U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the period ended May 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from
Commission file number 1-12556
TOWER TECH, INC.
(Name of small business issuer in its charter)
Oklahoma 73-1210013
(State or other jurisdiction of (I.R.S. EmployerIdentification No.)
incorporation or organization)
Rural Route 3, Post Office Box 1838, Chickasha, Oklahoma 73023
(Address of principal executive offices) (Zip Code)
Issuers telephone number 405/222-2876
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section-12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes _____ No______
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date. Common Stock $.001 par value
3,375,488 shares as of July 10, 1997
INDEX
TOWER TECH, INC.
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheet -- May 31, 1997
Statement of Operations -- Three months ended May 31, 1997 and 1996,
and six months ended May 31, 1997 and 1996
Statement of Cash Flows -- Six months ended May 31, 1997 and 1996
Notes to Financial Statements -- May 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part 2. Other Information
Item 1. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
TOWER TECH, INC.
BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION> May 31, 1997
<S> <C>
Assets
Current assets:
Cash $ 351,982
Accounts receivable, net of allowance
for doubtful accounts of $22,645 6,404,553
Receivables from officers and employees 55,128
Costs and estimated earnings in excess of
billings on uncompleted contracts 509,749
Inventory 2,944,845
Restricted assets 543,164
Prepaid expenses 142,038
Total current assets 10,951,459
Property, plant and equipment, net 5,893,103
Rental fleet, net 1,702,873
Restricted assets 1,823,049
Patents 193,170
Other assets 242,313
------------
Total current assets $ 20,805,967
============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturiti $ 2,748,722
Current maturities of obligations under capital lease 119,460
Accounts payable 3,663,304
Accrued liabilities 614,859
Interest payable 159,173
Customer deposits 4,144
------------
Total current assets 7,309,662
Long-term debt, net 8,589,169
Obligations 236,944
Stockholders' equity:
Common stock, $.001 par value; 10,000,000 shares
authorized; 3,375,488 shares issued and
outstanding 3,376
Capital in excess of par 7,219,943
Deficit (2,553,127)
------------
Total stockholders' equity 4,670,192
------------
$ 20,805,967
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
TOWER TECH, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended
May 31, May 31,
1997 1996
<S> <C> <C>
Sales and other operating revenue:
Tower sales $ 3,351,615 $ 3,627,777
Concrete tower sales 1,105,489 2,112,393
Tower rentals 324,880 224,239
Other tower revenue 287,604 150,051
------------ -------------
Total tower revenue 5,069,588 6,114,460
------------ -------------
Costs and expenses:
Cost of goods sold and constructed 3,918,558 4,889,983
General and administrative 295,031 355,351
Selling expenses 291,029 224,416
Research and development 124,311 122,858
------------- ------------
4,628,929 5,592,608
------------- -------------
Income from operations 440,659 521,852
------------- -------------
Other income (expense):
Interest, net (178,731) (91,305)
Miscellaneous 13,528 21,663
------------- -------------
(165,203) (69,642)
------------- -------------
Income before income taxes 275,456 452,210
Income taxes - -
-------------- -------------
Net income $ 275,456 $ 452,210
============ ============
Weighted average shares outstanding-primary 3,512,710 3,224,866
============ ============
Net income per common share-primary $ .08 $ .14
============= ============
Weighted average shares outstanding-
fully diluted 3,518,689 3,224,866
============= ============
Net income per common share-
fully diluted $ .08 $ .14
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
TOWER TECH, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended
May 31, May 31,
<C> 1997 1996
Sales and other operating revenue: <S> <S>
Tower sales $ 7,918,545 $ 6,335,306
Concrete tower sales 1,662,054 2,490,566
Tower rentals 384,324 284,202
Other tower revenue 490,771 207,534
------------ -----------
Total tower revenue 10,455,694 9,317,608
Other operating revenue 270,000 339,983
------------ -----------
10,725,694 9,657,591
------------ ------------
Costs and expenses:
Cost of goods sold and constructed 8,234,280 7,521,449
General and administrative 662,875 712,445
Selling expenses 572,785 465,977
Research and development 268,150 157,364
------------ -------------
9,738,090 8,857,235
------------ ------------
Income from operations 987,604 800,356
------------ ------------
Other income (expense):
Interest (338,698) (199,141)
Miscellaneous 32,059 35,870
------------ -------------
(306,639) (163,271)
------------- -------------
Income before income taxes 680,965 637,085
Income taxes - -
------------- -------------
Net income $ 680,965 $ 637,085
============= =============
Weighted average shares outstanding-
primary 3,536,931 2,883,239
============= =============
Net income per common share-primary $ .19 $ .22
============== =============
Weighted average shares outstanding-
fully diluted 3,536,931 3,398,719
============= =============
Net income per common share-
fully diluted $ .19 $ .22
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
TOWER TECH, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended
May 31, May 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 680,965 $ 637,085
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 279,992 186,550
Increase in accounts receivable (1,384,116) (1,552,765)
Increase in costs in excess of billings (38,033) (563,381)
Increase in inventory (25,581) (823,272)
Increase in prepaid expenses (113,584) (53,330)
Increase in other assets 6,085 -
Increase in accounts payable 1,108,562 939,239
(Decrease) increase in interest payable
and accrued liabilities (82,802) 128,660
Decrease in billings in excess of costs - (272,258)
Decrease in deposits (124,970) -
------------ ------------
Net cash provided (used) by operating
activities 306,518 (1,373,472)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (2,263,066) (334,662)
Decrease in restricted assets 1,579,935 -
Additions to rental fleet (930,237) (50,101)
Increase in patent costs (40,195) (104,939)
------------- ------------
Net cash used in investing activities (1,653,563) (489,702)
------------- ------------
Cash flows from financing activities:
Proceeds from borrowings 2,135,000 2,795,463
Repayments of long-term debt (1,318,305) (2,489,609)
Proceeds from exercise of options 32,000 -
Proceeds from common stock issuances - 3,465,747
Redemption of preferred stock - (1,500,000)
Payment of preferred dividends - (164,531)
------------ ------------
Net cash provided by financing activities 848,695 2,107,070
------------- -----------
Net increase (decrease) in cash (498,350) 243,896
Cash at beginning of period 850,332 638,260
------------- ------------
Cash at end of period $ 351,982 $ 882,156
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
</TABLE>
TOWER TECH, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Interim Financial Statements
The balance sheet as of May 31, 1997, and the related statements of
operations for the three month and six month periods ended May 31, 1997
and 1996 and the statement of cash flows for the six month period ended
May 31, 1997 and 1996 are unaudited; in the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
have been included.
These financial statements and notes are presented as permitted by Form
10-QSB and should be read in conjunction with the Company's financial
statements and notes included in the annual report on Form 10-KSB.
2. Subsequent Debt Offering
In May 1997, the Company commenced a private placement of a minimum of
$3 million and a maximum of $6 million of 10% Convertible Subordinated
Debentures ("Debentures"). By the end of June, the Company had issued Debentures
in the aggregate principal amount of $3,822,000, yielding net proceeds of
$3,475,000. The Company expects to complete the Debenture placement during the
third quarter. The Debentures bear interest at 10%, which is payable
semiannually, and mature on June 30, 2000. The principal balance of each
Debenture is convertible into shares of common stock at a price of $9.00 per
share at the option of each Debenture holder or at the option of the Company if
the closing price of the common stock is at least 175% of the conversion price
for 20 of 30 consecutive trading days and certain other conditions are
satisfied. The Company used approximately $1,850,000 to repay a short-term bank
loan including accrued interest. Accordingly, the principal balance of
$1,825,000 was classified as long-term debt at May 31, 1997. The Company intends
to use the balance of the net proceeds for capital expenditures associated with
the Oklahoma City manufacturing facility and for working capital. A portion of
the net proceeds may also be used to pay other indebtedness.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three Months Ended May 31, 1997 Compared to Three Months Ended May 31, 1996
___________________________________________________________________________
Total tower revenues were $5,069,588 for the three months ended May 31,
1997, compared to $6,114,460 for the comparable period in the prior year. During
the current three month period, 66% of total tower revenues was derived from
sales of 86 modular fiberglass cooling towers, 22% of total tower revenues was
derived from construction of the new modular concrete towers, 6 % of total tower
revenues was derived from rental of modular fiberglass cooling towers, and 6% of
total tower revenues was derived from other tower revenues. In the comparable
three month period of 1996, 59% of revenues was derived from sales of 83 modular
fiberglass cooling towers, 35% of total tower revenues was derived from
construction of the new modular concrete towers, 4% of revenues was derived from
rental of modular fiberglass cooling towers, and 2% of total tower revenues was
derived from other tower revenues. Other tower revenue consists primarily of
modular tower parts sales and service. The decrease in tower sales revenue for
1997 is due to the sales of smaller capacity, less expensive units. The decrease
in concrete tower revenue is due to the decrease in the number and size of jobs
completed and in process for 1997.
The Company's cost of goods sold and constructed during the three month
period ended May 31, 1997, was $3,918,558 or 77% of total tower revenue as
compared to $4,889,983 or 80% of total tower revenue during the comparable
period in 1996. The decrease in cost of goods sold and constructed is due
primarily to decreased sales of the modular fiberglass cooling tower and
construction of the modular concrete tower. The Company has experienced an
improvement in gross margins in the fiberglass cooling tower line which
management believes is the result of wider recognition of the technological and
operating advantages of the Company's product over competing products. The
Company is able to capitalize on these factors rather than competing based
solely on price. In the concrete line, the Company sees moderate improvement in
gross margins but is still incurring unexpectedly high construction costs due to
the recent introduction of the product. Management expects that gross margins on
concrete projects will continue to show improvement in the next several quarters
and will eventually be consistent with gross margins realized on the Company's
fiberglass cooling tower line. During the three-month period ended May 31, 1997,
the Company expended $106,399 to retrofit and service fiberglass towers
previously sold and $27,756 of warranty costs on concrete towers. Comparable
costs in 1996 were $114,776 to retrofit and service fiberglass towers and $7,354
of warranty costs on concrete towers. In 1995, design changes were made and a
complete quality control system was implemented which management believes will
continue to control such expenditures in future periods. Management believes
that the previously established reserve of $100,000 is sufficient to cover
future costs to retrofit and service towers previously sold.
In the three month period ended May 31, 1997, general and
administrative expenses decreased from $355,351 in 1996, to $295,031 in 1997.
The decrease is due mainly to an increase in allocation of certain expenses to
selling and marketing activities. Selling expenses increased from $224,416 for
the three months ended May 31, 1996 to $291,029 for the three months ended May
31, 1997, due primarily to the increase in allocation of certain expenses as
previously stated. Research and development expenses were $124,311 compared to
$122,858 in the second quarter of 1996. Management expects to continue to
research refinements in cooling tower design and construction. Although the
Company has no fixed research and development budget, such costs are anticipated
to continue at current levels.
<PAGE>
The Company's income from operations for the three months ended May 31,
1997, was $440,659 as compared to $521,852 for the comparable period in the
prior year. After interest expense and miscellaneous items, the Company's net
income was $275,456 as compared to $452,210 for the quarter ended May 31, 1996.
Currently, the estimated backlog is $6,500,000 including a total of
eight contracts for the modular concrete cooling towers totaling $2,500,000.
Five concrete tower contracts are scheduled for completion in the third quarter
of 1997 and the remaining contracts are projected to start and be completed by
the first quarter of 1998. Interest in this product has continued to increase
dramatically in both the United States and international markets. Sixty-five
percent of the backlog for the modular fiberglass cooling towers is scheduled
for delivery in the third quarter of 1997, with the balance scheduled for
delivery in the fourth quarter of 1997.
Six Months Ended May 31, 1997 Compared to Six Months Ended May 31, 1996
_______________________________________________________________________
For the six months ended May 31, 1997, total tower revenues increased
to $10,455,694 from $9,317,608 for the comparable period in the prior year.
During the current six month period 75% of total tower revenues was derived from
sales of 193 modular fiberglass cooling towers, 16% of total tower revenues was
derived from construction of the new modular concrete cooling towers, 4% of
total tower revenues was derived from rental of modular fiberglass cooling
towers, and 5% of total tower revenues was derived from other tower revenue. In
the comparable six month period in 1996, 68% of total tower revenues was derived
from sales of 156 modular cooling towers, 27% of total tower revenues was
derived from construction of modular concrete towers, 3% of total tower revenues
was derived from rental of modular cooling towers, and 2% of total tower
revenues were derived from other tower revenue. Other tower revenues consist
primarily of modular tower parts sales and service. The increase in fiberglass
tower sales revenues for 1997 is due to the increase in the quantity of units
sold. The decrease in concrete tower revenue is due to the decrease in the
number and size of jobs completed and in process. Other tower revenue consists
primarily of modular tower parts sales and service. Other operating revenue for
the six months ended May 31, 1997, consists of technology transfer fees of
$270,000 which were realized as a result of license agreements with Tecno
Procesos Industriales covering the Republic of Mexico. These technology transfer
fees demonstrate the Company's ability to capitalize on the technology it
develops. The Company is in the business of developing technology for the
cooling tower industry and marketing that technology, either directly or in the
form of products such as its TTMT Series cooling tower.
The Company's cost of goods sold and constructed during the six-month
period ended May 31, 1997, was $8,234,280 or 79% of total tower revenues as
compared to $7,521,449 or 81% during the comparable period in 1996. The increase
in cost of goods sold and constructed during the first six months of 1997
resulted from increased production and sales of the modular fiberglass cooling
towers. Included in cost of goods sold for the six month period ended May 31,
1997, is $249,200 to retrofit and service towers previously sold. This compares
to six-month retrofit and warranty costs of $160,027 during the same period in
1996. In 1995, design changes were made and a complete quality control system
was implemented which management believes will control such expenditures in
future periods.
<PAGE>
The six month period ended May 31, 1997 reflected a 7% decrease in
general and administrative expenses from $712,445 in 1996 to $662,875 in 1997.
The decrease is due mainly to an increase in allocation of certain expenses to
selling and marketing activities. Selling expenses increased from $465,977 to
$572,785. The increase is due in part to the increase in allocation of certain
expenses as stated above and in part to continued increase in sales and
marketing efforts for both the fiberglass and concrete cooling towers.
Management expects increased investment in selling expenses to have a continued
positive impact on revenues in future periods. Research and development expenses
increased from $157,364 in the first six months of 1996 to $268,150 in the first
six months of 1997. Management expects to continue to conduct research to
develop refinements in cooling tower design and construction. Although the
Company has no fixed research and development budget, such costs are anticipated
to continue at current levels.
The Company's income from operations for the six months ended May 31,
1997, was $987,604 as compared to income from operations of $800,356 for the
comparable period in the prior year. After interest expense and miscellaneous
items, the Company's net income was $680,965 compared to a net income of
$637,085 for the six months ended May 31, 1996. The increase in the Company's
net income reflects the Company's success in developing and marketing of its
technology and products both nationally and internationally.
Liquidity and Capital Resources
At May 31, 1997, the Company had working capital of $3,641,797 as
compared to working capital of $4,276,982 at February 28, 1997. Change in the
Company's liquidity during the second quarter resulted primarily from the
increase in current maturities of long-term debt and the increase in accounts
payable and accrued expenses. The Company's cash flow provided by and (used in)
its operating, investing, and financing activities during the first six months
of 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Operating activities $ 306,518 $ (1,475,191)
Investing activities $ (1,653,563) $ (489,702)
Financing activities $ 848,695 $ 2,208,789
</TABLE>
The Company's capital requirements for its continuing operations
consist of its general working capital needs, scheduled payments on its debt
obligations and capital expenditures. Management anticipates that the Company's
operating activities will require cash during 1997, which primarily relates to
the anticipated growth in receivables and inventory levels to support expanding
sales. The Company tries to minimize its inventory of component parts, although
minimum economical order levels of some parts can cause inventory levels to
fluctuate from period to period. Similarly, management attempts to manage
accounts receivable to increase cash flow, but it is anticipated that accounts
receivable will increase as sales increase. Other significant variances in
working capital items can also be expected. Also, the Company's concrete
construction projects will continue to contribute to fluctuations in working
capital in the future. At May 31, 1997, costs in excess of billings and
estimated earnings on uncompleted contracts were $509,749 as compared to costs
in excess of billings and estimated earnings on uncompleted concrete
construction projects of $385,604 at February 28, 1997. Generally, concrete
construction projects provide for progress payments of the contract price with a
retainage of 10% to 15% payable after completion of the project.
Scheduled principal payments on capital leases will total approximately
$119,460 over the next twelve months. In addition, $4,573,722 of the Company's
debt will become due and payable during the next twelve months.
Substantially all of the Company's budgeted capital expenditures during
the last two quarters of 1997 will be related to the new manufacturing and
office facilities being constructed by the Company in south Oklahoma City. The
manufacturing facility is approximately 80% complete and is expected to be
completed in August 1997. The size of the manufacturing facility has been
expanded from a planned 80,000 square feet to approximately 100,000 square feet.
The estimated cost of the manufacturing facility has also increased to
approximately $8.0 million, including approximately $3.5 million for equipment
and tooling and a computer system. Construction of the accompanying office
facility has been delayed until the Company obtains additional financing to
begin its construction. Most of the increased size and cost of the manufacturing
facility is attributable to management's plans to begin producing parts used in
the TTMT Series cooling towers. Currently, the Company purchases these parts
from an outside supplier. Management believes that product costs can be reduced
by producing these parts in-house. However, the Company may incur unforeseen
costs and production problems, particularly in the short term, in bringing this
process in-house.
Of the total capital required for the manufacturing facility,
approximately $4.405 million has been financed with a loan from the Oklahoma
Industries Authority (the "OIA"), discussed below. In June 1997, the additional
capital necessary to complete the manufacturing facility was obtained through
the private placement of 10% Convertible Subordinated Debentures ("Debentures").
The Company is evaluating proposals from potential lenders for financing the
plant equipment, tooling and computer system. However, none of the loan
proposals commit a lender to make a loan to the Company, and there is no
assurance that the Company will be able to obtain the necessary capital. The
industrial revenue bonds were issued by the OIA in October 1996. The bonds
require payments of interest only for the first nine months out of an interest
reserve fund of $238,000 set aside from the bond proceeds. Beginning October 1,
1997, the bonds are payable in quarterly installments of principal and interest
of approximately $157,000. A debt service reserve fund of $157,000 was also set
aside from the bond proceeds. The balance of the bond proceeds, less issuance
costs, is available to fund construction of the facility. The OIA holds a
mortgage on the facility to secure payment of the bond indebtedness.
The Company has secured loans with noncommercial lenders totaling
$4,100,000 to finance its capital and working capital needs, of which $4,100,000
was outstanding at May 31, 1997. Interest rates and payment terms are as
follows:
<TABLE>
<CAPTION>
Loan Interest Interest Maturity
Amount Rate Payable Date
--------------- ------------ -------------- -----------
<C> <C> <C> <C>
$ 2,000,000 13% Quarterly 5/31/98
$ 1,000,000 11.25% Quarterly 5/8/99
$ 500,000 11.25% Quarterly 5/8/99
$ 500,000 13% Quarterly 3/25/99
$ 100,000 13% Quarterly 5/2/99
</TABLE>
Management also has secured a line of credit at Chickasha Bank in the
amount of $400,000 for short-term cash flow needs, $400,000 of which was
outstanding at May 31, 1997. This line of credit bears interest at the bank's
base floating rate, which was 10% at May 31, 1997. The principal and interest
are due October 9, 1998. In December 1995, the Company secured financing in the
amount of $294,505 to acquire extrusion equipment to produce the water
collection system for the cooling towers. Previously these parts were
out-sourced. However, to insure quality and an uninterrupted supply, the Company
made the decision to bring this manufacturing process in-house. This note is
payable monthly and matures in January 2000. In August 1996, the Company secured
a real estate mortgage in the amount of $387,500 to finance the acquisition of
the property in south Oklahoma City which is the site for the new manufacturing
facility. Principal and interest at 3.5% are due August 1, 1997 and will be paid
with proceeds from the OIA loan. In April 1995, the Company secured a real
estate mortgage in the amount of $116,000 to finance the acquisition of property
adjacent to its existing facilities to be used as offices. Principal and
interest on this mortgage is due in monthly payments of $1,555 with the
remaining principal and interest due April 15, 1998. This mortgage bears
interest at the bank's base floating rate, which was 10.25% at May 31, 1997. In
October 1995, the Company obtained another mortgage loan in the amount of
$83,723 secured by real estate. The loan bears interest at the bank's floating
rate, which was 10.25% at May 31, 1997, and is payable semi-annually, and
matures on October 12, 1998. In April 1996, the Company secured an $1,200,000
credit arrangement with one of its major vendors to fund materials purchased
from the vendor of which $1,070,000 was included in accounts payable at May 31,
1997.
In May 1997, the Company commenced a private placement of a minimum of
$3 million and a maximum of $6 million of Debentures. By the end of June, the
Company had issued Debentures in the aggregate principal amount of $3,822,000,
yielding net proceeds of $3,475,000. The Company expects to complete the
Debenture placement during the third quarter. The Debentures bear interest at
10%, which is payable semiannually, and mature on June 30, 2000. The principal
balance of each Debenture is convertible into shares of common stock at a price
of $9.00 per share at the option of each Debenture holder or at the option of
the Company if the closing price of the common stock is at least 175% of the
conversion price for 20 of 30 consecutive trading days and certain other
conditions are satisfied. The Company used approximately $1,850,000 to repay a
short-term bank loan including accrued interest. Accordingly, the principal
balance of $1,825,000 was classified as long-term debt at May 31, 1997. The
Company intends to use the balance of the net proceeds for capital expenditures
associated with the Oklahoma City manufacturing facility and for working
capital. A portion of the net proceeds may also be used to pay other
indebtedness.
The Company believes it has sufficient capital resources to fund its
working capital requirements and to make scheduled payments on its debt
obligations for at least the next four quarters, other than the principal
payments on debt which will mature during the next twelve months. Management
anticipates that the Company will be able to renew or replace its debt
obligations as they mature. As discussed above, the Company needs additional
capital to fund its planned capital expenditures. There is no assurance that the
Company will be able to obtain such additional capital. Substantial growth
beyond that expected by management could increase the Company's capital
requirements and require it to obtain additional capital to maintain its growth.
Forward Looking Statements
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future events
contained in this report constitute "forward looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. As with any future event,
there can be no assurance that the events described in forward looking
statements made in this report will occur or that the results of future events
will not vary materially from those described in the forward looking statements
made in this report. Important factors that could cause the Company's actual
performance and operating results to differ materially from the forward looking
statements include, but are not limited to, changes in the general level of
economic activity in the markets served by the Company, competition in the
cooling tower industry and the introduction of new products by competitors,
delays in refining the Company's manufacturing and construction techniques, cost
overruns on particular projects, availability of capital sufficient to support
the Company's level of activity and the ability of the Company to implement its
business strategy.
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits have been filed as part of this report:
Exhibit No. Description
----------- -----------
3.1-1 Amended and Restated Certificate of Incorporation
of Tower Tech, Inc.
3.2-1 Amended Bylaws of Tower Tech, Inc.
3.3-1 Amendment to Bylaws
4.1 Form of 10% Subordinated Convertible Debenture
4.2 Omitted
4.3-1 Form of Stock Certificate
4.4-1 Form of Underwriters' Warrants
4.5 Omitted
4.6 Omitted
4.7 Omitted
4.8 Omitted
4.9 Omitted
4.10-6 Registration Rights Agreement, dated February
2, 1996, among Tower Tech, Inc., Lancer LP,
Michael Taglich, and Robert Taglich.
10.1-8 Promissory Note between Tower Tech, Inc., and
Campbell, Hurley, Campbell and Campbell, dated
August 1, 1996.
10.2-4 Loan Agreement between Tower Tech, Inc. and
Chickasha Bank & Trust Co., dated March 23, 1997
10.3-8 Promissory Note between Tower Tech, Inc., and
Boatmen's Bank, dated September 26, 1996.
10.4-9 Loan Agreement between Tower Tech, Inc., and
Oklahoma Industries Authority dated October 1, 1996
10.5 Form of Debenture Purchase Agreement among the
Company, Taglich Brothers, D'Amadeo Wagner &
Company, Incorporated and various lenders.
10.6 Omitted
10.7 Omitted
10.8-1 Executive Employment Agreement between Harold
Curtis and Tower Tech, Inc., dated September 1,
1993
10.9-1 Agreement by and between Morrison Molded Fiber
Glass Co., and Tower Tech, Inc., made effective
July 26, 1993, regarding the purchase by Tower
Tech, Inc. of certain pultruded components from
Morrison Molded Fiber Glass Company
10.10-1 U. S. Patent No.5,143,657 entitled FLUID
DISTRIBUTOR issued September 1, 1992
10.11-1 U. S. Patent No. 5,152,458 entitled AUTOMATICALLY
ADJUSTABLE FLUID DISTRIBUTOR issued October 6, 1992
10.12-1 U. S. Patent No. 5,227,095 entitled MODULAR COOLING
TOWER issued July 13, 1993
10.13-1 Exclusive License Agreement by and between Harold
D. Curtis and Tower Tech, Inc.
10.14-1 Assignment by and between Harold D. Curtis, as
Assignor, and Tower Tech, Inc., as Assignee
10.15-1 Assignment of Invention Contained in PCT
Application by and between Harold D. Curtis, as
Assignor, and Tower Tech, Inc., as Assignee
10.16-1 Assignment of Patent by and between Harold D.
Curtis, as Assignor, and Tower Tech, Inc., as
Assignee, of Patent No. 5,227,095
10.17-7 1993 Stock Option Plan, as amended
10.18-1 Form of Distributorship Agreement
10.19 Omitted
10.20 Omitted
10.21 Omitted
10.22 Omitted
10.23-2 Promissory Note between Tower Tech, Inc. and
Electrical Constructors, Inc., dated April 15, 1994
10.24-2 Warrant Certificate, dated July 27, 1994, between
Electrical Constructors and Tower Tech, Inc.,
entitling Electrical Constructors to purchase
50,000 shares of Tower Tech, Inc.'s common stock,
$.001 par value
10.25-2 Note between Tower Tech, Inc., as Maker, and
Electrical Constructors, as Payee, dated July 27,
1994
10.26-2 Warrant Certificate, dated August 18, 1994, betwee
J. David Bronstad and Tower Tech, Inc., entitling
J. David Bronstad to purchase 100,000 shares of
Tower Tech, Inc.'s common stock, $.001 par value
10.27-3 Security Agreement between Tower Tech, Inc. and
J. David Bronstad dated August 18, 1994
10.28 Omitted
10.29-4 Promissory Note between Tower Tech, Inc. and
Chickasha Bank & Trust Co., dated April 10, 1995
10.30 Omitted
10.31-5 Warrant Certificate, dated April 25, 1995, between
J. David Bronstad and Tower Tech, Inc., entitling
J. David Bronstad to purchase 40,000 shares of
Tower Tech, Inc.'s common stock, $.001 par value
10.32-5 Warrant Certificate, dated April 25, 1995, between
James McDonald and Tower Tech, Inc., entitling
James McDonald to purchase 10,000 shares of Tower
Tech, Inc.'s common stock, $.001 par value
10.33-5 Security Agreement between Tower Tech, Inc. and
J. David Bronstad dated April 25, 1995
10.34-5 Security Agreement between Tower Tech, Inc. and
James McDonald dated April 25, 1995
10.35-5 Promissory Note between Tower Tech, Inc. and
Chickasha Bank & Trust Co., dated March 3, 1995
10.36-5 Promissory Note between Tower Tech, Inc. and James
McDonald, dated May 2, 1995
10.37-5 Promissory Note between Tower Tech, Inc. and J.
David Bronstad, dated May 2, 1995
10.38-5 Promissory Note between Tower Tech, Inc., and J.
David Bronstad, dated June 14, 1995
10.39-5 Promissory Note between Tower Tech Inc., and J.
David Bronstad, dated June 27, 1995
10.40-5 Promissory Note between Tower Tech, Inc., and
Electrical Constructors, dated September 12, 1995.
10.41-6 Promissory Note between ower Tech, Inc., and
Chickasha Bank. & Trust dated October 13, 1995.
1 Incorporated by reference from the same numbered exhibit to Registration
Statement No. 33-69574-FW, as filed with the Commission on September 29,
1993, as amended.
2 Incorporated by reference from the same numbered exhibit to Form 10-QSB for
the quarter ended August 31, 1994.
3 Incorporated by reference from the same numbered exhibit to Form 10-KSB
for the year ended November 30, 1994.
4 Incorporated by reference from the same numbered exhibit to Form 10-QSB fo
the quarter ended May 31, 1995.
5 Incorporated by reference from the same numbered exhibit to Form 10-QSB fo
the quarter ended August 31, 1995.
6 Incorporated by reference from the same numbered exhibit to Form 10-KSB/A
for the year ended November 30, 1995.
7 Incorporated by reference from the same numbered exhibit to Registration
Statement No. 333-07337 on Form S-8.
8 Incorporated by reference from the same numbered exhibit to Form 10-QSB for
the quarter ended August 31, 1996.
9 Incorporated by reference from the same numbered exhibit to Form 10-KSB for
the year ended November 30, 1996.
(b) The Company did not file any reports on Form 8-K during the quarter
ended May 31, 1997.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWER TECH, INC.
(Registrant)
Date: July 11, 1997 ss/HAROLD CURTIS
----------------------------------------
Harold Curtis, President
Date: July 11, 1997 ss/CHARLES D. WHITSITT
-----------------------------------------
Charles D. Whitsitt, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Consolidated statements of operations found on pages 3-7 of the Company's Form
10-QSB for the year to date, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000913034
<NAME> TOWER TECH, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 351,982
<SECURITIES> 0
<RECEIVABLES> 6,427,198
<ALLOWANCES> 22,645
<INVENTORY> 2,944,845
<CURRENT-ASSETS> 10,951,459
<PP&E> 5,893,103
<DEPRECIATION> 279,992
<TOTAL-ASSETS> 20,805,967
<CURRENT-LIABILITIES> 7,309,662
<BONDS> 0
0
0
<COMMON> 3,376
<OTHER-SE> 4,670,192
<TOTAL-LIABILITY-AND-EQUITY> 20,805,967
<SALES> 5,069,588
<TOTAL-REVENUES> 5,069,588
<CGS> 3,918,558
<TOTAL-COSTS> 4,628,929
<OTHER-EXPENSES> 710,371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (178,731)
<INCOME-PRETAX> 275,456
<INCOME-TAX> 0
<INCOME-CONTINUING> 275,456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 275,456
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
DEBENTURE PURCHASE AGREEMENT
DEBENTURE PURCHASE AGREEMENT ("Agreement") dated as of the ____ day of May,
1997, by and between TOWER TECH, INC., an Oklahoma corporation (the "Company"),
TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED ("Placement Agent"),
either on its own behalf or on behalf of other lenders, and the persons and
entities listed on Exhibit A to this Agreement (Placement Agent and such persons
and entities being referred to individually as "Lender" and collectively, as
"Lenders").
W I T N E S S E T H :
WHEREAS, in reliance upon the representations, warranties, terms and
conditions hereinafter set forth, Lenders desire to purchase from the Company
and the Company desires to sell to the Lenders a minimum of $2,000,000 and a
maximum of $6,000,000 in principal amount of 10% convertible subordinated
debentures due June 30, 2000 (the "Debentures"), the Debentures being
convertible into shares of common stock, $.001 par value per share (the "Common
Stock"), of the Company at $9.00 per share; and
WHEREAS, the Debentures are being issued pursuant to the Company's
Confidential Private Placement Memorandum and Exhibits thereto dated May 28,
1997 (collectively, the "Memorandum"); and
WHEREAS, the Debentures are being issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act").
NOW, THEREFORE, in consideration of the premises and the respective
promises hereinafter set forth, the Company and the Placement Agent hereby agree
as follows:
1. Sale and Purchase of Debentures.
(a) Subject to the terms and conditions of this Agreement, the Company
shall sell to the Lenders a minimum of $2,000,000 and a maximum of $6,000,000 of
Debentures. The form of the Debenture is included in the Memorandum. The Company
will execute each Debenture.
(b) The initial sale and purchase described in Paragraph 1(a) of this
Agreement shall take place at a closing (the "Closing") at the offices of
SPITZER & FELDMAN P.C., 405 Park Avenue, New York, New York 10022-4405 or such
other place as shall be acceptable to the Company and Placement Agent on such
date or dates as Placement Agent shall advise the Company on two (2) business
days notice or such shorter notice as shall be reasonably acceptable to the
Company. Subsequent sale and purchase of Debentures up to the maximum amount
shall take place at one or more Closings held on such dates as the Company and
Placement Agent shall mutually determine. All Closings pursuant to this
Agreement shall occur not later than June 30, 1997, subject to an extension for
a period of up to thirty (30) days upon the agreement of the Company and
Placement Agent. The initial closing hereunder shall be referred to as "Initial
Closing" and the final closing hereunder shall be referred to as "Final
Closing".
(c) As provided in the Debentures, the Debentures are due and payable in
full on June 30, 2000. The purchase price for the Debentures is 100% of the face
amount of the Debentures. Interest accrues on the outstanding principal balance
of the Debentures at the rate of ten (10%) percent per annum commencing on the
date of issuance of each such Debenture at the respective Closing and will be
paid to the registered holders semi-annually on June 30 and December 31 of each
calendar year with the first interest payment being due on December 31, 1997.
(d) As provided in the Debentures, the principal amount of Debentures are
convertible, at the option of the holders, at any time, in whole or in part,
into shares of Common Stock ("Conversion Shares") at a conversion price, subject
to adjustment, of $9.00 per share (the "Conversion Price"). Interest on
Debentures to be converted will accrue through and including the actual date of
conversion and all accrued and unpaid interest on such Debentures will be paid
on such date.
(e) In the event that there is a "Change of Control" of the Company, the
Company shall immediately notify each holder thereof. Each holder may, within
fifteen (15) days after written notice from the Company, elect to accelerate the
maturity date of the Debentures owned by such holder to a date no less than
thirty (30) nor more than forty-five (45) days after the date of such notice
from holder ("Redemption Date"). The Redemption Price shall equal the sum of the
face amount of the Debentures plus all accrued and unpaid interest through and
including the Redemption Date. For purposes hereof, a "Change of Control" of the
Company shall be deemed to have occurred if (i) any "person" (as such term is
defined at Section 13(d) of the Securities Exchange Act of 1934) other than the
Company or an entity then controlled by the Company hereafter becomes the
beneficial owner, directly or indirectly of securities of the Company
representing fifty (50%) percent or more of the combined voting power of the
Company's then outstanding securities, including securities such person may have
acquired directly from the Company; (ii) the Company merges or consolidates with
another corporation and an entity controlled by the Company immediately prior to
the merger or consolidation is not the surviving entity or if the Company is the
surviving entity, holders of eighty (80%) percent or more of the voting power of
the Company immediately prior to the merger or consolidation do not own,
immediately after the merger or consolidation, sixty-five (65%) percent or more
of the voting power of the surviving entity; or (iii) a sale, lease, exchange or
other disposition of all or substantially all of the assets of the Company takes
place.
(f) As provided in the Debentures, all, but not less than all, of the
principal amount of Debentures are convertible, at the option of the Company,
into shares of Common Stock at the Conversion Price, provided that on the day
that the Forced Conversion Notice (as defined below) is given by the Company to
all registered holders of the Debentures ("Debenture Holders") and on the Forced
Conversion Date (as defined below), the following conditions are satisfied: (i)
the Conversion Shares have been registered pursuant to the 1933 Act as provided
for in Paragraph 8 of the Debentures and such registration is then currently
effective; and (ii) the average of the closing bid price of the Common Stock as
listed on the NASDAQ Small Cap Market ("NASDAQ") or wherever the Company's
Common Stock then trades, during twenty (20) trading days out of the thirty (30)
consecutive trading days ending five (5) trading days prior to the date the
Forced Conversion Notice is sent, is at least one hundred and seventy-five
(175%) percent per share of the Conversion Price. Any notice of conversion
("Forced Conversion Notice") must be given to all Debenture Holders no less than
thirty (30) days nor more than forty-five (45) days prior to the date set forth
for conversion (the "Forced Conversion Date"). The Forced Conversion Notice
shall remain effective only if the registration provided for in Paragraph 8 of
the Debentures remains effective continually throughout the notice period. On
the Forced Conversion Date, the Company shall pay to all registered holders of
Debentures, all accrued and unpaid interest on the Debentures through and
including the Forced Conversion Date.
(g) As provided in the Debentures, in the event that any of the terms of
this Agreement are modified or amended, other than the date of issuance and face
value of the Debenture, at any time after one or more Closings, the Company
shall notify each Lender, in writing, of such modification(s) or amendment(s).
Each Lender in debentures may accept all such terms, at the sole discretion of
such Lender, by providing written notice to the Company within fifteen (15) days
after having received such notification from the Company. If no such acceptance
is received by the Company within said fifteen (15) days, the terms of this
Debenture shall remain unmodified by such modification(s) or amendment(s).
(h) For so long as Lenders own Debentures , the Lenders shall have
anti-dilution protection with respect to: (i) any subdivision of the outstanding
shares of Common Stock of the Company into a greater number of shares of Common
Stock; (ii) any declaration of a dividend or making any other distribution by
the Company upon its Common Stock payable in shares of Common Stock; (iii) any
capital reorganization or reclassification of the capital stock of the Company;
or (iv) any consolidation or merger of the Company with another entity.
2. Payment. At each Closing, the Company shall deliver to Placement Agent,
on behalf of the Lenders, the original executed and sealed Debentures being
purchased by the Lenders, against its receipt of payment therefor by certified
or bank check drawn on a bank located in the United States, or by Federal wire
transfer, in the amount of the aggregate purchase price for such Debentures,
less the amount of fees payable to Placement Agent pursuant to Paragraph 10(a)
of this Agreement. All Debentures being purchased by the Lenders shall be issued
in the respective names of the Lenders in accordance with instructions provided
by Placement Agent not later than the day of Closing.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to and covenants and agrees with each Lender and the
Placement Agent, as of the date hereof and as of the date of each Closing, as
follows:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Oklahoma and is qualified and in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted by the Company or the property owned or leased by the
Company requires such qualification. The Company has no subsidiaries and does
not own any material equity interest and has not made any material loans or
advances to or material guarantees of indebtedness to any person, corporation,
partnership or other entity, other than the marketing and distribution
arrangements generally described in the Memorandum.
(b) The authorized capital of the Company consists of 10,000,000 shares of
Common Stock and 2,000,000 shares of preferred stock, of which, as of the date
of this Agreement, (i) 3,375,488 shares of Common Stock are issued and
outstanding, (ii) no shares of preferred stock are issued and outstanding, and
(iii) 714,600 shares of Common Stock have been reserved for issuance upon
exercise of outstanding options, warrants and other rights to acquire Common
Stock and upon the exercise of options granted or to be granted pursuant to the
Company's stock option plans and pursuant to other agreements, excluding the
Conversion Shares and the shares of Common Stock (the "PAW Exercise Shares")
issuable upon exercise of the Placement Agent Warrants (as defined below).
Except as set forth in the Memorandum, the Company is not a party to any
agreement to issue, nor has it issued, any warrants, options or rights or
debentures, notes or other evidence of indebtedness or other securities,
instruments or agreements upon the exercise or conversion of which or pursuant
to the terms of which additional shares of capital stock of the Company may
become issuable. No holder of any of the Company's securities has preemptive
rights or contractual rights of first refusal.
(c) The Company has the full right, power and authority to execute, deliver
and perform under this Agreement, the Debentures and the Placement Agent
Warrants. This Agreement has been duly executed by the Company and, at each
Closing, the Debentures and the Placement Agent Warrants being issued will have
been duly executed by the Company, and this Agreement, the Debentures and the
Placement Agent Warrants and the transactions contemplated by this Agreement,
the Debentures and Placement Agent Warrants have been duly authorized by all
necessary corporate action and each constitute, the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
(d) All of the issued and outstanding shares of Common Stock of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable, with no personal liability attaching to the holders thereof, and
such shares of Common Stock have not been issued in violation of the preemptive
rights or rights of first refusal of any holder of securities of the Company.
All of the issued and outstanding shares of Common Stock of the Company have
been issued pursuant to either a current effective registration statement under
the 1933 Act or an exemption from the registration requirements of the 1933 Act
and were issued in accordance with all applicable Federal and state securities
laws.
(e) The shares of Common Stock included in the Conversion Shares and the
PAW Exercise Shares have been validly authorized for issuance and, when issued
pursuant to this Agreement and the terms of the Debentures and the Placement
Agent Warrants, as the case may be, will be duly and validly authorized and
issued, fully paid and nonassessable and free from preemptive rights or rights
of first refusal held by any person.
(f) The following financial statements of the Company (hereinafter
collectively, the "Financial Statements") are included in the Memorandum: (1)
(i) consolidated balance sheet as at November 30, 1996, and (ii) consolidated
statements of operations, shareholders' equity and cash flows for the fiscal
year ended November 30, 1996, and the related notes thereto, which have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants,
(2)(i) consolidated balance sheet as at November 30, 1995, and (ii) consolidated
statement of operations, shareholders' equity and cash flow for the fiscal year
ended November 30, 1995, and the related notes thereto, which have been audited
by Price Waterhouse LLP; (3)(i) unaudited balance sheet as at February 28, 1997,
and (ii) statement of operations, stockholders' equity and cash flows for the
fiscal quarter ended February 28, 1997, and the related notes thereto, which
have been prepared by the Company. The Financial Statements, which are included
in the Company's Form 10-KSB Annual Report for the year ended November 30, 1996
("Form 10-K") and the Company's Form 10-QSB Quarterly Report for the quarter
ended February 28, 1997 ("Form 10-Q"), were prepared in accordance with
generally accepted accounting principles consistently applied and present and
reflect fairly the financial position of the Company at the respective balance
sheet dates and the results of its operations, changes in stockholders' equity
and cash flows for the periods then ended. During the respective periods of
Coopers & Lybrand L.L.P.'s and Price Waterhouse LLP's engagement as the
Company's independent certified public accountants, there were no disagreements
between either accounting firm and the Company on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure and no reportable events relating to the relationship between the
Company and either accounting firm. The Company has made and kept books and
records and accounts which are in reasonable detail and which fairly and
accurately reflect the activities of the Company.
(g) The Company has good and marketable title to all of its material
property and assets and, except as set forth in the Memorandum, none of such
property or assets of the Company is subject to any lien, mortgage, pledge,
encumbrance or other security interest.
(h) Except as may be disclosed in the Memorandum and Exhibits, since
November 30, 1996, there has not been any material adverse change in the
financial condition or in the operations, business or prospects of the Company
from that shown in the Financial Statements or any damage or destruction,
whether covered by insurance or not, which affects the business, property or
assets of the Company.
(i) Except as set forth in the exhibits annexed to the Memorandum
(collectively, the "Exhibits"): (i) the Company has not filed any Current
Reports on Form 8-K or other reports filed with the Securities and Exchange
Commission (the "SEC") subsequent to February 28, 1997, and (ii) no Schedule 13D
or 13G which has been filed with the Company within the past five (5) years.
(j) Neither the execution or delivery of this Agreement, the Debentures or
the Placement Agent Warrants by the Company nor the performance by the Company
of the transactions contemplated by this Agreement, the Debentures or the
Placement Agent Warrants: (i) requires the consent, waiver, approval, license or
authorization of or filing with or notice to any person, entity or public
authority (except any filings required by Federal or state securities laws);
(ii) violates or constitutes a default under or breach of any law, rule or
regulation applicable to the Company; (iii) conflicts with or results in a
breach or termination of any provision of, or constitutes a default under, or
will result in the creation of any lien, charge or encumbrance upon any of the
property or assets of the Company with or without the giving of notice, the
passage of time or both, pursuant to (A) the Company's certificate of
incorporation or by-laws, (B) any mortgage, deed of trust, indenture, note, loan
agreement, security agreement, contract, lease, license, alliance agreement,
joint venture agreement, or other agreement or instrument, or (C) any order,
judgment, decree, statute, regulation or any other restriction of any kind or
character to which the Company is a party or by which any of the assets of the
Company may be bound.
(k) The Company does not have any indebtedness to any officer, director, 5%
stockholder or other Affiliate (as defined in the Rules and Regulations of the
SEC under the 1933 Act) of the Company.
(l) The Company is in compliance with all laws, rules and regulations of
all Federal, state and local government agencies having jurisdiction over the
Company or affecting the business, assets or properties of the Company, except
where the failure to comply has not and will not have a material adverse effect
on the business, financial condition or results of operations of the Company (a
"Material Adverse Effect"). The Company possesses all licenses, permits,
consents, approvals and agreements which are required to be issued by any and
all applicable Federal, state or local authorities necessary for the operation
of its business and/or in connection with its assets or properties, except where
the failure to possess such licenses, permits, consents, approvals or agreements
has not and will not have a Material Adverse Effect.
(m) The Company is not in default under any note, loan agreement, security
agreement, mortgage, contract, franchise agreement, distribution agreement,
lease, alliance agreement, joint venture agreement, agreement, license, permit,
consent, approval or instrument to which it is a party, and no event has
occurred which, with or without the lapse of time or giving of notice, or both,
would constitute such default thereof by the Company or would cause acceleration
of any obligation of the Company or would adversely affect the business,
operations, financial condition or prospects of the Company, except where such
default or event, whether with or without the lapse of time or giving of notice,
or both, has not and will not have a Material Adverse Effect. To the best of the
knowledge of the Company, no party to any note, loan agreement, security
agreement, mortgage, contract, franchise agreement, distribution agreement,
lease, alliance agreement, joint venture agreement, agreement, license, permit,
consent, approval or instrument with or given to the Company is in default
thereunder and no event has occurred with respect to such party, which, with or
without the lapse of time or giving of notice, or both, would constitute a
default by such party or would cause acceleration of any obligations of such
party.
(n) Except as described in the Memorandum and to the extent disclosure is
called for by Regulation S-X, Rule 404, to the best of the Company's knowledge,
no officer, director or 5% stockholder of the Company and no Affiliate of any
such person either (i) holds any interest in any corporation, partnership,
business, trust, sole proprietorship or any other entity which is engaged in a
business similar to that conducted by the Company or any of the Subsidiaries
(other than a passive immaterial interest in a public company engaged in any
such business) or (ii) engages in business with the Company or any of the
Subsidiaries.
(o) Except as set forth in the Memorandum, there are no material (i.e.,
involving an asserted liability in excess of ten thousand dollars ($10,000))
claims, actions, suits, proceedings or labor disputes, inquiries or
investigations (whether or not purportedly on behalf of the Company or any of
the Subsidiaries), pending or, to the best of the Company's knowledge,
threatened, against the Company, at law or in equity or by or before any
Federal, state, county, municipal or other governmental department, SEC, NASDAQ,
board, bureau, agency or instrumentality, domestic or foreign, whether legal or
administrative or in arbitration or mediation, nor is there any basis for any
such action or proceeding. Neither the Company, nor any of its assets are
subject to, nor is the Company in default with respect to, any order, writ,
injunction, judgment or decree that could adversely affect the financial
condition, business, assets or prospects of the Company.
(p) The accounts receivable of the Company represent receivables generated
from the sale of goods and services in the ordinary course of business and
license and royalty fees. The Company knows of no material disputes concerning
accounts receivable of the Company.
(q) Except as set forth in the Memorandum, the Company does not have (i)
any written employment contracts and to its knowledge, no oral employment
contracts not terminable at will by the Company, with any five (5%) percent
shareholder, officer or director of the Company, as applicable, (ii) any
consulting agreement or other compensation agreement with any five (5%) percent
shareholder, officer or director of the Company, and (iii) any agreement or
contract with any five (5%) percent shareholder, officer or director of the
Company, that will result in the payment by the Company, or the creation of any
commitment or obligation (absolute or contingent), of the Company, to pay any
severance, termination, "golden parachute", or similar payment to any present or
former personnel of the Company, following termination of employment. No
director, executive officer or other key employee of the Company, has advised
the Company that he or she intends to resign as director and/or executive
officer of the Company, or to terminate his or her employment with the Company.
(r) The accounts payable of the Company represent bona fide payables to
third parties incurred in the ordinary course of business and represent bona
fide debts for services and/or good provided to the Company.
(s) The Company is not a party to a labor agreement with respect to any of
their respective employees with any labor organization, union, group or
association and there are no employee unions (nor any similar labor or employee
organizations). In the last five (5) years, the Company has not experienced any
attempt by organized labor or its representatives to make the Company conform to
demands of organized labor relating to any of their respective employees or to
enter into a binding agreement with organization labor that would cover any of
the employees of the company. There is no labor strike or labor stoppage or
slowdown pending, or, to the knowledge of the Company, threatened against the
Company nor has the Company experienced in the last five (5) years any work
stoppage or other labor difficulty. The Company is in compliance with all
applicable laws, rules and regulations regarding employment practices, employee
documentation, terms or conditions of employment and wage and hours and the
Company is not engaged in any unfair labor practices, except where the failure
to comply has not and will not have a Material Adverse Effect. There are no
unfair labor practices charge or complaint against the Company pending before
the National Labor Relations Board or any other governmental agency.
(t) Except as set forth in the Exhibits, there are no employee pension,
retirement or other benefit plans, maintained, contributed to or required to be
contributed to by the Company covering any employee or former employee of the
Company. The Company has no liability or obligation of any kind or nature,
whether accrued or contingent, matured or unmatured, known or unknown, under any
provision of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or any provision of the Internal Revenue Code of 1986, as amended,
specifically relating to persons subject to ERISA.
(u) The Company has timely filed with the appropriate taxing authorities
all returns in respect of taxes required to be filed through the date hereof and
each has timely paid all taxes that each is required to pay or has established
an adequate reserve therefor, except where the Company, has timely filed for
extensions. There are no pending or, to the knowledge of the Company, threatened
audits, investigations or claims for or relating to any liability of the Company
in respect of taxes except a pending audit of the Company's 1994 federal income
tax return.
(v) The Company has no material liabilities of any kind or nature whether
accrued or contingent, matured or unmatured, known or unknown, except as set
forth in the Financial Statements, the Memorandum and those liabilities incurred
by the Company in the ordinary course of business since November 30, 1996.
(w) Except as set forth in the Exhibits, no customer of the Company during
fiscal year 1996 has accounted for more than ten (10%) percent of the revenues
and based on current purchase orders and contracts of the Company, no customer
will account for more than five (5%) percent of the Company's revenues during
fiscal year 1997.
(x) There are no finder's fees or brokerage commissions payable with
respect to the transactions contemplated by this Agreement, except as provided
in Paragraph 10 of this Agreement, and the Company agrees to indemnify and hold
harmless the Placement Agent from and against any and all cost, damage,
liability, judgment and expense (including reasonable fees and expenses of
counsel) arising out of or relating to claims for such fees or commissions (and
to pay the Placement Agent pursuant to a separate agreement between the Company
and the Placement Agent).
(y) The Company has the right to conduct its business in the manner in
which its business as have been heretofore conducted. To the knowledge of the
Company, the conduct of such businesses by the Company does not violate or
infringe upon the patent, copyright, trade secret or other proprietary rights of
any third party, and the Company has not received any notice of any claim of any
such violation or infringement.
(z) The Company is currently in compliance in all respects with all
applicable Environmental Laws (as defined below), including, without limitation,
obtaining and maintaining in effect all permits, licenses, consents and other
authorizations required by applicable Environmental Laws and the Company is
currently in compliance with all such permits, licenses, consents and other
authorizations, except where the failure to comply has not and will not have a
Material Adverse Effect. The Company has not received any notice from any
property owner, landlord, tenant or Governmental Authority (as defined below)
that Hazardous Wastes (as defined below) are being improperly used, stored or
disposed of at any property currently or formerly owned or leased by the Company
or that any soil or ground water contamination has emanated from any such
property. For purposes hereof, the term "Environmental Laws" means,
collectively, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization
Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances
Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended,
any other "Superfund" or "Superlien" law or any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter in effect. For purposes hereof, the term "Governmental Authority"
shall mean the Federal Government of the United States of America, any state or
any political subdivision of the Federal Government or any state, including but
not limited to courts, departments, commissions, boards, bureaus, agencies,
ministries or other instrumentalities. For purposes hereof, the term "Hazardous
Waste" shall mean any regulated quantity of hazardous substances as listed by
the United States Environmental Protection Agency ("EPA") and the list of toxic
pollutants designated by the United States Congress and/or the EPA or defined by
any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order, or decree regulating, relating to or imposing liability for
standards of conduct concerning any hazardous, toxic substance or material.
(aa) The information contained in the Financial Statements and the
Memorandum, taken together, describe in all material respects the business and
financial condition of the Company, and such material, taken together, does not
contain any misstatement of a material fact or omit to state a material fact
necessary to make the information not misleading. The Lenders shall be entitled
to rely on such material notwithstanding any investigation they or any of them
may have made.
4. Representations and Warranties of the Placement Agent. The Placement
Agent represents and warrants to, and covenants and agrees with, the Company, as
follows:
(a) The Placement Agent is a broker-dealer duly registered pursuant to the
provisions of the Securities Exchange Act of 1934, as amended ("1934 Act"), is a
member in good standing with the National Association of Securities Dealers,
Inc. ("NASD") and is duly registered as a broker-dealer under the applicable
statutes in each state in which the Placement Agent will solicit subscriptions
for Debentures, except such states in which the Placement Agent is exempt from
such registration or such registration is otherwise not required, or in the
event the Placement Agent is not registered and not exempt in any such state,
the Placement Agent will solicit subscriptions only through participating
broker-dealers which are registered in such states. The Placement Agent agrees
to maintain all of the foregoing registrations throughout the term of the
offering and to comply with all statutes and other requirements applicable to
the Placement Agent as a broker-dealer pursuant to those registrations. The
Company may refuse to accept a subscription from a resident of a state in which
the Placement Agent or a participating broker-dealer is not registered unless
the Placement Agent at its expense delivers to the Company an opinion of counsel
satisfactory to it that registration is not required in such state.
(b) Pursuant to the Placement Agent's appointment as managing placement
agent, the Placement Agent shall comply with all of the provisions of Regulation
D of the 1933 Act ("Regulation D") insofar as its provisions apply to the
Placement Agent, and will not engage in any activity which would cause the offer
and/or sale of Debentures not to comply with Regulation D, the 1933 Act or any
applicable state securities law. Specifically, but without limiting the
generality of the foregoing, the Placement Agent covenants and agrees as
follows:
(i) Debentures will not be offered by means of any form of general
solicitation or general advertising including, but not limited to, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio, any
public seminar or meeting, any general letter, circular, notice or other written
communication;
(ii) prior to the acceptance of any funds from a subscriber, the Placement
Agent will have reasonable grounds to believe, and will believe, that such
subscriber meets the greater of the minimum suitability standards set forth in
the Memorandum or the applicable state securities laws of the state in which
such subscriber resides;
(iii) at a reasonable time prior to accepting funds from a subscriber, the
Placement Agent will provide each prospective subscriber with a complete copy of
the Memorandum and all amendments and supplements thereto;
(iv) the Placement Agent shall advise the Company in writing of each state
in which it proposes to offer the Debentures and agrees to refrain from making
any offers of Debentures in any state until such time as it shall have been
advised by counsel to the Company that such offers have been qualified in such
state or are exempt from the qualification, and the Placement Agent further
agrees to comply with all restrictions, qualifications or conditions set forth
in any Blue Sky memoranda or other notification provided by the Company to it
which may be required or deemed necessary in connection with any exemption from
registration or qualifying the Debentures for offer or sale in any state;
(v) in connection with any offer of Debentures, the Placement Agent agrees
to comply in all respects with the statements set forth in the Memorandum and
agrees not to make any (i) oral or written statement inconsistent with the
statements in the Memorandum or to make any oral or written untrue or misleading
statements of a material fact, or (ii) written statements to any prospective
subscriber of Debentures unless and until such written statements are submitted
to the Company and approved by it and its counsel;
(vi) in connection with any offer of Debentures, the Placement Agent
further agrees to (i) notify the Company promptly of any request for additional
information received from a prospective subscriber and specify the additional
information requested; (ii) notify the Company promptly after the first receipt
of completed subscription documents and promptly forward to the Company copies
of such documentation; and (iii) in placing, offering, offering to sell,
offering for sale, negotiating for sale or selling Debentures, comply with the
applicable provisions of the 1934 Act and the regulations promulgated
thereunder, and interpretations of the NASD and the SEC;
(vii) the Placement Agent will offer the Debentures only to persons or
entities who it has reasonable grounds to believe, and does believe, are
purchasing the Debentures for their own account for investment and not with any
view for the resale or distribution thereof;
(viii) upon completion of the offering, the Placement Agent will return to
the Company all copies of the Memorandum which were not distributed to potential
subscribers, except a reasonable number of copies which the Placement Agent and
participating broker-dealers retain for their records; and
(ix) the Placement Agent will use its best efforts to cause all
participating broker-dealers to comply with the provisions of this Section 4
insofar as such provisions are applicable to a participating broker-dealer.
5. Survival of Representations and Warranties and Indemnification. The
representations and warranties of the Company and the Placement Agent set forth
in Sections 3 and 4 of this Agreement, respectively, shall survive the execution
and delivery of the Debentures. The indemnification obligations of the Company
and the Placement Agent as set forth in the indemnification rider identified as
Exhibit B (the "Indemnification Rider") to the April 11, 1997 engagement letter
between the Company and the Placement Agent, is hereby incorporated herein by
reference in its entirety as if more fully set forth herein and the provisions
of the Indemnification Rider shall apply and be applicable to, among other
things, all representations and warranties of the Company and the Placement
Agent.
6. Unregistered Securities. The Debentures and Conversion Shares have not
been registered under the 1933 Act, in reliance upon the applicability of
Section 3(b), 4(2), 4(6) and/or Regulation D of the 1933 Act to the transactions
contemplated hereby. The certificates representing the Debentures will bear an
investment legend and Conversion Shares which are not issued pursuant to an
effective registration statement under Section 7 of the Debentures will also
bear an investment legend.
7. Registration Rights and "Piggy-Back" Registration Rights.
(a) As soon as possible after the Final Closing, but in no event later than
sixty (60) days after the Final Closing (regardless of whether the maximum
number of Debentures shall have been sold), the Company shall, at its sole cost
and expense, file a registration statement on the appropriate form with the SEC
covering all of the PAW Exercise Shares and such additional shares of Common
Stock that may be issued pursuant to the anti-dilution rights contained in the
Placement Agent Warrants and as set forth below in this Section 7(a)
(collectively, the "Registrable Securities"), time being of the essence. The
Company will use its best efforts to have such registration statement declared
effective as soon as possible thereafter, and shall keep such registration
statement current and effective for at least two (2) years from the effective
date thereof or until such earlier date as all of the Registrable Securities
registered pursuant to such registration statement shall have been sold or
otherwise transferred. Notwithstanding anything to the contrary contained
herein, if such registration statement shall not be declared effective within
six (6) months after the Final Closing (regardless of whether the maximum number
of Debentures shall have been sold), then the exercise price for the Placement
Agent Warrants shall be reduced (and concomitantly the number of shares of
Common Stock issuable upon the exercise of the Placement Agent Warrants shall
increase) by the percentage resulting from multiplying two (2%) percent by the
number of months, or any part thereof, beyond said six (6) month period until
the initial registration statement described herein covering the Registrable
Securities is declared effective, but no more than twenty-four (24%) percent in
the aggregate.
(b) In the event the Company effects any registration under the 1933 Act of
any Registrable Securities pursuant to Paragraphs 7(a) above or 7(g) below, the
Company shall indemnify, to the extent permitted by law, and hold harmless any
registered holder whose Registrable Securities are included in such registration
statement (each, a "Seller"), any underwriter, any officer, director, employee
or agent of any Seller or underwriter, and each other person, if any, who
controls any Seller or underwriter within the meaning of Section 15 of the 1933
Act, against any losses, claims, damages or liabilities, judgment, fines,
penalties, costs and expenses, joint or several, or actions in respect thereof
(collectively, the "Claims"), to which each such indemnified party becomes
subject, under the 1933 Act or otherwise, insofar as such Claims arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement or prospectus or any amendment or
supplement thereto or any document filed under a state securities or blue sky
law (collectively, the "Registration Documents") or insofar as such Claims arise
out of or are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading, and will reimburse any such
indemnified party for any legal or other expenses reasonably incurred by such
indemnified party in investigating or defending any such Claim; provided that
the Company shall not be liable in any such case to the extent such Claim is
based upon an untrue statement or alleged untrue statement of a material fact or
omission or alleged omission of a material fact made in any Registration
Document in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any indemnified party specifically for use in
the preparation of such Registration Document.
(c) In connection with any registration statement in which any Seller is
participating, each Seller, severally and not jointly, shall indemnify, to the
extent permitted by law, and hold harmless the Company, each of its directors,
each of its officers who have signed the registration statement, each other
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act, each other Seller and each underwriter, any officer, director,
employee or agent of any such other Seller or underwriter and each other person,
if any, who controls such other Seller or underwriter within the meaning of
Section 15 of the 1933 Act against any Claims to which each such indemnified
party may become subject under the 1933 Act or otherwise, insofar as such Claims
(or actions in respect thereof) are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Document, or
insofar as any Claims are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in investigating or defending any such claim;
provided, however, that such indemnification or reimbursement shall be payable
only if, and to the extent that, any such Claim arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any Registration Document in reliance upon and in conformity with
written information furnished to the Company by the Seller specifically for use
in the preparation thereof.
(d) Any person entitled to indemnification under Paragraphs 7(b) or 7(c)
above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party under this Paragraph 7(d), but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Paragraph 7(b) or 7(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, that no indemnifying
party shall be subject to any liability for any settlement of a Claim made
without its consent (which may not be unreasonably withheld, delayed or
conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, 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 (which consent may not be unreasonably withheld, delayed
or conditioned).
(e) If for any reason the indemnity provided in Paragraphs 7(b) or 7(c)
above is unavailable, or is insufficient to hold harmless, an indemnified party,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of any Claim 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 from the transactions
contemplated by this Agreement. If, however, the allocation provided in the
immediately preceding sentence is not permitted by applicable law, or if the
indemnified party failed to give the notice required by Paragraph 7(d) above,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the indemnifying party and
the indemnified party as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable in respect of any
Claim shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
Claim. Notwithstanding the foregoing, no underwriter or controlling person
thereof, if any, shall be required to contribute, in respect of such
underwriter's participation as an underwriter in the offering, any amount in
excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligation of any underwriters to contribute pursuant to
this paragraph (e) shall be several in proportion to their respective
underwriting commitments and not joint.
(f) The provisions of Paragraphs 7(b) through 7(e) of this Agreement shall
be in addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
(g) The Sellers shall have certain "piggy-back" registration rights with
respect to the Registrable Securities as hereinafter provided:
A. If at any time after the date of the Initial Closing, the Company shall
file with the SEC a registration statement under the 1933 Act registering any
shares of Common Stock owned by any person or entity, the Company shall give
written notice to each Seller thereof prior to such filing.
B. Within fifteen (15) days after such notice from the Company, each Seller
shall give written notice to the Company whether or not the Seller desires to
have all of the Seller's Registrable Securities included in the registration
statement. If a Seller fails to give such notice within such period, such Seller
shall not have the right to have Seller's Registrable Securities registered
pursuant to such registration statement. If a Seller gives such notice, then the
Company shall include such Seller's Registrable Securities in the registration
statement, at the Company's sole cost and expense, subject to the remaining
terms of this Paragraph 7(g).
C. If the registration statement relates to an underwritten offering, and
the underwriter shall determine in writing that the total number of shares of
Common Stock to be included in the offering, including the Registrable
Securities, shall exceed the amount which the underwriter deems to be
appropriate for the offering, the number of shares of the Registrable Securities
shall be reduced in the same proportion as the remainder of the shares in the
offering and each Seller's Registrable Securities included in such registration
statement will be reduced proportionately. For this purpose, if other securities
in the registration statement are derivative securities, their underlying shares
shall be included in the computation. The Sellers shall enter into such
agreements as may be reasonably required by the underwriters and the Sellers
shall pay to the underwriters commissions relating to the sale of their
respective Registrable Securities.
D. Each holder of a Placement Agent Warrant shall have two (2)
opportunities to have the Registrable Securities registered under this Paragraph
7(g).
E. Seller shall furnish in writing to the Company such information as the
Company shall reasonably require in connection with a registration statement.
(h) If and whenever the Company is required by the provisions of this
Paragraph 7 to use its best efforts to register any Registrable Securities under
the 1933 Act, the Company shall, as expeditiously as possible under the
circumstances:
A. Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective as soon as possible and remain effective.
B. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement current and to comply with the
provisions of the 1933 Act, and any regulations promulgated thereunder, with
respect to the sale or disposition of all Registrable Securities covered by the
registration statement required to effect the distribution of the securities,
but in no event shall the Company be required to do so for a period of more than
two (2) years following the effective date of the registration statement.
C. Furnish to the Sellers participating in the offering, copies (in
reasonable quantities) of summary, preliminary, final, amended or supplemented
prospectuses, in conformity with the requirements of the 1933 Act and any
regulations promulgated thereunder, and other documents as reasonably may be
required in order to facilitate the disposition of the securities, but only
while the Company is required under the provisions hereof to keep the
registration statement current.
D. Use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions of the United States as the Sellers participating in
the offering shall reasonably request, and do any and all other acts and things
which may be reasonably necessary to enable each participating Seller to
consummate the disposition of the Registrable Securities in such jurisdictions
provided that the Issuer shall not be required to register or qualify the
Registrable Securities in any jurisdiction in which the Issuer would be required
to qualify to transact business as a foreign corporation or impose an undue
burden or expense on the Issuer.
E. Notify each Seller selling Registrable Securities, at any time when a
prospectus relating to any such Registrable Securities covered by such
registration statement is required to be delivered under the 1933 Act, of the
Company's becoming aware that the prospectus included in such registration
statement, 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 in the light of the circumstances
then existing, and promptly prepare and furnish to each such Seller selling
Registrable Securities a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable 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 then existing.
F. As soon as practicable after the effective date of the registration
statement, and in any event within eighteen (18) months thereafter, make
generally available to Sellers participating in the offering an earnings
statement (which need not be audited) covering a period of at least twelve (12)
consecutive months beginning after the effective date of the registration
statement which earnings statement shall satisfy the provisions of Section 11(a)
of the 1933 Act, including, at the Company's option, Rule 158 thereunder. To the
extent that the Company files such information with the SEC in satisfaction of
the foregoing, the Company need not deliver the above referenced earnings
statement to Seller.
G. Upon request, deliver promptly to counsel of each Seller participating
in the offering copies of all correspondence between the SEC and the Company,
its counsel or auditors and all memoranda relating to discussions with the SEC
or its staff with respect to the registration statement and permit each such
Seller to do such investigation at such Seller's sole cost and expense, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary. Each Seller
agrees that it will use its best efforts not to interfere unreasonably with the
Company's business when conducting any such investigation and each Seller shall
keep any such information received pursuant to this Paragraph G confidential.
H. Provide a transfer agent and registrar located in the United States for
all such Registrable Securities covered by such registration statement not later
than the effective date of such registration statement.
I. List the Registrable Securities covered by such registration statement
on the NASDAQ or such exchange as the Common Stock is then currently listed
upon.
J. Pay all Registration Expenses incurred in connection with a registration
of Registrable Securities, whether or not such registration statement shall
become effective; provided that each Seller shall pay all underwriting
discounts, commissions and transfer taxes, and their own counsel fees, if any,
relating to the sale or disposition of such Seller's Registrable Securities
pursuant to a registration statement. As used herein, "Registration Expenses"
means any and all reasonable and customary expenses incident to performance of
or compliance with the registration rights set forth herein, including, without
limitation, (i) all SEC and stock exchange or National Association of Securities
Dealers, Inc. registration and filing fees, (ii) all fees and expenses of
complying with state securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities but no other expenses of the
underwriters or their counsel), (iii) all printing, messenger and delivery
expenses, and (iv) the reasonable fees and disbursements of counsel for the
Company and the Company's independent public accountants.
(i) The Company acknowledges that there is no adequate remedy at law for
failure by it to comply with the provisions of this Paragraph 7 and that such
failure would not be adequately compensable in damages, and therefore agrees
that its agreements contained in this Paragraph 7 may be specifically enforced.
In the event that the Company shall fail to file such registration statement
when required pursuant to Paragraph 7(a) above or to keep any registration
statement effective as provided in this Paragraph or otherwise fails to comply
with its obligations and agreements in this Paragraph 7, then, in addition to
any other rights or remedies Sellers may have at law or in equity, including
without limitation, the right of rescission, the Company shall indemnify and
hold harmless each holder of Placement Agent Warrants from and against any and
all manner or loss which they may incur as a result of such failure. In
addition, the Company shall also reimburse such holders for any and all
reasonable legal fees and expenses incurred by them in enforcing their rights
pursuant to this Paragraph 7, regardless of whether any litigation was
commenced; provided, however, that the Company shall not be liable for the fees
and expenses of more than one law firm, which firm shall be designated by the
Placement Agent.
8. Conditions. The following obligations of the Company shall be satisfied
or fulfilled on or prior to the date of each Closing, unless otherwise agreed to
in writing by the Placement Agent:
(a) The Company shall have delivered to the Placement Agent, at the Initial
Closing, (i) a currently-dated good standing certificate or telegram from the
Secretary of State of Oklahoma and each other jurisdiction in which the Company
is qualified to do business as a foreign corporation; (ii) the certificate of
incorporation of the Company, as currently in effect, certified by the Secretary
of State of Oklahoma; (iii) by-laws of the Company certified by the Secretary of
the Company; (iv) certified resolutions of the Board of Directors of the Company
approving this Agreement, the execution of the Debentures and the Placement
Agent Warrants, the registration of the Registerable Securities and the other
transactions contemplated by the Debentures; and (v) the written consent of
Boatmen's National Bank of Oklahoma ("Boatmen's") approving the sale of the
Debentures as contemplated by this Agreement.
(b) There shall have occurred no material adverse event affecting the
Company or any of its business, assets, prospects or the Company's securities
since the date of this Agreement.
(c) No litigation or administrative proceeding shall have been threatened
or commenced against the Company which (i) seeks to enjoin or otherwise prohibit
or restrict the consummation of the transactions contemplated by this Agreement
or (ii) if adversely determined, would have a Material Adverse Effect or have a
material adverse effect on the Company's securities.
(d) The Company shall have delivered to the Placement Agent a certificate
of its principal executive and financial officers as to the matters set forth in
Paragraphs 8(a), (b) and (c) of this Agreement and to the further effect that
(i) the Company is not in default, in any respect, under any note, loan
agreement, security agreement, mortgage, deed of trust, indenture, contract,
alliance agreement, lease, license, joint venture agreement, agreement or other
instrument to which it is a party, except as disclosed in the Financial
Statements or the Memorandum and except where such default has not and will not
have a Material Adverse Effect; (ii) the Company's representations and
warranties contained in this Agreement are true and correct in all respects on
such date with the same force and effect as if made on such date; (iii) there
has been no amendment or changes to the Company's certificate of incorporation
or by-laws or authorizing resolutions from those delivered pursuant to Paragraph
8(a) of this Agreement; and (iv) no event has occurred which, with or without
the lapse of time or giving of notice, or both, would constitute a breach or
default thereof by the Company or would cause acceleration of any obligation of
the Company, or could adversely affect the business, operations, financial
condition or prospects of the Company.
(e) The Placement Agent shall have received the opinion of Hartzog Conger &
Cason, counsel for the Company, dated as of the closing date in form and
substance reasonably satisfactory to the Placement Agent and its counsel.
(f) The Company shall have prepared and filed or delivered to counsel for
filing with the SEC and any states in which the Placement Agent has notified the
Company that such filing is required, a Form D relating to the sale of the
Debentures and such other documents and certificates as are required.
(g) Subscriptions for at least $2,000,000 in principal amount of Debentures
shall have been accepted by the Company.
(h) In addition to the right of the Placement Agent to terminate this
Agreement and not consummate the transaction contemplated by this Agreement as a
result of the failure of the Company to comply with any of its obligations set
forth in this Agreement, this Agreement may be terminated by the Placement Agent
by written notice to the Company at any time prior to the Initial Closing if, in
the Placement Agent's sole judgment, (i) the Company shall have sustained a loss
that is material to the Company, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree; (ii) trading in securities on any
exchange or system shall have been suspended or limited either generally or
specifically with respect to the Company's Common Stock; (iii) material
governmental restrictions have been imposed on trading in securities generally
or specifically with respect to the Company's Common Stock (not in force and
effect on the date of this Agreement); (iv) a banking moratorium shall have been
declared by Federal or New York State authorities; (v) an outbreak of major
international hostilities or other national or international calamity shall have
occurred; (vi) the Congress of the United States or any state legislative body
shall have passed or taken any action or measure, or such bodies or any
governmental body or any authoritative accounting institute, or board, or any
governmental executive shall have adopted any orders, rules or regulations,
which the Placement Agent reasonably believes is likely to have a material
adverse effect on the business, financial condition or financial statements of
the Company or the market for the Debentures; (vii) the Common Stock shall have
been delisted from the NASDAQ or the Company shall have received notice from the
NASDAQ advising the Company of its intention to have the Common Stock delisted
from the NASDAQ, whether conditional or otherwise, or the Company shall fail to
meet the requirements for continued listing on the NASDAQ; or (viii) there shall
have been, in the Placement Agent's judgment, a material decline in the Dow
Jones Industrial Index or the market price of the Common Stock at any time
subsequent to the date of this Agreement.
9. Covenants of the Company. The Company agrees at all times as long as the
Debentures and the Placement Agent Warrants may be converted or exercised, to
keep reserved from the authorized and unissued Common Stock, such number of
shares of Common Stock as may be, from time to time, issuable upon conversion of
the Debentures and exercise of the Placement Agent Warrants.
10. Fees.
(a) Upon the receipt by the Company of the payments from the Lenders, the
Company shall pay to the Placement Agent a fee equal to 9% of the principal
amount of Debentures sold pursuant to this Agreement up to and including
$2,000,000 thereof and 7.5% of the portion of the principal amount of Debentures
in excess of $2,000,000, a portion of which may be paid by the Placement Agent
to other registered broker-dealers. Such amount may be deducted by the Placement
Agent from the payment being made to the Company pursuant to Paragraph 2 of this
Agreement. In addition, the Company shall issue at the Final Closing, five (5)
year warrants to purchase an amount of Common Stock equal to ten (10%) percent
of the shares of Common Stock that the Debentures could be converted into, at an
exercise price of $9.00 per share, subject to adjustment (the "Placement Agent
Warrants"), a portion of which may be allotted by the Placement Agent to other
registered broker-dealers. The Company shall reimburse the Placement Agent for
all of its reasonable costs and expenses, including the reasonable fees up to
$30,000 of Spitzer & Feldman P.C., counsel to the Placement Agent, plus
expenses.
(b) The Company shall pay any fees required in connection with the
qualification of the sale of the Debentures under the state securities or blue
sky laws of any state which the Placement Agent reasonably deems necessary and
any other out-of-pocket expenses incurred by the Company in connection with the
transaction contemplated by this Agreement.
11. Use of Proceeds. The net proceeds from the sale of the Debentures will
be used by the Company as disclosed in the Memorandum.
<PAGE>
12. Notices. All notices provided for in this Agreement shall be in writing
signed by the party giving such notice, and delivered personally or sent by
overnight courier or messenger against receipt thereof or sent by registered or
certified mail (air mail if overseas), return receipt requested, or by facsimile
transmission, if confirmed by mail as provided in this Paragraph 12. Notices
shall be deemed to have been received on the date of personal delivery or
facsimile or, if sent by certified or registered mail, return receipt requested,
shall be deemed to be delivered on the third business day after the date of
mailing. Notices shall be sent to the following addresses:
To the Company:
TOWER TECH INC.
Rural Route 3
Chickasha, OK 73023
Telecopier: (405) 222-2885
Attention: Charles D. Whitsitt, Chief Financial Officer
With a copy to:
HARTZOG CONGER & CASON
1600 Bank of Oklahoma Plaza
201 Robert S. Kerr
Oklahoma City, OK 73102
Telecopier: (405) 235-7329
Attention: John Robertson, Esq.
To the Lenders:
At the address set forth in Exhibit A to this Agreement
To Placement Agent:
TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED
100 Wall Street
New York, NY 10005
Telecopier: (212) 509-6587
Attention: Mr. Michael N. Taglich
<PAGE>
With a copy to:
SPITZER & FELDMAN P.C.
405 Park Avenue
New York, NY 10022-4405
Telecopier: (212) 838-7472
Attention: Robert G. Leonard, Esq.
or to such other address as any party shall designate in the manner
provided in this Paragraph 12.
13. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof, superseding any and all prior or
contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing which expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver with respect to a
waiver. No course of conduct or dealing and no trade custom or usage shall
modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed entirely within such State. Each party hereby consents to the
exclusive jurisdiction of the Federal and state courts situated in New York
County, New York in connection with any action arising out of or based upon this
Agreement and the transactions contemplated by this Agreement.
(c) This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective personal representatives, successors and
permitted assigns.
(d) In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
(e) Each party shall, without payment of any additional consideration by
any other party, at any time on or after the date of any Closing take such
further action and execute such other and further documents and instruments as
the other party may request in order to provide the other party with the
benefits of this Agreement.
(f) The captions and headings contained herein are solely for convenience
and reference and do not constitute a part of this Agreement.
(g) All references to any gender shall be deemed to include the masculine,
feminine or neuter gender, the singular shall include the plural and the plural
shall include the singular. (h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first aforesaid.
TOWER TECH INC. TAGLICH BROTHERS, D'AMADEO, WAGNER
& COMPANY, INCORPORATED
By:_____________________________ By:_______________________________________
Name: Name:
Title: Title:
TO BE COMPLETED BY LENDER
Print Name
Signature for Individual Lender Signature of Lender Other than Individual
By: Signature Name:
Title:
Address
City State Zip Code
Aggregate Amount of Subscription
Social Security or Employer Identification Number
<PAGE>
EXHIBIT A
Names, addresses and Social Security or Employer Identification
Principal Amount
Numbers of Lenders of Debentures
[FORM OF CONVERTIBLE SUBORDINATED DEBENTURE]
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT") AND APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
10% Convertible Subordinated Debenture Due June 30, 2000
No. R-001 US$________
Tower Tech, Inc., an Oklahoma corporation (the "Issuer"), for value
received, hereby promises to pay to , or registered assigns, the principal sum
of (US$ ) on June 30, 2000 (the "Maturity Date"), and to pay interest
- -------------------------------------- thereon from ____ __, 1997 or from the
most recent Interest Payment Date (as hereinafter defined) to which interest has
been paid, semi-annually in arrears on June 30 and December 31 in each year,
commencing June 30, 1997 (each an "Interest Payment Date") at the rate of ten
(10%) percent per annum until the principal hereof is paid, and (to the extent
that the payment of such interest shall be legally enforceable) at the rate of
fifteen (15%) percent per annum on any overdue principal and on any overdue
installment of interest. The interest so payable, and punctually paid, on any
Interest Payment Date will be paid to the person (the "Registered Holder") in
whose name this Security is registered at the close of business on June 15 or
December 15 (whether or not a business day) as the case may be (each a "Regular
Record Date"), next preceding such Interest Payment Date. Interest shall be
computed on the basis of the actual number of days elapsed and the actual number
of days in the relevant period.
If this Security is converted into shares of common stock,
$.001 par value per share, of Issuer (the "Common Stock") pursuant to Sections 9
or 10 below: (A) on or prior to the initial Regular Record Date, interest shall
be calculated through and including the date of conversion and shall be paid on
such date; or (B) after any (i) Interest Payment Date and on or prior to the
next Regular Record Date, interest shall be calculated through and including the
date of conversion and shall be paid on the date of conversion to the Person in
whose name this Security is registered at the close of business on the date of
conversion; or (ii) Regular Record Date and on or prior to the next succeeding
Interest Payment Date shall be paid on such Interest Payment Date calculated,
however, only through the date of conversion, notwithstanding such conversion,
and such interest shall be paid to the Person in whose name this Security is
registered at the close of business on such Regular Record Date.
Principal of this Security shall be payable at the earliest of
the Maturity Date, Redemption Date or Acceleration Date against surrender hereof
at the principal executive offices of the Issuer in the United States. Payments
of principal and of any interest on this Security shall be made in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of pubic and private debts. Payments of principal of this
Security shall be made against surrender hereof, and payments of interest on
this Security shall be made, in accordance with the foregoing and subject to
applicable laws and regulations, by check mailed on or before the due date for
such payment to the person entitled thereto at such person's address appearing
on the Security Register or to such other address as the Registered Holder may
have previously given notice to the Issuer in writing. Interest shall accrue and
be payable on this Security through the earlier of the Maturity Date, Conversion
Date or Redemption Date. If the principal on this Security is accelerated,
interest shall accrue and be payable until the date of payment. The Issuer
covenants that until this Security has been delivered to it for cancellation, or
monies sufficient to pay the principal of and interest in this Security have
been made available for payment and paid, it will at all times maintain at its
principal executive offices in the United States an office or agency for the
payment of the principal of and interest on the Securities as herein provided.
1. (a) This Security is one of a duly authorized issue of
securities of the Issuer (herein called the "Securities"), designated as "10%
Convertible Subordinated Debenture Due June 30, 2000", limited in aggregate
principal amount to $6,000,000. The Securities have been offered and sold
pursuant to Issuer's Confidential Private Placement Memorandum dated May 28,
1997 (the "Memorandum").
(b) The obligations of the Issuer hereunder are not secured by any
mortgage, pledge, encumbrance, security agreement or other security device and
only the full faith and credit of the Issuer are pledged for the payment of all
principal and interest due under this Security. The Securities are joint and
several direct, unconditional and general obligations of the Issuer and will be
subordinate and inferior to Issuer's existing secured debt and any secured debt
the Issuer may incur in the future excluding any indebtedness owed to affiliates
of the Issuer (collectively, "Senior Indebtedness"). The Issuer for itself, its
successors and assigns, covenants and agrees and each Registered Holder of this
Debenture, its successors and assigns, by its acceptance of this Debenture
likewise covenants and agrees, that to the extent provided below the payment of
the principal of and interest on this Debenture is hereby expressly subordinated
and junior in right of payment to the extent and in the manner hereinafter set
forth, to all Senior Indebtedness.
(c) Upon the acceleration of any Senior Indebtedness or upon the maturity
of the entire principal amount of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all such Senior Indebtedness which has been so
accelerated or matured shall first indefeasibly be paid in full before any
payment is made by the Issuer or any person acting on behalf of the Issuer on
account of any obligations evidenced by this Debenture.
(d) The Issuer shall not pay any principal portion of this Debenture before
the scheduled due date thereof or pay any interest payable under this Debenture
if there exists a Default or Event of Default (as such terms are defined in the
instruments evidencing Senior Indebtedness) with respect to any Senior
Indebtedness (hereinafter referred to as a "Blockage Event").
The Issuer shall have the right to pay any principal portion of this
Debenture before the scheduled due date thereof and shall resume payment of
interest payable under this Debenture and a Blockage Event shall be deemed to
have terminated:
(i) when such Default or Event of Default on Senior Indebtedness,
as applicable, is cured or waived;
(ii) when the Registered Holder hereof shall have cured any such
Default or Event of Default on Senior Indebtedness to the
extent such Default or Event of Default can be cured by
payment of money, which amount shall be added to the
principal amount owing to the Registered Holder pursuant
to this Debenture; or
(iii) 180 days after the occurrence of such Default or Event of
Default, provided, that at the end of such 180 days, if any of
the following events exists or occurs, the Blockage Event
shall continue: (A) a Default in payment of any amount with
respect to the Senior Indebtedness; (B) an acceleratio
of the Senior Indebtedness; or (C) the occurrence
of an event of the type described herein below in subsection
1(j) hereof, provided, further, that a Blockage Event with
respect to a single specified Default or Event of Default may
be deemed to occur only once for each 360 day period.
(e) At any time there exists a Blockage Event, (i) the Issuer shall not,
directly or indirectly, make any payment of any part of this Debenture, (ii) the
Registered Holder hereof shall not demand or accept from the Issuer or any other
person any such payment or cancel, set-off or otherwise discharge any part of
the indebtedness represented by this Debenture, and (iii) neither the Issuer nor
the Registered Holder hereof shall otherwise take or permit any action
prejudicial to or inconsistent with the priority position of any holder of
Senior Indebtedness over the Registered Holder of this Debenture.
Notwithstanding the foregoing or any other provision of this Debenture to the
contrary, the occurrence and continuance of a Blockage Event shall not limit or
in any other manner affect the exercise of the Registered Holder's conversion
rights pursuant to Section 9.
(f) Any holder of Senior Indebtedness is hereby authorized to demand
specific performance of this Debenture, whether or not the Issuer shall have
complied with the provisions hereof applicable to it, at any time when the
Registered Holder hereof shall have failed to comply with any provision hereof
applicable to such Registered Holder. The Registered Holder hereby irrevocably
waives any defense based on the adequacy of a remedy at law which might be
asserted as a bar to the remedy of specific performance hereof in any action
brought therefor by any holder of Senior Indebtedness. The Registered Holder
further (i) waives presentment, demand, notice and protest in connection with
all negotiable instruments evidencing Senior Indebtedness, notice of any loan
made, extension granted or other action taken in reliance hereon and all demands
and notices of every kind in connection with this Debenture or Senior
Indebtedness; and (ii) assents to any renewal, extension or postponement of the
time of payment of Senior Indebtedness or any other indulgence with respect
thereto, to any substitution, exchange or release of collateral therefor and to
the addition or release of any person primarily or secondarily liable thereon.
(g) No right of any holder of Senior Indebtedness to enforce the
subordination of the obligations shall be impaired by any act or failure to act
by the Issuer or the Registered Holder or by their failure to comply with this
Debenture or any other agreement or document evidencing, related to or securing
the obligations hereunder. Without in any way limiting the generality of the
preceding sentence, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Registered Holder, without
incurring responsibility to the Registered Holder and without impairing or
releasing the subordination provided in this Debenture or the obligations of the
Registered Holder hereof to the holders of Senior Indebtedness, do any one or
more of the following: (i) change the manner, place or terms of payment of, or
renew or alter, any Senior Indebtedness, or otherwise amend or supplement in any
manner, any Senior Indebtedness, or otherwise amend or supplement in any manner,
any Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing any
Senior Indebtedness; and (iii) release any Person or entity liable in any manner
for the collection of any Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Issuer or any other Person or entity.
(h) In the event that the Issuer shall make any payment or prepayment to
the Registered Holder on account of the obligations under this Debenture which
is prohibited by this Section 1, such payment shall be held by the Registered
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Senior Indebtedness (pro rata as to each of such
holders on the basis of the respective amounts and priorities of Senior
Indebtedness held by them) to the extent necessary to pay all Senior
Indebtedness due to such holders of Senior Indebtedness in full in accordance
with its terms (whether or not such Senior Indebtedness is due and owing), after
giving effect to any concurrent payment or distribution to or for the holders of
such Senior Indebtedness.
(i) After all Senior Indebtedness indefeasibly is paid in full and until
the obligations under the Debenture are paid in full, the Registered Holder
shall be subrogated to the rights of holders of Senior Indebtedness to the
extent that distribution otherwise payable to the Registered Holder have been
applied to the payment of Senior Indebtedness. For purposes of such subrogation,
no payments or distributions to holders of such Senior Indebtedness of any cash,
property or securities to which the Registered Holder would be entitled except
for the provisions of this Section 1 and no payment over pursuant to the
provisions of this Section 1 to holders of such Senior Indebtedness by the
Registered Holder, shall, as between the Issuer, its creditors other than
holders of such Senior Indebtedness, and the Registered Holder, be deemed to be
a payment by the Issuer to or on account of such Senior Indebtedness, it being
understood that the provisions of this Section 1 are solely for the purpose of
defining the relative rights of the holders of such Senior Indebtedness, on the
one hand and the Registered Holder hereof, on the other hand.
(j) In any insolvency, receivership, bankruptcy, dissolution, liquidation
or reorganization proceeding, or in any other proceeding, whether voluntary or
involuntary, by or against the Issuer under any bankruptcy or insolvency law or
laws relating to relief of debtors, to compositions, extensions or readjustments
of indebtedness;
(i) the claims of any holders of Senior Indebtedness against the
Issuer shall be paid indefeasibly in full in cash before any
payment is made to the Registered Holder;
(ii) until all Senior Indebtedness is indefeasibly paid in full in
cash any distribution to which the Registered Holder would be
entitled but for this Section 4 shall be made to holders o
Senior Indebtedness; and
(iii) the holders of Senior Indebtedness shall have the right to
enforce, collect and receive every such payment or distribution
and give acquittance therefor. In furtherance of the foregoing,
in the event that the Issuer shall file or have filed against it
a petition under any chapter or Title 11 of the United States
Code or any comparable statute, with the result that the Issuer
is excused from the obligation to pay all or any part of the
amount otherwise payable in respect of the Senior Indebtedness
during the period subsequent to the commencement of such
proceedings, the Registered Holder agrees that all or such part
of such amount shall be payable out of, an to that extent
diminish and be at the expense of, the Registered Holder's
reorganization dividends or other distributions in respect of
any claim filed by it as a creditor or interest holder. In the
event the holders of Senior Indebtedness receive amounts in
excess of payment in full (cash) of amounts outstanding in
respect of Senior Indebtedness (without giving effect to whether
claims in respect of the Senior Indebtedness are allowed in any
insolvency proceeding), the holders of the Senior Indebtedness
shall pay such excess amounts to the Registered Holder.
2. The Securities are issuable only in fully registered form and in minimum
authorized denominations of $10,000 and any integral multiple of $1,000 in
excess thereof.
3. So long as any Securities remain Outstanding, the Issuer shall maintain
at its principal executives offices in the United States an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange, where Securities
may be surrendered for conversion pursuant to Sections 9 or 10 hereof, and where
notices and demands to or upon the Issuer in respect of the Securities may be
served. The Issuer will at all times act as its own security registrar and
paying and transfer agent for such purposes and agrees to cause to be kept at
such office a register (the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Issuer will provide for the
registration of Securities and registration of transfers of Securities. As of
the date this Security was originally issued, such principal executive offices
of the Issuer were located at Rural Route 3, Chickasha, Oklahoma 73023. The
Issuer shall not change the location of its principal executive offices unless
Issuer provides all Registered Holders with no less than thirty (30) days prior
written notice.
The transfer of a Security is registrable on the Security Register upon
surrender of such Security at the principal executive offices of Issuer duly
endorsed by, or accompanied by a written instrument of transfer in form
reasonably satisfactory to the Issuer duly executed by the Registered Holder
thereof, or the Registered Holder's attorney duly authorized in writing,
together with any certifications and representations which Issuer may reasonably
require to reflect compliance with all applicable securities laws, rules and
regulations and the due authorization of the transaction. Upon such surrender of
this Security for registration of transfer, the Issuer shall execute and
deliver, in the name of the designated transferee or transferees, one or more
new Securities, dated the date of the execution thereof, of any authorized
denominations and of a like tenor, form and aggregate principal amount.
At the option of the Registered Holder, upon request confirmed in writing,
Securities may be exchanged for Securities of any authorized denominations and
of a like tenor, form and aggregate principal amount upon surrender of the
Securities to be exchanged at the principal executive offices of the Issuer.
Whenever any Securities are so surrendered for exchange, the Issuer shall
execute and deliver the Securities which the Registered Holder making the
exchange is entitled to receive. Any registration of transfer or exchange will
be effected only upon the Issuer being reasonably satisfied with the documents
of title and identity of the person making the request and subject to compliance
with applicable Federal and state securities laws.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Issuer, evidencing the same
debt, and entitled to the same benefits, as the Securities surrendered upon such
registration of transfer or exchange. No service or other charges shall be made
for any registration of transfer or exchange, but the Issuer may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Issuer may treat the person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security be overdue, and the
Issuer shall not be affected by notice to the contrary.
4. In any case where the due date for the payment of the principal of or
interest on any Security shall be at any place of payment a day on which banking
institutions are authorized or obligated by law to close, then payment of
principal or interest, as the case may be, need not be made on such date at such
place but may be made on the next succeeding day at such place which is not a
day on which banking institutions are authorized or obligated by law to close,
with the same force and effect as if made on the date for such payment, and
interest shall accrue and be paid for the period through and including the date
of payment.
5. (a) The Issuer shall pay all stamp and other duties and taxes, if any,
which may be imposed by the United States or any political subdivision thereof,
any state or any political subdivision thereof or any other taxing authority
with respect to the issuance of the Securities.
(b) Except as specifically provided in this Security, the Issuer shal
not be required to make any payment with respect to any tax, assessment or
other governmental charge imposed by any government or any political subdivision
or taxing authorities thereof or therein.
6. The Issuer represents and warrants to the Registered Holder as of May
28, 1997, as follows:
(a) Issuer is a corporation duly organized, existing and in good standing
under the laws of its state of incorporation and has the corporate power to
conduct the business which it conducts and proposes to conduct.
(b) The execution, delivery and performance of the Securities by the Issuer
has been duly approved by the Board of Directors of Issuer and all other actions
required to authorize and effect the offer and sale of the Securities have been
duly taken and approved.
(c) The Securities and the Conversion Shares have been duly and validly
authorized. The Securities and Conversion Shares, when issued and paid for in
accordance with the terms hereof, will be fully paid and non-assessable and
valid and binding obligations of the Issuer enforceable in accordance with their
respective terms.
(d) Issue will at all times that there are Outstanding Securiti have
authorized and reserved a sufficient number of shares of Common Stock to
providefor conversion of the Securities into shares of Common Stock.
(e) Issuer has obtained all licenses, permits and other governmental
authorizations necessary to the conduct of its business; such licenses, permits
and other governmental authorizations obtained are in full force and effect; and
Issuer is in all material respects complying therewith.
(f) Issuer knows of no pending or threatened legal or governmental
proceedings to which Issuer is a party which could materially adversely affect
the business, property, financial condition or operations of the Issuer.
(g) Issuer is not in violation of or default under, nor will the execution
and delivery of the Securities, the issuance of the Common Stock upon conversion
of the Securities and the incurrence of the obligations herein and therein set
forth and the consummation of the transactions herein or therein contemplated,
result in a violation of, or constitute a default under the certificate of
incorporation or by-laws, the performance or observance of any material
obligations, agreement, covenant or condition contained in any bond, debenture,
note or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreements or instrument
to which the Issuer is a party or by which it or any of its properties may be
bound or in violation of any material order, rule, regulation, writ, injunction
or decree of any government, governmental instrumentality or court, domestic or
foreign.
(h) The financial information contained in the Memorandum presents fairly
the financial condition of the Issuer as of the date and for the periods
indicated.
7. Issuer hereby covenants and agrees that for so long as any of the
Securities shall remain Outstanding:
(a) it will duly and punctually pay the principal of and any interest on
the Securities in accordance with the terms hereof;
(b) it will do or cause to be done all things necessary to preserve and
keep in full force and effect its existence, rights (charters and statutory) and
franchises;
(c) it will cause all material properties used or useful in the conduct of
its business to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the reasonable judgment of Issuer may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that the foregoing shall not prevent
the Issuer from discontinuing the operation or maintenance of any such
properties if such discontinuance is, in the reasonable judgment of Issuer,
desirable in the conduct of its business or the business of any of its
subsidiaries, and not disadvantageous in any material respect to the holders of
Securities; and, provided, further, that the failure to comply herewith shall
not be deemed a breach hereof unless such failure would have a material adverse
effect on the business, financial condition or results of operations of Issuer
and its subsidiaries, taken as a whole (a "Material Adverse Effect");
(d) it will pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (I) all taxes, assessments and governmental
charges levied or imposed upon the Issuer or upon the income, profits or
property of the Issuer, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Issuer; provided, however, that the Issuer shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings; and, provided, further, that the failure to comply
herewith shall not be deemed a breach if it would not have a Material Adverse
Effect;
(e) it shall furnish to each Registered Holder of Securities a copy of all
documents it is required to send to its shareholders at the time the same are
sent to shareholders, including, without limitation, annual reports and proxy
statements;
(f) as soon as it becomes aware of the same, it shall give written notice
to each Registered Holder of Securities of any event or occurrence which by
itself or with notice or lapse of time or both would entitle the holders of the
Securities to declare the principal of and any interest on the Securities
immediately due and payable pursuant to Section 15 hereof;
(g) it will promptly obtain and maintain from time to time all
authorizations, permits, approvals, consents, licenses and exemptions which are
required under any applicable law or regulation to enable it to perform all of
its payment, conversion and other material obligations under the Securities or
which may be required for the validity or enforceability of the Securities;
provided, however, that the failure to obtain and maintain such authorizations,
permits, approvals, consents, licenses and exemptions as to material obligations
other than payment and conversion shall not constitute a breach of this
provision unless such non-compliance materially adversely affects the Issuer's
ability to comply with its obligations under the Securities;
(h) it will duly and punctually comply with and observe all statutes now or
hereafter in force and all ordinances, regulation and by-laws thereunder and all
requirements and orders of any government or other public authority; provided,
however, that any non-compliance with any such statute, ordinance, regulation or
by-law shall not constitute a breach of this provision unless such
non-compliance materially adversely affects the Issuer's ability to comply with
its obligations under the Securities;
(i) it shall permit any representative of any Registered Holder or Holders
of at least $500,000 aggregate principal amount of the Securities to make
inspections of, and to report on, the property of, and business operations being
carried out by, the Issuer to the same extent the Holder would have such right
under Oklahoma law if the Holder were a record owner of common stock;
(j) it shall maintain and keep in force with reputable insurers and in
adequate amounts, property, casualty, third party liability, business
interruption and all such other insurances as would prudently be effected and
maintained in the case of a company carrying on a business similar to that of
the Issuer;
(k) it shall not:
(i) declare or pay any cash dividends on its
Common Stock or purchase, redeem or otherwise acquire
or retire for value any shares of Common Stock (other
than under the terms of the Issuer's stock option
plan); or
(ii) consolidate with or merge into any other
Person, where the Issuer is not the surviving
corporation, or convey, transfer, lease or otherwise
dispose of all or substantially all of its assets,
except in compliance with the terms and conditions
set forth in Section 11 below.
8. (a) As soon as possible after the Final Closing Date (as defined in the
Memorandum), but in no event later than sixty (60) days after the Final Closing
Date (as defined in the Memorandum) (regardless of whether the maximum number of
Securities shall have been sold), Issuer shall, at its sole cost and expense,
file a registration statement on the appropriate form under the 1933 Act with
the Securities and Exchange Commission ("SEC") covering all of the Conversion
Shares and as set forth in this Section 8(a) (collectively, the "Registrable
Securities"), time being of the essence. Issuer will use its best efforts to
have such registration statement declared effective as soon as possible
thereafter, and shall keep such registration statement current and effective for
at least two (2) years from the effective date thereof or until such earlier
date as all of the Registrable Securities registered pursuant to such
registration statement shall have been sold or otherwise transferred.
Notwithstanding anything to the contrary contained herein, if the registration
statement shall not be declared effective within six (6) months after the Final
Closing Date (regardless of whether the maximum number of Securities shall have
been sold), then the Conversion Price shall be reduced (and concomitantly the
number of shares of Common Stock issuable upon the conversion of the Securities
shall increase) by the percentage resulting from multiplying two (2%) percent by
the number of months, or any part thereof, beyond said period until the
Registration Statement described herein covering the Registrable Securities is
declared effective, but no more than twenty-four (24%) percent in the aggregate.
(b) In the event Issuer effects any registration under the 1933 Act of any
Registrable Securities pursuant to Paragraphs 8(a) above or 8(g) below, the
Issuer shall indemnify, to the extent permitted by law, and hold harmless any
Registered Holder whose Registrable Securities are included in such registration
statement (each, a "Seller"), any underwriter, any officer, director, employee
or agent of any Seller or underwriter, and each other person, if any, who
controls any Seller or underwriter within the meaning of Section 15 of the 1933
Act, against any losses, claims, damages or liabilities, judgment, fines,
penalties, costs and expenses, joint or several, or actions in respect thereof
(collectively, the "Claims"), to which each such indemnified party becomes
subject, under the 1933 Act or otherwise, insofar as such Claims arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement or prospectus or any amendment or
supplement thereto or any document filed under a state securities or blue sky
law (collectively, the "Registration Documents") or insofar as such Claims arise
out of or are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading, and will reimburse any such
indemnified party for any legal or other expenses reasonably incurred by such
indemnified party in investigating or defending any such Claim; provided that
the Issuer shall not be liable in any such case to the extent such Claim is
based upon an untrue statement or alleged untrue statement of a material fact or
omission or alleged omission of a material fact made in any Registration
Document in reliance upon and in conformity with written information furnished
to Issuer by or on behalf of any indemnified party specifically for use in the
preparation of such Registration Document.
(c) In connection with any registration statement in which any Seller is
participating, each Seller, severally and not jointly, shall indemnify, to the
extent permitted by law, and hold harmless Issuer, each of its directors, each
of its officers who have signed the registration statement, each other person,
if any, who controls Issuer within the meaning of Section 15 of the 1933 Act,
each other Seller and each underwriter, any officer, director, employee or agent
of any such other Seller or underwriter and each other person, if any, who
controls such other Seller or underwriter within the meaning of Section 15 of
the 1933 Act against any Claims to which each such indemnified party may become
subject under the 1933 Act or otherwise, insofar as such Claims (or actions in
respect thereof) are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Document, or insofar as any
Claims are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading, and will reimburse any such
indemnified party for any legal or other expenses reasonably incurred by such
indemnified party in investigating or defending any such claim; provided,
however, that such indemnification or reimbursement shall be payable only if,
and to the extent that, any such Claim arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Registration Document in reliance upon and in conformity with written
information furnished to Issuer by the Seller specifically for use in the
preparation thereof.
(d) Any person entitled to indemnification under Paragraphs 8(b) or 8(c)
above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party under this Paragraph 8(d), but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Paragraph 8(b) or 8(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, that no indemnifying
party shall be subject to any liability for any settlement of a Claim made
without its consent (which may not be unreasonably withheld, delayed or
conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, 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 (which consent may not be unreasonably withheld, delayed
or conditioned).
(e) If for any reason the indemnity provided in Paragraphs 8(b) or 8(c)
above is unavailable, or is insufficient to hold harmless, an indemnified party,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of any Claim 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 from the transactions
contemplated by this Agreement. If, however, the allocation provided in the
immediately preceding sentence is not permitted by applicable law, or if the
indemnified party failed to give the notice required by Paragraph 8(d) above,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the indemnifying party and
the indemnified party as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable in respect of any
Claim shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
Claim. Notwithstanding the foregoing, no underwriter or controlling person
thereof, if any, shall be required to contribute, in respect of such
underwriter's participation as an underwriter in the offering, any amount in
excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligation of any underwriters to contribute pursuant to
this paragraph (e) shall be several in proportion to their respective
underwriting commitments and not joint.
(f) The provisions of Paragraphs 8(b) through 8(e) of this Agreement shall
be in addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
(g) If the registration statement as filed pursuant to Paragraph 8(a) above
is not then effective, then Registered Holders shall have certain "piggy-back"
registration rights.
A. If at any time after the date of the Initial Closing, Issuer
shall file with the SEC a registration statement under the 1933
Act registering any shares of Common Stock owned by any person or
entity, Issuer shall give written notice to each Registered
Holder thereof prior to such filing.
B. Within fifteen (15) days after such notice from Issuer, each
Registered Holder shall give written notice to Issuer whether or
not the Registered Holder desires to have all of the Registered
Holder's Registrable Securities included in the registration
statement. If a Registered Holder fails to give such notice
within such period, such Registered Holder shall not have the
right to have such Registered Holder's Registrable Securities
registered pursuant to such registration statement. If a
Registered Holder gives such notice, then Issuer shall include
such Registered Holder's Registrable Securities in the
registration statement, at Issuer's sole cost and expense,
subject to the remaining terms of this Paragraph 8(g)
C. If the registration statement relates to an underwritten
offering, and the underwriter shall determine in writing that the
total number of shares of Common Stock to be included in the
offering, including the Registrable Securities, shall exceed the
amount which the underwriter deems to be appropriate for the
offering, the number of shares of the Registrable Securities
shall be reduced in the same proportion as the remainder of the
shares in the offering and each Registered Holder's Registrable
Securities included in such registration statement will be
reduced proportionately. For this purpose, if other securities in
the registration statement are derivative securities, their
underlying shares shall be included in the computation. The
Registered Holders shall enter into such agreements as may be
reasonably required by the underwriters and the Registered
Holders shall pay to the underwriters commissions relating to the
sale of their respective Registrable Securities.
D. The Registered Holders shall have two (2) opportunities to have
the Registrable Securities registered under this Paragraph 8(g).
E. The Registered Holder shall furnish in writing to Issuer such
information as Issuer shall reasonably require in connection with
a registration statement.
(h) If and whenever Issuer is required by the provisions of this Paragraph
8 to use its best efforts to register any Registrable Securities under the 1933
Act, Issuer shall, as expeditiously as possible under the circumstances.
A. Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best
efforts to cause such registration statement to become
effective as soon as possible and remain effective.
B. Prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement current and to comply
with the provisions of the 1933 Act, and any regulations
promulgated thereunder, with respect to the sale or
disposition of all Registrable Securities covered by the
registration statement required to effect the distribution
of the securities, but in no event shall Issuer be required
to do so for a period of more than two (2) years following
the effective date of the registration statement.
C. Furnish to the Sellers participating in the offering, copies
(in reasonable quantities) of summary, preliminary, final,
amended or supplemented prospectuses, in conformity with the
requirements of the 1933 Act and any regulations promulgated
thereunder, and other documents as reasonably may be
required in order to facilitate the disposition of the
securities, but only while Issuer is required under the
provisions hereof to keep the registration statement
current.
D. Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions of
the United States as the Sellers participating in the
offering shall reasonably request, and do any and all other
acts and things which may be reasonably necessary to enable
each participating Seller to consummate the disposition of
the Registrable Securities in such jurisdictions provided
that the Issuer shall not be required to register or qualify
the Registrable Securities in any jurisdiction in which the
Issuer would be required to qualify to transact business as
a foreign corporation or impose an undue burden or expense
on the Issuer.
E. Notify each Seller selling Registrable Securities, at any
time when a prospectus relating to any such Registrable
Securities covered by such registration statement is
required to be delivered under the 1933 Act, of Issuer's
becoming aware that the prospectus included in such
registration statement, 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 in the light of
the circumstances then existing, and promptly prepare and
furnish to each such Seller selling Registrable Securities a
reasonable number of copies of a prospectus supplemented or
amended so that, as thereafter delivered to the purchasers
of such Registrable 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 then existing.
F. As soon as practicable after the effective date of the
registration statement, and in any event within eighteen
(18) months thereafter, make generally available to Sellers
participating in the offering an earnings statement (which
need not be audited) covering a period of at least twelve
(12) consecutive months beginning after the effective date
of the registration statement which earnings statement shall
satisfy the provisions of Section 11(a) of the 1933 Act,
including, at Issuer's option, Rule 158 thereunder. To the
extent that Issuer files such information with the SEC in
satisfaction of the foregoing, Issuer need not deliver the
above referenced earnings statement to Seller.
G. Upon request, deliver promptly to counsel of each Seller
participating in the offering copies of all correspondence
between the SEC and Issuer, its counsel or auditors and all
memoranda relating to discussions with the SEC or its staff
with respect to the registration statement and permit each
such Seller to do such investigation at such Seller's sole
cost and expense, upon reasonable advance notice, with
respect to information contained in or omitted from the
registration statement as it deems reasonably necessary.
Each Seller agrees that it will use its best efforts not to
interfere unreasonably with Issuer's business when
conducting any such investigation and each Seller shall keep
any such information received pursuant to this Paragraph G
confidential.
H. Provide a transfer agent and registrar located in the United
States for all such Registrable Securities covered by such
registration statement not later than the effective date of
such registration statement.
I. List the Registrable Securities covered by such registration
statement on the NASDAQ Small Cap Market or such exchanges
as the Common Stock is then currently listed upon.
J. Pay all Registration Expenses incurred in connection with a
registration of Registrable Securities, whether or not such
registration statement shall become effective; provided that
each Seller shall pay all underwriting discounts,
commissions and transfer taxes, and their own counsel fees,
if any, relating to the sale or disposition of such Seller's
Registrable Securities pursuant to a registration statement.
As used herein, "Registration Expenses" means any and all
reasonable and customary expenses incident to performance of
or compliance with the registration rights set forth herein,
including, without limitation, (i) all SEC and stock
exchange or National Association of Securities Dealers, Inc.
registration and filing fees, (ii) all fees and expenses of
complying with state securities or blue sky laws (including
reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of
the Registrable Securities but no other expenses of the
underwriters or their counsel), (iii) all printing,
messenger and delivery expenses, and (iv) the reasonable
fees and disbursements of counsel for Issuer and Issuer's
independent public accountants.
(i) Issuer acknowledges that there is no adequate remedy at law for failure
by it to comply with the provisions of this Paragraph 8 and that such failure
would not be adequately compensable in damages, and therefore agrees that its
agreements contained in this Paragraph 8 may be specifically enforced. In the
event that Issuer shall fail to file such registration statement when required
pursuant to Paragraph 8(a) above or to keep any registration statement effective
as provided in this Paragraph or otherwise fails to comply with its obligations
and agreements in this Paragraph 8, then, in addition to any other rights or
remedies the Registered Holders may have at law or in equity, including without
limitation, the right of rescission, the Issuer shall indemnify and hold
harmless the Registered Holders from and against any and all manner or loss
which they may incur as a result of such failure. In addition, the Issuer shall
also reimburse the Registered Holders for any and all reasonable legal fees and
expenses incurred by them in enforcing their rights pursuant to this Paragraph
8, regardless of whether any litigation was commenced.
9. (a) Each Registered Holder of Securities may at any time convert all or
any amount of the principal amount of the Securities then owned by such
Registered Holder into shares of Common Stock of Issuer at a conversion price
equal to $9.00 per share of Common Stock, subject to adjustment as provided in
this Section 9.
(b) The conversion right granted in Section 9(a) hereof may be exercised
only by a Registered Holder of Securities, in whole or in part, by the surrender
of the certificate or certificates representing the Securities to be converted
at the principal executive offices of the Issuer against delivery of that number
of shares of whole Common Stock as shall be computed by dividing the face amount
of the Securities being converted by the Conversion Price on the Conversion
Date. At the time of conversion of Securities, the Issuer shall pay in cash to
the Registered Holder thereof an amount equal to all accrued and unpaid
interest, if any, to and including the Conversion Date. Each Security
surrendered for conversion shall be endorsed by the Registered Holder. Issuer
will transmit the Common Stock certificates issuable upon conversion of any
Securities and a certificate representing the balance of the Securities to the
Registered Holder via express courier within three (3) business days after the
Conversion Date. The term "Conversion Date" shall mean the date the original
Notice of Conversion and Securities being converted are received by the Issuer.
The term "Notice of Conversion" shall mean the written notice from the
Registered Holder to the Issuer.
(c) All Common Stock which may be issued upon conversion of the Securities
will, upon issuance, be duly issued, fully paid and non-assessable and free from
all taxes, liens, and charges with respect to the issue thereof. At all times
that any Securities are Outstanding, Issuer shall have authorized and shall have
reserved for the purpose of issuance upon such conversion into Common Stock of
all Securities, a sufficient number of shares of Common Stock to provide for the
conversion of all Outstanding Securities at the then effective Conversion Price.
Without limiting the generality of the foregoing, if, at any time, the
Conversion Price is decreased or increased, the number of shares of Common Stock
authorized and reserved for issuance by Issuer upon the conversion of the
Securities shall be proportionately increased or decreased, as the case may be.
(d) The Initial Conversion Price is $9.00 per share of Common Stock
("Initial Conversion Price"). The Initial Conversion Price shall be adjusted as
provided for below in this Section 9(d) (the Initial Conversion Price, and the
Initial Conversion Price, as thereafter then adjusted, shall be referred to as
the "Conversion Price") and the Conversion Price from time to time shall be
further adjusted as provided for below in this Section 9(d). Upon each
adjustment of the Conversion Price, the Registered Holders of the Securities
shall thereafter be entitled to receive upon conversion, at the Conversion Price
resulting from such adjustment, the number of shares of Common Stock obtained by
dividing the face amount of the Securities being converted by the Conversion
Price, as then adjusted. The Conversion Price shall be adjusted as follows:
(i) In the case of any amendment to the
Certificate of Incorporation of Issuer to change the
designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to
the Common Stock or division of the Common Stock, the
Securities shall be adjusted so as to provide that
upon conversion thereof the Registered Holder shall
receive, in lieu of each share of Common Stock
theretofore issuable upon such conversion, the kind
and amount of shares, other securities, money and
property receivable upon such designation, change or
division by such holder issuable upon such conversion
had the conversion occurred immediately prior to such
designation, change or division. The Securities shall
be deemed thereafter to provide for adjustments which
shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 9.
The provisions of this Subsection 9(d)(i) shall apply
in the same manner to successive reclassifications,
changes, consolidations and mergers.
(ii) If Issuer shall at any time subdivide its
outstanding shares of Common Stock into a greater
number of shares of Common Stock, or declare a
dividend or make any other distribution upon the
Common Stock payable in shares of Common Stock, the
Conversion Price in effect immediately prior to such
subdivision or dividend or other distribution shall
be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common
Stock, the Conversion Price in effect immediately
prior to such combination shall be proportionately
increased.
(e) Whenever the Conversion Price shall be adjusted pursuant to Section
9(d) hereof, Issuer shall issue a certificate signed by its President or Vice
President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors of Issuer made any determination hereunder), and the Conversion Price
after giving effect to such adjustment, and shall cause copies of such
certificates to be mailed (by first-class mail, postage prepaid) to each
Registered Holder of Securities. Issuer shall make such certificate and mail it
to each such holder promptly after each adjustment.
(f) No fractional Common Stock shall be issued in connection with any
conversion (or forced conversion, if applicable) of Securities, but in lieu of
such fractional shares, the Issuer shall make a cash payment therefor equal in
amount to the product of the applicable fraction multiplied by the Conversion
Price then in effect.
10. All, but not less than all, of the principal amount of the outstanding
Securities are convertible, at the option of Issuer, into shares of Common Stock
at the Conversion Price, provided that on the day that the Forced Conversion
Notice is given by Issuer to all Registered Holders and on the Forced Conversion
Date, the following conditions are satisfied: (i) the Conversion Shares have
been registered by Issuer pursuant to the 1933 Act as provided for in Section 8
of the Securities and such registration is then currently effective; and (ii)
the average of the closing bid price per share of the Common Stock, as listed on
the NASDAQ Small Cap Market or such exchange as the Common Stock then trades,
during twenty (20) trading days out of the thirty (30) consecutive trading days
ending five (5) trading days prior to the date the Forced Conversion Notice is
sent, is at least one hundred seventy-five (175%) percent of the Conversion
Price. Any notice of Conversion ("Forced Conversion Notice") must be given by
Issuer to all Registered Holders no less than thirty (30) days nor more than
forty-five (45) days prior to the date set forth for conversion (the "Forced
Conversion Date"). The Forced Conversion Notice shall remain effective only if
the registration provided for in Section 8 remains effective continually
throughout the notice period. On the Forced Conversion Date, the Issuer shall
pay to all Registered Holders of Securities, all accrued and unpaid interest on
the Securities through and including the Forced Conversion Date.
11. In the event that there is a "Change of Control" of the Issuer, the
Issuer shall immediately notify each holder hereof. Each holder may, within
fifteen (15) days after written notice from the Issuer, elect to accelerate the
maturity date of the Debentures owned by such holder to a date no less than
thirty (30) nor more than forty-five (45) days after the date of such notice
from holder ("Redemption Date"). The Redemption Price shall equal the sum of the
face amount of the Debentures plus all accrued and unpaid interest through and
including the Redemption Date. For purposes hereof, a "Change of Control" of the
Issuer shall be deemed to have occurred if (i) any "person" (as such term is
defined at Section 13(d) of the Securities Exchange Act of 1934) other than the
Company or an entity then controlled by the Issuer is or becomes the beneficial
owner, directly or indirectly of securities of the Issuer representing fifty
(50%) percent or more of the combined voting power of the Issuer's then
outstanding securities, including securities such person may have acquired
directly from the Company; (ii) the Issuer merges or consolidates with another
corporation and an entity controlled by the Issuer immediately prior to the
merger or consolidation is not the surviving entity or if the Issuer is the
surviving entity, holders of eighty (80%) percent or more of the voting power of
the Issuer immediately prior to the merger or consolidation do not own,
immediately after the merger or consolidation, sixty-five (65%) percent or more
of the voting power of the surviving entity; or (iii) a sale, lease, exchange or
other disposition of all or substantially all of the assets of the Issuer takes
place.
12. If any mutilated Security is surrendered to the Issuer, the Issuer
shall execute and deliver in exchange therefor a new Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding.
If there is delivered to the Issuer (a) evidence to its reasonable
satisfaction of the destruction, loss or theft of any Security and (b) such
reasonable security or indemnity as may be required by it to save it harmless,
then, in the absence of notice to the Issuer that such Security has been
acquired by a bona fide purchaser, the Issuer shall execute and deliver in lieu
of any such destroyed, lost or stolen Security a new Security of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
Upon the issuance of any new Security under this Section 12, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith.
Any new Security delivered pursuant to this Section 12 shall be so dated
that neither gain nor loss in interest shall result from such exchange.
The provisions of this Section 12 are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
13. A meeting of holders of the Securities may be called at any time and
from time to time to make, give or take any request, demand, authorization,
direction, notice, consent, waiver or other action provided by the Securities to
be made, given or taken by holders of Securities or to modify, amend or
supplement the terms of the Securities as hereinafter provided. Notice of every
meeting of holders of Securities, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting,
shall be given as provided for in the terms of the Securities, not less than
fifteen (15) nor more than sixty (60) days prior to the date fixed for the
meeting. Such meetings may be called at any time for any such purpose by the
Issuer or by the holders of at least twenty-five (25%) percent in the aggregate
principal amount of the Outstanding Securities by, in the case of the holders,
written request to the Issuer setting forth in reasonable detail the action
proposed to be taken at the meeting. Upon receipt of any such request, the
Issuer shall call such meeting for such purposes by giving notice thereof.
To be entitled to vote at any meeting of holders of Securities, a person
shall be a registered holder of Outstanding Securities or a person duly
appointed by an instrument in writing as proxy for such a holder. The persons
entitled to vote more than fifty (50%) percent in principal amount of the
Outstanding Securities shall constitute a quorum. The Issuer may make such
reasonable and customary regulations as it shall deem advisable for any meeting
of holders of Securities with respect to the appointment of proxies in respect
of holders of Securities, the record date for determining the registered owners
of Securities who are entitled to vote at such meeting (which date shall be set
forth in the notice calling such meeting hereinabove referred to and which shall
be not less than fifteen (15) nor more than sixty (60) days prior to such
meeting), the adjournment and chairmanship of such meeting, the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate.
At any meeting of holders of Securities duly called and held as specified
above, upon the affirmative vote, in person or by proxy thereunto duly
authorized in writing, of the Registered Holders of not less than seventy-five
(75%) percent in aggregate principal amount of Outstanding Securities, or with
the written consent of the Registered Holders of not less than seventy-five
(75%) percent in aggregate principal amount of Outstanding Securities, the
Issuer may modify, amend or supplement the terms of the Securities in any way,
and the holders of Securities may make, take or give any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
the terms of the Securities to be made, given or taken by holders of Securities;
provided, however, that no such action may, without the consent of Registered
Holders of Securities owning ninety (90%) percent or more in the aggregate
principal amount of Outstanding Securities affected thereby, (a) change the due
date for the payment of the principal of or any installment of interest on any
Security, (b) reduce the principal amount of any Security, the portion of such
principal amount which is payable upon acceleration of the maturity of such
Security or the interest rate thereon, (c) change the coin or currency in which
or the required places at which payment with respect to interest or principal in
respect of Securities is payable, (d) permit the Issuer to redeem the Securities
(other than as specifically provided in this Security), or (e) reduce the
proportion of the principal amount of Securities the vote or consent of the
holders of which is necessary to modify, amend or supplement the terms and
conditions of the Securities or to make, take or give any request, demand,
authorization, direction, notice, consent, waiver or other action provided
hereby or thereby to be made, taken or given.
Any instrument given by or on behalf of any Registered Holder of a Security
in connection with any consent to or vote for any such modification, amendment,
supplement, request, demand, authorization, direction, notice, consent, waiver
or other action will be irrevocable once given and will be conclusive and
binding on all subsequent holders of such Security or any Security issued
directly or indirectly in exchange or substitution therefor or in lieu thereof.
Any such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action will be conclusive and
binding on all holders of Securities, whether or not they have given such
consent or cast such vote, and whether or not notation of such modification,
amendment, supplement, request, demand, authorization, direction, notice,
consent, waiver or other action is made upon the Securities. Notice of any
modification or amendment of, supplement to, or request, demand, authorization,
direction, notice, consent, waiver or other action with respect to the
Securities shall be given to each registered holder of Securities affected
thereby, in all cases as provided herein.
Securities executed and delivered after the effectiveness of any such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action shall bear a notation in the form
reasonably approved by the Issuer as to any matter provided for in such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action. New Securities modified to conform to
any such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action may be prepared by the Issuer
and executed and delivered in exchange for Outstanding Securities.
For purposes of the provisions of the Securities, any Security executed and
delivered by the Issuer shall, as of any date of determination, be deemed to be
"Outstanding", except:
(a) Securities theretofore cancelled by the Issuer or delivered to the
Issuer for conversion or cancellation or held by the Issuer for reissuance but
not reissued by the Issuer; or
(b) Securities that have become due and payable at Maturity or otherwise
and with respect to which monies sufficient to pay the principal thereof and any
interest thereon shall have been made available to the Registered Holders
thereof; or
(c) Securities in lieu of or in substitution for which other Securities
shall have been authenticated and delivered pursuant to the terms of the
Securities; provided, however, that in determining whether the Registered
Holders of the requisite principal amount of Outstanding Securities are present
at a meeting of holders of Securities for quorum purposes or have consented to
or voted in favor of any request, demand, authorization, direction, notice,
consent, waiver, amendment, modification or supplement hereunder, Securities
owned directly or indirectly by the Issuer or any Affiliate of the Issuer shall
be disregarded and deemed not to be Outstanding.
14. Where the terms of the Securities provide for notice to the holders of
any event, such notice shall be sufficiently given if given in writing and
mailed, first class postage prepaid, to each Registered Holder affected by such
event, at his address as it appears in the register for the Securities. Any
notice may be waived in writing by the Person entitled thereto, either before or
after the event, and such waiver shall be equivalent of such notice.
15. In the event of:
(a) default in the payment of any interest on any Security for a period of
ten (10) days after Maturity; or
(b) default in the payment of the principal of any Security at Maturity; or
(c) the breach by the Issuer of any of the representations and warranties
set forth in Section 6 of the Securities; or
(d) default in the performance or breach of any other material covenant or
agreement contained in the Securities for a period of thirty (30) days after the
date on which written notice of such default requiring the Issuer to remedy the
same and stating that such notice is a "Notice of Default", shall first have
been given to the Issuer by a Registered Holder or Holder(s) owning fifteen
(15%) percent or more of Securities; or
(e) default under one or more bonds, debentures, notes or other evidence of
Indebtedness in excess of $250,000 in the aggregate, whether such Indebtedness
is secured or unsecured and whether such Indebtedness now exists or shall
hereinafter be created, which has not been cured within a period of thirty (30)
days; or
(f) any misstatement of a material fact in the Memorandum or omission of a
material fact necessary to make the information in the Memorandum not misleading
(regardless of any investigation made by any Registered Holders); or
(g) the entry by a court having jurisdiction of (i) a decree or order for
relief in respect of the Issuer in an involuntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or (ii) a
decree or order adjudging the Issuer a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Issuer under any applicable law, or
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Issuer or of any substantial part of the property
of the Issuer, or ordering the winding up or liquidation of the affairs of the
Issuer, and any such decree or order for relief or any such other decree or
order shall continue unstayed and in effect for a period of sixty (60)
consecutive days; or
(h) commencement by any Issuer of a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by the Issuer to the entry of a decree or order for relief in respect of
the Issuer in an involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Issuer, or the filing by
the Issuer of a petition or answer or consent seeking reorganization or relief
under any such applicable law, or the consent by the Issuer to the filing of
such petition or to the appointment of or the taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Issuer or of any substantial part of its property, or the making by the
Issuer of an assignment for the benefit of creditors, or the taking of action by
the Issuer in furtherance of any such action;
then a Registered Holder or Registered Holders owning fifteen (15%) percent or
more of the Securities may, at their option, declare the principal of this
Security and the interest accrued hereon to be due and payable immediately (such
date being the "Acceleration Date") by written notice to the Issuer at its
principal executive offices, and unless all such defaults shall have been cured
by the Issuer prior to receipt of such written notice, the principal of this
Security and the interest accrued thereon shall become and be immediately due
and payable.
16. In the event that any of the terms of this Agreement are modified or
amended, other than the date of issuance and face value of the Debenture, at any
time after one or more Closings, the Company shall notify each Lender, in
writing, of such modification(s) or amendment(s). Each Lender in debentures may
accept all such terms, at the sole discretion of such Lender, by providing
written notice to the Company within fifteen (15) days after having received
such notification from the Company. If no such acceptance is received by the
Company within said fifteen (15) days, the term of this Debenture shall remain
unmodified by such modification(s) or amendment(s).
17. This Security shall be governed by and construed in accordance with the
laws of New York without regard to the conflicts-of-laws principles thereof. The
Issuer hereby irrevocably (a) submits to the exclusive jurisdiction of, and
agrees that any action, suit or other proceeding at law, in equity or otherwise,
shall only be brought in the Supreme Court, New York County, or Federal District
Court for the Southern District of New York, for the purpose of any such suit,
action or other proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby ("Action"); (b) waives, to the extent not
prohibited by applicable law, rule or regulation, and agrees not to assert, by
way of motion, as a defense or otherwise, in any such Action, ,any claim that
any such person is not subject personally to the jurisdiction of the
aforementioned courts, that its property is exempt or immune from attachment or
execution, that any such action brought in the aforementioned court is brought
in an inconvenient forum, that the venue of any such action brought in the
aforementioned court is improper, or that this Agreement, or the transactions
contemplated hereby enforced in or by such court, and (c) consents to service of
process in any such Action by recognized overnight courier service. Nothing
herein shall affect the right to serve process ion any other manner permitted by
law.
18. The following terms shall have the meaning ascribed to them below:
"Affiliate" means any Person directly or indirectly controlling, controlled
by or under direct or indirect control with another Person.
"Contingent Obligations", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof, (ii)
with respect to any letter of credit issued for the account of that person,
unpaid bankers' acceptances, bankers' assurances or guarantees or similar items,
or (iii) under any Interest Rate Protection Agreement or any long-term foreign
currency exchange contract, currency swap agreement, currency futures contract,
currency option contract, synthetic capital or similar arrangement designed to
protect the Person entering into the same against fluctuations in currency
values. Contingent Obligations shall include, without limitation, (A) the direct
or indirect guaranty, endorsement, co-making, discounting with recourse or sale
with recourse by such Person of the obligation of another, (B) the obligation to
make take-or-pay or similar payments if required regardless of non-performance
by any other party or parties to an agreement, and (C) any liability of such
Person for the obligations of another through any agreement (contingent or
otherwise) (x) to purchase, repurchase or otherwise acquire such obligation or
any security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), (y) to maintain the solvency, any balance sheet
item, level of income or financial condition of another, or (z) to make
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement (provided that, in the case of any
agreement described under Sub-clauses (C)(x) or (C)(y) of this sentence, the
primary purpose or intent thereof is as described in the preceding sentence).
The amount of any Contingent Obligation of a Person shall be equal to the amount
of the obligation so guaranteed or otherwise supported, subject to any
limitation as to amount contained in the instrument or agreement creating or
evidencing such Contingent Obligation; or in the case of Contingent Obligations
referred to in clause (iii) above, the mark-to-market value of such Contingent
Obligation at the relevant date of determination.
"Control" means 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.
"Indebtedness" of any Person means, at any date of determination, without
duplication, (i) all obligations of such Person for borrowed money, (ii) that
portion of obligations with respect to Capital Leases that is properly
classified as a liability on a balance sheet of such Person in conformity with
GAAP, (iii) notes payable and drafts accepted of such Person representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation of such Person owed for all or any part of the deferred
price of the property or services, which price or obligation is (x) due more
than (or has not been discharged prior to) three (3) months from the date of
incurrence of the obligation in respect thereof, or (y) evidenced by a note,
instrument or other written agreement, (v) all Contingent Obligations of such
Person, and (vi) all indebtedness of the type described in clauses (i) through
(v) above that is secured by any Lien on any property or asset owned or held by
such person (provided that the amount of such indebtedness included as
Indebtedness under this clause (vi) shall not exceed the market value of the
property or asset subject to such Lien).
"Lien" means any mortgage, pledge, hypothecation, security interest,
encumbrance, charge or lien (statutory or otherwise) or assignment, deposit
arrangement or other preferential arrangement in respect of an interest in
property intended to secure, support or otherwise assure payment of an
obligation (including, without limitation, any conditional sale or other title
retention agreement and any lease having substantially the same economic effect
as the foregoing).
"Maturity" when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration or acceleration, call for redemption or otherwise.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including without limitation, any
instrumentality, division, agency, body or department thereof).
"Stated Maturity" when used with respect to any Security or any installment
of interest thereon, means the date specified in such Security as the fixed date
on which the principal of such Security or such installment of interest is due
and payable.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed and it corporate seal to be affixed hereto.
--------------------------------------------
By:_______________________________________
Name:
Title:
Dated: ____________, 1997
