Payment
Date as would have accrued at the rate of four and fifty
one-hundredths percent (4.50%) per annum; and
(ii) add to the outstanding principal amount of such Notes on
such Interest Payment Date the portion of such interest as would have
accrued at the rate of four and fifty one-hundredths percent (4.50%)
per annum which is not paid in cash pursuant to the immediately
preceding clause (i) (each such addition with respect to any Note, a
"Capitalized Interest Amount").
Interest shall begin to accrue on each Capitalized Interest Amount beginning on
and including the Interest Payment Date on which such Capitalized Interest
Amount is added to the principal amount of the related Note, and such interest
shall accrue and be paid, together with the interest on the remaining principal
amount of the Note, in accordance with Section 1.1 and this Section 1.2.
Scheduled Principal Payments
(d) Payment of Capitalized Interest Amounts. The Company shall pay,
and there shall become due and payable, a principal amount of the Notes
equal to the sum of all Capitalized Interest Amounts theretofore added to
the principal amount of the Notes pursuant to Section 1.2(b)(ii) and
remaining unpaid at such time, on February 1, 2003, at one hundred percent
(100%) of the principal amount paid, together with interest accrued and
unpaid thereon to the date of payment.
(e) Required Principal Payments. The Company shall pay, and there
shall become due and payable, Three Million Five Hundred Thousand Dollars
($3,500,000) in principal amount of the Notes on March 1, 2004 and March 1,
2005, at one hundred percent (100%) of the principal amount paid, together
with interest accrued and unpaid thereon to the date of payment. The entire
principal of the Notes remaining outstanding on March 1, 2006, together
with interest accrued thereon, shall become due and payable on such date.
The payments required to be made on March 1, 2004 and March 1, 2005 and the
payment required to be made at maturity on March 1, 2006 are each
hereinafter referred to as a "Required Principal Payment."
Optional Principal Payments
Optional Principal Payments with Prepayment Compensation AmountThe
Company may pay the principal amount of the Notes in whole or in part, on
any Interest Payment Date, in multiples of One Hundred Thousand Dollars
($100,000) (or, if the aggregate outstanding principal amount of the Notes
is less than One Hundred Thousand Dollars ($100,000) at such time, then
such principal amount), together with:
2
<PAGE>
(i) interest on such principal amount then being paid accrued to
the payment date; and
(ii) an amount equal to the Prepayment Compensation Amount due at
such time in respect of the principal amount of the Notes being so
paid; provided, however, that any optional payment of the Notes
pursuant to this Section 1.4 of a principal amount of any Note not
exceeding the aggregate amount of all Capitalized Interest Amounts
theretofore added to the principal amount of the Notes pursuant to
Section 1.2(b)(ii) and remaining unpaid at such time shall be without
any Prepayment Compensation Amount.
Notice of Optional Payment The Company will give notice of any
optional payment of the Notes pursuant to this Section 1.2(b)(ii) to each
holder of Notes not less than thirty (30) days nor more than sixty (60)
days before the specified payment date, stating:
(iii) the specified payment date;
(iv) that such payment is to be made pursuant to this Section
1.4;
(v) the principal amount of each Note to be paid on such date;
(vi) the interest to be paid on each such Note, accrued to the
specified payment date;
(vii) the amounts and the due dates of the then remaining
Required Principal Payments determined after giving effect to such
payment;
(viii) the aggregate principal amount to be paid which is subject
to payment of a Prepayment Compensation Amount; and
(ix) if such payment is made prior to March 1, 2001, the
calculation (with details) of an estimated Standard Prepayment
Compensation Amount, if any (calculated as if the date of such notice
was the date of payment), due in connection with such payment; and, if
such payment is made on or after March 1, 2001, the Modified
Prepayment Compensation Amount; in each case, with respect to the
principal amount to be so paid, if any, which is subject to the
payment of such Prepayment Compensation Amount.
Notice of payment having been so given, the aggregate principal amount of
the Notes to be paid stated in such notice, together with the Prepayment
Compensation Amount determined as of the specified payment date, if any,
and interest thereon accrued to the specified payment date, shall become
due and payable on the specified payment date. If such payment is due prior
to March 1, 2001, then, two (2) Business Days prior to the making of such
payment, the Company shall deliver to each holder of Notes by facsimile
transmission (confirmed by nationwide overnight courier) a certificate of a
Senior Financial Officer specifying the details of the calculation of the
Standard Prepayment Compensation Amount as of the specified payment date,
and including a copy of the source of interest rate information used in the
calculation thereof.
Offer to Pay Upon Change in Management
3
<PAGE>
Offer in Respect of a Change in Management In the event of a Change in
Management, the Company will, within fifteen (15) Business Days after the
occurrence of such event, give notice of such Change in Management to each
holder of Notes. Such notice shall contain an irrevocable separate offer to
each holder of Notes to repurchase all, but not less than all, of the Notes
held by such holder on a date (the "Change in Management Payment Date")
specified in such notice that is not less than thirty (30) days and not
more than ninety (90) days after the date of such notice, at a purchase
price equal to one hundred one percent (101%) of the aggregate principal
amount thereof and all interest accrued and unpaid on the principal amount
thereof to the Change in Management Payment Date. Each such notice shall:
(x) be dated the date of the sending of such notice;
(xi) be executed by a Senior Officer;
(xii) specify, in reasonable detail, the nature and date of the
Change in Management;
(xiii) specify the Change in Management Payment Date;
(xiv) specify the principal amount of each Note outstanding;
(xv) specify the interest that would be due on each Note offered
to be paid, accrued to the Change in Management Payment Date; and
(xvi) specify that the Notes shall be prepaid at a purchase price
equal to one hundred one percent (101%) of the aggregate principal
amount thereof and all interest accrued and unpaid on the principal
amount thereof to the Change in Management Payment Date.
If the Company shall not have received a written response to such notice
from any holder of Notes within ten (10) Business Days after the date of
posting of such notice to such holder of Notes, then the Company shall
immediately send a second notice to each such holder of Notes.
Acceptance, Rejection Each holder of Notes shall have the option to
accept or reject such offered payment. In order to accept such offered
payment, a holder of Notes shall cause a notice of such acceptance to be
delivered to the Company at least five (5) days prior to the Change in
Management Payment Date. A failure to accept in writing such written offer
of payment as provided in this Section 1.5(b), or a written rejection of
such offered prepayment, shall be deemed to constitute a rejection of such
offer.
Payment The offered payment shall be made at one hundred one percent
(101%) of the principal amount of the Notes to be prepaid, together with
interest accrued to and determined as of the Change in Management Payment
Date.
0.1 Delivery of Subordinated Notes in Payment of Warrant Purchase Price.
The Warrant Agreement provides that a holder of Warrants may tender Notes
to the Company in partial or complete payment of the purchase price for the
shares of Common Stock
4
<PAGE>
issued upon exercise of the Warrants. Promptly following the receipt of any Note
so tendered, the Company shall immediately cancel and retire the same (and no
such Subordinated Note shall be reissued), and shall issue to the holder thereof
a new Note in the principal amount of such tendered Note remaining after
deduction of the principal amount thereof applied to payment of the purchase
price for the shares of Common Stock. For purposes of Rule 144 under the
Securities Act, 17 C.F.R. ss.230.144, the Company and each Purchaser agree that
a tender of Notes in payment of the exercise price in respect of the Warrants
shall not be deemed a prepayment of the Notes, but rather a conversion of such
Notes, pursuant to the terms of the Warrant Agreement and the Warrants, into
Common Stock.
Application of Payments; Payments Among Noteholders
Effect of Partial Payments on Required Payments Each payment of
principal of any Notes made pursuant to Section 1.4, Section 1.5 or Section
1.6 shall be applied, with respect to any Note being prepaid:
(i) first, to reduction of the Company's obligations to pay on
February 1, 2003 a principal amount of such Note being prepaid equal
to the sum of all Capitalized Interest Amounts theretofore added to
the principal amount of such Note pursuant to Section 1.2(b)(ii) and
remaining unpaid at such time; and
(ii) second, after payment in full of all unpaid Capitalized
Interest Amounts in respect of such Note, to reduce each of the then
remaining Required Principal Payments with respect to such Note by a
percentage equal to the quotient (expressed as a percentage) of:
(A) the aggregate principal amount of such Note being so
paid; divided by
(B) the aggregate principal amount of such Note outstanding
immediately following the application of such payment pursuant to
Section 1.7(a)(i) and immediately prior to the payment pursuant
to this Section 1.7(a)(ii).
For the avoidance of doubt, each Required Principal Payment of all Notes
pursuant to Section 1.3 shall be reduced by the aggregate amount, for all
Notes, of the reductions provided for in Section 1.7(a)(ii).
(a) Application Among Noteholders. If at the time that any payment of
interest by the Company is made pursuant to the provisions of Section 1.2
there is more than one Note outstanding, each of the aggregate amount of
the interest payment made in cash and the aggregate amount of interest
capitalized pursuant to Section 1.2 shall be allocated among the Notes at
the time outstanding pro rata in proportion to the respective unpaid
principal amounts of all such outstanding Notes, such that the proportion
of the individual interest payments in respect of each Note on the date
such interest is paid which is paid in cash is identical. If at the time
any payment of the principal of the Notes made pursuant to Section 1.3 or
Section 1.4 is due there is more than one Note outstanding, the aggregate
principal amount of each such required or optional partial payment of the
Notes shall be allocated among the Notes at the time outstanding pro rata
in proportion to the respective unpaid principal amounts of all such
outstanding Notes. If, at the time any payment of the principal of the
Notes made pursuant to Section 1.5 or
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<PAGE>
Section 1.6 is due there is more than one Note outstanding, the aggregate
principal amount of each such payment of the Notes shall be allocated
solely to the Note or Notes so being paid.
Notation of Notes on Payment
Upon:
(b) any partial payment of a Note; or
(c) any Capitalized Interest Amount being added to the principal
amount of any Note pursuant to Section 1.2(b)(ii);
the holder of such Note may (but shall not be required to), at its option:
(i) surrender such Note to the Company pursuant to Section 2.2 in
exchange for a new Note in a principal amount equal to the principal amount
remaining unpaid on the surrendered Note;
(ii) make such Note available to the Company for notation thereon of
the portion of the principal so paid or so added to the principal amount
thereof in respect of capitalized interest; or
(iii) mark such Note with a notation thereon of the portion of the
principal so paid or so added to the principal amount thereof in respect of
capitalized interest.
In case the entire principal amount of any Note is paid, such Note shall be
surrendered to the Company for cancellation and shall not be reissued, and no
Note shall be issued in lieu of the paid principal amount of any Note.
No Other Payments of Principal; Acquisition of Notes
Except for payments of principal made in accordance with this Section 1,
the Company may not make any payment of principal in respect of the Notes. The
Company will not, and will not permit any Subsidiary or any Affiliate to,
directly or indirectly, acquire or make any offer to acquire any Notes.
Manner of Payments
Manner of PaymentThe Company shall pay all amounts payable with
respect to each Note (without any presentment of such Notes and without any
notation of such payment being made thereon) by crediting, by federal funds
bank wire transfer, the account of the holder thereof in any bank in the
United States of America as may be designated in writing by such holder, or
in such other manner as may be reasonably directed or to such other address
in the United States of America as may be reasonably designated in writing
by such holder (and as to which (absent subsequent notice from such holder
pursuant to this Section 1.10(a)) the Company may conclusively rely). Annex
1 shall be deemed to constitute notice, direction or designation (as
appropriate) by the Purchasers to the Company with respect to payments to
be made to the Purchasers as aforesaid. In the absence of such written
direction, all amounts payable with respect to each Note shall be paid by
check mailed and addressed to the registered holder of such
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<PAGE>
Note at the address shown in the register maintained by the Company
pursuant to Section 2.1.
Payments Due on HolidaysIf any payment due on, or with respect to, any
Note shall fall due on a day other than a Business Day, then such payment
shall be made on the first Business Day following the day on which such
payment shall have so fallen due; provided that if all or any portion of
such payment shall consist of a payment of interest, for purposes of
calculating such interest, such payment shall be deemed to have been
originally due on such first following Business Day, such interest shall
accrue and be payable to (but not including) the actual date of payment,
and the amount of the next succeeding interest payment shall be adjusted
accordingly.
Payments, When Received Any payment to be made to the holders of Notes
hereunder or under the Notes shall be deemed to have been made on the
Business Day such payment actually becomes available at such holder's bank
prior to the close of business of such bank, provided that interest for one
(1) day at the non-default interest rate of the Notes shall be due on the
amount of any such payment that actually becomes available to such holder
at such holder's bank after 1:00 pm (local time of such bank).
REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
Registration of Notes
The Company will keep at its office, maintained pursuant to Section 3.3, a
register for the registration and transfer of Notes. The name and address of
each holder of one or more Notes, each transfer thereof made in accordance with
Section 2.2 and the name and address of each transferee of one or more Notes
shall be registered in such register. The Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary, other than in accordance with Section 2.2.
Exchange of Notes
Exchange of Notes Upon surrender of any Note at the office of the
Company maintained pursuant to Section 3.3, duly endorsed or accompanied by
a written instrument of transfer duly executed by the registered holder of
such Note or such holder's attorney duly authorized in writing, the Company
will execute and deliver, at the Company's expense (except as provided in
Section 2.2(c)), a new Note or Notes in exchange therefor, in an aggregate
principal amount equal to the unpaid principal amount of the surrendered
Note. Subject to Section 2.2(b), each such new Note shall be registered in
the name of such Person as such holder may request and shall be
substantially in the form of Attachment A. Each such new Note shall be
dated and bear interest from the date to which interest shall have been
paid on the surrendered Note or dated the date of the surrendered Note if
no interest shall have been paid thereon. Each such new Note shall carry
the same rights to unpaid interest and interest to accrue that were carried
by the Note so exchanged or transferred.
(d) Restrictions on Transfers. Notwithstanding the provisions of
Section 2.2(a), no holder shall be permitted to transfer any Note to (and
the Company shall not be required to register any purported or attempted
transfer of any Note to) any Person who is not a Permitted Investor. Notes
shall not be transferred in denominations of less than Two Hundred Fifty
Thousand Dollars ($250,000), provided that a holder of
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<PAGE>
Notes may transfer its entire holding of Notes regardless of the principal
amount of such holder's Notes.
Costs The Company will pay the cost of delivering to or from such
holder's home office or custodian bank from or to the Company, insured to
the reasonable satisfaction of such holder, the surrendered Note and any
Note issued in substitution or replacement for the surrendered Note. The
Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes.
Replacement of Notes
Upon receipt by the Company from the registered holder of a Note of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Note (which evidence shall be, in the case of an
institutional investor, notice from such institutional investor of such loss,
theft, destruction or mutilation), and:
(e) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Company; provided, however, that if the holder of such
Note is a Purchaser, an institutional investor or a nominee of either, the
unsecured agreement of indemnity of such Purchaser or such institutional
investor (but not of any nominee therefor) shall be deemed to be
satisfactory; or
(f) in the case of mutilation, upon surrender and cancellation
thereof;
the Company at its own expense will execute and deliver, in lieu thereof, a
replacement Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
Issuance Taxes
The Company will pay all taxes (if any) due (but not, in any event, income
taxes) in connection with and as the result of the initial issuance and sale of
the Notes and in connection with any modification, waiver or amendment of this
Agreement or the Notes and shall save each holder of Notes harmless without
limitation as to time against any and all liabilities with respect to all such
taxes.
GENERAL COVENANTS
The Company covenants that on and after the Closing Date and so long as any
of the Notes shall be outstanding:
Payment of Taxes and Claims
The Company will, and will cause each Subsidiary to, pay before they become
delinquent:
(g) all taxes, assessments and governmental charges or levies imposed
upon it or its Property; and
(h) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if unpaid,
might result in the creation of a statutory, regulatory or common law Lien
upon its Property;
8
<PAGE>
provided, that items of the foregoing description need not be paid so long as
such items are being actively contested in good faith and by appropriate
proceedings and reasonable book reserves in accordance with GAAP have been
established and maintained with respect thereto.
Maintenance of Properties; Corporate Existence; etc
The Company will, and will cause each Subsidiary to:
Property maintain its Property in good condition, ordinary wear and
tear and obsolescence excepted, and make all necessary renewals,
replacements, additions, betterments and improvements (as determined in
each case in the Company's judgment) thereto; provided, however, that this
Section 3.2(a) shall not prevent the Company or any Subsidiary from
discontinuing the operation and the maintenance of any of its Properties if
such discontinuance is desirable in the conduct of its business and such
discontinuance could not reasonably be expected to have a Material Adverse
Effect;
Insurance maintain, with financially sound and reputable insurers,
insurance with respect to its Property and business against such casualties
and contingencies, of such types and in such amounts as is customary in the
case of corporations of established reputations engaged in the same or a
similar business and similarly situated;
Financial Records keep proper books of record and account, in which
full and correct entries shall be made of all dealings and transactions of
or in relation to the Properties and business thereof, and which will
permit the production of financial statements in accordance with GAAP;
Corporate Existence and Rights do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence, corporate rights (charter and statutory) and corporate
franchises except as permitted by Section 4.1;
Compliance with Law comply with all laws, ordinances and governmental
rules and regulations to which it is subject (including, without
limitation, any Environmental Protection Law) and obtain all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of its Properties and the conduct of its
business except for such violations and failures to obtain that, in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect; and
(i) Environmental Liabilities -- conduct its business so as not to
become subject to any liability under any Environmental Protection Law
that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
Payment of Notes and Maintenance of Office
The Company will punctually pay, or cause to be paid, the principal of and
interest (and Prepayment Compensation Amount, if any) on, the Notes, as and when
the same shall become due according to the terms hereof and of the Notes, and
will maintain an office at the address of the Company as provided in Section 9.1
where notices, presentations and demands in respect hereof or the Notes may be
made upon it. Such office will be maintained at such address until such time as
the Company notifies the holders of the Notes of any change of location of such
office, which will in any event be located within the United States of America.
Pension Plans
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Compliance The Company will, and will cause each ERISA Affiliate to,
at all times with respect to each Plan, comply with all applicable
provisions of ERISA and the IRC, except for such failures to comply that,
in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
Prohibited Actions The Company will not, and will not permit any ERISA
Affiliate to:
(i) engage in any "prohibited transaction" (as such term is
defined in section 406 of ERISA or section 4975 of the IRC) or
"reportable event" (as such term is defined in section 4043 of ERISA)
that could result in the imposition of a tax or penalty;
(ii) incur with respect to any Plan any "accumulated funding
deficiency" (as such term is defined in section 302 of ERISA), whether
or not waived;
(iii) terminate any Plan in a manner that could result in the
imposition of a Lien on the Property of the Company or any Subsidiary
pursuant to section 4068 of ERISA or the creation of any liability
under section 4062 of ERISA;
(iv) fail to make any payment required by section 515 of ERISA;
(v) incur any withdrawal liability under Title IV of ERISA with
respect to any Multiemployer Plan or any liability as a result of the
termination of any Multiemployer Plan; or
(vi) incur any liability or suffer the existence of any Lien on
the Property of the Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or pursuant to the penalty or
excise tax or security provisions of the IRC;
if the aggregate amount of the taxes, penalties, funding deficiencies,
interest, amounts secured by Liens, and other liabilities in respect of any
of the foregoing at any time could reasonably be expected to have a
Material Adverse Effect.
Private Offering
The Company will not, and will not permit any Person acting on its behalf
to, offer the Notes or any part thereof or any similar securities for issue or
sale to, or solicit any offer to acquire any of the same from, any Person so as
to bring the issuance and sale of the Notes within the provisions of section 5
of the Securities Act.
Subsidiary Guaranty
The Company will cause each Subsidiary that at any time becomes liable in
respect of any Guaranty of any of the obligations in respect of any Senior Debt
after the Closing Date to become (simultaneously or prior to becoming liable in
respect of such Guaranty of any of such obligations) a Guarantor under the
Subsidiary Guaranty by executing and delivering to each holder of Notes a
Joinder Agreement in the form attached to the Subsidiary Guaranty as Annex 2.
Each such Joinder Agreement shall be accompanied by copies of the constitutive
documents of such Subsidiary and corporate resolutions (or equivalent)
authorizing such transaction, in each case certified as true and correct by an
appropriate officer of such Subsidiary.
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FINANCIAL COVENANTS
Mergers and Consolidations
The Company will not, and will not permit any Subsidiary to, merge with or
into or consolidate with any other Person, permit any other Person to merge or
consolidate with or into it or sell all or substantially all of its Property to
any other Person; provided, however, that the foregoing restriction does not
apply to the merger or consolidation of the Company with another corporation or
Transfer of all or substantially all of the Property of the Company to any other
Person if:
(j) the corporation that results from such merger or consolidation or
to which all or substantially all of the Property of the Company is
Transferred (the "Surviving Corporation") is organized under the laws of,
and conducts substantially all of its business and has substantially all of
its Properties within, the United States of America or any jurisdiction or
jurisdictions thereof;
(k) the due and punctual payment of the principal of and Prepayment
Compensation Amount, if any, and interest on all of the Notes, according to
their tenor, and the due and punctual performance and observance of all the
covenants in the Notes, this Agreement and each other Financing Document to
be performed or observed by the Company, are expressly assumed, or assumed
by operation of law, by the Surviving Corporation pursuant to such
assumption agreements and instruments in such forms as shall be approved
reasonably by the Required Holders, and the Company causes to be delivered
to each holder of Notes an opinion, satisfactory in form and substance to
the Required Holders, of independent counsel to the effect that such
agreements and instruments are enforceable in accordance with their terms;
(l) no Change in Management occurs as a result of such merger,
consolidation or Transfer; and
(m) immediately prior to, and immediately after the consummation of
the transaction, and after giving effect thereto, no Default or Event of
Default exists or would exist.
Notwithstanding the foregoing, a Subsidiary may merge into the Company so long
as the Company is the Surviving Corporation, and a Subsidiary may merge with or
into a Wholly-Owned Subsidiary, so long as the Wholly-Owned Subsidiary is the
Surviving Corporation. Disposition of Assets, Subsidiary Stock
Disposition of Assets The Company will not, and will not permit any
Subsidiary to, sell, lease as lessor, transfer or otherwise dispose of any
Property (collectively, "Transfers"), except:
(i) Transfers of inventory and of unnecessary, obsolete or
worn-out assets, in each case in the ordinary course of business of
the Company or such Subsidiary;
(ii) Transfers from a Subsidiary to the Company or a Wholly-Owned
Subsidiary;
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(iii) Transfers of Property by the Company or a Subsidiary in a
Sale- Leaseback Transaction which are substantially immediately
thereafter leased by the Company or a Subsidiary in such
Sale-Leaseback Transaction;
(iv) any other Transfer at any time of any Property to a Person
for an Acceptable Consideration if the conditions specified in each of
the following clauses (A) and (B) would be satisfied with respect to
such Transfer:
(A) the sum of:
(I) the book value of such Property at the time of
Transfer; plus
(II) the aggregate book value of all other Property
Transferred, other than in Excluded Transfers, after the
Closing Date:
would not exceed twenty-five percent (25%) of Consolidated Total
Assets measured as of the last day of the immediately preceding fiscal
quarter of the Company; and
(B) immediately before and after the consummation of
the Transfer, and after giving effect thereto, no Default or
Event of Default would exist; and
(v) any other Transfer of Property to the extent that the entire
proceeds of such Transfer, net of reasonable and ordinary transaction
costs and expenses incurred and actually paid in connection with such
Transfer, within three hundred sixty-five (365) days after such
Transfer are applied by the Company or such Subsidiary:
(A) to purchase, or to a commitment to purchase, productive
tangible Property for use in the conduct of the business of the
Company and the Subsidiaries as such businesses were conducted on
the Closing Date, which Property is similar in type to the
Property Transferred; or
(B) to pay or prepay a principal amount of Debt of the
Company or any Subsidiary (other than Junior Subordinated Debt)
equal to the amount of such net proceeds; and, in connection with
any such payment, the Company shall pay all accrued interest
thereon and any premium or make-whole amount required to be paid
in connection therewith; provided, however, that in the event
that any Debt so prepaid is not Senior Debt, then the Company
shall prepay, together with such prepayment of such other Debt, a
proportional and ratable principal amount of the Notes pursuant
to the provisions of Section 1.4.
Disposition of Subsidiary Stock The Company will not, and will not
permit any Subsidiary to, sell or otherwise dispose of any shares of the
stock or Rights of a Subsidiary (such stock and Rights herein called
"Subsidiary Stock"), nor will any Subsidiary issue, sell or otherwise
dispose of any shares of, or Rights to purchase shares
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of, its own Subsidiary Stock; provided, however, that the foregoing
restrictions do not apply to:
(vi) Transfers by the Company or a Subsidiary of shares of
Subsidiary Stock to the Company or a Wholly-Owned Subsidiary;
(vii) the issuance by a Subsidiary of shares of its own
Subsidiary Stock to the Company or a Wholly-Owned Subsidiary;
(viii) the issuance by a Subsidiary of directors' qualifying
shares;
(ix) the issuance by a Subsidiary of shares of its own Subsidiary
Stock in the form of a dividend payable in such shares, or the other
issuance by a Subsidiary of shares of its own Subsidiary Stock;
provided, however, that, in each case, the Company's direct or
indirect percentage ownership of no class of the Voting Stock or of
any other Subsidiary Stock of such Subsidiary is decreased as a result
of such issuance; or
(x) the Transfer of all of the Subsidiary Stock of a Subsidiary
owned by the Company and its other Subsidiaries if:
(A) such Transfer satisfies the requirements of Section
4.2(a)(iv) or Section 4.2(a)(v);
(B) in connection with such Transfer, the entire Investment
(whether represented by stock, Debt, claims or otherwise) of the
Company and its other Subsidiaries in such Subsidiary is
Transferred to a Person other than the Company or a Subsidiary
not being simultaneously disposed of; and
(C) the Subsidiary being disposed of has no continuing
Investment in any other Subsidiary not being simultaneously
disposed of or in the Company.
For purposes of determining the book value of assets constituting
Subsidiary Stock being Transferred as provided in clause (v) above, such
book value shall be deemed to be the aggregate book value of the assets of
the Subsidiary that shall have issued such Subsidiary Stock.
Liens
Negative Pledge The Company will not, and will not permit any
Subsidiary to, cause or permit, or agree or consent to cause or permit in
the future (upon the happening of a contingency or otherwise), any of their
Property, whether now owned or hereafter acquired, at any time to be
subject to a Lien except:
Closing Date Liens Liens in existence on the Closing Date and
described in Part 4.3 of Annex 3;
Ordinary Course Business Liens
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Performance Bonds Liens incurred or deposits made in the ordinary
course of business:
(I) in connection with workers' compensation, unemployment
insurance, social security and other like laws; and
(II) to secure the performance of letters of credit, bids,
tenders, sales contracts, leases, statutory obligations, surety
and performance bonds (of a type other than set forth in Section
4.3(a)(iii) and other similar obligations not incurred in
connection with the borrowing of money, the obtaining of advances
or the payment of the deferred purchase price of Property;
Real Estate Liens in the nature of reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other similar title exceptions or
encumbrances affecting real property; provided, however, that such
exceptions and encumbrances do not in the aggregate materially detract
from the value of said Properties or materially interfere with the use
of such Properties in the ordinary conduct of the business of the
Company and the Subsidiaries; and
Taxes, etc. Liens securing taxes, assessments or governmental
charges or levies or the claims or demands of materialmen, mechanics,
carriers, warehousemen, vendors, landlords and other like Persons;
provided, however, that the payment thereof is not required by
Section 3.1;
Judicial Liens Liens arising from judicial attachments and judgments,
securing appeal bonds or supersedeas bonds, and arising in connection with
court proceedings (including, without limitation, surety bonds and letters
of credit or any other instrument serving a similar purpose); provided,
however, that the execution or other enforcement of such Liens is
effectively stayed, that the claims secured thereby are being actively
contested in good faith and by appropriate proceedings, that adequate
reserves have been made against such claims and that the aggregate amount
so secured will not at any time exceed One Million Dollars ($1,000,000);
Intergroup Liens Liens on Property of a Subsidiary; provided, however,
that such Liens secure only obligations owing to the Company or a
Wholly-Owned Subsidiary;
(xi) Acquisition/Purchase Money Liens -- any Lien (x) on Property
acquired or constructed by the Company or any Subsidiary or leased by the
Company or any Subsidiary as lessee under any Capital Lease; or (y)
existing on Property owned by any Person at the time such Person became a
Subsidiary or merges or consolidates with the Company (including, without
limitation, by means of a Capital Lease); provided, however, that such
Lien:
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(A) (I) secures Debt incurred to pay all or a portion of the related
purchase price or construction costs of such Property or the Capital
Stock of any acquired Subsidiary and no other Debt; provided, further,
that such purchase price or construction costs shall not exceed the
Fair Market Value of such Property or such Capital Stock, determined
at the time of the creation of such Lien;
(II) is created contemporaneously with, or within one hundred
twenty (120) days of, such acquisition or construction;
(III) encumbers only Property so purchased, constructed or
acquired after the Closing Date; and
(IV) is not, after the creation thereof, extended to any other
Property; or
(B) (I) existed on Property of any Person at the time of acquisition
thereof by the Company or a Subsidiary or at the time such Person is
merged or consolidated into or with the Company or a Subsidiary
(whether or not the Debt secured thereby is assumed by the Company or
such Subsidiary); provided, further, that such Debt does not exceed
the lesser of the acquisition cost or the Fair Market Value of such
Property, as determined at the date of the acquisition thereof; and
(II) shall not extend to or cover any Property other than the
Property subject to such Lien at the time of any such acquisition;
and provided further that, in the case of each of clause (A) and clause (B)
above, immediately prior to the incurrence of, and after giving effect to
the incurrence of, any Debt secured by the Liens referred to in such
clauses, no Default or Event of Default exists or would exist; and
Liens Securing Senior Debt Liens securing Senior Debt and not
otherwise permitted by clauses (i) through (v), inclusive, of this Section
4.3(a).
Equal and Ratable Lien; Equitable LienIn case any Property shall be
subjected to a Lien in violation of Section 4.3(a), the Company will forthwith
make or cause to be made, to the fullest extent permitted by applicable law,
provision whereby the Notes will be secured equally and ratably as to such
Property with all other obligations secured thereby pursuant to such agreements
and instruments as shall be approved by the Required Holders, and the Company
will promptly cause to be delivered to each holder of a Note an opinion of
independent counsel satisfactory to the Required Holders to the effect that such
agreements and instruments are enforceable in accordance with their terms, and
in any event the Notes shall have the benefit, to the full extent that, and with
such priority as, the holders of Notes may be entitled under applicable law, of
an equitable Lien on such Property (and any proceeds thereof) securing the
Notes. Such violation of Section 4.3(a)will constitute an Event of Default
hereunder, whether or not
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any such provision is made or any equitable Lien is created pursuant to
this Section 4.3(a).
Construction Nothing in this Section 4.3 shall be construed to permit
the incurrence or existence of any Debt not otherwise permitted by this
Agreement. Nothing in this Agreement that permits the incurrence or
existence of any Debt shall be construed to permit the incurrence or
existence of a Lien securing such Debt unless such Lien is permitted by
Section 4.3(a).
Net Worth
The Company will not at any time permit Consolidated Net Worth to be less
than an amount equal to the sum of:
(n) Ten Million Dollars ($10,000,000); plus
(o) for each fiscal year of the Company ending after December 31,
1997, the greater of:
(i) Zero Dollars ($0); and
(ii) fifty percent (50%) of Consolidated Net Earnings determined
in respect of such fiscal year.
Fixed Charge Coverage
The Company will not permit at any time during any period specified below
the Consolidated Fixed Charge Coverage Ratio for the period of four (4) full
consecutive fiscal quarters of the Company then most recently ended, measured as
at the end of the most recently ended fiscal quarter of the Company, to be less
than the ratio set forth opposite such period:
================================================================================
Period: Ratio:
================================================================================
From and including the Closing up to and 1.25 to 1.00
including June 30, 2001
- --------------------------------------------------------------------------------
From and including July 1, 2001 up to and 1.50 to 1.00
including June 30, 2003
- --------------------------------------------------------------------------------
From and including July 1, 2003 and 2.00 to 1.00
thereafter
================================================================================
Ratio of Debt to Pro Forma Consolidated Cash Flow
The Company will not at any time permit the ratio of:
(p) Consolidated Total Debt as of such time; to
(q) Pro Forma Consolidated Cash Flow for the period consisting of the
four (4) full consecutive fiscal quarters of the Company most recently
ended at such time;
to be greater than the ratio set forth opposite the relevant period during which
such time occurs as provided below:
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================================================================================
Period: Ratio:
================================================================================
From the Closing Date up to and including 5.00 to 1.00
June 30, 2001
- --------------------------------------------------------------------------------
From and including July 1, 2001 up to and 4.00 to 1.00
including June 30, 2003
- --------------------------------------------------------------------------------
From and including July 1, 2003 and 3.00 to 1.00
thereafter
================================================================================
Incurrence of Debt
(r) Permitted Revolving Credit Debt. The Company will not incur or
create any Debt pursuant to an Acceptable Revolving Credit Facility unless,
at the time of and after giving effect to the incurrence thereof, both:
(i) the aggregate amount of Debt (other than the Letter of
Credit) outstanding in respect of all Acceptable Revolving Credit
Facilities would not exceed the greater of:
(A) the Borrowing Base; and
(B) in the case of the Senior Credit Facility, a principal
amount which, together with any fees not provided for in the
Senior Credit Agreement as in effect on the date hereof, does not
exceed Twenty-Seven Million Five Hundred Thousand Dollars
($27,500,000); and
(ii) the face amount of the Letter of Credit would not exceed
Four Hundred Thousand Dollars ($400,000);
provided, however, that the Refinancing of any Permitted Revolving Credit
Debt with the proceeds of Debt incurred under a Refinanced Acceptable
Revolving Credit Facility, in and of itself, shall not be deemed to be an
incurrence or creation of Debt pursuant to this Section 4.7(a), except to
the extent that the principal amount of Debt under the Refinanced
Acceptable Revolving Credit Facility exceeds the principal amount of
Permitted Revolving Credit Debt so Refinanced, and all such Debt incurred
under a Refinanced Acceptable Revolving Credit Facility, to the extent
applied to the repayment of Permitted Revolving Credit Debt in connection
with such Refinancing, shall be deemed to be Permitted Revolving Credit
Debt.
(s) Other Permitted Debt. The Company will not, and will not permit
any Subsidiary to, directly or indirectly, create, incur, assume,
guarantee, or otherwise become directly or indirectly liable with respect
to, any Debt other than:
(i) the Notes and the Subsidiary Guaranty;
(ii) Debt of a Subsidiary owing to the Company or a Wholly-Owned
Subsidiary;
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(iii) Permitted Revolving Credit Debt, and (subject to Section
3.6) Guaranties thereof by Subsidiaries;
(iv) Debt incurred or created to Refinance any of the Debt
outstanding on the Closing Date and listed on Part 4.7(b) of Annex 3,
so long as:
(A) the principal amount of Debt incurred to Refinance any
such Debt outstanding on the Closing Date does not exceed the
principal amount of Debt being Refinanced; and
(B) no Lien on Property of the Company or any Subsidiary
which secures such Debt incurred to Refinance any such Debt
outstanding on the Closing Date shall extend to any Property of
the Company or any Subsidiary which was not, prior to such
Refinancing, subject to a Lien securing the Debt so being
Refinanced;
and
(v) any other Debt of the Company, provided that on the date the
Company incurs such Debt, and immediately after giving effect thereto
and the concurrent retirement of any other Debt, the ratio of:
(A) the difference of:
(I) Consolidated Total Debt; minus
(II) the aggregate amount of all Permitted Revolving
Credit Debt actually outstanding on such date; to
(B) Pro Forma Consolidated Cash Flow for the period
consisting of the four (4) full consecutive fiscal quarters of
the Company then most recently ended;
would not be greater than the ratio set forth opposite the relevant
period as provided below:
================================================================================
Period: Ratio:
================================================================================
From the Closing Date up to and including 2.70 to 1.00
June 30, 2001
- --------------------------------------------------------------------------------
From and including July 1, 2001 up to and 2.50 to 1.00
including June 30, 2003
- --------------------------------------------------------------------------------
From and including July 1, 2003 and 2.20 to 1.00
thereafter
================================================================================
and provided further, that the Company shall have delivered to each
holder of Notes, at least three (3) Business Days prior to the
incurrence thereof, a
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<PAGE>
certificate of a Senior Financial Officer establishing that such Debt
may be incurred in compliance with the provisions of this Section
4.7(b)(v).
For the avoidance of doubt, any incurrence or creation of Debt by
the Company pursuant to a revolving credit or similar agreement under
any agreement or instrument other than an Acceptable Revolving Credit
Facility, and the incurrence or creation of Debt by the Company
pursuant to an Acceptable Revolving Credit Facility which, at the time
of such incurrence or creation, exceeds the maximum amount permitted
pursuant to Section 4.7(a), shall be considered an incurrence of Debt
for purposes of this Section 4.7(b)(v) on the date so incurred or
created.
Restricted Payments, Restricted Repurchases and Restricted Investments
Limit on Restricted Payments, Restricted Investments and
Restricted Repurchases The Company will not, nor will it permit any
Subsidiary to, at any time, declare or make or incur any liability to
declare or make any Restricted Payment or any Restricted Repurchase,
or make or authorize, or permit any Subsidiary to make or authorize,
any Restricted Investment unless, immediately after giving effect to
the proposed Restricted Payment or Restricted Investment:
(vi) no Default or an Event of Default would exist; and
(vii) the sum of
(A) the aggregate amount of Restricted Investments
existing on the Closing Date, together with the aggregate
amount of Restricted Investments made since the Closing Date
(valued in each case at acquisition cost); plus
(B) the aggregate amount of Restricted Payments made
during the period commencing on the Closing Date and ending
on the date of, and after giving effect to, such proposed
Restricted Payment or Restricted Investment; plus
(C) the aggregate amount of Restricted Repurchases made
during the period commencing on the Closing Date and ending
on the date of, and after giving effect to, such proposed
Restricted Payment or Restricted Investment;
would not exceed the sum of:
(I) One Million Six Hundred Thousand Dollars
($1,600,000); plus
(II) fifty percent (50%) of Consolidated Net Earnings
in respect of the period beginning on the Closing Date and
ending on the last day of the calendar month then most
recently ended (or minus one hundred percent (100%) of
Consolidated Net Earnings for such period if Consolidated
Net Earnings for such period is a loss); plus
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<PAGE>
(III) the aggregate amount of net cash proceeds
received by the Company from the sale of Specified Stock
made after the Closing Date; provided, however, that the
amount of any such proceeds not applied within one hundred
eighty (180) days after the receipt of such proceeds to the
making of a Restricted Payment or Restricted Investment
shall not be counted for purposes of this clause (III); plus
(IV) the aggregate amount of net cash proceeds received
after the Closing Date by the Company or any Subsidiary from
the sale or liquidation, or as a result of the final
maturity, of any Restricted Investment.
Special Permission for Restricted Repurchases Notwithstanding the
provisions of Section 4.8(a), the Company or any Subsidiary may at any
time declare or make or incur any liability to declare or make any
Restricted Repurchase, so long as, immediately after giving effect to
the proposed Restricted Repurchase:
(viii) no Default or an Event of Default would exist; and
(ix) the aggregate amount of Restricted Repurchases made
during the period commencing on the Closing Date and ending on
the date of, and after giving effect to, such proposed Restricted
Repurchase would not exceed One Million Six Hundred Thousand
Dollars ($1,600,000).
Other Matters For the purpose of making computations under
Section 4.8(a) and Section 4.8(b), Restricted Payments made, and
Restricted Repurchases effected, solely by issuance of Common Stock
shall in each case be excluded. Any Person that becomes a Subsidiary
after the Closing Date shall be deemed to have made, at the time it
becomes a Subsidiary, all Restricted Investments of such Person
existing immediately after it becomes a Subsidiary.
Seniority to Junior Subordinated Debt
The Company will not, and will not permit any Subsidiary to, incur, assume
or Guaranty any Debt which is subordinated in right of payment to any other Debt
of the Company or any Subsidiary unless such Debt is also subordinated in right
of payment to the obligations of the Company in respect of the Notes and this
Agreement on terms reasonably acceptable to the Required Holders in their
discretion. The Company will not, and will not permit any Subsidiary to, incur
or create any Debt in favor of an Affiliate or another Subsidiary (other than
Debt in favor of the Company or a Wholly-Owned Subsidiary which is a Subsidiary
Guarantor) unless such Debt is also subordinated in right of payment to the
obligations of the Company in respect of the Notes and this Agreement on terms
reasonably acceptable to the Required Holders in their discretion.
Line of Business
The Company will not, and will not permit any Subsidiary to, engage in any
business if, as a result, the general nature of the business in which the
Company and the Subsidiaries, taken as a whole, would then be engaged would be
substantially changed from the general nature of the business in which the
Company and the Subsidiaries, taken as a whole, are engaged on the
20
<PAGE>
Closing Date as described in the Confidential Private Placement Memorandum dated
October 1997, prepared by Fleet Corporate Finance.
Transactions with Affiliates
The Company will not, and will not permit any Subsidiary to, enter into any
transaction, including, without limitation, the purchase, sale, lease or
exchange of Property or the rendering of any service, with any Affiliate, except
in the ordinary course of and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
REPORTING COVENANTS
Financial and Business Information
The Company shall deliver to each holder of Notes:
Quarterly Financial Statementsas soon as practicable after the end of
each quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year), and in any
event within forty-five (45) days thereafter:
(x) a consolidated balance sheet as at the end of such quarter;
and
(xi) consolidated statements of income and cash flows for such
quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with such quarter;
for the Company and the Subsidiaries, setting forth in each case, in
comparative form, the financial statements for the corresponding periods in
the previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP applicable to quarterly financial statements generally, and
certified as complete and correct by a Senior Financial Officer, and
accompanied by the certificate required by Section 5.3; provided, that
timely delivery of copies of the Company's Quarterly Report on Form 10-Q
filed with the SEC shall be deemed to satisfy the requirements of this
Section 5.1(a) so long as such Quarterly Report contains or is accompanied
by the information specified in this Section 5.1(a);
Annual Financial Statements as soon as practicable after the end of
each fiscal year of the Company, and in any event within ninety (90) days
thereafter:
(xii) a consolidated balance sheet as at the end of such year;
and
(xiii) consolidated statements of income, stockholders' equity
and cash flows for such year;
for the Company and the Subsidiaries, setting forth, in comparative form,
the financial statement for the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP, and accompanied by:
(A) an audit report thereon of independent certified public
accountants of recognized national standing, which report shall state
without qualification (including, without limitation, qualifications
related to the scope of the audit, the
21
<PAGE>
compliance of the audit with generally accepted auditing standards, or
the ability of the Company or a material subsidiary thereof to
continue as a going concern), that such financial statements have been
prepared and are in conformity with GAAP; and
(B) the certificates required by Section 5.3 and Section 5.4;
provided, that timely delivery of the Company's Annual Report on Form 10-K
for such fiscal year filed with the SEC shall be deemed to satisfy the
requirements of this Section 5.1(b) so long as such Annual Report contains
or is accompanied by the reports and other information otherwise specified
in this Section 5.1(b);
(t) Borrowing Base Certificate -- promptly upon the request of any
holder of Notes, any Borrowing Base Certificate required to be delivered or
to have been delivered to the Senior Agent;
SEC and Other Reportspromptly upon their becoming available, and in
any event within fifteen (15) days thereafter:
(i) each financial statement, report, notice or proxy statement
sent by the Company to stockholders generally;
(ii) each regular or periodic report (including, without
limitation, each Form 10-K, Form 10-Q and Form 8-K), any registration
statement which shall have become effective, and each final prospectus
and all amendments thereto filed by the Company or any Subsidiary with
the SEC; and
(iii) all press releases and other statements made available by
the Company or any Subsidiary to the public concerning material
developments in the business of the Company or the Subsidiaries;
Notice of Default or Event of Default within two (2) Business Days of
becoming aware:
(iv) of the existence of any condition or event which constitutes
a Default or an Event of Default; or
(v) that the holder of any Note, or of any Debt, shall have given
notice or taken any other action with respect to a claimed Default,
Event of Default or default or event of default;
a notice specifying the nature of the claimed Default, Event of Default or
default or event of default and the notice given or action taken (if any)
by such holder and what action the Company is taking or proposes to take
with respect thereto;
ERISA
(vi) within two (2) Business Days of becoming aware of the
occurrence of any "reportable event" (as such term is defined in
section 4043 of ERISA) for which notice thereof has not been waived
pursuant to regulations of the DOL or
22
<PAGE>
"prohibited transaction" (as such term is defined in section 406 of
ERISA or section 4975 of the IRC) in connection with any Plan or any
trust created thereunder, a notice specifying the nature thereof, what
action the Company is taking or proposes to take with respect thereto,
and, when known, any action taken by the Internal Revenue Service, the
DOL or the PBGC with respect thereto; and
(vii) prompt notice of and, where applicable, a description of:
(A) any notice from the PBGC in respect of the commencement
of any proceedings pursuant to section 4042 of ERISA to terminate
any Plan or for the appointment of a trustee to administer any
Plan, and any distress termination notice delivered to the PBGC
under section 4041 of ERISA in respect of any Plan, and any
determination of the PBGC in respect thereof;
(B) the placement of any Multiemployer Plan in
reorganization status under Title IV of ERISA, any Multiemployer
Plan becoming "insolvent" (as such term is defined in section
4245 of ERISA) under Title IV of ERISA, or the whole or partial
withdrawal of the Company or any ERISA Affiliate from any
Multiemployer Plan and the withdrawal liability incurred in
connection therewith; or
(C) the occurrence of any event, transaction or condition
that could result in the incurrence of any liability of the
Company or any ERISA Affiliate or the imposition of a Lien on the
Property of the Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or pursuant to the
penalty or excise tax or security provisions of the IRC;
provided, however, that the Company shall not be required to deliver any
such notice at any time when the aggregate amount of the actual or
potential liability of the Company and the Subsidiaries in respect of all
such events at such time could not reasonably be expected to have a
Material Adverse Effect;
Auditor's Reports promptly upon receipt thereof, a copy of each report
or management letter submitted to the Company or any Subsidiary by
independent accountants in connection with any annual, interim or special
audit made of the books of the Company or any Subsidiary;
Actions, Proceedings promptly after the commencement of any action or
proceeding relating to the Company or any Subsidiary in any court or before
any Governmental Authority or arbitration board or tribunal as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected to have a Material
Adverse Effect, a notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto;
Other Creditors promptly upon the reasonable request of any holder of
Notes, copies of any statement, report or certificate furnished to any
holder of Debt to the extent
23
<PAGE>
that the information contained in such statement, report or certificate has
not already been delivered to each holder of Notes;
Rule 144A promptly upon the request of any holder of Notes,
information required to permit the holder to comply with 17 C.F.R.
ss.230.144A, as amended from time to time, in connection with a transfer of
any Note; and
Requested Information with reasonable promptness, such other data and
information as from time to time may be reasonably requested by any holder
of Notes.
Extension of Time to File SEC Reports
If the rules and regulations of the SEC under the Exchange Act and the
rules and regulations of the NASDAQ National Market are amended to extend the
deadline for delivery to the SEC and the NASDAQ National Market of Quarterly
Reports on Form 10-Q (or any successor form) beyond the forty-five (45) days
following the end of each fiscal quarter of the Company (other than its last
fiscal quarter) as currently required, then the forty-five (45) day period
within which quarterly financial statements are required to be delivered in
accordance with the provisions of Section 5.1(a) shall be similarly extended. If
the rules and regulations of the SEC under the Exchange Act and the rules and
regulations of the NASDAQ National Market are amended to extend the deadline for
delivery to the SEC and the NASDAQ National Market of Annual Reports on Form
10-K (or any successor form) beyond the ninety (90) days following the end of
the Company's fiscal year as currently required, then the ninety (90) day period
within which annual financial statements are required to be delivered in
accordance with the provisions of Section 5.1(b) shall be similarly extended.
Officer's Certificates
Each set of financial statements delivered to each holder of Notes pursuant
to Section 5.1(a) or Section 5.1(b) shall be accompanied by a certificate of a
Senior Financial Officer, setting forth:
Covenant Compliance the financial information (including detailed
calculations and a detailed computation of Consolidated Cash Flow for the
relevant period) required in order to establish whether the Company was in
compliance with the requirements of Section 4 (in each case where such
Section imposes numerical financial requirements) as of the end of the
period covered by the financial statements then being furnished (including
with respect to such Section, where applicable, the calculations of the
maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Section, and the calculation of the
amount, ratio or percentage then in existence); and
Event of Default a statement that the signer has reviewed the relevant
terms hereof and has made, or caused to be made, under his or her
supervision or authority, a review of the transactions and conditions of
the Company and the Subsidiaries from the beginning of the accounting
period covered by the income statements being delivered therewith to the
date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed
or exists, specifying the nature and period of existence thereof and what
action the Company shall have taken or proposes to take with respect
thereto.
Accountants' Certificates
24
<PAGE>
Each set of annual financial statements delivered pursuant to Section
5.1(b) shall be accompanied by a certificate of the accountants who were engaged
to audit such financial statements, stating that they have reviewed this
Agreement and stating further, whether, in making their audit, such accountants
have become aware of any condition or event that then constitutes a Default or
an Event of Default, and, if such accountants are aware that any such condition
or event then exists, specifying the nature and period of existence thereof.
Inspection
The Company will permit the representatives of each holder of Notes to
visit and inspect any of the Properties of the Company or any of the
Subsidiaries, to examine all their respective books of account, records, reports
and other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the finances and affairs of the Company
and the Subsidiaries) all at such reasonable times and as often as may be
reasonably requested. At all times during which there exists a Default or Event
of Default, expenses incurred by the holders of the Notes in connection with
this Section 5.5 shall be paid in accordance with Section 9.6(b).
Confidential Information
Each holder of Notes, by its acceptance thereof, agrees that it will
maintain the confidentiality of all Confidential Information in accordance with
procedures adopted by such holder in good faith to protect confidential
information of third parties delivered to such holder; provided, however, that
any holder of Notes may deliver or disclose Confidential Information to:
(u) such holder's directors, officers, trustees, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates
to the administration of the investment represented by the Notes held by
such holder);
(v) such holder's financial advisors and other professional advisors
who agree to hold confidential the Confidential Information substantially
in accordance with the terms of this Section 5.6;
(w) any other holder of any Note;
(x) any institutional investor to which such holder sells or offers to
sell such Note or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 5.6);
(y) any Person from which such holder offers to purchase any security
of the Company (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this
Section 5.6);
(z) any federal, state or local regulatory authority having
jurisdiction over such holder;
(aa) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that
requires access to information about the investment portfolio of such
holder; or
25
<PAGE>
(ab) any other Person to which such delivery or disclosure may be
necessary or appropriate:
(i) to effect compliance with any law, rule, regulation or order
applicable to such holder;
(ii) in response to any subpoena or other legal process;
provided, however, that each holder agrees to use its reasonable best
efforts to inform the Company of the service upon it of such subpoena
or legal process, and to reasonably cooperate with the Company should
the Company wish (at the Company's expense) to seek a protective order
or similar relief relating to such disclosure; or
(iii) in connection with any litigation to which such holder and
the Company or any Subsidiary are parties; provided, however, that
such holder shall use its reasonable efforts to preserve the
confidentiality of the Confidential Information to the extent not
necessary to prosecute or defend such litigation; or
(iv) if an Event of Default has occurred and is continuing, to
the extent such holder may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for
the protection of the rights and remedies of such holder in respect of
such holder's Notes and this Agreement.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 5.6 as
though it were a party to this Agreement. On reasonable request by the Company
in connection with the delivery to any holder of a Note of information required
to be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 5.6.
EVENTS OF DEFAULT
Events of Default
An "Event of Default" exists at any time if any of the following both
occurs and is continuing thereafter for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise):
Payments on Notes
Principal or Prepayment Compensation Amount Payments the Company
fails to make any payment of principal or Prepayment Compensation
Amount on any Note on or before the date such payment is due; or
Interest Payments the Company fails to make any payment of
interest on any Note on or before five (5) Business Days after the
date such payment is due;
Other Defaults
Financial Covenant Defaults the Company or any Subsidiary fails
to comply with any provision of Section 4; or
26
<PAGE>
Other Defaults the Company or any Subsidiary fails to comply with
any other provision hereof, and such failure continues for more than
thirty (30) days after such failure shall first become known to any
Senior Officer;
Warranties or Representations any warranty, representation or other
statement by or on behalf of the Company contained in the Securities
Purchase Agreements, this Agreement, the Notes, the Subsidiary Guaranty and
any other agreement, certificate or instrument executed pursuant to the
terms of each of the foregoing, or in any written amendment, supplement,
modification or waiver with respect to any such agreement or document or in
any instrument furnished in compliance herewith or therewith or in
reference hereto or thereto, shall have been false or misleading in any
material respect when made;
Acceleration of Debt either:
(v) the Company or any Subsidiary fails to make, when due, at maturity
or otherwise, any payment or payments in respect of any Debt, which payment
or payments aggregate Three Million Dollars ($3,000,000) or more, and any
grace period provided with respect thereto shall have expired; or
(vi) any event shall occur or any condition shall exist in respect of
Debt, or under any agreement securing or relating to such Debt, and in
either case, as a result thereof:
(A) the maturity of such Debt, or a portion thereof, is
accelerated; or
(B) any one or more of the holders thereof or a trustee therefor
is permitted to require the Company or any Subsidiary to repurchase
such Debt from the holders thereof, and any such trustee or holder
exercises such option;
provided that the aggregate amount of all obligations in respect of all
such Debt exceeds at such time Three Million Dollars ($3,000,000);
Insolvency
Involuntary Bankruptcy Proceedings
(C) a receiver, liquidator, custodian or trustee of the Company
or any Subsidiary, or of all or any substantial part of the Property
of either, is appointed by court order and such order remains in
effect for more than sixty (60) days; or an order for relief is
entered with respect to the Company or any Subsidiary, or the Company
or any Subsidiary is adjudicated a bankrupt or insolvent;
(D) all or any substantial part of the Property of the Company or
any Subsidiary is sequestered by court order and such order remains in
effect for more than sixty (60) days; or
27
<PAGE>
(E) a petition is filed against the Company or any Subsidiary
under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed
within sixty (60) days after such filing;
Voluntary Petitions the Company or any Subsidiary files a petition in
voluntary bankruptcy or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution
or liquidation law of any jurisdiction, whether now or hereafter in effect,
or consents to the filing of any petition against it under any such law; or
Assignments for Benefit of Creditors, etc. the Company or a Subsidiary
makes an assignment for the benefit of its creditors, or admits in writing
its inability, or fails, to pay its debts generally as they become due, or
consents to the appointment of a receiver, liquidator or trustee of the
Company or a Subsidiary or of all or a substantial part of its Property; or
Undischarged Final Judgments a final, non-appealable judgment or final,
non-appealable judgments for the payment of money aggregating in excess of One
Million Dollars ($1,000,000) is or are outstanding against one or more of the
Company and the Subsidiaries and any one of such judgments shall have been
outstanding for more than sixty (60) days from the date of its entry and shall
not have been discharged in full or stayed; or
Subsidiary Guaranty(vii) the Subsidiary Guaranty shall cease to be in full
force and effect or shall be declared by a court or other Governmental
Authority of competent jurisdiction to be void, voidable or unenforceable
against any Subsidiary Guarantor,
(viii) the validity or enforceability of the Subsidiary Guaranty
against any Subsidiary Guarantor shall be contested by such Subsidiary
Guarantor, the Company or any Affiliate, or
(ix) any Subsidiary Guarantor, the Company or any Affiliate shall deny
that such Subsidiary Guarantor has any further liability or obligation
under the Subsidiary Guaranty.
Default Remedies
Acceleration of Maturity of Notes
Acceleration on Event of Default
Automatic If any Event of Default specified in Section
6.1(e) shall exist, all of the Notes at the time outstanding
shall automatically become immediately due and payable together
with interest accrued thereon and, to the extent permitted by
law, the Prepayment Compensation Amount at such time with respect
to the principal amount of such Notes, without presentment,
demand, protest or notice of any kind, all of which are hereby
expressly waived.
28
<PAGE>
By Action of Holders Subject to Section 7.6 and Section 7.7,
if any Event of Default other than those specified in Section
6.1(a) shall exist, the Required Holders may exercise any right,
power or Remedy permitted to such holder or holders by law, and
shall have, in particular, without limiting the generality of the
foregoing, the right to declare the entire principal of, and all
interest accrued on, all the Notes then outstanding to be, and
such Notes shall thereupon become, forthwith due and payable,
without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, and the Company
shall forthwith pay to the holder or holders of all the Notes
then outstanding the entire principal of, and interest accrued
on, the Notes and, to the extent permitted by law, the Prepayment
Compensation Amount at such time with respect to such principal
amount of such Notes.
Acceleration on Payment Default Subject to Section 7.6 and
Section 7.7, during the existence of an Event of Default described in
Section 6.1(a), and irrespective of whether the Notes then outstanding
shall have become due and payable pursuant to Section 6.2(a)(i)(B),
any holder of Notes who or which shall have not consented to any
waiver with respect to such Event of Default may, at his or its
option, by notice in writing to the Company, declare the Notes then
held by such holder to be, and such Notes shall thereupon become,
forthwith due and payable together with all interest accrued thereon,
without any presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived, and the Company shall
forthwith pay to such holder the entire principal of and interest
accrued on such Notes and, to the extent permitted by law, the
Prepayment Compensation Amount at such time with respect to such
principal amount of such Notes.
Valuable Rights The Company acknowledges, and the parties hereto
agree, that the right of each holder to maintain its investment in the
Notes free from repayment by the Company (except as herein specifically
provided for) is a valuable right and that the provision for payment of a
Prepayment Compensation Amount by the Company in the event that the Notes
are prepaid or are accelerated as a result of an Event of Default is
intended to provide compensation for the deprivation of such right under
such circumstances.
Other Remedies During the existence of an Event of Default and
irrespective of whether the Notes then outstanding shall become due and
payable pursuant to Section 6.2(a), and irrespective of whether any holder
of Notes then outstanding shall otherwise have pursued or be pursuing any
other rights or Remedies, subject to Section 7.6 and Section 7.7, any
holder of Notes may proceed to protect and enforce its rights hereunder and
under such Notes by exercising such Remedies as are available to such
holder in respect thereof under applicable law, either by suit in equity or
by action at law, or both, whether for specific performance of any
agreement contained herein or in aid of the exercise of any power granted
herein; provided, however, that the maturity of such holder's Notes may be
accelerated only in accordance with Section 6.2(a).
Nonwaiver; Remedies Cumulative No course of dealing on the part of any
holder of Notes nor any delay or failure on the part of any holder of Notes
to exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers
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and Remedies. All rights and Remedies of each holder of Notes hereunder and
under applicable law are cumulative to, and not exclusive of, any other
rights or Remedies any such holder of Notes would otherwise have.
SubordinationThe rights of the holders of the Notes to receive
payments in respect of this Agreement and the Notes, and to exercise any
Remedies, solely as between the holders of the Notes and the holders of the
Senior Debt, shall be subject in all respects to the provisions of Section
7; provided, however, that all such rights shall remain unconditional and
absolute as between the holders of the Notes and the Company.
Annulment of Acceleration of Notes
(ac) Annulment at Holders' Option. If a declaration is made pursuant
to Section 6.2(a)(i)(B), then and in every such case, the holders of
sixty-six and two-thirds percent (66 2/3%) in principal amount of the Notes
at the time outstanding (exclusive of Notes then owned by any one or more
of the Company, any Subsidiary or any Affiliate) may, by written instrument
filed with the Company, rescind and annul such declaration, and the
consequences thereof; provided, however, that at the time such declaration
is annulled and rescinded:
(i) no judgment or decree shall have been entered for the payment
of any moneys due on or pursuant hereto or the Notes;
(ii) all arrears of interest upon all of the Notes and all of the
other sums payable hereunder and under the Notes (except any principal
of, or interest or Prepayment Compensation Amount on, the Notes which
shall have become due and payable by reason of such declaration under
Section 6.2(a)(i)(B)) shall have been duly paid; and
(iii) each and every other Default and Event of Default shall
have been waived pursuant to Section 9.5 or otherwise made good or
cured;
and provided further that no such rescission and annulment shall extend to
or affect any subsequent Default or Event of Default or impair any right
consequent thereon.
(ad) Required Annulment. If a declaration is made pursuant to Section
6.2(a)(i)(B) arising solely out of an Event of Default described in Section
6.1(d) regarding the Senior Debt, then and in every such case, if the
holders of the Senior Debt waive such default in respect of the Senior Debt
or such default is cured, and the holders of the Senior Debt rescind or
annul any and all accelerations of the maturity of all or any portion of
the Senior Debt and any required or demanded repurchase of all or any
portion thereof, then, upon written notice to the holders of the Notes of
such events with respect to the Senior Debt, any declaration made pursuant
to Section 6.2(a)(i)(B), and the consequences thereof, shall automatically
and without any further action on the part of the holders of the Notes, be
annulled and rescinded; provided, however, that at the time such
declaration is deemed annulled and rescinded:
(i) no judgment or decree shall have been entered for the payment
of any moneys due on or pursuant hereto or the Notes;
(ii) no other Default and Event of Default shall be continuing;
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and provided further that no such rescission and annulment shall
extend to or affect any subsequent Default or Event of Default or
impair any right consequent thereon.
SUBORDINATION
General
The Subordinated Debt is subordinate and junior in right of payment to all
Senior Debt to the extent provided in this Section 7.
Insolvency
In the event of:
(ae) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors or its Property;
(af) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings;
(ag) any assignment by the Company for the benefit of creditors; or
(ah) any other marshalling of the assets of the Company;
all Senior Debt shall first be paid in full, in cash or cash equivalents, before
any payment or distribution, whether in cash, Securities or other Property,
shall be made to any holder of any Subordinated Debt on account of any
Subordinated Debt. Any payment or distribution, whether in cash, Securities or
other Property (other than Securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated, at least to the extent provided in this Section 7 with respect to
Subordinated Debt, to the payment of all Senior Debt at the time outstanding and
to any Securities issued in respect thereof under any such plan of
reorganization or readjustment), which would otherwise (but for this Section 7)
be payable or deliverable in respect of Subordinated Debt shall be paid or
delivered directly to the holders of Senior Debt in accordance with the
priorities then existing among such holders until all Senior Debt shall have
been paid in full, in cash or cash equivalents.
Proofs of Claim
If any holder of Subordinated Debt does not file a proper claim or proof of
debt therefor prior to twenty (20) days before the expiration of the time to
file such claim or proof, then the Senior Agent is hereby authorized and
empowered (but not obligated) as the agent and attorney-in-fact for such holder
for the specific and limited purpose set forth in this Section 7.3 to file such
claim or proof for or on behalf of such holder; provided, however, that the
Senior Agent shall have, prior to taking any such action, given fifteen (15)
days prior written notice (which notice may be given up to sixty (60) days prior
to the expiration of the time to file such claim) to such holder of Subordinated
Debt it intends to file such claim or proof of debt. In no event may the Senior
Agent or any holder of the Senior Debt vote any claim on behalf of any holder of
the Subordinated Debt, and such agency and appointment of attorney-in-fact shall
not extend to any such right to vote any such claim.
Payment Default in Respect of Senior Debt
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If:
(ai) the Company shall default in the payment of any principal of or
premium, if any, or interest on any Senior Debt (a "Senior Payment
Default") when the same becomes due and payable, whether at maturity, at a
date fixed for prepayment, by declaration of acceleration or otherwise; and
(aj) the Company receives from the Senior Agent written notice (a
"Payment Default Notice") of the happening of such Senior Payment Default,
stating that such notice is a payment blockage notice pursuant to this
Section 7.4;
then no direct or indirect payment (in cash, Property or Securities or by
set-off or otherwise) shall be made or agreed to be made on account of any
Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect
of any redemption, retirement, purchase, prepayment or other acquisition or
payment of any Subordinated Debt, unless and until such Senior Payment Default
shall have been cured or waived or otherwise shall have ceased to exist.
The Company shall give prompt written notice to each holder of Subordinated
Debt of its receipt of any Payment Default Notice under this Section 7.4.
Significant Nonpayment Default in Respect of Senior Debt
If:
(ak) any Significant Nonpayment Default shall have occurred; and
(al) the Company receives from the Senior Agent written notice (a
"Nonpayment Default Notice") of the happening of such Significant
Nonpayment Default, stating that such notice is a payment blockage notice
pursuant to this Section 7.5;
no direct or indirect payment (in cash, property or Securities or by set-off or
otherwise) shall be made or agreed to be made for or on account of any
Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect
of any redemption, retirement, repurchase, prepayment, purchase or other
acquisition or payment of any Subordinated Debt, for a period (each, a "Payment
Blockage Period") commencing on the date the Nonpayment Default Notice is
delivered to the Company and ending on the Payment Blockage Period Termination
Date; provided, however, that:
(i) only three (3) such Payment Blockage Periods may arise in any
period of three hundred sixty-five (365) consecutive days;
(ii) no more than six (6) Payment Blockage Periods may arise in the
aggregate;
(iii) Payment Blockage Periods may not be in effect for more than one
hundred fifty (150) days during any period of three hundred sixty-five
(365) consecutive days, and any Payment Blockage Period in effect on the
one hundred fifty-first (151st) day (whether or not such days are or were
consecutive) in any period of three hundred sixty-five (365) consecutive
days, such Payment Blockage Period shall terminate immediately; and
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(iv) no Payment Blockage Period may be imposed as a result of any
Significant Nonpayment Default which served as the basis for or was
continuing during a previous Payment Blockage Period.
All payments in respect of Subordinated Debt postponed during any Payment
Blockage Period shall be immediately due and payable upon the Payment Blockage
Period Termination Date thereof (together with such additional interest as is
provided for herein and in the Notes for late payment of principal, Prepayment
Compensation Amount and interest).
The Company shall give prompt written notice to each holder of Subordinated
Debt of its receipt of any Nonpayment Default Notice under this Section 7.5.
0.2 Enforcement Notice.
If, at any time during which the Senior Credit Facility is in effect, any
holder or holders of Notes elect to exercise any Remedies in respect of any
Event of Default, such holder or holders shall deliver to the Company and to the
Senior Agent written notice (an "Enforcement Notice") specifying the Event or
Events of Default which are the basis for the exercise of such Remedies and
stating the holder or holders intends to exercise Remedies; provided, however,
that the failure to deliver such Enforcement Notice to the Senior Agent shall
not affect the validity of the Enforcement Notice as between such holder or
holders and the Company.
Standstill
Notwithstanding anything contained in this Agreement or any other Financing
Document to the contrary, for so long as any amount is outstanding under the
Senior Credit Facility, no holder of any Subordinated Debt may exercise any
Remedies in respect thereof (and no acceleration or purported acceleration
pursuant to Section 6.2(a)(i)(B) or Section 6.2(a)(ii) shall become effective)
during any period (a "Standstill Period") commencing on the first date the
holders of the Subordinated Debt, but for the provisions of this Section 7,
would have been entitled to accelerate the maturity of the Subordinated Debt
pursuant to Section 6.2(a)(i)(B) or Section 6.2(a)(ii) and ending upon the
earliest of:
(a) the date which is ten (10) days after the Enforcement Notice is
delivered to the Company and the Senior Agent pursuant to Section 7.6;
provided, however, that if any Payment Blockage Period is in effect on such
tenth (10th) day after the Enforcement Notice is so delivered, this clause
(a) shall be ineffective to terminate such Standstill Period;
(b) in the event that a Payment Blockage is in effect on the date
which is ten (10) days after the Enforcement Notice is delivered to the
Company and the Senior Agent pursuant to Section 7.6, the Payment Blockage
Period Termination Date relating to the Significant Nonpayment Default
giving rise to such Payment Blockage Period;
(c) the date that any holder of any Senior Debt commences the exercise
of any Remedies in respect of such Debt; and
(d) the first date upon which any of the Events of Default described
in Section 6.1(e) shall have occurred and be continuing beyond any period
of grace specified therein; and, in such event, the automatic acceleration
of the Notes contemplated in
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respect of such Event of Default pursuant to Section 6.2(a)(i)(A) shall
occur immediately upon the termination of the Standstill Period.
Turnover of Payments
If:
(e) any payment or distribution shall be paid to or collected or
received by any holders of Subordinated Debt in contravention of any of the
terms of this Section 7; and
(f) the Senior Agent shall have notified the holders of Subordinated
Debt in writing, within thirty (30) days after the date such payment or
distribution is made, of the facts by reason of which such payment or
collection or receipt so contravenes this Section 7 or constituted a
Significant Nonpayment Default;
then such holders of Subordinated Debt will deliver such payment or
distribution, to the extent necessary to pay all such Senior Debt in full, in
cash or cash equivalents, to the Senior Agent, on behalf of the holders of the
Senior Debt, and, until so delivered, the same shall be held in trust by such
holders of Subordinated Debt as the property of the holders of such Senior Debt.
If any amount is delivered to the Senior Agent pursuant to this Section 7.8,
whether or not such amounts have been applied to the payment of Senior Debt, and
the outstanding Senior Debt shall thereafter be paid in full, in cash or cash
equivalents, by the Company or otherwise other than pursuant to this Section
7.8, the holders of Senior Debt shall return to such holders of Subordinated
Debt an amount equal to the amount delivered to such holders of Senior Debt
pursuant to this Section 7.8, so long as after the return of such amounts the
Senior Debt shall remain paid in full, in cash or cash equivalents.
Subordination Unaffected by Certain Events
The rights set forth in this Section 7 of the holders of the Senior Debt as
against each holder of Subordinated Debt shall remain in full force and effect
without regard to, and shall not be impaired by:
(g) any act or failure to act on the part of the Company;
(h) any extension or indulgence in respect of any payment or
prepayment of the Senior Debt or any part therefor in respect of any other
amount payable to any holder of Senior Debt;
(i) any amendment, modification, restatement, refinancing or waiver
of, or addition or supplement to, or deletion from, or compromise, release,
consent or other action in respect of, any of the terms of any Senior Debt
or any other agreement which may be relating to any Senior Debt, other than
such as would cause all or any portion of such Debt to fail to meet the
definition of "Senior Debt;"
(j) any exercise or non-exercise by any holder of Senior Debt of any
right, power, privilege or remedy under or in respect of any Senior Debt or
Subordinated Debt or any waiver of any such right, power, privilege or
remedy or any default in respect of any Senior Debt or the Subordinated
Debt, any dealing with or action against any collateral security therefor
or any receipt by any holder of Senior Debt of any security, or any failure
by any holder of Senior Debt to perfect a security interest in, or any
release by any such of Senior Debt of, any security for the payment of any
Senior Debt;
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(k) any merger or consolidation of the Company or any of the
Subsidiaries into or with any of the Subsidiaries or into or with any
Person, or any Transfer of any or all of the Property of the Company or any
of the Subsidiaries to any other Person; or
(l) the absence of any notice to, or knowledge by, any holder of
Subordinated Debt of the existence or occurrence of any of the matters or
events set forth in the foregoing clauses (a) through (e).
Waiver and Consent
Each holder of Subordinated Debt waives any and all notices of the
acceptance of the provisions of this Section 7 or of the creation, renewal,
extension or accrual, now or at any time in the future, of any Senior Debt.
Reinstatement of Subordination
The obligations of each holder of Subordinated Debt under the provisions
set forth in this Section 7 shall continue to be effective, or be reinstated, as
the case may be, as to any payment in respect of any Senior Debt that is
rescinded or must otherwise be returned by the holder of such Senior Debt upon
the occurrence or as a result of any bankruptcy or judicial proceeding, all as
though such payment had not been made.
Obligations Not Impaired
Nothing contained in this Section 7 shall impair, as between the Company
and any holder of Subordinated Debt, the obligation of the Company to pay to
such holder the principal thereof and Prepayment Compensation Amount, if any,
and interest thereon as and when the same shall become due and payable in
accordance with the terms thereof and to comply with each and every provision of
the Notes and this Agreement or prevent any holder of any Subordinated Debt from
exercising all rights, powers and remedies otherwise permitted by applicable law
or under this Agreement, all subject to the rights of the holders of the Senior
Debt to receive cash, Securities or other Property otherwise payable or
deliverable to the holders of Subordinated Debt.
Payment of Senior Debt; Subrogation
Upon the payment in full of all Senior Debt, the holders of Subordinated
Debt shall be subrogated to all rights of any holder of Senior Debt to receive
any further payments or distributions applicable to the Senior Debt until the
Subordinated Debt shall have been paid in full, and such payments or
distributions received by the holders of Subordinated Debt by reason of such
subrogation, of cash, Securities or other Property which otherwise would be paid
or distributed to the holders of Senior Debt, shall, as between the Company and
its creditors other than the holders of Senior Debt, on the one hand, and the
holders of Subordinated Debt, on the other hand, be deemed to be a payment by
the Company on account of Senior Debt and not on account of Subordinated Debt.
Reliance of Holders of Senior Debt
Each holder of Subordinated Debt by its acceptance thereof shall be deemed
to acknowledge and agree that the foregoing subordination provisions are, and
are intended to be, an inducement to and a consideration of each holder of any
Senior Debt, whether such Senior Debt was created or acquired before or after
the creation of Subordinated Debt, to acquire and hold, or to continue to hold,
such Senior Debt, and such holder of Senior Debt shall be deemed conclusively to
have relied on such subordination provisions in acquiring and holding, or in
continuing to hold, such Senior Debt. Each such holder of Senior Debt is
intended to be, and
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is, a third party beneficiary of this Section 7. Each holder of Subordinated
Debt acknowledges and agrees that the provisions set forth in this Section 7
shall be enforceable against such Persons by the holders of the Senior Debt.
Notwithstanding anything contained in this Agreement or any other Financing
Document to the contrary, none of the provisions of this Section 7 (including,
without limitation, this Section 7.14) may, directly or indirectly, be amended,
modified, supplemented or waived without the prior written consent of the Senior
Agent, on behalf of the holders of the Senior Debt.
Identity of Holders of Senior Debt
Upon the request of any holder of Subordinated Debt, the Company shall
deliver to such holder a list of all holders of Senior Debt outstanding at such
time, providing the name and address of each such holder of Senior Debt and the
principal amount of Senior Debt held by each such holder; provided, however,
that, if any holder of Senior Debt shall have appointed an agent or other
representative with respect to the Senior Debt held by it, the Company may
provide the name and address of such agent or representative in lieu of the name
and address of such holder of Senior Debt.
Amendments to Senior Credit Facility
Notwithstanding the other provisions of this Section 7, no amendment to or
Refinancing of the Senior Debt or any agreement or instrument related thereto
shall be effective as to the holders of the Subordinated Debt or be entitled to
the benefits of this Section 7 without the consent of each holder of Notes to
the extent that such amendment would prohibit directly the Company or any
Subsidiary from making scheduled payments in respect of the Subordinated Debt in
any manner which is not specifically set forth in the Senior Credit Agreement,
as in effect on the Closing Date.
INTERPRETATION OF THIS AGREEMENT
Terms Defined
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
Acceptable Consideration -- means, with respect to any Transfer of any
asset of the Company or any Subsidiary, cash consideration, promissory notes or
such other non-cash consideration (or any combination of the foregoing) as is,
in each case, determined by the Board of Directors, in its good faith opinion,
to be in the best interests of the Company and to reflect the Fair Market Value
of such asset.
Acceptable Revolving Credit Facility -- means and includes a revolving
credit agreement or similar agreement:
(a) pursuant to which the lender commits to permit the Company,
subject to the conditions therein, to obtain from time to time thereunder
loans or advances of cash, letters of credit or bankers acceptances and
periodically repay the same; and
(b) the obligations under which are secured by a Lien upon (among any
other Property subject to such Lien) all or substantially all Inventory and
Receivables of the Company and the Subsidiaries which are included in
calculating the Borrowing Base.
Affiliate -- means and includes, at any time, each Person (other than a
Subsidiary):
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(a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the
Company;
(b) that beneficially owns or holds five percent (5%) or more of any
class of the Voting Stock of the Company;
(c) five percent (5%) or more of the Voting Stock (or in the case of a
Person that is not a corporation, five percent (5%) or more of the equity
interest) of which is beneficially owned or held by the Company; or
(d) that is an officer or director of the Company;
at such time; provided, however, that neither of the Purchasers nor any of their
affiliates shall be deemed to be an "Affiliate," and no Person holding any one
or more of the Notes or Warrants shall be deemed to be an "Affiliate" solely by
virtue of the ownership of such securities. As used in this definition:
control -- means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
Agreement, this -- and references thereto shall mean this Note Agreement as
it may from time to time be amended or supplemented.
Applicable Interest Law -- means any present or future law (including,
without limitation, the laws of the State of New York and the United States of
America) which has application to the interest and other charges pursuant to
this Agreement and the Notes.
Board of Directors -- means, at any time, the board of directors of the
Company or any or any committee thereof that, in the instance, shall have the
lawful power to exercise the power and authority of such board of directors.
Borrowing Base -- means the sum of:
(a) eighty percent (80%) of Eligible Receivables aged less than
ninety-one days; plus
(b) any amount of the Battaglia Receivables not exceeding Four Hundred
Thousand Dollars ($400,000); plus
(c) the lesser of:
(i) forty percent (40%) of the book value of raw materials,
work-in-progress and finished goods Inventory, exclusive of any
Inventory warehoused at any warehouse location for which the lender
under the Acceptable Revolving Credit Facility has not received a
warehouse Lien waiver in form and substance acceptable to such lender,
subordinating the warehouseman's Lien to the Lien of such lender; and
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(ii) fifty percent (50%) of the Debt outstanding under such
Acceptable Revolving Credit Facility.
So long as:
(A) there has been no bad faith on the part of either the Company or
the Senior Agent in the preparation of the Borrowing Base Certificate;
(B) the Borrowing Base Certificate contains no manifest error;
(C) such Borrowing Base Certificate was completed no more than
thirty-five (35) days prior to the date of determination; and
(D) such Borrowing Base Certificate measures the Borrowing Base as of
a date no more than fifty (50) days prior to the date of determination;
then the Borrowing Base at any time shall be deemed to be the amount set forth
on the most recent Borrowing Base Certificate delivered to the Senior Agent. In
all other cases, the Borrowing Base shall equal the actual Borrowing Base on the
date of determination.
Business Day -- means a day other than a Saturday, a Sunday or a day on
which banks in the State of New York are required or permitted by law (other
than a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
Capital Lease -- means, at any time, a lease of any Property with respect
to which the lessee is required to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
Capital Stock -- means any class of preferred, common or other capital
stock, share capital or similar equity interest of a Person including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
Capitalized Interest Amount -- Section 1.2.
Change in Management -- means, at any time, an occurrence or event, or
failure of an event to occur, as a result of which:
(a) Mark Cocchiola either: shall fail to hold the position and title
of President and Chief Executive Officer of the Company at such time; shall
fail to have the responsibilities and duties attendant to such offices and
such responsibilities and duties as were regularly performed by him on the
Closing Date; or shall become unable (including, without limitation, by
death or disability lasting longer than one hundred twenty (120) days) to
perform or discharge such duties; or
(b) Paul Lauriero either: shall fail to hold the position or title of
Executive Vice President of the Company at such time; shall fail to have
the responsibilities and duties attendant to such office and such
responsibilities and duties as were regularly performed by him on the
Closing Date; or shall become unable (including, without limitation, by
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death or disability lasting longer than one hundred twenty (120) days) to
perform or discharge such duties;
in each case, regardless of the reason for such occurrence or event, or failure
of any event to occur.
Change in Management Payment Date -- Section 1.5(a).
Closing Date -- means the date any Notes are first sold.
Common Stock -- means the Common Stock, par value $.01 per share, of the
Company.
Company -- the introductory paragraph.
Confidential Information -- means information delivered to any holder of
Notes by or on behalf of the Company or any Subsidiary in connection with the
transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by such holder as being confidential
information of the Company or such Subsidiary; provided, however, that such term
does not include information that:
(a) was publicly known or otherwise known to such holder prior to the
time of such disclosure;
(b) subsequently becomes publicly known through no act or omission by
such holder or any Person acting on behalf of such holder;
(c) otherwise becomes known to such holder other than through:
(i) disclosure by the Company or any Subsidiary; or
(ii) disclosure to such holder which, to such holder's actual
knowledge, was made to such holder by any Person in violation of a
duty of confidentiality to the Company or any Subsidiary; or
(d) constitutes financial statements delivered to such holder under
Section 5.1 that are otherwise publicly available.
Consolidated Cash Flow -- means, for any period, the sum of:
(a) Consolidated Net Earnings; plus
(b) Consolidated Interest Expense; plus
(c) Consolidated Tax Expense; plus
(d) Consolidated Depreciation Expense; plus
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(e) all other non-cash charges (determined on a consolidated basis for
such period, but only to the extent included in the determination of
Consolidated Net Earnings for such period); plus
(f) for purposes of the twelve (12) month period immediately following
the Closing Date only, the amount of loss incurred by the Company from the
redemption of the CoreStates Securities and the aggregate amount of
investment banking and legal fees paid by the Company in connection with
the issuance of the Notes, in each case, solely to the extent deducted from
revenues of the Company and the Subsidiaries in computing Consolidated Net
Earnings during such period;
in each case determined in respect of such period.
Consolidated Cash Flow Available for Fixed Charges -- means, with respect
to any period, without duplication, the sum of:
(a) Consolidated Cash Flow for such period; plus
(b) Consolidated Rental Expense for such period.
Consolidated Depreciation Expense -- means, for any period, the amount of
depreciation and amortization expense (including, without limitation, expenses
associated with marketing service agreements, retail licensing agreements,
sale-and-leaseback transactions and deferred financing charges) of the Company
and the Subsidiaries, determined on a consolidated basis for such period, but
only to the extent deducted from revenues of the Company and the Subsidiaries in
computing Consolidated Net Earnings for such period.
Consolidated Fixed Charge Coverage Ratio -- means, for any period, the
ratio of Consolidated Cash Flow Available for Fixed Charges to Consolidated
Fixed Charges, determined in each case in respect of such period.
Consolidated Fixed Charges -- means, for any period, an amount equal to the
sum of:
(a) Consolidated Interest Expense; plus
(b) Consolidated Rental Expense;
determined in respect of such period.
Consolidated Interest Expense -- means, for any period, the amount of
interest accrued on, or with respect to, interest bearing obligations of the
Company and the Subsidiaries, including, without limitation, amortization of
debt discount, imputed interest on Capital Leases and interest on the Notes and
other Debt, determined on a consolidated basis for such period, but only to the
extent deducted from revenues of the Company and the Subsidiaries in computing
Consolidated Net Earnings for such period. For purposes of calculating
Consolidated Interest Expense, the Capitalized Interest Amount paid in respect
of the Notes on any Interest Payment Date shall not be included.
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Consolidated Net Earnings -- means, for any period, net income of the
Company and the Subsidiaries for such period, as determined on a consolidated
basis in accordance with GAAP, but excluding:
(a) any gain or loss arising from the sale of capital assets or any
write-up or write-down of assets, other than in the ordinary course of
business;
(b) earnings or losses of any Subsidiary accrued prior to the date it
became a Subsidiary;
(c) earnings or losses of any Person, substantially all the assets of
which have been acquired in any manner, realized by such other Person prior
to the date of such acquisition;
(d) earnings or losses of any Person (other than a Subsidiary) in
which the Company or any Subsidiary shall have an ownership interest unless
such net earnings shall have actually been received by the Company or such
Subsidiary in the form of cash distributions;
(e) any portion of the net earnings of any Subsidiary that for any
reason is unavailable for payment of dividends to the Company or any other
Subsidiary or that cannot be freely converted into United States dollars;
(f) the earnings or losses of any Person to which assets of the
Company shall have been sold, transferred or disposed of, or into which the
Company shall have merged, prior to the date of such transaction;
(g) any gain or loss arising from the acquisition of any Securities of
the Company or any Subsidiary;
(h) reversal of any extraordinary, unusual or nonrecurring contingency
reserves not created during such period; and
(i) other extraordinary gains or losses.
Consolidated Net Worth -- means, at any time, the stockholders' equity as
would be reflected on a balance sheet of the Company and the Subsidiaries
prepared on a consolidated basis in accordance with GAAP at such time.
Consolidated Rental Expense -- means, for any period, an amount equal to
Operating Rental Expense of the Company and the Subsidiaries, determined on a
consolidated basis for such period, but only to the extent included in the
determination of Consolidated Net Earnings for such period.
Consolidated Tax Expense -- means, for any period, the amount of tax
expense of the Company and the Subsidiaries in respect of federal and state
taxes imposed on or measured by income or excess profits, to the extent, but
only to the extent, deducted from revenues of the Company and the Subsidiaries
in computing Consolidated Net Earnings for such period.
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Consolidated Total Assets -- means, at any time, all assets of the Company
and the Subsidiaries which would be shown as assets on a consolidated balance
sheet of the Company and the Subsidiaries as of such time prepared in accordance
with GAAP.
Consolidated Total Debt -- means, at any time, an amount equal to all Debt
of the Company and the Subsidiaries, determined on a consolidated basis at such
time.
CoreStates Securities -- means, collectively, the 11.75% senior
subordinated notes due September 30, 2001 and related warrant issued by the
Company to CoreStates Enterprise Fund.
Debt -- with respect to any Person, means, without duplication, the
liabilities of such Person with respect to:
(a) Borrowed Money -- borrowed money;
(b) Deferred Purchase Price of Property -- the deferred purchase price
of Property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement with
respect to any such Property);
(c) Secured Liabilities -- borrowed money secured by any Lien existing
on Property owned by such Person (whether or not such liabilities have been
assumed);
(d) Capital Leases -- Capital Leases of such Person;
(e) Letters of Credit -- letters of credit, bankers acceptances or
similar instruments serving a similar function issued or accepted by banks
and other financial institutions for the account of such Person (whether or
not representing obligations for borrowed money), other than undrawn trade
letters of credit in the ordinary course of business;
(f) Swaps -- Swaps of such Person; and
(g) Guarantees -- any Guaranty of such Person of any obligation or
liability of another Person of obligations of the type listed in clause (a)
through clause (f) of this definition of Debt;
provided that, with respect to the Company, Debt shall not include any unfunded
obligations which may now or hereafter exist with respect to Company's Plans.
As used in this definition,
Swaps -- means, with respect to any Person, obligations with respect
to interest rate swaps and currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency, except that if any agreement relating to such
obligation provides for the netting of amounts payable by and to such
Person thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the
amount of such obligations shall be the net amount thereof. The aggregate
net obligation of Swaps at any time shall be the aggregate amount of the
obligations of such Person under all
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Swaps assuming all such Swaps had been terminated by such Person as of the
end of the then most recently ended fiscal quarter of such Person. If such
net aggregate obligation shall be an amount owing to such Person, then the
amount shall be deemed to be Zero Dollars ($0).
Unless the context otherwise requires, "Debt" means Debt of the Company or of a
Subsidiary.
Default -- means any event which, with the giving of notice or the passage
of time, or both, would become an Event of Default.
DOL -- means the United States Department of Labor and any successor
agency.
Eligible Receivables -- has the meaning set forth in the Senior Credit
Agreement, as in effect on the date hereof, but after giving effect to any
amendments (but only such amendment or amendments) thereto as would not have the
effect, individually or in the aggregate, of materially increasing the Borrowing
Base.
Environmental Protection Law -- means any law, statute or regulation
enacted by any Governmental Authority in connection with or relating to the
protection or regulation of the environment, including, without limitation,
those laws, statutes and regulations regulating the disposal, removal,
production, storing, refining, handling, transferring, processing or
transporting of Hazardous Materials and any applicable orders, decrees or
judgments issued by any court of competent jurisdiction in connection with any
of the foregoing.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA Affiliate -- means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the IRC.
Event of Default -- Section 6.1.
Exchange Act -- means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC thereunder.
Excluded Transfers -- means Transfers referred to in clauses (i), (ii) and
(iii) of Section 4.2 (a).
Fair Market Value -- means, with respect to any Property, the sale value of
such Property that would be realized in an arm's-length sale at such time
between an informed and willing buyer, and an informed and willing seller, under
no compulsion to buy or sell, respectively.
Financing Documents -- means and includes this Agreement, the Securities
Purchase Agreements, the Notes, Subsidiary Guaranty, the Warrant Agreement, the
Warrant certificates and the other agreements, certificates and instruments to
be executed pursuant to the terms of each of the foregoing, as each may be
amended, restated or otherwise modified from time to time.
GAAP -- means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the
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Financial Accounting Standards Board and in such statements, opinions and
pronouncements of such other entities with respect to financial accounting of
for-profit entities as shall be accepted by a substantial segment of the
accounting profession in the United States.
Governmental Authority -- means:
(a) the government of:
(i) the United States of America and any state or other political
subdivision thereof; or
(ii) any other jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or that asserts
any jurisdiction over the conduct of the affairs of, or the Property
of, the Company or any such Subsidiary; and
(b) any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, any such government.
Guaranty -- means with respect to any Person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person (the "Primary Obligor") in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by the Guarantor:
(a) to purchase such indebtedness or obligation or any Property
constituting security therefor;
(b) to advance or supply funds
(i) for the purchase or payment of such indebtedness, dividend or
obligation; or
(ii) to maintain working capital or other balance sheet condition
or any income statement condition of the Primary Obligor or otherwise
to advance or make available funds for the purchase or payment of such
indebtedness, dividend or obligation;
(c) to lease Property or to purchase securities or other Property or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the Primary Obligor to make
payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or obligation of
the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty, in connection with any
computation of indebtedness or other liability:
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(i) in each case where the obligation that is the subject of such
Guaranty is in the nature of indebtedness for money borrowed it shall be
assumed that the amount of the Guaranty is the amount of the direct
obligation then outstanding; and
(ii) in each case where the obligation that is the subject of such
Guaranty is not in the nature of indebtedness for money borrowed it shall
be assumed that the amount of the Guaranty is the amount (if any) of the
direct obligation that is then due.
Hazardous Material -- means all or any of the following:
(a) substances that are defined or listed in, or otherwise classified
pursuant to, any applicable Environmental Protection Laws as "hazardous
substances", "hazardous materials", "hazardous wastes", "toxic substances"
or any other formulation intended to define, list or classify substances by
reason of deleterious properties such as ignitability, corrosivity,
reactivity, carcinogenicity, reproductive toxicity, "TLCP toxicity" or "EP
toxicity";
(b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters
and other wastes associated with the exploration, development or production
of crude oil, natural gas or geothermal resources;
(c) any flammable substances or explosives or any radioactive
materials;
(d) asbestos or urea formaldehyde in any form; and
(e) dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty parts per million.
Interest Payment Date -- Section 1.1.
Investments -- means all investments, made in cash or by delivery of
Property, by the Company and the Subsidiaries:
(a) in any Person, whether by acquisition of stock, Debt or other
obligation or Security, or by loan, Guaranty, advance or capital
contribution, or otherwise; or
(b) in any Property.
IRC -- means the Internal Revenue Code of 1986, together with all rules and
regulations promulgated pursuant thereto, as amended from time to time.
Junior Subordinated Debt -- means any Debt of the Company or any Subsidiary
which is:
(a) issued on or after the date of this Agreement and which is
expressly subordinated in right of payment to any Debt of the Company; or
(b) owing to any Subsidiary or any Affiliate.
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Lien -- means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property (for purposes of this
definition, the "Owner"), whether such interest is based on the common law,
statute or contract, and includes but is not limited to:
(a) the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes, and the filing of any financing statement
under the Uniform Commercial Code of any jurisdiction, or an agreement to
give any of the foregoing;
(b) reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting real Property;
(c) stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements affecting the Owner's rights in
stock owned by the Owner; and
(d) any interest in any Property held by the Owner evidenced by a
conditional sale agreement, Capital Lease or other arrangement pursuant to
which title to such Property has been retained by or vested in some other
Person for security purposes.
The term "Lien" does not include negative pledge clauses in loan agreements and
equal and ratable security clauses in loan agreements.
Material Adverse Effect -- means, with respect to any event or circumstance
(either individually or in the aggregate with all other events and
circumstances), an effect caused thereby or resulting therefrom that would be
materially adverse as to, or in respect of:
(a) the business, operations, profits, financial condition or
Properties of the Company and the Subsidiaries, taken as a whole;
(b) the ability of the Company and the Subsidiary Guarantors, taken as
a whole, to perform their respective obligations under any Financing
Document to which they are a party; or
(c) the validity or enforceability of any of the Financing Documents.
Maximum Legal Rate of Interest -- means the maximum rate of interest that a
holder of Notes may from time to time legally charge the Company by agreement
and in regard to which the Company would be prevented successfully from raising
the claim or defense of usury under the Applicable Interest Law as now or
hereafter construed by courts having appropriate jurisdiction.
Modified Prepayment Compensation Amount -- means, with respect to Prepaid
Principal and the date the payment thereof is due, an amount equal to the
applicable percentage set out below of the Prepaid Principal:
================================================================================
If Prepayment Occurs During
the Period Specified Below: Percentage of Prepaid Principal:
================================================================================
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================================================================================
- --------------------------------------------------------------------------------
From and including March 1, 2001 up to 7.50%
and including February 28, 2002
- --------------------------------------------------------------------------------
From and including March 1, 2002 up to 5.00%
and including February 28, 2003
- --------------------------------------------------------------------------------
From and including March 1, 2003 up to 2.50%
and including February 28, 2004
- --------------------------------------------------------------------------------
On or after March 1, 2004 0.0%
================================================================================
Multiemployer Plan -- means any "multiemployer plan" (as defined in section
3(37) of ERISA) in respect of which the Company or any ERISA Affiliate is an
"employer" (as such term is defined in section 3 of ERISA).
NASDAQ -- means the NASDAQ Stock Market, Inc., a subsidiary of the NASD.
NASDAQ National Market -- has the meaning ascribed thereto in Rule 4200(r)
of NASDAQ.
Nonpayment Default Notice -- Section 7.5(b).
Note -- means and includes each 16.5% Senior Subordinated Note due March 1,
2006 issued pursuant to this Agreement.
Operating Lease -- means, with respect to any Person, any lease other than
a Capital Lease.
Operating Rental Expense -- means, for any Person for any period, all fixed
payments which the lessee is required to make by the terms of any Operating
Lease during such period but shall not include amounts required to be paid in
respect of maintenance, repairs, income taxes, property taxes, insurance,
assessments or other similar charges or additional rentals (in excess of fixed
minimums) based upon a percentage of gross receipts.
Payment Blockage Period -- Section 7.5.
Payment Blockage Period Termination Date -- means, with respect to any
Significant Nonpayment Default, the earliest of:
(a) the passing of a number of days equal to the difference of:
(i) one hundred fifty (150) days; minus
(ii) the aggregate number of days during the three hundred
sixty-five (365) calendar days immediately preceding the date upon
which the Nonpayment Default Notice relating to such Significant
Nonpayment Default during which a payment blockage pursuant to Section
7.5 has been in effect with respect to any other Significant
Nonpayment Default;
since the earlier of:
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(A) the date upon which the Nonpayment Default Notice was
given; and
(B) the date that any Standstill Period arising out of such
Significant Payment Default commenced;
(b) the date on which such Significant Nonpayment Default shall
have been cured or waived in writing (whether by amendment of any
provision of the Senior Credit Agreement or otherwise) or shall have
ceased to exist;
(c) the date such Payment Blockage Period shall have been
terminated by written notice to the Company from the Senior Agent; and
(d) the date of the repayment in full in cash or cash equivalents
of the Senior Debt and the termination of any commitment to make any
further loans or advances in respect of the Senior Debt.
Payment Default Notice -- Section 7.4.
PBGC -- means the Pension Benefit Guaranty Corporation, or any other Person
succeeding to the duties thereof.
Permitted Investor -- means and includes any Person:
(a) which is a Purchaser;
(b) in connection with the liquidation, dissolution, termination or
other event with respect to any holder of Notes which requires any holder
of Notes to distribute the Notes to the stockholders, shareholders, members
or partners of such holder, each such stockholder, shareholder, member or
partner; or
(c) (i) which meets the criteria for an "accredited investor," as set
forth in either Rule 501(a)(1), Rule 501(a)(2), Rule 501(a)(3), Rule
501(a)(7) or Rule 501(a)(8), in each case, under the Securities Act;
and
(ii) which is not engaged principally in the production or
distribution of dairy products.
Permitted Revolving Credit Debt -- means and includes all Debt incurred
pursuant to an Acceptable Revolving Credit Facility which, at the time of
incurrence thereof, was incurred in compliance with Section 4.7(a).
Person -- means an individual, partnership, corporation, limited liability
company, joint venture, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
Plan -- means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the
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Company or any ERISA Affiliate or with respect to which the Company or any ERISA
Affiliate may have any liability.
Prepaid Principal -- means any portion of the principal amount of any Note
being paid for any reason (including, without limitation, acceleration, optional
payment or mandatory payment required because of the occurrence of a
contingency) prior to its regularly scheduled maturity date.
Prepayment Compensation Amount -- at any time, means:
(a) if such time is prior to March 1, 2001, the Standard Prepayment
Compensation Amount; and
(b) if such time is on or after March 1, 2001, the Modified Prepayment
Compensation Amount.
Pro Forma Consolidated Cash Flow -- means, for any period, Consolidated
Cash Flow for such period; provided, however, that for purposes of calculations
made under Section 4.6 or Section 4.7(b)(v), if:
(a) the proceeds of any Consolidated Debt included in such calculation
made under Section 4.6 or Section 4.7(b)(v) were applied by the Company
either:
(i) to purchase or acquire all of the Capital Stock of any
Person, or all or substantially all of the Property of any Person,
which, as a result of such purchase or acquisition, became a
Subsidiary; or
(ii) as the consideration paid to the former holders of the
Capital Stock of any Person which is merged into the Company or any
Subsidiary; and
(b) both:
(i) audited historical balance sheets, statements of operations
and statements of cash flows are available for a period of one (1)
full fiscal year of the acquired Person ending not more than sixteen
(16) calendar months prior to the date of such acquisition are
available to the Company and the holders of the Notes; and
(ii) either such audited historical financial statements referred
to in clause (i) (whether or not expressly prepared in connection with
such acquisition), or quarterly unaudited balance sheets, statements
of operations and statements of cash flows for such Person prepared in
accordance with GAAP, in conformity with the accounting principles
applied to such audited financial statements of such acquired Person
(subject to year-end adjustments) and which have been the subject of a
review by such acquired Person's independent certified public
accountants in accordance with the provisions of Statement of Auditing
Standards No. 71 (or any successor standard generally accepted by the
accounting profession) covering the period for which Pro Forma
Consolidated Cash Flow is being calculated, are available to the
Company and the holders of the Notes; and
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(c) such transaction occurred after the first day of such period;
then Pro Forma Consolidated Cash Flow shall be calculated assuming that such
transaction occurred on the first day of such period, and that such acquired
Person was a Subsidiary for the entire period.
Property -- means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
Purchasers -- the introductory paragraph.
Refinancing -- means and includes, with respect to any Debt, any renewal,
extension, replacement, refinancing or refunding of such Debt; and the terms
"Refinance" and "Refinanced" have correlative meanings.
Remedies -- means and includes, with respect to any Debt (including,
without limitation, the Senior Debt and the Subordinated Debt):
(a) the acceleration of the maturity of any of such Debt;
(b) the exercise of any put right or other similar right to require
the Company or any Subsidiary to repurchase any of such Debt prior to the
stated maturity thereof;
(c) the collection or commencement of proceedings against the Company,
any Subsidiary or any other Person obligated on such Debt or any of their
respective Property, to enforce or collect any of such Debt;
(d) taking possession of or foreclosing upon (whether by judicial
proceedings or otherwise) any Liens or other collateral security for such
Debt; or causing a marshalling of any Property of the Company or any
Subsidiary;
(e) the making of a demand in respect of any Guaranty given by the
Company or any Subsidiary of such Debt; or
(f) exercising any other remedies with respect to such Debt or any
claim with respect thereto.
Required Holders -- means, at any time, the holders of not less than
sixty-six and two-thirds percent (66 2/3%) in principal amount of the Notes at
the time outstanding (exclusive of Notes then owned by any one or more of the
Company, any Subsidiary or any Affiliate).
Required Principal Payment -- Section 1.3(b).
Restricted Investment -- means, at any time, all Investments except the
following:
(a) Property (including, without limitation, real Property and
interests therein) to be used in the ordinary course of business and
current assets arising from the sale of goods and services in the ordinary
course of business of the Company and the Subsidiaries;
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(b) Investments in one or more Subsidiaries or any corporation that
concurrently with such Investment becomes a Subsidiary;
(c) Investments in direct obligations of the United States of America,
any agency thereof or obligations guaranteed by the United States of
America, so long as such obligations are backed by the full faith and
credit of the United States of America; provided that such obligations
mature within three (3) years from the date of acquisition thereof;
(d) Investments in any obligation of any state or municipality thereof
given either of the two (2) highest ratings by at least one credit rating
agency of recognized national standing and maturing within three (3) years
from the date of acquisition;
(e) Investments in certificates of deposit or banker's acceptances
given one (1) of the two (2) the highest ratings by at least one credit
rating agency of recognized national standing, issued by a bank or trust
company organized under the laws of the United States of America or any
state thereof having capital, surplus and undivided profits aggregating at
least One Hundred Million Dollars ($100,000,000) and maturing within one
(1) year from the date of acquisition;
(f) Investments in money market mutual funds that invest solely in
so-called "money market" instruments maturing not more than one year after
the acquisition thereof and given one of the two (2) the highest ratings by
at least one credit rating agency of recognized national standing;
(g) Investments in commercial paper given either of the two (2)
highest ratings by at least one credit rating agency of recognized national
standing and maturing not more than two hundred seventy (270) days from the
date of creation thereof; and
(h) Investments outstanding on the Closing Date and listed on Part
8.1RI(g) of Annex 3.
Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon.
Restricted Payment -- means and includes:
(a) any dividend or other distribution, direct or indirect, on account
of any shares of Capital Stock (including, without limitation, the Common
Stock) or Rights of the Company, now or hereafter outstanding, except:
(i) a dividend payable solely in shares of Common Stock; or
(ii) a dividend or other distribution of Common Stock or other
Securities pursuant to the applicable provisions of the Rights
Agreement, as in effect on the date hereof;
(b) any dividend or other distribution, direct or indirect, on account
of any shares of Capital Stock or Rights of any Subsidiary, now or
hereafter outstanding, except:
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(i) a dividend payable solely in shares of common stock of such
Subsidiary; or
(ii) to the extent that such dividend or distribution is,
directly or indirectly, payable to the Company; and
(c) any payment, whether in respect of principal, premium, interest,
fees, expenses or otherwise, in respect of, or any redemption, retirement,
purchase or other acquisition, direct or indirect, of, any Junior
Subordinated Debt.
Restricted Repurchase -- means and includes:
(a) any redemption, retirement, purchase or other acquisition, direct
or indirect, of any shares of Capital Stock or Rights of the Company now or
hereafter outstanding, except:
(i) in the case of Rights, the retirement of such Rights by
virtue of the exercise or conversion thereof into Common Stock; or
(ii) a redemption of Share Purchase Rights of the Company
pursuant to the redemption provisions of the Rights Agreement; or
(b) any redemption, retirement, purchase or other acquisition, direct
or indirect, of any shares of Capital Stock or Rights of any Subsidiary now
or hereafter outstanding, except to the extent that such redemption,
retirement, purchase or other acquisition is made from, and the payment in
respect of such redemption, retirement, purchase or other acquisition is
paid, directly or indirectly, to the Company.
Right -- with respect to any class of Capital Stock (including, without
limitation, Common Stock) of the Company or any Subsidiary, means and includes:
(a) any warrant (including, without limitation, any Warrant) or any
option (including, without limitation, employee stock options) to acquire
any such Capital Stock;
(b) any right issued to holders of such Capital Stock, permitting such
holders to subscribe to shares of any such Capital Stock or Rights
(pursuant to a rights offering or otherwise);
(c) any right to acquire such Capital Stock pursuant to the provisions
of any Security (including, without limitation, any Series A Preferred
Stock, as and when issued) convertible or exchangeable into such Capital
Stock; and
(d) any similar right permitting the holder thereof to subscribe for
or purchase shares of such Capital Stock.
Rights Agreement -- means the Rights Agreement, dated as of March 6, 1996,
between the Company and Continental Stock Transfer & Trust Company, as Rights
Agent.
Sale-Leaseback Transaction -- means any transaction or series of related
transactions in which the Company or a Subsidiary sells or conveys any of its
Property to any Person (other
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than the Company, a Subsidiary or an Affiliate) and substantially concurrently
with such sale or conveyance, rents or leases as lessee all or substantially all
of such Property so sold or conveyed.
SEC -- means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
Securities Act -- means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Securities Purchase Agreements -- means the separate Securities Purchase
Agreements each dated as of March 9, 1998, between the Company and each of the
respective Purchasers, relating to the offering and sale of the Notes and the
Warrants.
Security -- means "security" as defined by section 2(1) of the Securities
Act.
Senior Agent -- means, for so long as the Senior Credit Agreement remains
outstanding, Fleet Bank, N.A., as agent in respect of the Senior Credit
Agreement, and thereafter, any one agent or lender in respect of the Senior
Credit Facility, or representative of either, designated in writing to each
holder of Notes by the predecessor Senior Agent and the Company as being the
"Senior Agent".
Senior Credit Agreement -- means the Amended and Restated Revolving Loan,
Guaranty and Security Agreement, dated January 5, 1998, between the Company,
Suprema Specialties West, Inc., a California corporation, Suprema Specialties
Northeast, a New York corporation, and Fleet Bank, N.A., as amended by that
certain letter agreement, dated January 28, 1998, between the Company and Fleet
Bank, N.A. and that certain letter agreement, dated February 23, 1998, between
the Company and Fleet Bank, N.A., and as thereafter amended in compliance with
the provisions of Section 7.16.
Senior Credit Facility -- means and includes:
(a) the Senior Credit Agreement; and
(b) any Acceptable Revolving Credit Facility, which Acceptable
Revolving Credit Facility has Refinanced the Senior Debt governed by the
terms of a Senior Credit Facility which both the Company and the Senior
Agent under the predecessor Senior Credit Facility (or, if no such other
agreement is then in effect, by the Company) have designated in writing to
each holder of Notes as being the "Senior Credit Facility;" provided,
however, that, by making such designation, the predecessor Senior Credit
Facility shall cease to be the Senior Credit Facility (but any Debt
outstanding or incurred thereunder shall continue to be Senior Debt for so
long as such Debt meets the definition thereof).
Senior Debt -- means and includes all obligations, liabilities and
indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal, interest (including interest accruing
after the filing of a petition under the Bankruptcy Code, whether or not
allowed), fees, expenses, indemnification or otherwise, in respect of:
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(a) the Senior Credit Facility, in a principal amount which, together
with any fees not provided for in the Senior Credit Agreement as in effect
on the date hereof, does not exceed a maximum commitment amount of
Twenty-Seven Million Five Hundred Thousand Dollars ($27,500,000);
(b) Debt and other obligations (including, without limitation,
obligations to make payments of Operating Lease Expense to Fleet Bank,
N.A., arising out of Operating Leases entered into in connection with
Sale-Leaseback Transactions with Fleet Bank, N.A.) outstanding on the
Closing Date and listed as "Senior Debt" on Part 4.7(b) of Annex 3
(c) all Permitted Revolving Credit Debt; and
(d) any other Debt of the Company (including, without limitation,
additional Debt owing to the Senior Agent) other than Permitted Revolving
Credit Debt, incurred in compliance with all provisions of this Agreement;
provided, however, that the Company shall have delivered to each holder of
Notes, at least three (3) Business Days prior to the incurrence thereof, a
certificate of a Senior Financial Officer establishing that such Debt may
be incurred in compliance with the provisions of Section 4.7(b)(v).
Notwithstanding the foregoing, in no event shall "Senior Debt" include any
Junior Subordinated Debt.
Senior Financial Officer -- means any one of the chief financial officer,
the treasurer and the principal accounting officer of the Company.
Senior Officer -- means any one of the chairman of the board of directors,
the chief executive officer, the chief operating officer, and the president, of
the Company.
Senior Payment Default -- Section 7.4(a).
Series A Preferred Stock -- means the Series A Convertible Preferred Stock,
par value $.10 per share, of the Company.
Share Purchase Rights -- means the Common Stock purchase rights issued
pursuant to the Rights Agreement.
Significant Nonpayment Default -- means and includes:
(a) an event of default under the Senior Credit Facility in respect of
the failure of the Company to comply with any material covenant or
agreement in respect of the Senior Credit Facility (it being understood
that the provisions of Sections 10.14 through 10.21, inclusive, Section
10.27 and Section 10.30 of the Senior Credit Agreement, as in effect on the
date hereof, are "material covenants" for such purpose); and
(b) an event of default in respect of the Senior Credit Facility
arising out of any Event of Default in respect of this Agreement.
Specified Stock -- means and includes:
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(a) the Common Stock; and
(b) any class of Capital Stock of the Company which:
(i) is convertible into Common Stock;
(ii) does not, pursuant to its terms or the terms of any
ancillary agreement or document, require the Company or any Subsidiary
to redeem all or any portion thereof at any time, whether or not
conditioned upon the happening of a contingency, prior to July 1,
2006; and
(iv) does not, pursuant to its terms or the terms of any
ancillary agreement or document, confer upon the holders thereof any
right in respect of the failure of the Company to pay any dividend in
respect thereof (other than cumulation of such dividends or the right
to nominate or otherwise select or participate in the selction of one
or more directors of the Company).
Standard Prepayment Compensation Amount -- means, with respect to Prepaid
Principal and the date the payment thereof is due (the "Payment Date") an amount
equal to the excess (if any) of the Present Value of the Prepaid Cash Flows over
the amount of such Prepaid Principal, determined in respect of such Prepaid
Principal as of such Payment Date. As used in this definition:
Present Value of the Prepaid Cash Flows -- means the sum of the
present values of the then remaining scheduled payments of principal and
interest that would have been payable in respect of such Prepaid Principal
but that are no longer payable as a result of the early payment of such
Prepaid Principal. In determining such present values:
(i) the amount of interest accrued through and including the day
immediately preceding such Payment Date on such Prepaid Principal
since the scheduled interest payment date immediately preceding such
Payment Date shall be deducted from the first of such payments of
interest; and
(ii) a discount rate per annum equal to the Make-Whole Discount
Rate determined with respect to such Prepaid Principal and such
Payment Date divided by twelve (12), and a discount period of one (1)
month, shall be used.
Make-Whole Discount Rate -- means the sum of:
(i) one (1) percent (1.00%) per annum; plus
(ii) the per annum percentage rate (rounded to the nearest three
(3) decimal places) equal to the bond equivalent yield to maturity
derived from the Bloomberg Rate, or if the Bloomberg Rate is not then
available, the Applicable H.15 Rate, determined as of the date that is
two (2) Business Days prior to such Payment Date.
Applicable H.15 -- means, at any time, the United States Federal
Reserve Statistical Release H.15(519) then most recently published and
available to the public, or if such publication is not available, then any
other source of current information in
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respect of interest rates on securities of the United States of America
that is generally available and, in the reasonable judgment of the Required
Holders, provides information reasonably comparable to the H.15(519)
report.
Applicable H.15 Rate -- means, at any time, the then most current
annual yield to maturity of the hypothetical United States Treasury
obligation listed in the Applicable H.15 with a Treasury Constant Maturity
(as such term is defined in such Applicable H.15) equal to the Weighted
Average Life to Maturity of such Prepaid Principal. If no such United
States Treasury obligation with a Treasury Constant Maturity corresponding
exactly to such Weighted Average Life to Maturity is listed, then the
yields for the two (2) then most current hypothetical United States
Treasury obligations with Treasury Constant Maturities most closely
corresponding to such Weighted Average Life to Maturity (one (1) with a
longer maturity and one (1) with a shorter maturity, if available) shall be
calculated pursuant to the immediately preceding sentence and the
Make-Whole Discount Rate shall be interpolated or extrapolated from such
yields on a straight-line basis.
Bloomberg Rate - means the per annum yield reported on the Bloomberg
Financial Markets System at 10:00 a.m. (New York time) on the second (2nd)
Business Day preceding such Payment Date for United States government
securities having a maturity (rounded to the nearest month) corresponding
to the Weighted Average Life to Maturity of such Prepaid Principal. Page
USD shall be used as the source of such yields, or if not then available,
such other screen available on the Bloomberg Financial Markets System as
shall, in the opinion of the Required Holders, provide equivalent
information.
Treasury Constant Maturity -- has the meaning specified in the
Applicable H.15.
Weighted Average Life to Maturity -- means the number of years
(calculated to the nearest one-twelfth (1/12th)) obtained by dividing the
Remaining Dollar-Years of such Prepaid Principal by such Prepaid Principal,
determined as of such Payment Date.
Remaining Dollar-Years -- means the result obtained by:
(a) multiplying, in the case of each then remaining scheduled
payment of principal that would have been payable in respect of
Prepaid Principal but is no longer payable as a result of the payment
of such Prepaid Principal;
(i) an amount equal to such scheduled payment of principal;
by
(ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between such Payment Date and the
date such scheduled principal payment would be due if such
Prepaid Principal had not been so prepaid; and
(b) calculating the sum of each of the products obtained in the
preceding subsection (a).
Standstill Period -- Section 7.7.
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Subordinated Debt -- means and includes all obligations, liabilities and
indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal, interest (including interest accruing
after the filing of a petition under the Bankruptcy Code, to the extent
allowed), fees, expenses, indemnification or otherwise, in respect of this
Agreement and the Notes.
Subsidiary -- means a corporation of which the Company owns, directly or
indirectly, more than fifty percent (50%) (by number of votes) of each class of
Voting Stock.
Subsidiary Guaranty -- means the Unconditional Guaranty, dated as of the
date hereof, entered into by Suprema Specialties West, Inc. and Suprema
Specialties Northeast, Inc., as may be amended, restated or otherwise modified
from time to time in accordance with the terms thereof.
Subsidiary Stock -- Section 4.2(b).
Surviving Corporation -- Section 4.1(a).
Transfers -- Section 4.2(a).
Voting Stock -- means, with respect to any corporation, any shares of stock
of such corporation whose holders are entitled under ordinary circumstances to
vote for the election of directors of such corporation (irrespective of whether
at the time any stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency), and, in the case of
the Company, shall include the Common Stock. Except as otherwise provided,
references herein to "Voting Stock" shall mean Voting Stock of the Company.
Warrant -- means each warrant to purchase Common Stock issued pursuant to
the Warrant Agreement.
Warrant Agreement -- means the Warrant Agreement, dated as of March 9,
1998, among the Company and the Purchasers, pursuant to which the Warrants were
issued.
Wholly-Owned Subsidiary -- means, at any time, any Subsidiary one hundred
percent (100%) of all of the equity Securities (except directors' qualifying
shares) and Voting Stock of which are owned by any one or more of the Company
and the Company's other Wholly-Owned Subsidiaries at such time. Other
Definitions
The following terms shall have the respective meanings ascribed to such
terms in the Senior Credit Agreement, as in effect on the Closing Date and
without giving effect to any amendment to the Senior Credit Agreement subsequent
to the date thereof:
Battaglia Receivables Letter of Credit
Borrowing Base Certificate Receivables
Inventory
Accounting Principles
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GenerallyUnless otherwise provided herein, all financial statements
delivered in connection herewith will be prepared in accordance with GAAP.
Where the character or amount of any asset or liability or item of income
or expense, or any consolidation or other accounting computation is
required to be made for any purpose hereunder, it shall be done in
accordance with GAAP; provided, however, that if any term defined herein
includes or excludes amounts, items or concepts that would not be included
in or excluded from such term if such term were defined with reference
solely to GAAP, such term will be deemed to include or exclude such
amounts, items or concepts as set forth herein.
ConsolidationWhenever accounting amounts of a group of Persons are to
be determined "on a consolidated basis" it shall mean that, as to balance
sheet amounts to be determined as of a specific time, the amount that would
appear on a consolidated balance sheet of such Persons prepared as of such
time, and as to income statement amounts to be determined for a specific
period, the amount that would appear on a consolidated income statement of
such Persons prepared in respect of such period, in each case with all
transactions among such Persons eliminated, and prepared in accordance with
GAAP except as otherwise required hereby.
CurrencyWith respect to any determination, consolidation or accounting
computation required hereby, any amounts not denominated in the currency in
which this Agreement specifies shall be converted to such currency in
accordance with the requirements of GAAP (as such requirements relate to
such determination, consolidation or computation) and, if no such
requirements shall exist, converted to such currency in accordance with
normal banking procedures, at the closing rate as reported in The Wall
Street Journal published most recently as of the date of such
determination, consolidation or computation or, if no such quotation shall
then be available, as quoted on such date by any bank or trust company
reasonably acceptable to the Required Holders.
Directly or Indirectly
Where any provision herein refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, including
actions taken by or on behalf of any partnership in which such Person is a
general partner.
Section Headings and Table of Contents and Construction
Section Headings and Table of Contents, etc The titles of the Sections
of this Agreement and the Table of Contents of this Agreement appear as a
matter of convenience only, do not constitute a part hereof and shall not
affect the construction hereof. The words "herein," "hereof," "hereunder"
and "hereto" refer to this Agreement as a whole and not to any particular
Section or other subdivision. References to Sections are, unless otherwise
specified, references to Sections of this Agreement. References to Annexes
and Exhibits are, unless otherwise specified, references to Annexes and
Exhibits attached to this Agreement.
ConstructionEach covenant contained herein shall be construed (absent
an express contrary provision herein) as being independent of each other
covenant contained herein, and compliance with any one covenant shall not
(absent such an express contrary provision) be deemed to excuse compliance
with one or more other covenants.
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Governing Law
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF
ANY OTHER JURISDICTION. IN ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT
THEY MAY LAWFULLY DO SO, THE INTERNAL LAWS OF THE STATE OF NEW YORK AS THE
APPLICABLE INTEREST LAW.
General Interest Provisions
(m) Interest in Respect of the Notes. It is the intention of the
Company and the Purchasers to conform strictly to the Applicable Interest
Law. Accordingly, it is agreed that, notwithstanding any provisions to the
contrary in this Agreement or in the Notes, the aggregate of all interest,
and any other charges or consideration constituting interest under the
Applicable Interest Law that is taken, reserved, contracted for, charged or
received pursuant to this Agreement or the Notes shall under no
circumstances exceed the maximum amount of interest allowed by the
Applicable Interest Law. If any such excess interest is ever charged,
received or collected on account of or relating to this Agreement and the
Notes (including any charge or amount which is not denominated as
"interest" but is legally deemed to be interest under Applicable Interest
Law), then in such event:
(i) the provisions of this Section 8.7 shall govern and control;
(ii) the Company shall not be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of
interest allowed by the Applicable Interest Law;
(iii) any excess shall be deemed a mistake and cancelled
automatically and, if theretofore paid, shall be credited to the
principal amount of the Notes by the holders thereof, and if the
principal balance of the Notes is paid in full, any remaining excess
shall be forthwith paid to the Company; and
(iv) the effective rate of interest shall be automatically
subject to reduction to the Maximum Legal Rate of Interest.
If at any time thereafter, the Maximum Legal Rate of Interest is increased,
then, to the extent that it shall be permissible under the Applicable
Interest Law, the Company shall forthwith pay to the holders of the Notes,
on a pro rata basis, all amounts of such excess interest that the holders
of the Notes would have been entitled to receive pursuant to the terms of
this Agreement and the Notes had such increased Maximum Legal Rate of
Interest been in effect at all times when such excess interest accrued. To
the extent permitted by the Applicable Interest Law, all sums paid or
agreed to be paid to the holders of the Notes for the use, forbearance or
detention of the indebtedness evidenced thereby shall be amortized,
prorated, allocated and spread throughout the full term of the Notes.
(n) Effect of Issuance of Notes Together with Warrants. The Company
and the Purchasers agree, to the extent permitted by the Applicable
Interest Law, that, for
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purposes of computing the interest in respect of the Notes under the
Applicable Interest Law:
(i) the aggregate purchase price of the Notes shall equal the
difference of:
(A) Ten Million Five Hundred Thousand Dollars; minus
(B) the amount of original issue discount attributable to
the Notes in respect of the issuance of the Warrants together
with the Notes (but not any original issue discount attributable
at any time to the capitalization of interest in respect of the
Notes);
(ii) the amount of original issue discount attributable to the
Notes in respect of the issuance of the Warrants shall be deemed to be
the purchase price of the Warrants;
(iii) the Warrants and the Notes shall be deemed to have been
separately issued for the respective purchase prices set forth above;
and
(iv) no portion of the return, if any, to the holders of the
Warrants in respect of their investment therein shall be deemed to be
interest in respect of the Notes.
MISCELLANEOUS
Communications
Method; AddressAll communications hereunder or under the Notes shall
be in writing and shall be delivered either by nationwide overnight courier
or by facsimile transmission (confirmed by delivery by nationwide overnight
courier sent on the day of the sending of such facsimile transmission).
Communications to the Company shall be addressed as set forth on Annex 2,
or at such other address of which the Company shall have notified each
holder of Notes. Communications to the holders of the Notes shall be
addressed as set forth on Annex 1 by such holder, or at such other address
of which such holder shall have notified the Company (and the Company shall
record such address in the register for the registration and transfer of
Notes maintained pursuant to Section 2.1).
When GivenAny communication addressed and delivered as herein provided
shall be deemed to be received when actually delivered to the address of
the addressee (whether or not delivery is accepted) or received by the
telecopy machine of the recipient. Any communication not so addressed and
delivered shall be ineffective.
Service of ProcessNotwithstanding the foregoing provisions of this
Section 9.1, service of process in any suit, action or proceeding arising
out of or relating to this agreement or any document, agreement or
transaction contemplated hereby, or any action or proceeding to execute or
otherwise enforce any judgment in respect of any breach hereunder or under
any document or agreement contemplated hereby, shall be delivered in the
manner provided in Section 9.7(c).
Reproduction of Documents
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This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by the Purchasers at the closing of its purchase of the Notes
(except the Notes themselves), and financial statements, certificates and other
information previously or hereafter furnished to any holder of Notes, may be
reproduced by the Company or any holder of Notes by means of any photographic,
photostatic, microfilm, micro-card, miniature photographic, digital or other
similar process and each holder of Notes may destroy any original document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by the
Company or such holder of Notes in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. Nothing in this Section 9.2 shall prohibit
the Company or any holder of Notes from contesting the accuracy or validity of
any such reproduction.
Survival; Entire Agreement
All warranties, representations, certifications and covenants contained
herein, in the Securities Purchase Agreements or in any certificate or other
instrument delivered hereunder shall be considered to have been relied upon by
the other parties hereto and shall survive the delivery to the Purchasers of the
Notes regardless of any investigation made by or on behalf of any party hereto.
All statements in any certificate or other instrument delivered pursuant to the
terms hereof or of the Securities Purchase Agreements shall constitute
warranties and representations hereunder. All obligations hereunder (other than
payment of the Notes, but including, without limitation, reimbursement
obligations in respect of costs, expenses and fees) shall survive the payment of
the Notes and the termination hereof. Subject to the preceding sentence, this
Agreement, the Notes and the other Financing Documents embody the entire
agreement and understanding between the Company and the Purchasers, and
supersede all prior agreements and understandings, relating to the subject
matter hereof.
Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of all holders, from time to time, of Notes, and
shall be enforceable by any such holder whether or not an express assignment to
such holder of rights hereunder shall have been made by the Purchasers or their
respective successors or assigns. Anything contained in this Section 9.4
notwithstanding, the Company may not assign any of its respective rights, duties
or obligations hereunder or under any of the other Financing Documents without
the prior written consent of all holders of Notes. For purposes of the avoidance
of doubt, any holder of a Note shall be permitted to pledge or otherwise grant a
Lien in and to such Note (including, without limitation, pledging such Note to a
trustee for the benefit of certain secured noteholders pursuant to documents
relating to the financing of such holder or to one or more banks or other
institutions providing financing in connection with the purchase by such holder
of such Note); provided, however, that any such pledgee or holder of a Lien
shall not be considered a holder hereunder until it shall have foreclosed upon
such Note in accordance with applicable law and informed the Company, in
writing, of the same.
Amendment and Waiver
RequirementsThis Agreement may be amended, and the observance of any
term hereof may be waived, with (and only with) the written consent of the
Company and the Required Holders; provided, however, that no such amendment
or waiver shall, without
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the written consent of the holders of all Notes (exclusive of Notes held by
the Company, any Subsidiary or any Affiliate) at the time outstanding;
(v) change the amount or time of any prepayment or payment of
principal or Prepayment Compensation Amount or the rate or time of
payment of interest;
(vi) amend or waive the provisions of Section 6.1, Section 6.2,
Section 6.3 or Section 7, or amend or waive any defined term to the
extent used therein;
(vii) amend or waive the definition of "Required Holders" or
otherwise amend the percentage of Notes required to be held by holders
of Notes consenting to any action under this Agreement; or
(viii) amend or waive this Section 9.5 or amend or waive any
defined term to the extent used herein.
The holder of any Note may specify that any such written consent executed
by it shall be effective only with respect to a portion of the Notes held
by it (in which case it shall specify, by dollar amount, the aggregate
principal amount of Notes with respect to which such consent shall be
effective) and in the event of any such specification such holder shall be
deemed to have executed such written consent only with respect to the
portion of the Notes so specified.
No amendment, supplement or modification of the provisions of Section
7, or any defined term to the extent used therein, shall be effective to
any holder of Senior Debt who has not consented to such amendment,
supplement or modification.
Solicitation of Noteholders
SolicitationEach holder of the Notes (irrespective of the amount
of Notes then owned by it) shall be provided by the Company with all
material information provided by the Company to any other holder of
Notes with respect to any proposed waiver or amendment of any of the
provisions hereof or the Notes. Executed or true and correct copies of
any amendment or waiver effected pursuant to the provisions of this
Section 9.5 shall be delivered by the Company to each holder of
outstanding Notes forthwith following the date on which such amendment
or waiver becomes effective.
PaymentThe Company shall not, nor shall any Subsidiary or
Affiliate, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any
holder of Notes of any waiver or amendment of any of the provisions
hereof or of the Notes unless such remuneration is concurrently paid,
or security is concurrently granted, on the same terms, ratably to the
holders of all Notes then outstanding.
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Scope of Consent Any amendment or waiver made pursuant to this
Section 9.5 by a holder of Notes that has transferred or has agreed to
transfer its Notes to the Company, any Subsidiary or any Affiliate and
has provided or has agreed to provide such amendment or waiver as a
condition to such transfer shall be void and of no force and effect
except solely as to such holder, and any amendments effected or
waivers granted that would not have been or would not be so effected
or granted but for such amendment or waiver (and the amendments or
waivers of all other holders of Notes that were acquired under the
same or similar conditions) shall be void and of no force and effect,
retroactive to the date such amendment or waiver initially took or
takes effect, except solely as to such holder.
Binding EffectExcept as provided in Section 9.5(b)(iii), any amendment
or waiver consented to as provided in this Section 9.5 shall apply equally
to all holders of Notes and shall be binding upon them and upon each future
holder of any Note and upon the Company whether or not such Note shall have
been marked to indicate such amendment or waiver. No such amendment or
waiver shall extend to or affect any obligation, covenant, agreement,
Default or Event of Default not expressly amended or waived or impair any
right consequent thereon.
Expenses
Amendments and WaiversThe Company shall pay when billed the reasonable
costs and expenses (including reasonable attorneys' fees) incurred by the
holders of the Notes in connection with the consideration, negotiation,
preparation or execution of any amendments, waivers, consents, standstill
agreements and other similar agreements with respect to this Agreement or
any other Financing Document (whether or not any such amendments, waivers,
consents, standstill agreements or other similar agreements are executed).
Restructuring and Workout, InspectionsAt any time when the Company and
the holders of Notes are conducting restructuring or workout negotiations
in respect hereof, or a Default or Event of Default exists, the Company
shall pay when billed the reasonable costs and expenses (including
reasonable attorneys' fees and the fees of professional advisors) incurred
by the holders of the Notes in connection with the assessment, analysis or
enforcement of any rights or remedies that are or may be available to the
holders of Notes, including, without limitation, in connection with
inspections made pursuant to Section 5.5; provided, however, that at all
other times inspections will be at the expense of the inspecting holder of
Notes.
CollectionIf the Company shall fail to pay when due any principal of,
or Prepayment Compensation Amount or interest on, any Note, the Company
shall pay to each holder of Notes, to the extent permitted by law, such
amounts as shall be sufficient to cover the costs and expenses, including
but not limited to reasonable attorneys' fees, incurred by such holder in
collecting any sums due on such Note.
Waiver of Jury Trial; Consent to Jurisdiction, etc
Waiver of Jury TrialTHE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF, UNDER OR IN
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CONNECTION WITH THIS AGREEMENT OR ANY OF THE DOCUMENTS, AGREEMENTS OR
TRANSACTIONS CONTEMPLATED HEREBY.
Consent to JurisdictionANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR ANY OF THE DOCUMENTS, AGREEMENTS OR
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE OR
OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT
BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK COUNTY, NEW
YORK, OR ANY NEW YORK STATE COURT LOCATED IN NEW YORK COUNTY, NEW YORK AS
SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF
EACH SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES AND
AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE
IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN
ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
Service of ProcessEACH PARTY HERETO IRREVOCABLY AGREES THAT PROCESS
PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE ADDRESSES
PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT PERMITTED BY
LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT, AGREEMENT OR
TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR
OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER
ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED
SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED
BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.
Other ForumsNOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE
ABILITY OF ANY HOLDER OF NOTES TO SERVE ANY WRITS, PROCESS OR SUMMONSES IN
ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER THE
COMPANY IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE
PERMITTED BY APPLICABLE LAW.
Execution in Counterpart
This Agreement may be executed in one or more counterparts and shall be
effective when at least one counterpart shall have been executed by each party
hereto, and each set of
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counterparts that, collectively, show execution by each party hereto shall
constitute one duplicate original.
[Remainder of page intentionally blank. Next page is signature page.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered by one of its duly authorized
officers or representatives.
SUPREMA SPECIALTIES, INC.
By:
---------------------------------------------
Name:
Title:
ALBION ALLIANCE MEZZANINE FUND,
L.P.
By: Albion Alliance LLC, its General Partner
By:
---------------------------------------------
Name:
Title:
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
---------------------------------------------
Name:
Title:
<PAGE>
ANNEX 1
ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS
<TABLE>
<S> <C>
=========================================================================================================
Purchaser Name ALBION ALLIANCE MEZZANINE FUND, L.P.
- ---------------------------------------------------------------------------------------------------------
Name in which Note is ALBION ALLIANCE MEZZANINE FUND, L.P.
Registered
- ---------------------------------------------------------------------------------------------------------
Subordinated Note R-1: $8,500,000
Registration Number;
Principal Amount of Note
- ---------------------------------------------------------------------------------------------------------
Payments on Account of
Note
Method Federal Funds Wire Transfer
Account Information Chase Manhattan Bank, N.A.
New York, New York 10019
ABA # 021 000 021
For the Account: Albion Alliance Mezzanine Fund, L.P.
Account #910-2-795953
- ---------------------------------------------------------------------------------------------------------
Accompanying Information Name of Company: SUPREMA SPECIALTIES, INC.
Description of
Security: 16.5% Senior Subordinated Notes
due March 1, 2006
PPN: 86859F A* 8
Due Date and Application (as among
principal, premium and interest) of
the payment being made:
- ---------------------------------------------------------------------------------------------------------
Address for Notices Related Albion Alliance Mezzanine Fund, L.P.
to Payments c/o Alliance Capital Management, L.P.
135 West 50th Street, 6th Floor
New York, NY 10020
Attn: Cash Operations
- ---------------------------------------------------------------------------------------------------------
Address for All Other Albion Alliance Mezzanine Fund, L.P.
Notices c/o Albion Alliance LLC
1345 Avenue of the Americas, 41st Floor
New York, NY 10105
Attention: William Gobbo, Jr.
(212) 969-1547 - Phone
(212) 969-1529 - Fax
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</TABLE>
Annex 1-1
<PAGE>
ANNEX 1
ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS (Cont.)
<TABLE>
<S> <C>
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Purchaser Name ALBION ALLIANCE MEZZANINE FUND, L.P.
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Other Instructions Signature Page Format:
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC, its General Partner
By___________________________
Name:
Title:
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Tax Identification Number 13-3975300
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</TABLE>
Annex 1-2
<PAGE>
ANNEX 1
ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS (Cont.)
<TABLE>
<S> <C>
=========================================================================================================
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
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Name in which Note is THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
Registered UNITED STATES
- ---------------------------------------------------------------------------------------------------------
Subordinated Note R-2: $2,000,000
Registration Number;
Principal Amount of Note
- ---------------------------------------------------------------------------------------------------------
Payments on Account of
Note
Method Federal Funds Wire Transfer
Account Information The Chase Manhattan Bank, N.A.
110 West 52nd Street
New York, New York 10019
ABA # 021 000 021
For the Account: The Equitable Life Assurance Society of
the United States
Account No. 037-2-413419
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Accompanying Information Name of Company: SUPREMA SPECIALTIES, INC.
Description of
Security: 16.5% Senior Subordinated Notes
due March 1, 2006
PPN: 86859F A* 8
Due Date and Application (as among
principal, premium and interest) of
the payment being made:
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Address for Notices Related The Equitable Life Assurance Society of
to Payments the United States
c/o Alliance Capital Management, L.P.
135 West 50th Street, 6th Floor
New York, NY 10020
Attn: Treasury Services
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</TABLE>
Annex 1-3
<PAGE>
ANNEX 1
ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS (Cont.)
<TABLE>
<S> <C>
=========================================================================================================
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
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Address for All Other The Equitable Life Assurance Society of
Notices the United States
c/o Alliance Capital Management, L.P.
1345 Avenue of the Americas, 41st Floor
New York, NY 10105
Attention: Alliance Corporate Finance Group Inc.
(212) 969-1547 - Phone
(212) 969-1529 - Fax
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Other Instructions Signature Page Format:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
By___________________________
Name:
Title:
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Tax Identification Number 13-5570651
=========================================================================================================
</TABLE>
Annex 1-4
<PAGE>
ANNEX 2
ADDRESS OF COMPANY
Suprema Specialties
510 East 35th Street
P.O. Box 280 Park Station
Paterson, New Jersey 07543
Attn: President
Attachment 2-1
<PAGE>
ANNEX 3
EXISTING LIENS, DEBT AND INVESTMENTS
Part 4.3; Existing Liens
[TO BE PROVIDED BY THE COMPANY]
Part 4.7(d); Existing Debt
[TO BE PROVIDED BY THE COMPANY]
Part 8.1RI(g); Existing Investments
[TO BE PROVIDED BY THE COMPANY]
Annex 3-1
<PAGE>
ATTACHMENT A
[FORM OF NOTE]
THE NOTE AGREEMENT REFERRED TO IN THIS NOTE CONTAINS, AMONG OTHER THINGS,
PROVISIONS WHICH LIMIT THE TRANSFER OF THIS SECURITY. A COPY OF THE NOTE
AGREEMENT IS AVAILABLE FROM THE COMPANY UPON REQUEST.
SUPREMA SPECIALTIES, INC.
16.5% SENIOR SUBORDINATED NOTE DUE MARCH 1, 2006
No. R-__ PPN: 86859F A* 8
$__________ ______________ __, ____
SUPREMA SPECIALTIES, INC. (together with its successors, the "Company"), a
New York corporation, for value received, hereby promises to pay to ______ or
registered assigns the principal sum of ______ DOLLARS ($______) on March 1,
2006, and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) on the unpaid principal balance hereof from the date of this Note
at the rate of sixteen and fifty one-hundredths percent (16.5%) per annum, in
arrears, monthly on the first day of each calendar month in each year,
commencing on the later of April 1, 1998 and the payment date next succeeding
the date hereof, until the principal amount hereof shall become due and payable;
and to pay on demand interest on any overdue principal (including any overdue
partial payment of principal and principal payable at the maturity hereof) and
Prepayment Compensation Amount, if any, and (to the extent permitted by
applicable law) on any overdue installment of interest (the due date of such
payments to be determined without giving effect to any grace period), at a rate
per annum equal to the lesser of (a) the highest rate allowed by applicable law
and (b) the greater of (i) eighteen and fifty one-hundredths percent (18.5%),
and (ii) two percent (2%) over the rate of interest publicly announced from time
to time by Morgan Guaranty Trust Company of New York in New York, New York as
its "base" or "prime" rate. The Company may pay a portion of such scheduled
interest payments by adding it to the outstanding principal amount of this Note,
in lieu of paying such interest in cash, all as further provided in Section 1.2
of the Note Agreement (defined below).
Payments of principal, Prepayment Compensation Amount, if any, and interest
shall be made in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts to
the registered holder hereof at the address shown in the register maintained by
the Company for such purpose, in the manner provided in the Note Agreement
(defined below).
This Note is one of an issue of Notes of the Company issued in an aggregate
principal amount limited to Ten Million Five Hundred Thousand Dollars
($10,500,000) pursuant to the Note Agreement (as may be amended, restated or
otherwise modified from time to time, the "Note Agreement"), dated as of March
9, 1998, among the Company and the purchasers listed on Annex 1 thereto. The
holder of this Note is entitled to the benefits of the Note Agreement. This Note
is subject to the terms of the Note Agreement, and such terms are incorporated
herein by reference. Capitalized terms used herein and not defined herein have
the meanings specified in the Note Agreement.
Attachment A-1
<PAGE>
As provided in the Note Agreement, this Note is subject to prepayment, in
whole or in part, in certain cases without a Prepayment Compensation Amount and
in other cases with a Prepayment Compensation Amount, on the terms and subject
to the conditions set forth in the Note Agreement. The holder of this Note, on
the terms and subject to the conditions set forth in the Note Agreement, may
elect to have the Company prepay the entire principal amount of this Note
(together with any applicable Prepayment Compensation Amount) in connection with
a Change in Management. All of the principal of this Note (together with any
applicable Prepayment Compensation Amount) may, under certain circumstances, be
declared due and payable in the manner and with the effect provided in the Note
Agreement.
The holder of this Note is hereby authorized by the Company to record (in
good faith) in its manual or data processing records, and/or on Schedule A
annexed to this Note, the date and amount of each addition of capitalized
interest to principal, and the date and amount of each repayment of such
principal and each payment of interest on account of such outstanding principal.
In the absence of manifest error, such records and Schedule shall be conclusive
as to the outstanding principal amount of this Note and the payment of interest
accrued hereunder; provided, that the failure to make any such record entry with
respect to any addition of capitalized interest to principal or any payment of
principal or interest shall not limit or otherwise affect the obligations of the
Company under this Note.
The Notes and all other obligations of the Company under the Note Agreement
have been unconditionally guarantied by certain Subsidiaries pursuant to the
Unconditional Guaranty, dated as of March 9, 1998.
This Note is a registered Note and is transferable only by surrender at the
principal office of the Company as specified in the Note Agreement, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
THE OBLIGATIONS EVIDENCED BY THIS NOTE ARE SUBORDINATED TO THE SENIOR DEBT
ON THE TERMS PROVIDED IN THE NOTE AGREEMENT.
THIS NOTE AND THE NOTE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SUPREMA SPECIALTIES, INC.
By:
---------------------------------
Name:
Title:
Attachment A-2
<PAGE>
SCHEDULE A TO NOTE NO. R-___
<TABLE>
<CAPTION>
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Date of Cash Original Amount of Amount of Amount of Aggregate
Interest Payment Balance of Interest Paid in Interest Added Principal Unpaid
or Principal Principal Cash to Principal Prepaid Balance of
Addition or Principal
Payment/Initials
of Person
Making Entry
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</TABLE>
Attachment A-3
SUPREMA SPECIALTIES, INC.
---------------------------------------------------
WARRANT AGREEMENT
---------------------------------------------------
DATED AS OF MARCH 9, 1998
105,000 WARRANTS TO PURCHASE COMMON STOCK
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES.......................................... 1
1.1 Form of Warrant Certificates......................................................... 1
1.2 Execution of Warrant Certificates; Registration Books................................ 1
1.3 Transfer, Split Up, Combination and Exchange of Warrant Certificates;
Lost or Stolen Warrant Certificates.................................................. 2
1.4 Subsequent Issuance of Warrant Certificates.......................................... 3
1.5 Effect of Issuance in Registered Form................................................ 3
2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE............................................... 3
2.1 Exercise of Warrants................................................................. 3
2.2 Issuance of Common Stock............................................................. 5
2.3 Unexercised Warrants................................................................. 5
2.4 Cancellation and Destruction of Warrant Certificates................................. 5
2.5 Notice of Expiration; Extension of Expiration Date................................... 6
2.6 Fractional Shares.................................................................... 6
3. AGREEMENTS OF THE COMPANY..................................................................... 6
3.1 Reservation of Common Stock.......................................................... 6
3.2 Common Stock To Be Duly Authorized and Issued, Fully Paid and
Nonassessable........................................................................ 6
3.3 Transfer Taxes....................................................................... 6
3.4 Common Stock Record Date............................................................. 7
3.5 Rights in Respect of Common Stock.................................................... 7
3.6 CUSIP Number......................................................................... 7
3.7 Right of Action...................................................................... 8
3.8 Survival............................................................................. 8
4. ANTIDILUTION ADJUSTMENTS...................................................................... 8
4.1 Mechanical Adjustments............................................................... 8
4.2 Stock Dividends, Subdivisions and Combinations....................................... 8
4.3 Dividends and Distributions.......................................................... 8
4.4 Repurchases of Common Stock or Rights................................................ 9
4.5 Issuances of Additional Common Stock or Rights....................................... 10
4.6 Expiration of Rights................................................................. 11
4.7 Consolidation; Merger; Sale; Reclassification........................................ 11
4.8 De Minimis Changes in Purchase Price................................................. 12
4.9 Adjustment of Number of Shares Issuable Pursuant to Warrants......................... 12
4.10 Miscellaneous........................................................................ 13
4.11 Other Securities..................................................................... 13
4.12 Additional Agreements of the Company................................................. 13
5. REPORTING COVENANTS........................................................................... 14
5.1 Financial and Business Information................................................... 14
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
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<S> <C>
5.2 Extension of Time to File SEC Reports................................................ 15
5.3 Information Concerning Antidilution Adjustments...................................... 16
6. REGISTRATION RIGHTS........................................................................... 17
6.1 Incidental Registration.............................................................. 17
6.2 Companies Registration............................................................... 18
6.3 Registration Procedures.............................................................. 18
6.4 Reasonable Investigation............................................................. 21
6.5 Registration Expenses................................................................ 22
6.6 Indemnification; Contribution........................................................ 22
6.7 Holdback Agreements; Registration Rights to Others................................... 25
6.8 Other Registration of Common Stock................................................... 25
6.9 Availability of Information.......................................................... 25
7. RIGHT OF FIRST REFUSAL........................................................................ 26
7.1 Transfer of Warrants................................................................. 26
7.2 Notice of Proposed Transfer.......................................................... 26
7.3 First Refusal Right.................................................................. 26
7.4 Transfers to Third Parties on Refusal or Failure to Consummate....................... 26
7.5 Limited Right of First Refusal Regarding Sale of Certain Common Stock................ 27
8. INTERPRETATION OF THIS AGREEMENT.............................................................. 28
8.1 Certain Defined Terms................................................................ 28
8.2 Descriptive Headings................................................................. 41
8.3 Governing Law........................................................................ 41
9. MISCELLANEOUS................................................................................. 41
9.1 Expenses............................................................................. 41
9.2 Amendment and Waiver................................................................. 42
9.3 Directly or Indirectly............................................................... 42
9.4 Survival of Representations and Warranties; Entire Agreement......................... 42
9.5 Successors and Assigns............................................................... 43
9.6 Notices.............................................................................. 43
9.7 Satisfaction Requirement............................................................. 43
9.8 Severability......................................................................... 44
9.9 Counterparts......................................................................... 44
9.10 Waiver of Jury Trial; Consent to Jurisdiction; Etc................................... 44
Annex 1 -- Addresses of Purchasers
Annex 2 -- Address of Company
Attachment A -- Form of Warrant Certificate
</TABLE>
ii
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of March 9, 1998, among SUPREMA SPECIALTIES,
INC., a New York corporation (together with its successors and assigns, the
"Company") and ALBION ALLIANCE MEZZANINE FUND, L.P., and THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES (each, together with its successors and
assigns, a "Purchaser" and collectively, the "Purchasers").
AGREEMENT
In consideration of the premises and the mutual agreements set forth
herein, the parties to this Agreement hereby agree as follows:
1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES.
1.1 Form of Warrant Certificates.
The warrant certificates (individually, a "Warrant Certificate" and,
collectively, the "Warrant Certificates") evidencing the Warrants, and the forms
of assignment and of election to purchase shares to be attached to such
certificates, shall be substantially in the form set forth in Attachment A
hereto and may have such letters, numbers or other marks of identification or
designation as may be required to comply with any law or with any rule or
regulation of any governmental authority, stock exchange or self-regulatory
organization. Each Warrant Certificate shall be dated the date of issuance
thereof by the Company, either upon initial issuance or upon transfer or
exchange, and on its face shall initially entitle the holder thereof to purchase
a number of shares of Common Stock equal to the number of Warrants specified on
the face of such Warrant Certificate at a price per share equal to the Purchase
Price, but the number of such shares and the Purchase Price shall be subject to
adjustment as provided herein.
1.2 Execution of Warrant Certificates; Registration Books.
(a) Execution of Warrant Certificates. The Warrant Certificates shall
be executed on behalf of the Company by an officer of the Company
authorized by the Board of Directors. In case the officer of the Company
who shall have signed any Warrant Certificate shall cease to be such an
officer of the Company before issuance and delivery by the Company of such
Warrant Certificate, such Warrant Certificate nevertheless may be issued
and delivered with the same force and effect as though the individual who
signed such Warrant Certificate had not ceased to be such an officer of the
Company, and any Warrant Certificate may be signed on behalf of the Company
by any individual who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of the Company to sign such Warrant
Certificate, although at the date of the execution of this Agreement any
such individual was not such an officer.
1
<PAGE>
(b) Registration Books. The Company will keep or cause to be kept at
its office maintained at the address of the Company set forth in Section
hereof or at such other office of the Company in the United States of
America of which the Company shall have given notice to each holder of
Warrant Certificates, books for registration and transfer of the Warrant
Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Warrant Certificates, the
registration number and the number of Warrants evidenced on its face by
each of the Warrant Certificates and the date of each of the Warrant
Certificates.
1.3 Transfer, Split Up, Combination and Exchange of Warrant Certificates;
Lost or Stolen Warrant Certificates.
(a) Transfer, Split Up, etc. Any Warrant Certificate, with or without
other Warrant Certificates, subject to the terms hereof, may be
transferred, split up, combined or exchanged for another Warrant
Certificate or Warrant Certificates, entitling the registered holder or
Transferee thereof to purchase a like number of shares of Common Stock as
the Warrant Certificate or Warrant Certificates surrendered then entitled
such registered holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Warrant Certificate shall make
such request in writing delivered to the Company, and shall surrender the
Warrant Certificate or Warrant Certificates to be transferred, split up,
combined or exchanged at the office of the Company referred to in Section
hereof, whereupon, subject to the terms hereof, the Company shall deliver
promptly to the Person entitled thereto a Warrant Certificate or Warrant
Certificates, as the case may be, as so requested. Notwithstanding the
foregoing, no holder of Warrants may sell or transfer any Warrants to any
Person other than a Permitted Investor, and no holder of Warrants may sell
or transfer any Warrants to any other Person unless such holder has first
complied with the provisions of Section 7 hereof.
(b) Loss, Theft, etc. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate (which evidence shall
be, in the case of any Purchaser or another institutional investor, notice
from such institutional investor of such ownership (or of ownership by such
institutional investor's nominee) and such loss, theft, destruction or
mutilation), and:
(i) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company; provided, however, that if the
holder of such Warrant Certificate is an institutional investor or a
Purchaser, or a nominee of an institutional investor or a Purchaser,
the Purchaser's or institutional investor's own unsecured agreement of
indemnity shall be deemed to be satisfactory; or
(ii) in the case of mutilation, upon surrender and cancellation
thereof;
the Company at its own expense will execute and deliver, in lieu thereof, a
new Warrant Certificate, dated the date of such lost, stolen, destroyed or
mutilated Warrant Certificate and of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant Certificate.
2
<PAGE>
1.4 Subsequent Issuance of Warrant Certificates. Subsequent to the original
issuance, no Warrant Certificates shall be issued except:
(a) Warrant Certificates issued upon any transfer, combination, split
up or exchange of Warrants pursuant to Section 1.3(a) hereof;
(b) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 1.3(b)
hereof; and
(c) Warrant Certificates issued pursuant to Section 2.3 hereof upon
the partial exercise of any Warrant Certificate to evidence te unexercised
portion of such Warrant Certificate.
1.5 Effect of Issuance in Registered Form. Every holder of a Warrant
Certificate by accepting the same consents and agrees with the Company and with
every other holder of a Warrant Certificate that:
(a) the Warrant Certificates are transferable only on the registry
books of the Company if surrendered at the office of the Company referred
to in Section 1.2(b) hereof, duly endorsed or accompanied by an instrument
of transfer (in the form attached hereto) and payment of any applicable
transfer tax or stamp tax; and
(b) the Company may deem and treat the Person in whose name each
Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificates made by anyone other than the Company)
for all purposes whatsoever, and the Company shall not be affected by any
notice to the contrary.
2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE.
2.1 Exercise of Warrants.
(a) Manner of Exercise. At any time and from time to time on or after
the Effective Date and prior to the Expiration Date, the holder of any
Warrant Certificate may exercise the Warrants evidenced thereby, in whole
or in part (but not, in the case of any exercise in part, to the extent
that such exercise would result in the issuance of a fractional share of
Common Stock), by surrender of such Warrant Certificate, with an election
to purchase (a form of which is attached to each Warrant Certificate)
attached thereto duly executed, to the Company at its office referred to in
Section 1.2(b) hereof, together with payment of the Purchase Price for each
share of Common Stock with respect to which the Warrants are then being
exercised. Such Purchase Price shall be payable either:
(i) in cash pursuant to Section 2.1(b) hereof;
(ii) by a tender of Notes pursuant to Section 2.1(c) hereof;
3
<PAGE>
(iii) by a tender of cash pursuant Section 2.1(b) hereof and
Notes pursuant to Section hereof; or
(iv) by delivery of Warrant Certificates pursuant to Section
2.1(c) hereof.
(b) Payment in Cash. Upon exercise of any Warrants, the holder of a
Warrant Certificate may pay the Purchase Price (and shall pay the excess of
the Purchase Price for the Warrants being exercised over the amounts so
deemed to be paid by tender of Notes pursuant to Section 2.1(d) in cash or
by certified or official bank check payable to the order of the Company or
by wire transfer of immediately available funds to the account of the
Company.
(c) Payment in Notes. To the extent that any holder of any Warrant
Certificate surrenders with such Warrant Certificate any Note then held by
such holder, such holder shall be deemed to have paid that portion of the
Purchase Price equal to one hundred percent (100%) of the principal of such
Note which the holder thereof directs the Company to accept as payment of
the Purchase Price, which Note shall be cancelled and not reissued. To the
extent that the principal amount of such tendered Note is greater than the
amount of the Purchase Price paid by surrender thereof, the Company shall
deliver a new Note to the tendering holder thereof, in accordance with the
provisions of the Note Agreement, in the principal amount equal to the
amount not so applied to payment of the Purchase Price. At the time of the
issuance of the shares of Common Stock pursuant to the exercise of the
Warrants of any holder, the Company shall pay all accrued and unpaid
interest on the principal amount of any Note of such holder cancelled
pursuant to this Section 2.1(c) up to but excluding the date of such
issuance. For purposes of Rule 144 under the Securities Act, 17 C.F.R.
ss.230.144, the Company and the Purchasers agree that a tender of the
principal of any Notes in payment of the exercise price in respect of the
Warrants shall not be deemed a prepayment of the Notes, but rather a
conversion of such Notes, pursuant to the terms of the Notes, the Note
Agreement, this Agreement and the Warrants, into Common Stock.
(d) Net Exercise. In the event that any holder of Warrant Certificates
delivers such Warrant Certificates to the Company and notifies the Company
in writing that such holder intends to exercise all, or any portion of, the
Warrants represented by such Warrant Certificates to satisfy its obligation
to pay the Purchase Price in respect thereof by virtue of the provisions of
this Section 2.1(d), such holder shall become entitled to receive, instead
of the number of shares of Common Stock such holder would have received had
the Purchase Price been paid pursuant to Section 2.1(b) or Section 2.1(c)
hereof, a number of shares of Common Stock in respect of the exercise of
such Warrants equal to the product of:
(i) the number of shares of Common Stock issuable upon such
exercise of such Warrant Certificate (or, if only a portion of such
Warrant Certificate is being exercised, issuable upon the exercise of
such portion); multiplied by
(ii) the quotient of:
4
<PAGE>
(A) the difference of:
(I) the Market Price per share of Common Stock at the
time of such exercise; minus
(II) the Purchase Price per share of Common Stock at
the time of such exercise;
divided by
(B) the Market Price per share of Common Stock at the time
of such exercise.
The Company shall not be required to issue fractional shares by virtue
of this Section , but shall pay the exercising holder cash in lieu of
such fractional share in accordance with Section 2.6 hereof. For
purposes of Rule 144 under the Securities Act, 17 C.F.R. ss.230.144,
the Company and the Purchasers agree that the exercise of any Warrants
in accordance with this Section shall be deemed to be a conversion of
such Warrants, pursuant to the terms of this Agreement and the
Warrants, into Common Stock.
2.2 Issuance of Common Stock. Upon timely receipt of a Warrant Certificate,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for each of the shares to be purchased in the manner provided
in Section 2.1(a) hereof and an amount equal to any applicable transfer tax (if
not payable by the Company as provided in Section 3.3 hereof), the Company shall
thereupon promptly cause certificates representing the number of whole shares of
Common Stock then being purchased to be delivered to or upon the order of the
registered holder of such Warrant Certificate, registered in such name or,
subject to the terms hereof, in such names as may be designated by such holder,
and, promptly after such receipt deliver the cash, if any, to be paid in lieu of
fractional shares pursuant to Section 2.6 hereof to or upon the order of the
registered holder of such Warrant Certificate. For the avoidance of doubt, prior
to the Share Purchase Right Termination Date, each share of Common Stock issued
upon the exercise of any Warrant or Warrants shall in each case include the
attached Share Purchase Rights.
2.3 Unexercised Warrants. In case the registered holder of any Warrant
Certificate shall exercise less than all the Warrants evidenced thereby, a new
Warrant Certificate evidencing Warrants equal in number to the number of
Warrants remaining unexercised shall be issued by the Company to the registered
holder of such Warrant Certificate or, subject to the provisions hereof, to its
duly authorized assigns.
2.4 Cancellation and Destruction of Warrant Certificates. All Warrant
Certificates surrendered to the Company for the purpose of exercise, exchange,
substitution or transfer shall be cancelled by it, and no Warrant Certificates
shall be issued in lieu thereof except as expressly permitted by any of the
provisions of this Agreement. The Company shall cancel and retire any other
Warrant Certificates purchased or acquired by the Company otherwise than upon
the exercise thereof.
5
<PAGE>
2.5 Notice of Expiration; Extension of Expiration Date.
(a) Notice of Expiration; Effect. All Warrants that have not been
exercised or purchased in accordance with the provisions of this Agreement
shall expire and all rights of holders of such Warrants shall terminate and
cease on the Expiration Date. The Company agrees to notify each holder of
Warrants, not less than forty-five (45) days but not more than one hundred
twenty (120) days, prior to the Expiration Date in writing, of the
Expiration Date and that, on the Expiration Date, all Warrants remaining
unexercised shall expire and all rights of holders of such Warrants shall
terminate and cease.
(b) Extension of Expiration Date. If notice of the Expiration Date is
not given within the time period specified in Section 2.5(a), then the
Expiration Date shall be extended to, and shall instead occur, on that date
which is ninety (90) days after such notice is actually given.
2.6 Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock upon the exercise of any Warrant. Upon the
exercise of any Warrant, there shall be paid to the holder thereof, in lieu of
any fractional share of Common Stock resulting therefrom, an amount of cash
equal to the product of:
(a) the fractional amount of such share; times
(b) the Market Price, as determined on the trading day immediately
prior to the date of exercise of such Warrant.
3. AGREEMENTS OF THE COMPANY.
3.1 Reservation of Common Stock. The Company covenants and agrees that it
will at all times cause to be reserved and kept available out of its authorized
and unissued shares of Common Stock such number of shares of Common Stock as
will be sufficient to permit the exercise in full of all Warrants issued
hereunder and all other Rights exercisable or convertible into Common Stock. In
addition, at all times prior to the Share Purchase Right Termination Date, the
Company shall reserve a sufficient number of Share Purchase Rights as will be
sufficient to permit all shares of Common Stock issuable upon exercise in full
of all Warrants issued hereunder and all other Rights exercisable or convertible
into Common Stock to be issued together with the attached Share Purchase Rights.
3.2 Common Stock To Be Duly Authorized and Issued, Fully Paid and
Nonassessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock delivered
upon the exercise of any Warrants, at the time of delivery of the certificates
representing such shares, shall be duly and validly authorized and issued and
fully paid and nonassessable, free of any preemptive rights in favor of any
Person in respect of such issuance and free of any Lien created by, or arising
out of actions of, the Company, any Subsidiary or any Affiliate.
3.3 Transfer Taxes. The Company covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges that
may be payable in respect of the initial issuance or delivery of:
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(a) each Warrant Certificate;
(b) each Warrant Certificate issued in exchange for any other Warrant
Certificate pursuant to Section 1.3(a) or Section 2.3 hereof (in each case,
other than in connection with a transfer of the Warrants represented
thereby to a Transferee); and
(c) each share of Common Stock issued upon the exercise of any
Warrant.
The Company shall not, however, be required to:
(i) pay any transfer tax that may be payable in respect of the
transfer or delivery of certificates representing Warrants or shares of
Common Stock in a name other than that of the registered holder of the
certificate surrendered for exercise, conversion, transfer or exchange (any
such tax being payable by the holder of such certificate at the time of
surrender); or
(ii) issue or deliver any such certificates referred to in the
foregoing clause (i) until any such tax referred to in the foregoing clause
(i) shall have been paid.
3.4 Common Stock Record Date. Each Person in whose name any certificate for
shares of Common Stock is issued upon the exercise of Warrants shall for all
purposes be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated, the date upon which
the Warrant Certificate evidencing such Warrants was duly surrendered with an
election to purchase attached thereto duly executed and payment of the aggregate
Purchase Price (and any applicable transfer taxes, if payable by such Person)
was made.
3.5 Rights in Respect of Common Stock. Except as otherwise set forth
herein, prior to the exercise of the Warrants evidenced thereby and payment
therefor, the holder of a Warrant Certificate shall not be entitled to any
rights of a stockholder in the Company with respect to shares for which the
Warrants shall be exercisable, including, without limitation, the right to vote
in respect of any matter upon which the holders of Common Stock may vote or the
right to receive dividends or other distributions and, except as expressly set
forth herein, shall not be entitled to receive any notice of any proceedings of
the Company. Prior to the exercise of the Warrants evidenced thereby, the
holders of the Warrant Certificates shall not have any obligation or any
liability as stockholders of the Company, whether such obligation or liabilities
are asserted by the Company or by creditors of the Company.
3.6 CUSIP Number. The Company covenants and agrees to maintain:
(a) a private placement number in respect of the Warrants; and
(b) a CUSIP number in respect of the Common Stock;
in each case, from the CUSIP Service Bureau of Standard & Poor's, a division of
McGraw-Hill, Inc.
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3.7 Right of Action. All rights of action in respect of the Warrants are
vested in the respective registered holders of the Warrant Certificates, and any
registered holder of any Warrant Certificate, without the consent of the holder
of any other Warrant Certificate, may, on its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, its right to
exercise the Warrants evidenced by such Warrant Certificate in the manner
provided in such Warrant Certificate and in this Agreement.
3.8 Survival. The agreements of the Company contained in this Section 3
shall survive the exercise of and the expiration of the Warrants.
4. ANTIDILUTION ADJUSTMENTS.
4.1 Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of each Warrant, and the Purchase Price, shall be
subject to adjustment as set forth in this Section 4.
4.2 Stock Dividends, Subdivisions and Combinations. In the event that the
Company shall, on or after the date hereof:
(a) pay a dividend in shares of Additional Common Stock or make a
distribution in shares of Additional Common Stock;
(b) reclassify by subdivision its outstanding shares of Common Stock
into a greater number of shares; or
(c) reclassify by combination its outstanding shares of Common Stock
into a smaller number of shares;
then, and in each such case, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision or
combination shall be adjusted to that price determined by multiplying the
Purchase Price in effect immediately prior to such event by the quotient of:
(i) the total number of outstanding shares of Common Stock
immediately prior to such event; divided by
(ii) the total number of outstanding shares of Common Stock
immediately after such event.
An adjustment made pursuant to this Section 4.2 shall become effective on the
effective date of such event.
4.3 Dividends and Distributions. In the event that the Company shall make
or pay any dividend of, or distribute to holders of shares of Common Stock
(including, without limitation, any such distribution made in connection with a
consolidation or merger in which the Company is the continuing corporation)
shares of capital stock (other than Common Stock) or rights, warrants or options
exercisable into such capital stock (other than Rights), other Securities,
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evidences of its indebtedness or any of its Property (other than cash dividends
payable out of current net income or retained earnings), then, in each case, the
Purchase Price in effect after the record date in respect of which such stock,
rights, warrants, options, other Securities, indebtedness or Property were
dividended or distributed shall be adjusted by multiplying the Purchase Price in
effect immediately prior to such record date by the quotient of:
(a) the difference of:
(i) the Reference Price on such record date; minus
(ii) the quotient of:
(A) the then fair value (as determined by the Valuation
Agent, whose determination, if so made, shall be conclusive) of
the shares of stock, rights, warrants, options, other Securities,
evidences of indebtedness or Property so dividended or
distributed; divided by
(B) the number of shares of Common Stock outstanding on the
record date;
divided by
(b) the Reference Price on such record date.
Such adjustment shall be made whenever any such dividend or distribution is
made, and shall become effective on the date of such dividend or distribution.
4.4 Repurchases of Common Stock or Rights. In the event that the Company
shall repurchase, redeem, retire or otherwise acquire shares of Common Stock or
Rights for a Consideration Per Share greater than the Reference Price in effect
on the date of such repurchase, redemption, retirement or acquisition, then the
Purchase Price in effect immediately after such event shall be adjusted by
multiplying the Purchase Price in effect immediately prior to such event by the
quotient of:
(a) the difference of:
(i) the product of:
(A) the number of shares of Common Stock (calculated on a
Fully-Diluted Basis) immediately prior to such event; multiplied
by
(B) the Reference Price in effect immediately prior to such
event;
minus
(ii) the Aggregate Consideration Paid;
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divided by
(b) the product of:
(i) the Reference Price in effect immediately prior to such
event; multiplied by
(ii) the number of shares of Common Stock (calculated on a Fully-
Diluted Basis) immediately after such event.
In the event that any of the Aggregate Consideration Paid consists of
Property other than cash, the value of such Property for purposes of computing
the Aggregate Consideration Paid shall be determined by the Valuation Agent as
of a date not more than thirty (30) days prior to the date of determination
thereof and shall be set forth in a written certificate of the Valuation Agent
which shall be delivered to the holders of the Warrants in the manner
contemplated by Section .
The provisions of this Section shall not apply to any redemption of all
Share Purchase Rights by the Company in accordance with the provisions of the
Rights Agreement.
4.5 Issuances of Additional Common Stock or Rights. In the event that the
Company shall issue or sell shares of Additional Common Stock or Rights
(excluding Excluded Securities) for no consideration or at a Consideration Per
Share lower than the Reference Price in effect on the date of such issuance or
sale, then the Purchase Price in effect immediately after such event shall be
adjusted by multiplying the Purchase Price in effect immediately prior to such
event by the quotient of:
(a) the sum of:
(i) the number of shares of Common Stock outstanding immediately
prior to such event; plus
(ii) the quotient of:
(A) the Aggregate Consideration Receivable; divided by
(B) the Reference Price;
in each case immediately prior to such event;
divided by
(b) the sum of:
(i) the number of shares of Common Stock outstanding immediately
prior to such event; plus
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(ii) the number of shares of Additional Common Stock so issued or
sold (or initially issuable pursuant to such Rights).
In the event that any of the Aggregate Consideration Receivable consists of
Property other than cash, the value of such Property for purposes of computing
the Aggregate Consideration Receivable shall be determined by the Valuation
Agent as of a date not more than thirty (30) days prior to the date of
determination thereof and shall be set forth in a written certificate of the
Valuation Agent which shall be delivered to the holders of the Warrants in the
manner contemplated by Section .
4.6 Expiration of Rights. Upon the expiration of any Rights in respect of
the issuance of which adjustment was made pursuant to Section 4.5, without the
exercise thereof, the Purchase Price and the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall, upon such expiration, be
readjusted and shall thereafter be such Purchase Price and such number of shares
of Common Stock as would have been had such Purchase Price and such number of
shares of Common Stock been originally adjusted (or had the original adjustment
not been required, as the case may be) as if:
(a) the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise of such
Rights; and
(b) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all of such Rights, whether or not exercised;
provided that no such readjustment shall have the effect of increasing the
Purchase Price by an amount in excess of the amount of the reduction
initially made in respect of the issuance, sale, or grant of such Rights.
4.7 Consolidation; Merger; Sale; Reclassification. In the event that there
shall be:
(a) any consolidation of the Company with, or merger of the Company
with or into, another corporation (other than a merger in which the Company
is the surviving corporation and that does not result in either:
(i) any reclassification or change of shares of Common Stock
outstanding immediately prior to such merger; or
(ii) cash or Securities or Property of any Person acquiring then
Company being issued to all stockholders of the Company (other than
the acquiring Person) in exchange for the Common Stock formerly held
by them (whether pursuant to a reverse triangular merger or
otherwise);
(b) any sale or conveyance to another corporation of the Property of
the Company substantially as an entirety;
(c) any reclassification of the Common Stock that results in the
issuance of other Securities of the Company; or
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(d) any separation of the Share Purchase Rights (including, without
limitation, on the Distribution Date, as defined therein) from the Common
Stock;
then, in each such case, lawful provision shall be made as a part of the terms
of such transaction so that the holders of Warrants shall thereafter have the
right to purchase the number and kind of shares of stock, other Securities,
Share Purchase Rights, cash, Property and Rights receivable upon such
consolidation, merger, sale, conveyance, reclassification by a holder of such
number of shares of Common Stock as the holder of a Warrant would have had the
right to acquire upon the exercise of such Warrant immediately prior to such
consolidation, merger, sale, conveyance, reclassification or detachment, at the
Purchase Price then in effect, and, without further action on the part of any
Person, each Warrant will thereafter represent the right to receive, upon
payment of the Purchase Price, such shares of stock, other Securities, Share
Purchase Rights, cash, Property and Rights as are so receivable. The Company
agrees that, as a condition of proceeding with any such merger, consolidation or
sale, it shall cause the Person surviving such merger or consolidation, the
Person acquiring the Company or the Person to whom such sale or conveyance is
made, as the case may be, at the time of such consolidation, merger or sale, to
expressly assume the due and punctual observance and performance of each and
every provision of this Agreement and all obligations and liabilities of the
Company hereunder (subject to the foregoing sentence), in each case, pursuant to
such agreements and instruments as are reasonably acceptable to the Required
Warrantholders.
4.8 De Minimis Changes in Purchase Price. No adjustment in the Purchase
Price shall be required unless such adjustment would require an increase or
decrease of at least one percent (1%) in the Purchase Price; provided that any
adjustments that, at the time of the calculation thereof, are less than one
percent (1%) of the Purchase Price at such time and by reason of this Section
are not required to be made at such time shall be carried forward and added to
any subsequent adjustment or adjustments for purposes of determining whether
such subsequent adjustment or adjustments, as so supplemented, exceed the one
percent (1%) amount set forth in this Section 4.8 and, if any such subsequent
adjustment, as so supplemented or otherwise, should exceed such one percent (1%)
amount, all adjustments deferred prior thereto and not previously made shall
then be made. In any case, all such adjustments being carried forward pursuant
to this Section 4.8 shall be given effect upon the exercise of any Warrants by
any holder thereof for purposes of determining the Purchase Price thereof. All
calculations shall be made to the nearest cent ($0.01).
4.9 Adjustment of Number of Shares Issuable Pursuant to Warrants. Upon each
adjustment of the Purchase Price as a result of any calculations made pursuant
to Section 4.2, Section 4.3, Section 4.4, Section 4.5 or Section 4.12, each
Warrant outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price, that
number of shares of Common Stock (calculated to the nearest share) obtained by
multiplying the number of shares of Common Stock covered by such Warrant
immediately prior to such adjustment by the quotient of:
(a) the Purchase Price in effect immediately prior to such adjustment,
divided by
(b) the Purchase Price in effect immediately after such adjustment.
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All Warrants originally issued by the Company hereunder shall, subsequent to any
adjustment made to the Purchase Price hereunder, evidence the right to purchase,
at the adjusted Purchase Price, the number of shares of Common Stock determined
to be purchasable from time to time hereunder upon exercise of such Warrants,
all subject to further adjustment as provided herein. Each such adjustment shall
be valid and binding upon the Company and the holders of Warrants irrespective
of whether the Warrant Certificates theretofore and thereafter issued express
the Purchase Price per share of Common Stock and the number of shares of Common
Stock that were expressed upon the initial Warrant Certificates issued
hereunder.
4.10 Miscellaneous.
(a) Adjustments shall be made pursuant to this Section 4 successively
whenever any of the events referred to in Section 4.2 through Section 4.7,
inclusive, shall occur.
(b) If any Warrant shall be exercised subsequent to the record date
for any of the events referred to in Section 4.2 through Section 4.7,
inclusive, but prior to the effective date thereof, appropriate adjustments
shall be made immediately after such effective date so that the holder of
such Warrant on such record date shall have received, in the aggregate, the
kind and number of shares of Common Stock or other Securities or Property
that it would have owned or been entitled to receive on such effective date
had such Warrant been exercised prior to such record date.
(c) Shares of Common Stock owned by or held for the account of the
Company or any Subsidiary shall not, for purposes of the adjustments set
forth in this Section 4, be deemed outstanding.
4.11 Other Securities. In the event that at any time, as a result of an
adjustment made pursuant to this Section 4, each holder of Warrants shall become
entitled to purchase any Securities of the Company other than shares of Common
Stock, the number or amount of such other Securities so purchasable and the
Purchase Price of such Securities shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions contained in Section 4.2 through Section 4.7, inclusive, hereof, and
all other relevant provisions of this Section 4 that are applicable to shares of
Common Stock shall be applicable to such other Securities.
4.12 Additional Agreements of the Company. The Company covenants and agrees
that:
(a) The Company shall not, by amendment to its Charter as in effect on
the date hereof, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, liquidation, issuance or sale of
Securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, or which would have the effect of circumventing
or avoiding the provisions of this Section 4, but shall at all times in
good faith assist in the carrying out of all the provisions of this Section
and in the taking of all such actions as may be necessary or appropriate in
order to protect the rights of the holders of the Warrant Certificates
against dilution or other impairment.
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(b) Before taking any action that would result in an adjustment to the
then current Purchase Price to a price that would be below the then current
par value of Common Stock issuable upon exercise of any Warrant, the
Company will take or cause to be taken any and all necessary corporate or
other action that may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon
payment of such Purchase Price as so adjusted.
(c) If the Company shall amend the provisions of any Rights (other
than the Warrants), including, without limitation, the Series A Preferred
Stock or the Outstanding Warrants, or make any adjustment thereto (pursuant
to any antidilution provision or otherwise) so as to reduce the
Consideration Per Share applicable thereto, increase the number of shares
issuable upon exercise thereof or otherwise change the economic terms (such
as the purchase price, exercise price, conversion price or conversion ratio
thereof), then the Company shall make appropriate adjustment, as nearly as
practical to those that would be required by the provisions of Section 4.2
through Section 4.5, inclusive, most nearly analogous to the effect of such
amendment, to the Purchase Price, and, pursuant to and Section 4.9, to the
number of shares of Common Stock issuable upon exercise of the Warrants, as
shall be fair and equitable, such adjustment to be determined by the
Valuation Agent.
(d) In the event that any of the events described in any of Section
4.2 through Section 4.5, inclusive, give rise to an adjustment to the
purchase, exercise or conversion price or conversion ratio, or number of
shares of Common Stock issuable upon conversion or exercise, of any Rights
(other than the Warrants), including, without limitation, the Series A
Preferred Stock and the Outstanding Warrants, then the adjustments provided
for in Section 4.2 through Section 4.5, inclusive, in respect of such event
shall give effect both to the event giving rise to such adjustment under
this Agreement and to all such adjustments made in respect of such other
Rights; provided, however, that no such adjustment shall duplicate any
adjustment required to be made in respect thereof by virtue of the
provisions of Section 4.12(c).
5. REPORTING COVENANTS
5.1 Financial and Business Information.
The Company shall deliver to each holder of Warrants:
(a) Quarterly Financial Statements -- as soon as practicable after the
end of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year), and
in any event within forty-five (45) days thereafter:
(i) a consolidated balance sheet as at the end of such quarter;
and
(ii) consolidated statements of income and cash flows for such
quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with such quarter;
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for the Company and the Subsidiaries, setting forth in each case, in
comparative form, the financial statements for the corresponding
periods in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly financial
statements generally; provided, that timely delivery of copies of the
Company's Quarterly Report on Form 10-Q filed with the SEC shall be
deemed to satisfy the requirements of this Section 5.1(a);
(b) Annual Financial Statements -- as soon as practicable after the
end of each fiscal year of the Company, and in any event within ninety (90)
days thereafter:
(i) a consolidated balance sheet as at the end of such year; and
(ii) consolidated statements of income, stockholders' equity and
cash flows for such year;
for the Company and the Subsidiaries, setting forth in comparative form,
the financial statement for the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP, and accompanied by an audit
report thereon of independent certified public accountants of recognized
national standing, which report shall state without qualification
(including, without limitation, qualifications related to the scope of the
audit, the compliance of the audit with generally accepted auditing
standards, or the ability of the Company or a material subsidiary thereof
to continue as a going concern), that such financial statements have been
prepared and are in conformity with GAAP; provided, that the timely
delivery of the Company's Annual Report on Form 10-K for such fiscal year
filed with the SEC shall be deemed to satisfy the requirements of this
Section 5.1(b);
(c) SEC and Other Reports -- promptly upon their becoming available:
(i) each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to stockholders generally; and
(ii) each regular or periodic report (including, without
limitation, each Form 10-K, Form 10-Q and Form 8-K), and each
amendment thereto filed by the Company or any Subsidiary with the SEC
(and any successor agency);
(d) Rule 144A -- promptly upon the request of any holder of Warrants,
information required to comply with 17 C.F.R. ss.230.144A, as amended from
time to time, in connection with any transfer or proposed transfer of any
Warrants; and
(e) Requested Information -- with reasonable promptness, such other
data and information as from time to time may be requested by any holder of
Warrants.
5.2 Extension of Time to File SEC Reports. If the rules and regulations of
the SEC under the Exchange Act and the rules and regulations of the NASDAQ
National Market are amended to permit extend the deadline for delivery to the
SEC and the NASDAQ National Market of Quarterly Reports on Form 10-Q (or any
successor form) beyond the forty-five (45) days following the end of each fiscal
quarter of the Company (other than its last fiscal quarter) as currently
required, then the forty-five (45) day period within which quarterly financial
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statements are required to be delivered in accordance with the provisions of
Section 5.1(a) shall be similarly extended. If the rules and regulations of the
SEC under the Exchange Act and the rules and regulations of the NASDAQ National
Market are amended to permit extend the deadline for delivery to the SEC and the
NASDAQ National Market of Annual Reports on Form 10-K (or any successor form)
beyond the ninety (90) days following the end of the Company's fiscal year as
currently required, then the ninety (90) day period within which annual
financial statements are required to be delivered in accordance with the
provisions of Section 5.1(b) shall be similarly extended.
5.3 Information Concerning Antidilution Adjustments.
(a) Notice of Adjustment. Whenever the number of shares of Common
Stock issuable upon the exercise of Warrants is adjusted or the Purchase
Price in respect thereof is adjusted, as herein provided, the Company shall
promptly give to each holder of Warrants notice of such adjustment or
adjustments and shall promptly deliver to each holder of Warrants a
certificate of the chief financial officer of the Company setting forth:
(i) the number of shares of Common Stock issuable upon the
exercise of each Warrant and the Purchase Price of such shares after
such adjustment;
(ii) a brief statement of the facts requiring such adjustment;
and
(iii) the computation by which such adjustment was made.
(b) Annual Certificate. So long as any Warrant is outstanding, within
ninety (90) days of the end of each fiscal year of the Company, the Company
shall deliver to each holder of Warrants a certificate of the chief
financial officer of the Company setting forth:
(i) the number of shares of Common Stock issuable upon the
exercise of each Warrant and the Purchase Price of such shares as of
the end of such fiscal year;
(ii) a brief statement of the facts requiring each adjustment, if
any, required to be made in such fiscal year; and
(iii) the computation by which each such adjustment was made.
(c) Confirmation by Accountants. At the request of a holder of
Warrants, a certificate of the chief financial officer pursuant to Section
5.3(a) or Section 5.3(b) shall be confirmed by a certificate from the
independent certified public accountants of the Company.
(d) Notices of Certain Events. Whenever the Company shall publicly
announce the authorization of any Notice Event, the Company shall, not less
than fifteen (15) days prior to the record date with respect to such event
(or, if no record date for the same shall be fixed, not less than fifteen
(15) days prior to the occurrence of such Notice Event), give to each
holder of Warrants, written notice of such event setting forth any
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change in the number of shares of Common Stock the Company estimates will
be issuable upon the exercise of each Warrant, the estimated Purchase Price
after any adjustment required to be made hereunder and a brief statement of
the facts requiring such adjustment and the computation by which the
Company expects such adjustment will be made. Notwithstanding the
foregoing, no failure of the Company to give any such notice shall affect
the validity of the action taken unless such failure was in bad faith.
6. REGISTRATION RIGHTS.
6.1 Incidental Registration.
(a) Filing of Registration Statement. If the Company at any time
proposes to register any of its Common Stock (an "Incidental Registration")
under the Securities Act (other than pursuant to a registration statement
on Form S-4 or Form S-8 or any successor forms thereto, in connection with
an offer made solely to existing Security holders or employees of the
Company), for sale in a public offering, it will each such time give prompt
written notice to all holders of Registrable Securities of its intention to
do so, which notice shall be given to all such holders at least thirty (30)
days prior to the date that a registration statement relating to such
registration is proposed to become effective with the SEC. Upon the written
request of any holder of Registrable Securities to include its shares under
such registration statement (which request shall be made within fifteen
(15) days after the receipt of any such notice and shall specify the
Registrable Securities intended to be disposed of by such holder), the
Company will use its best efforts to effect the registration of all
Registrable Securities that the Company has been so requested to register
by such holder; provided, however, that if, at any time after giving
written notice of its intention to register any Securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register
such Securities, the Company may, at its election, give written notice of
such determination to each such holder and, thereupon, shall be relieved of
its obligation to register any Registrable Securities of such Persons in
connection with such registration.
(b) Selection of Underwriters. Notice of the Company's intention to
register such Securities shall designate the proposed underwriters of such
offering and shall contain the Company's agreement to use its best efforts,
if requested to do so, to arrange for such underwriters to include in such
underwriting the Registrable Securities that the Company has been so
requested to register pursuant to this Section 6.1, it being understood
that the holders of Registrable Securities shall have no right to select
different underwriters for the disposition of their Registrable Securities.
(c) Priority on Incidental Registrations. If the managing underwriter
shall advise the Company in writing (with a copy to each holder of
Registrable Securities requesting sale) that, in such underwriter's
opinion, the number of shares of Securities requested to be included in
such Incidental Registration exceeds the number that can be sold in such
offering within a price range acceptable to the Company (such writing to
state the basis of such opinion and the approximate number of shares of
Securities that may be included in such offering without such effect), the
Company will include in such
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Incidental Registration, to the extent of the number of shares of
Securities that the Company is so advised can be sold in such offering:
(i) in the case of any registration initiated by the Company for
the purpose of selling Securities for its own account:
(A) first, shares that the Company proposes to issue and
sell for its own account; and
(B) second, Registrable Securities requested to be sold by
the holders thereof pursuant to this Section 6.1 and all
Securities proposed to be registered by the Other Stockholders,
pro rata among such holders on the basis of the number of shares
requested to be so registered by such holders; and
(ii) in the case of a registration initiated by any Other
Stockholder pursuant to demand or required registration rights in
favor of such Other Stockholder:
(A) first, Securities requested to be sold by the Other
Stockholders requesting such Registration;
(B) second, Registrable Securities requested to be sold by
the holders thereof pursuant to this Section 6.1 and all
Securities proposed to be registered by the Other Stockholders
(other than those referred to in Section 6.1(c)(ii)(A)), pro rata
among such holders on the basis of the number of shares requested
to be so registered by such holders; and
(C) third, shares that the Company proposes to issue and
sell for its own account.
6.2 Companies Registration. If the Securities Act (whether by statutory
amendment, amendment of the rules and regulations thereunder or both) is amended
after the date hereof to provide for a Companies Registration Scheme, and the
Company is or becomes eligible to participate in the Companies Registration
Scheme, then the Company, promptly following the request of the Required
Holders, shall use its reasonable best efforts to register promptly under the
Companies Registration Scheme so as to facilitate the resale under the
registration statement contemplated by such Companies Registration Scheme of the
Registrable Securities in accordance with the method or methods of distribution
contemplated by the Holders.
6.3 Registration Procedures. The Company will use its best efforts to
effect each Registration, and to cooperate with the sale of such Registrable
Securities in accordance with the intended method of disposition thereof as
quickly as practicable, and the Company will as expeditiously as possible:
(a) subject, in the case of an Incidental Registration, to the proviso
to Section , prepare and file with the SEC the registration statement and
use its best efforts to cause the Registration to become effective;
provided, however, that before filing
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any registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to the holders of the Registrable
Securities covered by such registration statement, their counsel, and the
underwriters, if any, and their counsel, copies of all such documents
proposed to be filed (i) in the case of the originally filed registration
statement, at least five (5) Business Days prior thereto, which documents
will be subject to the reasonable review, within such five (5) Business Day
period, of such holders, their counsel and the underwriters; and (ii) in
the case of any amendment or supplement, a reasonable period of time prior
thereto so as to permit the holders and their counsel to reasonably review
such amendment or supplement; and the Company will not name any holder of
Registrable Securities in any registration statement or amendment thereto
or any prospectus or any supplement thereto (including such documents
incorporated by reference) to which the Requisite Holders shall reasonably
object within such period;
(b) subject to the proviso to Section 6.1(a), prepare and file with
the SEC such amendments and post-effective amendments to any registration
statement and any prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with
the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement; and cause
the prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act;
(c) furnish to each holder of Registrable Securities included in such
Registration and the underwriter or underwriters, if any, without charge,
at least one signed copy of the registration statement and any
post-effective amendment thereto, upon request, and such reasonable number
of conformed copies thereof and such number of copies of the prospectus
(including each preliminary prospectus and each prospectus filed under Rule
424 under the Securities Act), any amendments or supplements thereto and
any documents incorporated by reference therein, as such holder or
underwriter may reasonably request in order to facilitate the disposition
of the Registrable Securities being sold by such holder (it being
understood that the Company consents to the use of the prospectus and any
amendment or supplement thereto by each holder of Registrable Securities
covered by such registration statement and the underwriter or underwriters,
if any, in connection with the offering and sale of the Registrable
Securities covered by the prospectus or any amendment or supplement
thereto);
(d) notify each holder of the Registrable Securities of any stop order
or other order suspending the effectiveness of any registration statement,
issued or threatened by the SEC in connection therewith, and, subject to
the proviso to Section 6.1(a), take all reasonable actions required to
prevent the entry of such stop order or to remove it or obtain withdrawal
of it at the earliest possible moment if entered;
(e) if requested by the managing underwriter or underwriters, if any,
or any holder of Registrable Securities in connection with any sale
pursuant to a registration statement, promptly incorporate in a prospectus
supplement or post-effective amendment such information relating to such
underwriting as the managing underwriter or underwriters, if any, or such
holder reasonably requests to be included therein; and make
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<PAGE>
all required filings of such prospectus supplement or post-effective
amendment as soon as practicable after being notified of the matters
incorporated in such prospectus supplement or post-effective amendment;
(f) on or prior to the date on which a Registration is declared
effective, use its best efforts to register or qualify, and cooperate with
the holders of Registrable Securities included in such Registration, the
underwriter or underwriters, if any, and their counsel, in connection with
any necessary registration or qualification of the Registrable Securities
covered by such Registration for offer and sale under the securities or
"blue sky" laws of each state and other jurisdiction of the United States
as any managing underwriter, if any, reasonably requests in writing; use
its best efforts to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the period
such registration statement is required to be kept effective; and do any
and all other acts or things necessary or advisable to enable the
disposition in all such jurisdictions reasonably requested of the
Registrable Securities covered by such Registration; provided, however,
that the Company will not be required to qualify generally to do business
in any jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(g) in connection with any sale pursuant to a Registration, cooperate
with the holders of Registrable Securities and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Securities
to be sold under such Registration, and enable such Securities to be in
such denominations and registered in such names as the managing underwriter
or underwriters, if any, or such holders may request;
(h) use its best efforts to cause the Registrable Securities to be
registered with or approved by such other governmental agencies or
authorities within the United States and having jurisdiction over the
Company or any Subsidiary as may reasonably be necessary to enable the
seller or sellers thereof or the underwriter or underwriters, if any, to
consummate the disposition of such Securities;
(i) notify each seller of Registrable Securities covered by such
Registration, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and promptly prepare, file with the SEC
and furnish to such seller or holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers or prospective purchasers
of such Securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they are made;
(j) otherwise comply with all applicable rules and regulations of the
SEC, and make generally available to its security holders (as contemplated
by Section 11(a) under the Securities Act) an earnings statement satisfying
the provisions of Rule 158 under the
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Securities Act no later than ninety (90) days after the end of the twelve
(12) month period beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the registration
statement, which statement shall cover said twelve (12) month period;
(k) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by each Registration from and after
a date not later than the effective date of such Registration; and
(l) obtain and maintain the registration of the Common Stock under
either section 12(b) or section 12(g) of the Exchange Act; and use its best
efforts to cause all Registrable Securities covered by each Registration to
be listed subject to notice of issuance, prior to the date of first sale of
such Registrable Securities pursuant to such Registration, on:
(i) either the New York Stock Exchange, Inc., or the NASDAQ
National Market; and
(ii) each other securities exchange, if any, on which the Common
Stock is then listed.
The Company may require each holder of Registrable Securities that will be
included in such Registration to furnish the Company with such information in
respect of such holder of its Registrable Securities that will be included in
such Registration as the Company may reasonably request in writing and as is
required by applicable laws or regulations.
6.4 Reasonable Investigation. The Company shall:
(a) give the holders of Registrable Securities, their underwriters, if
any, and their respective counsel and accountants the opportunity to
participate in the preparation of the registration statement, each
prospectus included therein or filed with the SEC and each amendment
thereof or supplement thereto;
(b) give each such holder and underwriter reasonable opportunities to
discuss the business of the Company with its officers, counsel and the
independent public accountants who have certified its financial statements;
(c) make available for inspection by any holder of Registrable
Securities included in any Registration, any underwriter participating in
any disposition pursuant to any Registration, and any attorney, accountant
or other agent retained by any such seller or underwriter, all financial
and other records, pertinent corporate documents and properties of the
Company; and
(d) cause the Company's officers, directors and employees to supply
all information reasonably requested by any such Person in connection with
such Registration;
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in each such case, as shall be reasonably necessary, in the opinion of such
holder or such underwriter, to enable it to conduct a "reasonable investigation"
within the meaning of the section 11(b)(3) of the Securities Act and to satisfy
the requirement of reasonable care imposed by section 12(a)(2) of the Securities
Act.
6.5 Registration Expenses. The Company will pay all Registration Expenses
in connection with each registration of Registrable Securities, including,
without limitation, any such registration not effected by the Company.
6.6 Indemnification; Contribution.
(a) Indemnification by the Company. The Company shall indemnify, to
the fullest extent permitted by law, each holder of Registrable Securities,
its officers, directors, partners, trustees and agents, if any, and each
Person, if any, who controls such holder within the meaning of section 15
of the Securities Act, against all losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses (under the Securities Act or
common law or otherwise), joint or several, resulting from any violation by
the Company of the provisions of the Securities Act or any untrue statement
or alleged untrue statement of a material fact contained in any
registration statement or prospectus (and as amended or supplemented if
amended or supplemented) or any preliminary prospectus or caused by any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein (in the case
of any prospectus, in light of the circumstances under which they were
made) not misleading, except to the extent that such losses, claims,
damages, liabilities (or proceedings in respect thereof) or expenses are
caused by any untrue statement or alleged untrue statement contained in or
by any omission or alleged omission from information concerning any holder
furnished in writing to the Company by such holder expressly for use
therein. If the offering pursuant to any registration statement provided
for under this Section 6 is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such underwriter is
an Affiliate of any holder of Registrable Securities) shall affect the
obligations of the Company to indemnify any holder of Registrable
Securities or any other Person pursuant to the preceding sentence. If the
offering pursuant to any registration statement provided for under this
Section is made through underwriters, the Company agrees, and subject to
the proviso to Section 6.1(a), to the extent (but only to the extent)
required by such underwriters, to enter into an underwriting or other
agreement providing for indemnity of such underwriters, their officers,
directors and agents, if any, and each Person, if any, who controls such
underwriters within the meaning of section 15 of the Securities Act to the
same extent as hereinbefore provided with respect to the indemnification of
the holders of Registrable Securities; provided that the Company shall not
be required to indemnify any such underwriter, or any officer or director
of such underwriter or any Person who controls such underwriter within the
meaning of section 15 of the Securities Act, to the extent that the loss,
claim, damage, liability (or proceedings in respect thereof) or expense for
which indemnification is claimed results from such underwriter's failure to
send or give a copy of an amended or supplemented final prospectus to the
Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the
sale of Registrable Securities to such Person if such statement or omission
was corrected in such amended or supplemented final prospectus prior to
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<PAGE>
such written confirmation and the underwriter was provided with such
amended or supplemented final prospectus.
(b) Indemnification by the Holders. In connection with any
registration statement in which a holder of Registrable Securities is
participating, each such holder, severally and not jointly, shall
indemnify, to the fullest extent permitted by law, the Company, each
underwriter (if the underwriter so requires) and their respective officers,
directors and agents, if any, and each Person, if any, who controls the
Company or such underwriter within the meaning of section 15 of the
Securities Act, against any losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses resulting from any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in the
registration statement or prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein (in the case of any prospectus, in light of the circumstances under
which they were made) not misleading, but only to the extent that such
untrue statement is contained in or such omission is from information so
concerning a holder furnished in writing by such holder expressly for use
therein; provided, however, that such holder's obligations hereunder shall
be limited to an amount equal to the net proceeds to such holder of the
Registrable Securities sold pursuant to such registration statement.
(c) Control of Defense. Any Person entitled to indemnification under
the provisions of this Section shall give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and
unless the named party to any such action includes both the Company and the
indemnified party and counsel for such indemnified party has advised the
indemnified party that in its reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of
such claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party; and
if such defense is so assumed, such indemnifying party shall not enter into
any settlement without the consent of the indemnified party if such
settlement attributes liability to the indemnified party and such
indemnifying party shall not be subject to any liability for any settlement
made without its consent (which shall not be unreasonably withheld); and
any underwriting agreement entered into with respect to any registration
statement provided for under this Section 6 shall so provide. In the event
an indemnifying party shall not be entitled, or elects not, to assume the
defense of a claim, such indemnifying party shall not be obligated to pay
the fees and expenses of more than one counsel or firm of counsel for all
parties indemnified by such indemnifying party in respect of such claim,
unless in the reasonable judgment expressed in writing by counsel to such
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties in respect to such claim.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such losses,
claims, damages, liabilities or expenses:
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(i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party on the one hand and the
indemnified party on the other; or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such
proportion as is appropriate to reflect not only the relative benefits
received by the indemnifying party on the one hand and the indemnified
party on the other but also the relative fault of the indemnifying
party and the indemnified party as well as any other relevant
equitable considerations.
Notwithstanding the foregoing, no holder of Registrable Securities shall be
required to contribute any amount in excess of the amount such holder would
have been required to pay to an indemnified party if the indemnity under
Section 6.6(b) hereof was available. No Person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation. The obligation of any Person to
contribute pursuant to this Section 6.6 shall be several and not joint.
(e) Advancement of Expenses. An indemnifying party shall make payments
of all amounts required to be made pursuant to the foregoing provisions of
this Section 6.6 to or for the account of the indemnified party from time
to time promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable. Without limiting the generality of the foregoing,
each indemnifying party, as an interim measure during the pendency of any
claim, action, investigation, inquiry or proceeding arising out of or based
upon any matter or subject for which indemnity (or contribution in lieu
thereof) would be available to any indemnified party under any provision of
this Section 6.6, shall promptly reimburse each indemnified party, as often
as invoiced therefor (but in no event more often than monthly), for all
reasonable legal or other expenses incurred in connection with the
investigation or defense of any such claim, action, investigation, inquiry
or proceeding, notwithstanding the absence of any judicial determination as
to the propriety or enforceability of the indemnifying party's obligation
to reimburse the indemnified party for such expenses and notwithstanding
the possibility that the obligations to pay such expenses might later have
been held to be improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement is held to be improper, the
indemnified party agrees to promptly return the amount so advanced to the
indemnifying party, together with interest, compounded monthly, at the
prime rate (or other commercial lending rate for borrowers of the highest
credit standing) listed from time to time in The Wall Street Journal which
represents the average base rate on corporate loans posted by the nation's
thirty (30) largest banks. Any such interim reimbursement payments which
are not made to the indemnified party within thirty (30) days of a request
therefor shall bear interest at such prime rate from the date of such
request to the extent such reimbursement payments are ultimately determined
to be proper obligations of the indemnifying party. Subject to the proviso
to Section 6.1(a), to the extent required by any underwriter in connection
with the execution of any underwriting agreement pursuant to which the
holders of Registrable Securities shall be selling any shares of Common
Stock, the Company shall agree to advancement of the expenses of such
underwriter to at least the same extent as provided in this Section 6.6(e).
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(f) Survival. The indemnity and contribution agreements contained in
this Section shall remain in full force and effect regardless of any
investigation made by or on behalf of a participating holder of Registrable
Securities, its officers, directors, agents or any Person, if any, who
controls such holder as aforesaid, and shall survive the transfer of such
Securities by such holder.
6.7 Holdback Agreements; Registration Rights to Others.
(a) In connection with each underwritten sale of Registrable
Securities, the Company agrees, and each holder of Registrable Securities
by acquisition of such Registrable Securities agrees, to enter into
customary holdback agreements concerning sale or distribution of
Registrable Securities and other equity Securities of the Company, except,
in the case of any holder of Registrable Securities, to the extent that
such holder is prohibited by applicable law or exercise of fiduciary duties
from agreeing to withhold Registrable Securities from sale or is acting in
its capacity as a fiduciary or investment adviser. Without limiting the
scope of the term "fiduciary," a holder shall be deemed to be acting as a
fiduciary or an investment adviser if its actions or the Registrable
Securities proposed to be sold are subject to the Employee Retirement
Income Security Act of 1974, as amended, or the Investment Company Act of
1940, as amended, or if such Registrable Securities are held in a separate
account under applicable insurance law or regulation.
(b) If the Company shall at any time after the date hereof provide to
any holder of any Securities of the Company rights with respect to the
registration of such Securities under the Securities Act:
(i) such rights shall not be in conflict with or adversely affect
any of the rights provided in this Section 6 to the holders of
Registrable Securities; and
(ii) if such rights are provided on terms or conditions more
favorable to such holder than the terms and conditions provided in
this Section 6, the Company will provide (by way of amendment to this
Section 6 or otherwise) such more favorable terms or conditions to the
holders of Registrable Securities.
6.8 Other Registration of Common Stock. If any shares of Common Stock
required to be reserved for purposes of exercise of Warrants or conversion of
any class of Common Stock into any other class of Common Stock require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
conversion, the Company will, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered or approved, as
the case may be.
6.9 Availability of Information. At any time that any class of the Common
Stock is registered under section 12(b) or section 12(g) of the Exchange Act,
the Company will comply with the reporting requirements of sections 13 and 15(d)
of the Exchange Act (whether or not it shall be required to do so pursuant to
such Sections) and will comply with all other public information reporting
requirements of the SEC from time to time in effect. In addition, the Company
shall file such reports and information, and shall make available to the public
and to the holders of Registrable Securities such information, as shall be
necessary to permit such
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holders to offer and sell Registrable Securities pursuant to the provisions of
Rule 144 promulgated under the Securities Act. The Company will also cooperate
with each such holder in supplying such information as may be necessary for such
holder to complete and file any information reporting forms presently or
hereafter required by the SEC as a condition to the availability of an exemption
from the registration provisions of the Securities Act in connection with the
sale of any Registrable Securities. The Company will furnish to each such
holder, promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its stockholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the SEC.
7. RIGHT OF FIRST REFUSAL.
7.1 Transfer of Warrants. No holder of Warrants shall sell or transfer any
Warrants held by such holder except pursuant to the provisions of this Section 7
or pursuant to an Exempt Transfer.
7.2 Notice of Proposed Transfer. Not less than fifteen (15) days prior to
making any sale or transfer of any Warrants (other than an Exempt Transfer and
other than a transfer to the Company), the transferring holder or holders of
Warrants shall deliver a written notice (a "Transfer Notice") to the Company,
which Transfer Notice shall:
(a) state the proposed number of Warrants to be transferred (the
"Offered Warrants");
(b) state the amount and kind of consideration offered in
exchange for the Offered Warrants;
(c) state the name or identity of the proposed Transferee;
(d) describe in reasonable detail the proposed terms and
conditions of the sale or transfer; and
(e) state the intended date of closing of such transfer.
7.3 First Refusal Right. The Company may elect to purchase all (but not
less than all) the Offered Warrants specified in the Transfer Notice at the
price and on the terms specified therein by delivering written notice of such
election to each holder of Offered Warrants within ten (10) days after the
delivery of the Transfer Notice to the Company. If the Company shall have
elected to purchase all the Offered Warrants, the holder having delivered the
Transfer Notice shall sell to the Company, and the Company shall purchase from
such holder, all such Offered Warrants on the First Refusal Sale Date.
7.4 Transfers to Third Parties on Refusal or Failure to Consummate. If:
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(a) the Company has not elected to purchase all, but not less than
all, the Offered Warrants pursuant to Section 7.3 on or prior to the date
which is ten (10) days after the date of delivery of the Transfer Notice;
or
(b) the Company shall have elected to purchase all of the Offered
Warrants pursuant to Section 7.3 hereof, but the purchase of all such
Offered Warrants is not consummated on the First Refusal Sale Date;
then, in either case, for a period of one hundred eighty (180) days after the
First Refusal Sale Date relating thereto, the holder or holders of Offered
Warrants may sell or transfer any Offered Warrants to one or more Permitted
Investors without any requirement of compliance with this Section 7.
7.5 Limited Right of First Refusal Regarding Sale of Certain Common Stock.
(a) Grant of First Refusal Option. Each Person who is a holder of
Warrants, by its purchase and acceptance thereof, agrees that should such
Person exercise any Warrants held by such Person, such Person (but not any
future holder of the shares of Common Stock issued to such Person upon
exercise of the Warrants), prior to selling or transferring such shares of
Common Stock (other than in an Exempt Transfer), shall give written notice
(which notice, notwithstanding the provisions of Section 9.6, may be given
solely by facsimile transmission and which shall state the number of shares
proposed to be sold or transferred), and shall use its reasonable efforts
to confirm such transmission by telephone, of such intended sale or
transfer of such shares of Common Stock. The Company shall have the option,
for a period of three (3) hours following the giving of such facsimile
notice, to elect to purchase all (but not less than all) such shares of
Common Stock specified in such facsimile notice at a price per share equal
to the Closing Price in effect at the time of dispatch of such facsimile
notice.
(b) Exercise of First Refusal Option. The Company may exercise its
option by giving the selling Person written notice (which notice,
notwithstanding the provisions of Section 9.6, may be given solely by
facsimile transmission) of its intention to purchase all such shares of
Common Stock at such Closing Price not later than three (3) hours following
the giving of such facsimile notice by such Person, and shall use its
reasonable efforts to confirm such transmission by telephone. If the
Company shall have elected to purchase all such shares of Common Stock, the
Company shall deliver (which, notwithstanding the provisions of Section
9.6, shall be given by facsimile transmission, with the original dispatched
prepaid by overnight courier) to such Person within two (2) hours after the
dispatch of its notice of exercise its option to purchase all such shares,
a written confirmation of such sale, in customary form reasonably
acceptable to the selling Person, setting forth the number of shares to be
purchased, the identity of the selling Person, such Closing Price and the
aggregate price for all such shares being sold, confirming the sale and
transfer of all such shares of Common Stock by such selling Person to the
Company. Subject to Section 7.5(c), settlement of such sale shall occur on
the third (3rd) Business Day following the date the Company exercises such
option. On such date, the Company shall deliver to the selling holder, by
wire transfer of immediately available funds, the purchase price for the
shares of Common Stock being purchased, and the selling holder shall
deliver, by physical delivery of certificates
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representing such shares of Common Stock, accompanied by stock powers
executed in blank, or, in the event such shares of Common Stock are held in
book entry form, through the facilities of a customary book-entry transfer
facility or system.
(c) Other Sales of Common Stock. In the event that the Company does
not exercise its election to purchase all, but not less than all, shares of
Common Stock proposed to be sold by the selling Person by delivery of
facsimile notice thereof to the selling Person not later than three (3)
hours following the giving of notice of the selling Person's intention to
sell such shares of Common Stock, then such selling Person, for a period of
thirty (30) days commencing upon the failure by the Company to properly
exercise such option, shall be free to sell any shares of Common Stock held
or owned by such Person to any other Person on any terms without any
further requirement of compliance with this Section 7.5. In the event that
the Company shall exercise any option to purchase shares of Common Stock
pursuant to this Section 7.5 but shall fail to make payment therefor on the
settlement date therefor:
(i) the Company's rights pursuant to this Section 7.5 shall
terminated immediately and without any further action;
(ii) the selling holder of the shares of Common Stock which were
the subject of the sale which the Company failed to settle shall
dispose of all such shares in a commercially reasonable manner, and
the Company shall indemnify upon demand and hold harmless the holder
for any difference between the price which the Company would have been
required to pay had such settlement occurred and the price actually
realized upon such actual sale, together with any other expenses,
losses or damages (including consequential or incidental damages)
occasioned by such failure to settle such sale and such subsequent
actual sale; and
(iii) all other holders of Common Stock received by such holder
upon the exercise of any Warrant formerly held by such holder shall be
free to sell any such shares at any time to any Person on any terms
without any further restraint on account of this Section .
8. INTERPRETATION OF THIS AGREEMENT.
8.1 Certain Defined Terms. For the purpose of this Agreement, the following
terms shall have the meanings set forth below or set forth in the Section hereof
following such term:
Additional Common Stock -- means Common Stock, including treasury shares,
issued after the date hereof, except Common Stock issued upon the exercise of
any one or more Warrants.
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Affiliate -- means, at any time, a Person (other than a Subsidiary or a
Purchaser):
(a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the
Company;
(b) that beneficially owns or holds five percent (5%) or more of any
class of the Voting Stock of the Company; or
(c) five percent (5%) or more of the Voting Stock (or in the case of a
Person that is not a corporation, five percent (5%) or more of the equity
interest) of which is beneficially owned or held by the Company or any
Subsidiary;
at such time.
As used in this definition,
control -- means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
Aggregate Consideration Paid -- means, in the case of a repurchase,
redemption, retirement or acquisition of shares of Common Stock, the aggregate
amount paid by the Company in connection therewith and, in the case of a
repurchase, redemption, retirement or acquisition of Rights, the sum of:
(a) the aggregate amount paid by the Company for such Rights; plus
(b) the aggregate consideration or premiums stated in such Rights to
be payable for the shares of Common Stock covered thereby.
For purposes of clause (a) above, in the event of the repurchase,
redemption, retirement or acquisition of any Rights together with other
Securities or obligations of the Company or any other Person in which the
purchase price for the Rights and such other Securities or obligations is
expressed as a single purchase price (including, without limitation, upon the
issuance or sale of Preferred Stock or debt Securities which are convertible
into Common Stock), the aggregate amount paid by the Company for such Rights
shall include only the portion of such single purchase price attributable to
such Rights, and not the portion attributable to such other Securities or
obligations. The portion of such purchase price attributable to such Rights in
such case shall be equal to the product of:
(i) such single purchase price; multiplied by
(ii) the quotient of:
(A) the fair market value (as determined by the Valuation Agent)
of such Right, independent of the value of such other Securities or
obligations (computed using the Black-Scholes option pricing model or
such other pricing model as the Valuation Agent determines is
appropriate, and applying such
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reasonable assumptions concerning price variances with respect to the
Common Stock and such other variables as the Valuation Agent considers
appropriate); divided by
(B) the fair market value (as determined by the Valuation Agent)
of such Right together with such other Securities or obligations
(computed using such methodology and making such assumptions as the
Valuation Agent determines is appropriate).
Aggregate Consideration Receivable -- means, in the case of an issuance or
sale of shares of Additional Common Stock, the aggregate amount paid to the
Company in connection therewith and, in the case of an issuance or sale of
Rights, or any amendment thereto, the sum of:
(a) the aggregate amount paid to the Company for such Rights; plus
(b) the aggregate consideration or premiums stated in such Rights to
be payable for the shares of Additional Common Stock covered thereby;
in each case without deduction for any fees, expenses or underwriters discounts.
For purposes of clause (a) above, in the event of the issuance or sale of
any Rights together with other Securities or obligations of the Company or any
other Person in which the purchase price for the Rights and such other
Securities or obligations is expressed as a single purchase price (including,
without limitation, upon the issuance or sale of Preferred Stock or debt
Securities which are convertible into Common Stock), the aggregate amount paid
to the Company for such Rights should include only the portion of such single
purchase price attributable to such Rights, and not the portion attributable to
such other Securities or obligations. The portion of such purchase price
attributable to such Rights in such case shall be equal to the product of:
(i) such single purchase price; multiplied by
(ii) the quotient of:
(A) the fair market value (as determined by the Valuation Agent)
of such Right, independent of the value of the value of such other
Securities or obligations (computed using the Black-Scholes option
pricing model or such other pricing model as the Valuation Agent
determines is appropriate, and applying such reasonable assumptions
concerning price variances with respect to the Common Stock and such
other variables as the Valuation Agent considers appropriate); divided
by
(B) the fair market value (as determined by the Valuation Agent)
of such Right together with such other Securities or obligations
(computed using such methodology and making such assumptions as the
Valuation Agent determines is appropriate).
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Agreement, this -- and references thereto shall mean this Warrant Agreement
as it may from time to time be amended or supplemented.
Board of Directors -- means the board of directors of the Company or any
committee thereof that, in the instance, shall have the lawful power to exercise
the power and authority of such board of directors.
Business Day -- means a day other than a Saturday, a Sunday or a day on
which banks in the State of New York are required or permitted by law (other
than a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
Charter -- means te Certificate of Incorporation of the Company, as amended
and in effect as of the date hereof.
Closing Price -- means, on any date with respect to any share of Common
Stock:
(a) the last sale price, regular way, on such date or, if no such sale
takes place on such date, the average of the closing bid and asked prices
on such date, in each case as officially reported on the principal national
securities exchange on which any Common Stock is then listed or admitted to
trading; and
(b) if no Common Stock is then listed or admitted to trading on any
national securities exchange, but is listed on the NASDAQ National Market
or the NASDAQ SmallCap Market, as the case may be, the last trading price
of any Common Stock on such date as reported by NASDAQ, or if there shall
have been no trading on such date, the average of the reported closing bid
and asked prices on such date as shown by NASDAQ.
Common Stock -- means the Common Stock, par value $.01 per share, of the
Company; provided, however, that prior to the Share Purchase Right Termination
Date, the term "Common Stock," and references to any shares thereof, shall in
each case include the attached Share Purchase Rights.
Companies Registration Scheme -- means an amendment to the Securities Act
(whether by statutory amendment, amendment of the rules and regulations
thereunder or both), such as, without limitation, as proposed in the Report of
the Advisory Committee on the Capital Formation and Regulatory Processes of the
Securities and Exchange Commission, dated July 24, 1996, pursuant to which:
(a) issuers of Securities are permitted to register all issuances of
securities on an integrated company registration statement; and
(b) under the provisions of such amendment, such registration could
cover the reoffering or resale by the holders thereof of shares of Common
Stock issued upon the exercise of the Warrants, if any, outstanding at such
time.
Company -- shall have the meaning specified in the introductory paragraph
hereof.
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Consideration Per Share -- means, with respect to shares of Common Stock or
Rights, the quotient of:
(a) the Aggregate Consideration Paid (in the case of a repurchase,
redemption, retirement or other acquisition for value of Common Stock or
Rights) or the Aggregate Consideration Receivable (in the case of an
issuance or sale of Common Stock or Rights by the Company), as the case may
be, in respect of such shares of Common Stock or such Rights; divided by
(b) the total number of such shares of Common Stock or, in the case of
Rights, the total number of shares of Common Stock into which by such
Rights are exercisable or convertible.
Effective Date -- means March 1, 1999.
Exchange Act -- means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Excluded Securities -- means and includes:
(a) shares of Common Stock or Rights issued in any of the transactions
described in Section 4.2 through Section 4.7, inclusive, hereof, and in
respect of which an adjustment has been made pursuant to such Section;
(b) shares of Common Stock issuable upon exercise of the Warrants or
any other Rights (including, without limitation, any Outstanding Warrants)
outstanding on the date hereof;
(c) shares of Common Stock or other Securities issued or sold by the
Company upon exercise of any Share Purchase Rights in accordance with the
provisions of the Rights Agreement, and any Common Stock, if any, issued
upon the exercise or conversion of such other Securities in accordance with
the provisions of the Rights Agreement;
(d) shares of Common Stock issued to the public in a bona fide public
offering registered under the Securities Act to Persons other than:
(i) Affiliates;
(ii) employees of the Company; or
(iii) existing holders of Common Stock or Rights;
provided, however, that a bona fide public offering sold through an
underwriter and held open to the public generally shall not fail to meet
the requirements of this clause (c) merely by virtue of the fact that one
or more Affiliates, employees or existing holders of Common Stock or Rights
may have been purchasers from the underwriters therein so
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long as no pre-existing arrangement or agreement to so purchase shares in
connection with such offering was in existence or in effect;
(e) shares of the Common Stock sold in a bona fide private placement
transaction for a price not less than ninety (90%) of the Market Price
calculated as the date of the closing of such sale, so long as the price of
such shares was negotiated at arm's length and so long as the purchasers of
such shares are not either:
(i) Affiliates;
(ii) employees of the Company; or
(iii) existing holders of Common Stock or Rights; and
(f) Rights consisting of employee stock options granted with an
exercise price not less than the Market Price thereof as of the date of the
grant, and shares of Common Stock issued upon exercise of such Rights,
issued to employees, consultants or independent contractors of the Company
pursuant to any stock option plan approved by the Board of Directors at any
time, so long as, and to the extent that:
(i) the aggregate number of shares of Common Stock issuable upon
exercise of such stock options (whether or not then currently
exercisable) at such time, together with all shares of Common Stock
previously issued upon exercise of such stock options, does not exceed
nine hundred thousand (900,000) shares, such number of shares to be
appropriately adjusted in respect of the occurrence of any of the
events described in Section 4 hereof; and
(ii) no other holder of any Rights or any other Securities of the
Company shall have the right to any preemptive, subscription or
similar right in respect of such issuance.
Exempt Transfer -- means, with respect to any transfer of Warrants or
Common Stock issued upon exercise of any Warrants by any holder thereof, any
transfer:
(a) to any affiliate of such holder;
(b) to any other holder of Warrants;
(c) to any affiliate of any other holder;
(d) in connection with the liquidation, dissolution, termination or
other event with respect to any holder of Warrants which requires such
holder to distribute the Warrants to the stockholders, shareholders,
members or partners of such holder, each such stockholder, shareholder,
member or partner;
(e) to a nominee of or custodian for such holder; or
(f) in connection with a bona fide pledge of such Warrants or Common
Stock.
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Expiration Date -- means March 1, 2008, subject to extension as provided in
Section 2.5.
Fair Value -- means, with respect to any share of Common Stock at any time,
the quotient of:
(a) the difference of:
(i) the sum of:
(A) the fair salable value of the Company as a going
concern, giving effect to all Property thereof and subject to all
liabilities thereof, that would be realized in an arm's length
sale between an informed and willing buyer and an informed and
willing seller, under no compulsion to buy or sell, respectively,
as of a date that is within fifteen (15) days of the date as of
which the determination is to be made, determined by agreement
among the holders of the Warrants and the Company and, if, in the
Company's view after reasonable negotiation no such agreement can
be reached, by the Valuation Agent, such determination in either
case to be made without regard to the absence of a liquid or
ready market for such Common Stock; plus
(B) the aggregate exercise or conversion price of all
Warrants and all other Valuable Rights (including, without
limitation, Valuable Rights in respect of any shares of Preferred
Stock convertible at such time into shares of Common Stock) in
existence and remaining unexercised on such date;
minus
(ii) if there shall then exist any outstanding shares of
Preferred Stock (other than Preferred Stock convertible at such time
into shares of Common Stock, which shares represent Valuable Rights at
such time), the aggregate liquidation preference of (or, if less, the
aggregate price, if any, at which the Company could elect to redeem)
such shares of Preferred Stock (together with all accrued and unpaid
dividends thereon);
divided by
(b) the sum of:
(i) the total number of shares of Common Stock then outstanding;
plus
(ii) the aggregate number of shares of Common Stock issuable in
respect of all Valuable Rights (including, without limitation,
Valuable Rights in respect of any shares of Preferred Stock
convertible at such time into shares of Common Stock) at such time.
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First Refusal Sale Date -- means, with respect to any Transfer Notice, the
date which is fifteen (15) days after the date such Transfer Notice is delivered
to the Company, or such later date as is agreed to by the Company and the holder
of the Offered Warrants.
Fully Diluted Basis -- means, with respect to any calculation of the number
of shares of Common Stock at any time, the sum of:
(a) the number of shares of Common Stock outstanding at such time;
plus
(b) the aggregate number of shares of Common Stock issuable upon the
exercise, conversion or exchange, as the case may be, of all Rights
outstanding at such time, regardless of whether such Rights are then
exercisable, convertible or exchangeable and regardless of whether the
consideration given up by the holder of such Right in connection with the
exercise, conversion or exchange thereof would exceed the value of the
Common Stock received upon such exercise, conversion or exchange.
GAAP -- means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
Incidental Registration -- Section 6(a).
Initial Purchase Price -- means Four and One Hundred Twenty-Five
One-Thousandths Dollars ($4.125) per share.
Initiating Holders -- means, at any time, the holders (other than the
Company or any Affiliate thereof) of at least fifty-one percent (51%) (by number
of shares) of the Registrable Securities at such time (excluding any Registrable
Securities held directly or indirectly by the Company or any Affiliate thereof).
Lien -- means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property (for purposes of this
definition, the "Owner"), whether such interest is based on the common law,
statute or contract, and includes but is not limited to:
(a) the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes, and the filing of any financing statement
under the Uniform Commercial Code of any jurisdiction, or an agreement to
give any of the foregoing;
(b) reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting real Property;
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(c) stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements affecting the Owner's rights in
stock owned by the Owner; and
(d) any interest in any Property held by the Owner evidenced by a
conditional sale agreement, capitalized lease or other arrangement pursuant
to which title to such Property has been retained by or vested in some
other Person for security purposes.
The term "Lien" does not include negative pledge clauses in loan agreements and
equal and ratable security clauses in loan agreements.
Market Price -- means, per share of Common Stock, as of any date of
determination, the daily Closing Price on the trading day before such date of
determination; provided that if the Common Stock is then neither listed nor
admitted to trading on any national securities exchange, the NASDAQ National
Market or the NASDAQ SmallCap Market, then "Market Price" means the Fair Value
of one share of Common Stock, as determined by the Valuation Agent as of the
date of determination.
NASD -- means the National Association of Securities Dealers, Inc.
NASDAQ -- means the NASDAQ Stock Market, Inc., a subsidiary of the NASD.
NASDAQ National Market -- has the meaning ascribed thereto in Rule 4200(r)
of NASDAQ.
NASDAQ SmallCap Market -- has the meaning ascribed thereto in Rule 4200(t)
of NASDAQ.
Note Agreement -- means the Note Agreement, dated as of the date hereof,
between the Company and the Purchasers, pursuant to which the Notes were issued.
Notes -- means the 16.5% Senior Subordinated Notes due March 1, 2006 issued
pursuant to the Securities Purchase Agreement and the Note Agreement.
Notice Event -- means any event that would require an adjustment in the
Purchase Price pursuant to Section 4 hereof.
Offered Warrants -- Section 7.2 hereof.
Other Stockholders -- means and includes, at any time, all holders of
Securities of the Company at such time (other than the holders of Registrable
Securities).
Outstanding Warrants -- means and includes all warrants to purchase Common
Stock of the Company outstanding on the date hereof and prior to the issuance of
the Warrants.
Permitted Investor -- means and includes any Person:
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(a) which is a Purchaser;
(b) in connection with the liquidation, dissolution, termination or
other event with respect to any holder of Warrants which requires any such
holder of Warrants to distribute the Warrants to the stockholders,
shareholders, members or partners of such holder, each such stockholder,
shareholder, member or partner; or
(c) (i) which meets the criteria for an "accredited investor," as set
forth in either Rule 501(a)(1), Rule 501(a)(2), Rule 501(a)(3), Rule
501(a)(7) or Rule 501(a)(8), in each case, under the Securities Act; and
(ii) which is not engaged principally in the production or
distribution of dairy products.
Person -- means an individual, partnership, corporation, limited liability
company, joint venture, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
Preferred Stock -- means and includes all capital stock of the Company of
any class (including, without limitation, the Series A Preferred Stock) which is
preferred as to payment upon a liquidation or dissolution of the Company, or
both, over the Common Stock.
Property -- means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
Public Offering -- shall mean any sale of Common Stock in a transaction
either registered under, or requiring registration under, section 5 of the
Securities Act.
Purchase Price -- means, prior to any adjustment pursuant to Section 4 of
this Agreement, the Initial Purchase Price and thereafter, the Initial Purchase
Price as thereafter successively adjusted and readjusted from time to time.
Purchaser -- shall have the meaning specified in the introductory paragraph
hereof.
Reference Price -- means, per share of Common Stock, as of any date of
determination, the arithmetic mean of the daily Closing Prices for the twenty
(20) consecutive trading days before such date of determination; provided that
if the Common Stock is then neither listed nor admitted to trading on any
national securities exchange, the NASDAQ National Market or the NASDAQ SmallCap
Market, then "Reference Price" means the Fair Value of one share of Common
Stock, as determined by the Valuation Agent as of the date of determination.
Registrable Securities -- means, at any time:
(a) any shares of Common Stock that have been issued upon the exercise
of any Warrant;
(b) any shares of Common Stock into which such shares of Common Stock
shall have been converted at any time; and
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(c) any shares of Common Stock that are issuable upon the exercise of
the Warrants or the conversion of Common Stock referred to in clause (a) or
clause (b) above.
For purposes of Section hereof and the definitions of "Initiating Holders" and
"Requisite Holders" herein, holders of Warrants at any time shall be deemed to
be holders of Registrable Securities described in clauses (b) and (c) of this
definition that are at such time issuable upon exercise in full of such
Warrants, whether or not such holders are then entitled so to exercise such
Warrants pursuant to the terms thereof.
As to any particular Registrable Securities once issued, such Securities
shall cease to be Registrable Securities:
(i) when a registration statement with respect to the sale of such
Securities shall have become effective under the Securities Act and such
Securities shall have been disposed of in accordance with such registration
statement;
(ii) when they shall have been distributed to the public pursuant to
Rule 144 (or any successor provision) under the Securities Act;
(iii) when they shall have been otherwise transferred and subsequent
disposition of them shall not require registration or qualification under
the Securities Act or any similar state law then in force; or
(iv) when they shall have ceased to be outstanding or (with respect to
Registrable Securities described in clause (c) of this definition) issuable
upon exercise of the Warrants.
Registration -- means each Incidental Registration.
Registration Expenses -- means all expenses incident to the Company's
performance of or compliance with compliance with Section 6.1 through Section
6.4, inclusive, including, without limitation:
(a) all registration and filing fees;
(b) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities);
(c) expenses of printing certificates for the Registrable Securities
in a form eligible for deposit with Depositary Trust Company;
(d) messenger and delivery expenses;
(e) internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting
duties);
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(f) fees and disbursements of counsel for the Company and its
independent certified public accountants (including the expenses of any
management review, cold comfort letters or any special audits required by
or incident to such performance and compliance);
(g) securities acts liability insurance (if the Company elects to
obtain such insurance);
(h) the reasonable fees and expenses of any special experts retained
by the Company in connection with such registration;
(i) fees and expenses of other Persons retained by the Company; and
(j) in connection with any transaction in which the holders of the
Registrable Securities tender and continue to hold available for sale under
any Registration all (but not less than all) of the Registrable Securities
(and irrespective of whether any such tendered Registrable Securities fail
to be included in such Registration pursuant to the operation of Section
6.1(c)), the reasonable fees and expenses of one counsel for holders of
Registrable Securities, selected by the Requisite Holders;
but not including any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities or fees and expenses of more than one
counsel representing the holders of Registrable Securities or any other selling
expenses, discounts or commissions incurred in connection with the sale of
Registrable Securities.
Required Warrantholders -- means, at any time, the holders of at least
sixty-six and two-thirds percent (66 2/3%) of all Warrants outstanding
(excluding any Warrants directly or indirectly held by the Company, any
Subsidiary or any Affiliate) at such time.
Requisite Holders -- means, with respect to any registration or proposed
registration of Registrable Securities pursuant to Section 6 hereof, any holder
or holders (other than the Company or any Affiliate or Subsidiary) holding at
least sixty-six and two-thirds percent (66 2/3%) of the shares of Registrable
Securities (excluding any shares of Registrable Securities directly or
indirectly held by the Company or any Affiliate or Subsidiary) to be so
registered.
Right -- means and includes:
(a) any warrant (including, without limitation, any Warrant and any
Outstanding Warrant) or any option (including, without limitation, employee
stock options) to acquire Common Stock;
(b) any right issued to holders of the Common Stock, or any class
thereof, permitting the holders thereof to subscribe to shares of
Additional Common Stock (pursuant to a rights offering or otherwise);
(c) any right to acquire Common Stock pursuant to the provisions of
any Security (including, without limitation, the Series A Preferred Stock)
convertible or exchangeable into Common Stock; and
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(d) any similar right permitting the holder thereof to subscribe for
or purchase shares of Common Stock.
Rights Agreement -- means the Rights Agreement, dated as of March 6, 1996,
between the Company and Continental Stock Transfer & Trust Company, as Rights
Agent.
SEC -- means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
Securities Act -- means the Securities Act of 1933, as amended.
Securities Purchase Agreement -- means, collectively, the separate
Securities Purchase Agreements, each dated as of the date hereof, between the
Company and each Purchaser, relating to the offering and sale of the Notes and
the Warrants.
Security -- shall have the meaning specified in section 2(1) of the
Securities Act.
Series A Preferred Stock -- means the Series A Redeemable Convertible
Preferred Stock of the Company.
Share Purchase Right Termination Date -- means the earlier to occur of:
(a) any separation of the Share Purchase Rights pursuant to the
provisions of the Rights Agreement (including, without limitation, on the
Distribution Date, as defined therein); and
(b) any redemption by the Company of all Share Purchase Rights under
circumstances under which no further Share Purchase Rights will be issued
under the Rights Agreement.
Share Purchase Rights -- means and includes each of the Common Stock
purchase rights issued pursuant to, and governed by the terms of, the Rights
Agreement.
Subsidiary -- means, at any time, each corporation, association, limited
liability company or other business entity which qualifies as a subsidiary of
the Company that is properly included in a consolidated financial statement of
the Company and its subsidiaries in accordance with GAAP at such time.
Transferee -- means any registered transferee of all or any part of any one
or more Warrant Certificates acquired by the Purchasers under this Agreement.
Transfer Notice -- Section 7.2 hereof.
Valuable Right -- means, at any time, a Right, the effective conversion,
exercise or purchase price of which on the date of determination is less than
the Market Price in respect of the shares of Common Stock issuable upon
conversion, exercise or purchase pursuant to such Right on such date.
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Valuation Agent -- means the Board of Directors of the Company, or a duly
constituted and appropriately empowered committee thereof, acting in good faith,
the determination of which shall be delivered in writing to the holders of the
Warrants; provided, however, that if any holder of Warrants objects in good
faith and in writing to any such written determination of such Board of
Directors or committee within thirty (30) days after the receipt thereof, then
the "Valuation Agent" shall mean a firm of independent certified public
accountants, an investment banking firm or appraisal firm (which firm shall own
no Securities of, and shall not be an Affiliate, Subsidiary or a related Person
of, the Company) of recognized national standing retained by the Company and
reasonably acceptable to the Required Warrantholders.
Voting Stock -- means, with respect to any corporation, any shares of stock
of such corporation whose holders are entitled under ordinary circumstances to
vote for the election of directors of such corporation (irrespective of whether
at the time any stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency), and, in the case of
the Company, shall include the Common Stock.
Warrant -- shall mean each Warrant to purchase shares of the Common Stock
issued pursuant to this Agreement.
Warrant Certificate -- Section 1.1.
8.2 Descriptive Headings. The descriptive headings of the several Sections
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
8.3 Governing Law. THIS AGREEMENT AND THE WARRANT CERTIFICATES SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY
CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY
OTHER JURISDICTION.
9. MISCELLANEOUS.
9.1 Expenses. The Company agrees to pay, and save the Purchasers and any
Transferees harmless against liability for the payment of, all out-of-pocket
expenses (including, without limitation, the reasonable fees and disbursements
of special counsel for the Purchasers and any Transferee) arising in connection
with the transactions herein contemplated, including, without limitation:
(a) the cost, if any, of complying with Section 3.6 hereof;
(b) any subsequent proposed modification of, or proposed consent
requested or initiated by or on behalf of the Company under, this
Agreement, the Warrant Certificates or the Warrants, whether or not such
proposed modification shall be effected or proposed consent granted
(including, without limitation, all document production and duplication
charges and the reasonable fees and expenses of one special counsel engaged
by the holders of Warrants in connection therewith); and
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(c) the enforcement of (or determination of whether or how to enforce)
any rights under this Agreement, the Warrant Certificates or the Warrants
or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the
transactions contemplated hereby or by reason of a Purchaser's or any
Transferee's having acquired any Warrant Certificate, including, without
limitation, the reasonable fees and expenses of one special counsel engaged
by the holders of the Warrants and incurred by the holders of the Warrants
and the costs and expenses incurred in any bankruptcy case involving the
Company or any Subsidiary.
The obligations of the Company under this Section 9.1 shall survive the transfer
of any Warrant Certificate or portion thereof or interest therein by any
Purchaser or any Transferee and the exercise or expiration of any Warrant.
9.2 Amendment and Waiver. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, with and only with the written
consent of the Company and:
(a) in the case of Section 1 through Section 5, Section 8.2, Section
8.3 or Section 9 hereof (other than this Section 9.2), or of any term
defined in Section 801 to the extent used therein, the written consent of
the Required Warrantholders;
(b) the provisions of Section 6 hereof, and of any term defined in
Section 8.1 hereof as used in Section 6 hereof, may be amended, modified or
supplemented only by a writing duly executed by or on behalf of the
Initiating Holders and the Company; provided, however, that compliance by
the Company with the provisions of Section 6 hereof, with respect to any
particular registration, may be waived by the Requisite Holders; and
(c) in the case of this Section 9.2, or of any term defined in Section
8.1 to the extent used herein, the written consent of all holders of
Warrants then outstanding (excluding any Warrants directly or indirectly
held by the Company, any Subsidiary or any Affiliate) and all other
Registrable Securities then outstanding;
provided, however, that:
(i) no such amendment or waiver of any of the provisions of this
Agreement pertaining to the Purchase Price or the number or kind of shares
of Common Stock that may be purchased upon exercise of each Warrant; and
(ii) no change delaying the occurrence of the Effective Date or
accelerating the occurrence of the Expiration Date;
shall be effective as to the holder of any Warrant unless consented to in
writing by such holder.
9.3 Directly or Indirectly. Where any provision in this Agreement refers to
any action to be taken by any Person, or that such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person, including actions taken by or on behalf of any
partnership in which such Person is a general partner.
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9.4 Survival of Representations and Warranties; Entire Agreement. All
representations and warranties contained herein and in the Securities Purchase
Agreement in connection herewith shall survive the execution and delivery of
this Agreement and the Warrant Certificates, the transfer by any Purchaser of
any Warrant Certificate or portion thereof or interest therein and the exercise
or expiration of any Warrant, and may be relied upon by any Purchaser or any
Transferee, regardless of any investigation made at any time by or on behalf of
any Purchaser or such Transferee. Subject to the preceding sentence, this
Agreement and the Warrant Certificates embody the entire agreement and
understanding among the Company and the Purchasers, and supersede all prior
agreements and understandings, relating to the subject matter hereof.
9.5 Successors and Assigns. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not. Notwithstanding the foregoing sentence, other than as required by Section
4.7 hereof, the Company may not assign any of its rights, duties or obligations
hereunder or under the Warrants without the prior written consent of all holders
of the Warrants then outstanding.
9.6 Notices. All communications hereunder or under the Warrants shall be in
writing and shall be delivered either by national overnight courier or by
facsimile transmission (confirmed by delivery by national overnight courier sent
on the day of the sending of such facsimile transmission), and shall be
addressed to the following addresses:
(a) if to a Purchaser, at its address set forth on Annex 1 to this
Agreement, or at such other address as it shall have specified to the
Company in writing;
(b) if to any other holder of any Warrant Certificate, addressed to
such other holder at such address as such other holder shall have specified
to the Company in writing or, if any such other holder shall not have so
specified an address to the Company, then addressed to such other holder in
care of the last holder of such Warrant Certificate that shall have so
specified an address to the Company; and
(c) if to the Company, at the address set forth on Annex 2 to this
Agreement, or at such other address as the Company shall have specified to
each holder of Warrants in writing.
Any communication addressed and delivered as herein provided shall be deemed to
be received when actually delivered to the address of the addressee (whether or
not delivery is accepted) or received by the telecopy machine of the recipient.
Any communication not so addressed and delivered shall be ineffective.
9.7 Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchasers or to any holder or holders of
Warrant Certificates, the determination of such satisfaction shall, unless
specifically required herein in any instance to be "reasonable" or words to
similar effect, be made by the Purchasers or such holder or holders, as the case
may be, in
43
<PAGE>
the sole and exclusive judgment (exercised in good faith) of the Person or
Persons making such determination.
9.8 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
9.10 Waiver of Jury Trial; Consent to Jurisdiction; Etc.
(a) Waiver of Jury Trial. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, THE WARRANTS OR ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS
CONTEMPLATED HEREBY.
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE WARRANTS OR ANY OF THE DOCUMENTS,
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING
TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER
THIS AGREEMENT, THE WARRANTS OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED
HEREBY MAY BE BROUGHT BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED
IN NEW YORK COUNTY, NEW YORK, OR ANY NEW YORK STATE COURT LOCATED IN NEW
YORK COUNTY, NEW YORK AS SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND
BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO
IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN PERSONAM
JURISDICTION OF EACH SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY
WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT
TO THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN
ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY AGREES THAT
PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO
44
<PAGE>
THE EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
WARRANTS OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY, OR
ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN
RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY DOCUMENT OR AGREEMENT
CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL BE CONCLUSIVELY
PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY THE UNITED STATES
POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT
THE ABILITY OF THE PURCHASERS TO SERVE ANY WRITS, PROCESS OR SUMMONSES IN
ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER THE
COMPANY IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE
PERMITTED BY APPLICABLE LAW.
[Remainder of page intentionally left blank; next page is a signature page.]
45
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered by one of its duly authorized officers or
representatives.
SUPREMA SPECIALTIES, INC.
By:
------------------------------------------
Name:
Title:
ALBION ALLIANCE MEZZANINE FUND,
L.P.
By: Albion Alliance LLC, its General
Partner
By:
------------------------------------------
Name:
Title:
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
-----------------------------------------
Name:
Title:
<PAGE>
ANNEX 1
ADDRESSES OF PURCHASERS
================================================================================
Purchaser Name ALBION ALLIANCE MEZZANINE FUND, L.P.
- --------------------------------------------------------------------------------
Name in which Warrant ALBION ALLIANCE MEZZANINE FUND, L.P.
Certificate is Registered
- --------------------------------------------------------------------------------
Warrant Certificate WR-1: 85,000 Warrants
Registration Number;
Number of Warrants
- --------------------------------------------------------------------------------
Address for Notices Albion Alliance Mezzanine Fund, L.P.
c/o Albion Alliance LLC
1345 Avenue of the Americas, 41st Floor
New York, NY 10105
Attention: William Gobbo, Jr.
(212) 969-1547 - Phone
(212) 969-1529 - Fax
- --------------------------------------------------------------------------------
Other Instructions Signature Page Format:
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC, its
General Partner
By___________________________
Name:
Title:
- --------------------------------------------------------------------------------
Tax Identification Number 13-3975300
================================================================================
Annex 1-1
<PAGE>
ANNEX 1
ADDRESSES OF PURCHASERS (Cont.)
================================================================================
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
- --------------------------------------------------------------------------------
Name in which Warrant THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
Certificate is Registered UNITED STATES
- --------------------------------------------------------------------------------
Warrant Certificate WR-2: 20,000 Warrants
Registration Number;
Number of Warrants
- --------------------------------------------------------------------------------
Address for Notices The Equitable Life Assurance Society of
the United States
c/o Alliance Capital Management, L.P.
1345 Avenue of the Americas, 41st Floor
New York, NY 10105
Attention: Alliance Corporate
Finance Group Inc.
(212) 969-1547 - Phone
(212) 969-1529 - Fax
- --------------------------------------------------------------------------------
Other Instructions Signature Page Format:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
By___________________________
Name:
Title:
- --------------------------------------------------------------------------------
Tax Identification Number 13-5570651
================================================================================
Annex 1-2
<PAGE>
ANNEX 2
ADDRESS OF COMPANY
Address of Company for Notices:
Suprema Specialties
510 East 35th Street
P.O. Box 280 Park Station
Paterson, New Jersey 07543
Attn: President
Annex 2-1
<PAGE>
ATTACHMENT A
[FORM OF WARRANT CERTIFICATE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD EXCEPT IN
A TRANSACTION REGISTERED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT. THE WARRANT AGREEMENT REFERRED TO IN THIS
CERTIFICATE CONTAINS, AMONG OTHER THINGS, PROVISIONS WHICH LIMIT THE TRANSFER OF
THIS SECURITY. A COPY OF THE WARRANT AGREEMENT IS AVAILABLE FROM THE COMPANY
UPON REQUEST.
WARRANT CERTIFICATE
SUPREMA SPECIALTIES, INC.
No. WR-___ __________ Warrants
Date: ________ PPN: 86859F 2* 7
This Warrant Certificate certifies that ___________________, or registered
assigns, is the registered holder of ___________ (________) Warrants. Each
Warrant entitles the owner thereof to purchase at any time on or after the
Effective Date and on or prior to the Expiration Date, one (1) fully paid and
nonassessable share of Common Stock, par value $.01 per share (the "Common
Stock"), of SUPREMA SPECIALTIES, INC., a New York corporation (together with its
successors and assigns, the "Company"), at a Purchase Price (subject to
adjustment as provided therein) of Four and One Hundred Twenty-Five
One-Thousandths Dollars ($4.125) per share upon presentation and surrender of
this Warrant Certificate with a form of election to purchase duly executed and
delivery to the Company of the payment of the Purchase Price in the manner set
forth in the Warrant Agreement. The number of shares of Common Stock that may be
purchased upon exercise of each Warrant and the Purchase Price are the number
and the Purchase Price as of the date hereof, and are subject to adjustment as
referred to below.
The Warrants are issued pursuant to the Warrant Agreement (as it may from
time to time be amended or supplemented, the "Warrant Agreement"), dated as of
March 9, 1998 between the Company and the investor named therein, and are
subject to all of the terms, provisions and conditions thereof, which Warrant
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Warrant Agreement reference is hereby made for a full description of
the rights, obligations, duties and immunities of the Company and the holders of
the Warrant Certificates. Capitalized terms used, but not defined, herein have
the respective meanings ascribed to them in the Warrant Agreement.
As provided in the Warrant Agreement, the Purchase Price and the number of
shares of Common Stock that may be purchased upon the exercise of the Warrants
evidenced by this Warrant Certificate are, upon the happening of certain events,
subject to modification and adjustment. Except as otherwise set forth in, and
subject to, the Warrant Agreement, the
Attachment A-1
<PAGE>
Effective Date of this Warrant Certificate is March 1, 1999, and the Expiration
Date of this Warrant Certificate is March 1, 2008.
This Warrant Certificate shall be exercisable, at the election of the
holder, either as an entirety or in part from time to time (but not, in the case
of any exercise in part, as to a fractional Warrant). If this Warrant
Certificate shall be exercised in part, the holder shall be entitled to receive,
upon surrender hereof, another Warrant Certificate or Warrant Certificates for
the number of Warrants not exercised. This Warrant Certificate, with or without
other Warrant Certificates, upon surrender in the manner set forth in the
Warrant Agreement, may be exchanged for another Warrant Certificate or Warrant
Certificates of like tenor evidencing Warrants entitling the holder to purchase
a like aggregate number of shares of Common Stock as the Warrants evidenced by
the Warrant Certificate or Warrant Certificates surrendered shall have entitled
such holder to purchase.
Except as expressly set forth in the Warrant Agreement, no holder of this
Warrant Certificate shall be entitled to vote or receive dividends or be deemed
for any purpose the holder of shares of Common Stock or of any other Securities
of the Company that may at any time be issued upon the exercise hereof, nor
shall anything contained in the Warrant Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights of a holder of a share
of Common Stock in the Company or any right to vote upon any matter submitted to
holders of shares of Common Stock at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of Securities, change of par value, consolidation,
merger, conveyance, or otherwise), or to receive dividends or subscription
rights, or otherwise, until the Warrant or Warrants evidenced by this Warrant
Certificate shall have been exercised as provided in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE COMPANY AND THE HOLDER HEREOF SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF NEW YORK.
WITNESS the signature of a proper officer of the Company as of the date
first above written.
SUPREMA SPECIALTIES, INC.
By:
---------------------------
Name:
Title:
Attachment A-2
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED, _______________________________________ hereby sells,
assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee.)
the accompanying Warrant Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint:
________________________________________________________________________________
attorney, to transfer the accompanying Warrant Certificate on the books of the
Company with full power of substitution.
Dated: ____________________, ________.
[HOLDER]
By ________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the accompanying Warrant Certificate or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
Attachment A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(To be executed by the registered holder if
such holder desires to exercise the Warrant Certificate)
To SUPREMA SPECIALTIES, INC.:
The undersigned hereby irrevocably elects to exercise
______________________________ Warrants represented by the accompanying Warrant
Certificate to purchase the shares of Common Stock issuable upon the exercise of
such Warrants and requests that certificates for such shares be issued in the
name of:
________________________________________________________________________________
(Please print name and address.)
________________________________________________________________________________
(Please insert social security or other identifying number.)
If such number of Warrants shall not be all the Warrants evidenced by the
accompanying Warrant Certificate, a new Warrant Certificate for the balance
remaining of such Warrants shall be registered in the name of and delivered to:
________________________________________________________________________________
(Please print name and address.)
________________________________________________________________________________
(Please insert social security or other identifying number.)
Attachment A-4
<PAGE>
The undersigned is paying the Purchase Price for the shares of Common Stock to
be issued on exercise of the foregoing Warrants:
|_| in cash pursuant to Section (a)(i) of the Warrant Agreement;
|_| in Notes (as defined in the Warrant Agreement) pursuant to Section
(a)(ii) of the Warrant Agreement;
|_| in cash in the amount of $____________ and a principal amount of Notes
equal to $___________ pursuant to Section (a)(iii) of the Warrant
Agreement; or
|_| by net exercise of the Warrants being exercised pursuant to Section
(a)(iv) of the Warrant Agreement.
Dated: __________________, ______.
[HOLDER]
By __________________________________
NOTICE
The signature to the foregoing Election to Purchase must correspond to the
name as written upon the face of the accompanying Warrant Certificate or any
prior assignment thereof in every particular, without alteration or enlargement
or any change whatsoever.
Attachment A-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-K FOR JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 489,890
<SECURITIES> 0
<RECEIVABLES> 23,710,100
<ALLOWANCES> 470,290
<INVENTORY> 28,511,930
<CURRENT-ASSETS> 53,117,747
<PP&E> 8,487,841
<DEPRECIATION> 1,488,146
<TOTAL-ASSETS> 61,846,058
<CURRENT-LIABILITIES> 9,726,375
<BONDS> 0
0
0
<COMMON> 45,628
<OTHER-SE> 16,649,212
<TOTAL-LIABILITY-AND-EQUITY> 61,846,058
<SALES> 108,140,007
<TOTAL-REVENUES> 108,140,007
<CGS> 89,395,062
<TOTAL-COSTS> 11,660,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,916,892
<INCOME-PRETAX> 4,167,040
<INCOME-TAX> 1,750,157
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,011,001
<CHANGES> 0
<NET-INCOME> 1,405,882
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
