SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report February 27, 1997
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(Date of Earliest Event Reported) (February 13, 1997)
Teltronics, Inc.
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(Exact Name of Registrant as specified in its charter)
Delaware 0-17893 59-2937938
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
Incorporation) Number)
2150 Whitfield Industrial Way, Sarasota, Florida 34243-9706
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(Address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code: (941) 753-5000
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<PAGE>
Item 5. OTHER EVENTS.
On February 13, 1997, the Registrant issued an aggregate $4,250,000
of 11% Subordinated Convertible Debentures Due February 13, 2002 ("Debentures")
to Sirrom Capital Corporation or its registered assigns ("Holder") under and
pursuant to the terms of a Debenture Purchase Agreement between the Registrant
and Sirrom Capital Corporation dated February 11, 1997 ("Debenture Purchase
Agreement"). The Debentures mature on February 13, 2002 and bear interest at
eleven percent (11%) per annum payable quarterly.
The Debentures are subordinated to certain other indebtedness of
the Registrant and convertible at the option of the Holders into shares of
the voting Common Stock, par value $.001 per share, of the Registrant at a
conversion price (subject to adjustment under certain conditions) of $4.00.
The Debenture Purchase Agreement requires the Board of Directors to
be expanded to five members including a nominee selected by Sirrom Capital
Corporation who was appointed to the Board of Directors on February 13, 1997.
The fifth member will be appointed at a future date.
There are numerous other provisions in the Debenture Purchase
Agreement filed as an Exhibit to this Report on Form 8-K which are important
in order to derive the full understanding of the issuance and terms of the
Debentures. The above summary is qualified in its entirety by reference to
the text and the terms and conditions of the Exhibits to this Report on Form
8-K.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits.
(1) Debenture Purchase Agreement of Sirrom Capital
Corporation and Teltronics, Inc. dated February 11, 1997.
(2) 11% Subordinated Convertible Debenture Due February 13,
2002, issued by Teltronics, Inc. to Sirrom Capital
Corporation.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Teltronics, Inc.
(Registrant)
February 27, 1997 By: /s/ Michael A. Freid
-----------------------------------
Michael A. Freid
Vice President Finance,
Secretary and Treasurer
<PAGE>
EXHIBIT 99.1
DEBENTURE PURCHASE AGREEMENT
OF
SIRROM CAPITAL CORPORATION
AND
TELTRONICS, INC.
<PAGE>
DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "AGREEMENT") entered
into the 11th day of February, 1997, by and between TELTRONICS,
INC., a Delaware corporation (the "COMPANY") and SIRROM CAPITAL
CORPORATION, a Tennessee corporation (the "PURCHASER").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain additional capital
for use in connection with its business through the issue and
sale of certain obligations, and Purchaser is willing to purchase
such obligations of the Company, on the terms and conditions set
forth herein.
NOW, THEREFORE, in mutual consideration of the premises and
the respective representations, warranties, covenants and
agreements contained herein, the parties agree as follows:
ARTICLE I
SALE AND PURCHASE OF DEBENTURES
Section 1.1 DESCRIPTION OF DEBENTURES. The Company has
authorized the issue and sale of $4,250,000 aggregate principal
amount of its 11% Subordinated Convertible Debentures due
February 13, 2002 (the "DEBENTURES"), to be dated the date of
issue, to bear interest from such date at the rate of 11% per
annum, payable quarterly on the first day of each February, May,
August and November in each year (commencing May 1, 1997) and at
maturity and to bear interest on overdue principal (including any
overdue required or optional prepayment of principal) and
premium, if any, and (to the extent legally enforceable) on any
overdue installment of interest at the rate of 13% per annum
after maturity, whether by acceleration or otherwise, until paid,
to be expressed to mature on February 13, 2002, and to be
substantially in the form attached hereto as EXHIBIT A. Interest
on the Debentures shall be computed on the basis of a 360-day
year of twelve 30-day months. The Debentures are not subject to
prepayment or redemption at the option of The Company prior to
their expressed maturity dates except on the terms and conditions
and in the amounts and with the premium, if any, set forth in
Article 2 of this Agreement. The term "Debentures" as used
herein shall include each Debenture delivered pursuant to this
Agreement. The terms which are capitalized herein shall have the
meanings set forth in Section 10.1 hereof unless the context
shall otherwise require.
Section 1.2 COMMITMENT; CLOSING DATE. Subject to the
terms and conditions hereof and on the basis of the
representations and warranties hereinafter set forth, the Company
agrees to issue and sell to Purchaser, and Purchaser agrees to
purchase from the Company, Debentures in the aggregated
principal amount of $4,250,000 at a price of 100% of the
principal amount thereof.
Delivery of the Debentures will be made at the offices of
Sherrard & Roe, PLC, 424 Church Street, Suite 2000, Nashville,
Tennessee 37219, against payment therefor by federal funds wire
transfer in immediately available funds and to the accounts and
in the amounts in accordance with the Company's written
instructions, at 10:00 A.M., Nashville, Tennessee time, on
February 13, 1997, or such later date as the Company and
Purchaser shall agree (the "CLOSING DATE"). The Debentures
delivered to Purchaser on the Closing Date will be delivered to
Purchaser in the form of a single registered Debenture for the
full amount of such purchase (unless different denominations are
specified by Purchaser), registered in Purchaser's name or in the
name of such nominee as Purchaser may specify and, with
appropriate insertions, in the form attached hereto as EXHIBIT A,
all as Purchaser may specify at least 24 hours prior to the date
fixed for delivery.
Section 1.3 PROCESSING FEE. The Company agrees to pay to
Purchaser on or before the Closing Date a processing fee in an
amount equal to $106,250.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as
follows:
Section 2.1 CORPORATE STATUS. (a) The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the corporate
power to own and operate its properties, to carry on its business
as now conducted and to enter into and to perform its obligations
under this Agreement, the Debentures and any other document
executed and delivered by Purchaser in connection herewith or
therewith (collectively, the "OPERATIVE DOCUMENTS"). The Company
is qualified to do business and is in good standing in each state
or other jurisdiction in which such qualification is necessary
under applicable provisions of law. The states or other
jurisdictions in which The Company is so qualified are set forth
in the Disclosure Statement.
(b) The Disclosure Statement sets forth a complete list of
each corporation, partnership, joint venture, limited liability
the Company or other business organization in which the Company
owns, directly or indirectly, any capital stock or other equity
interest (the "SUBSIDIARY" or, collectively, the "SUBSIDIARIES"),
or with respect to which the Company or any Subsidiary, alone or
in combination with others, is in a control position, which list
shows the jurisdiction of incorporation or other organization and
the percentage of stock or other equity interest of each
Subsidiary owned by the Company. Each Subsidiary is duly
organized, validly existing and in good standing under the laws
of the jurisdiction of incorporation or other organization as
indicated in the Disclosure Statement, each has all requisite
power and authority and holds all material licenses, permits and
other required authorizations from government authorities
necessary to own its properties and assets and to conduct its
business as it is now being conducted, and is qualified to do
business as a foreign corporation (or business organization) and
is in good standing in every jurisdiction in which such
qualification is necessary under applicable provisions of law.
All of the outstanding shares of capital stock, or other equity
interest, of each Subsidiary owned, directly or indirectly, by
the Company have been validly issued, are fully paid and
nonassessable, and are owned by the Company free and clear of all
liens, charges, security interests or encumbrances.
(c) The Disclosure Statement sets forth a complete list of
"affiliates, as that term is defined in Rule 405 of Regulation C
adopted under the Securities Act of 1933, as amended (the
"Securities Act), with a brief statement describing the basis of
each affiliation.
Section 2.2 CAPITALIZATION. (a) The authorized capital
stock of the Company consists of (i) 40,000,000 shares of voting
common stock, par value $.001 per share (the "COMMON STOCK"), of
which 3,261,013 shares are issued and outstanding, (ii) 5,000,000
shares of non-voting common stock, par value $.001 per share (the
"NON-VOTING COMMON STOCK"), none of which are issued and
outstanding, and (iii) 5,000,000 shares of undesignated preferred
stock, with rights and preferences to be fixed by the Board of
Directors in accordance with the corporate laws of the State of
Delaware and the Company's Restated Certificate of Incorporation,
as amended (the "Restated Certificate"), and 250,000 shares
designated as Series A Preferred Stock bearing the rights and
preferences set forth in the Restated Certificate of which
100,000 shares are issued and outstanding. All shares of Common
Stock outstanding have been validly issued and are fully paid and
nonassessable. There are 1,062,500 shares of such Common Stock
reserved for issuance upon the conversion of the Debentures as
described therein; PROVIDED, that the number of shares so
reserved shall be increased in accordance with the terms of the
Debentures. Such shares of Common Stock issuable upon conversion
of the Debentures have been duly and validly authorized and, upon
conversion of the Debenture, will be validly issued, fully paid,
nonassessable and fee of any liens or encumbrances created by the
Company. There are no statutory or contractual pre-emptive
rights, rights of first refusal, antidilution rights or any
similar rights held by any party with respect to the issuance of
the Debentures or the issuance of the Common Stock upon
conversion of the Debentures as described therein. The Company
has not violated any federal or state securities laws in
connection with the issuance of any securities, and the offer,
sale and issuance of the Debentures do not require registration
under the Securities Act or any applicable state securities laws.
(b) The Company has not granted, or agreed to grant or
issue, any options, warrants or rights to purchase or acquire
from the Company any shares of capital stock of the Company, and
there are no contracts, commitments, agreements, understandings,
arrangements or restrictions as to which the Company is a party,
or by which it is bound, relating to any shares of capital stock
or other securities of the Company, whether or not outstanding
except for (i) the Debentures to be issued pursuant to this
Agreement, (ii) 1,250,000 shares of Common Stock reserved for
issuance pursuant to the Company's 1995 Incentive Stock Option
Plan, for which options to purchase 795,000 are outstanding;
(iii) 1,000,000 shares of Non-Voting Common Stock convertible
into 1,000,000 shares of Common Stock pursuant to the Agreement
of Sale, dated March 27, 1996, among Interactive Solutions, LLC,
its members, and ISL, Inc., as amended; and (iv) options to
purchase 4,000 shares of Common Stock. The Disclosure Statement
sets forth a summary of such options, warrants and other rights
to acquire capital stock of the Company.
Section 2.3 AUTHORIZATION. The Company has full legal
right, power and authority to enter into and perform its
obligations under this Agreement and any of the other Operative
Documents, without the consent or approval of any other person,
firm, governmental agency or other legal entity. The execution
and delivery of this Agreement, the issuance of the Debentures
hereunder, the execution and delivery of each other document in
connection herewith or therewith to which the Company is a party,
and the performance by the Company of its obligations hereunder
and/or thereunder are within the corporate powers of the Company
and have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental
approvals, if any were required. The consummation of the
transactions contemplated by this Agreement and the fulfillment
of the terms hereof do not and will not contravene or conflict
with the certificate of incorporation or bylaws of the Company or
any material agreement to which the Company or any of its
Subsidiaries is now a party or by which any of them or their
properties is bound, or constitute a default thereunder, or
results in the creation or imposition of any lien, charge,
security interest, or encumbrance of any nature upon any of the
property or assets of the Company or any of its Subsidiaries
pursuant to the terms of any such agreement or instrument, or
violate any provision of law or any applicable judgment,
ordinance, regulation or order of any court or governmental
agency. The officer(s) executing this Agreement, the Debentures
and any other document executed and delivered by Purchaser in
connection herewith or therewith, is duly authorized to act on
behalf of the Company.
Section 2.4 VALIDITY AND BINDING EFFECT. Each of the
Operative Documents is the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with
its terms.
Section 2.5 OTHER TRANSACTIONS. Except as disclosed on
the Disclosure Statement, there are no outstanding loans, liens,
pledges, security interests, agreements or other financings upon
which the Company or any Subsidiary is obligated or by which the
Company is bound. Consummation of the transactions hereby
contemplated and the performance of the obligations of the
Company under and by virtue of the Operative Documents will not
result in any breach of, or constitute a default under, any
material mortgage, security deed or agreement, deed of trust,
lease, bank loan or credit agreement, or any corporate articles,
certificate or bylaws, agreement or certificate of limited
partnership, partnership agreement, limited liability company
agreement, license, franchise or any other material instrument or
agreement to which the Company is a party or by which the Company
or its properties may be bound or, to the knowledge or the
Company, affected or to which the Company has not obtained an
effective waiver.
Section 2.6 LITIGATION. Except as set forth on the
Disclosure Statement, there are no actions, suits or proceedings
pending, or, to the knowledge of the Company, threatened, against
or affecting the Company or any of its Subsidiaries involving the
validity or enforceability of any of the Operative Documents or
the priority of any liens, at law or in equity, or before any
governmental or administrative agency, except actions, suits and
proceedings that are fully covered by insurance and that, if
adversely determined, would not impair materially the ability of
the Company to perform each and every one of its obligations
under and by virtue of the Operative Documents; and to the
Company's knowledge, the Company is not in default with respect
to any order, writ, injunction, decree or demand of any court or
any governmental authority.
Section 2.7 FINANCIAL STATEMENTS. The consolidated
financial statements of the Company and its Subsidiaries for the
fiscal years ended December 31, 1993, 1994 and 1995 and the
unaudited consolidated financial statements as of and for the
nine-month period ended September 30, 1996, which the Company
previously has heretofore delivered to Purchaser, are true and
correct and have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently followed
throughout the periods involved. The consolidated balance sheets
and the related notes fairly present the financial condition of
the Company and its consolidated Subsidiaries as of the
respective dates thereof, and the consolidated statements of
income, cash flows and changes in stockholders' equity and the
related notes fairly present the results of operations of the
Company and its consolidated Subsidiaries for the respective
periods indicated. There has been no material adverse change in
the condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole since September 30, 1996.
Section 2.8 SEC REPORTS. The Company's Common Stock is
listed on the NASDAQ Small Cap Market and has been duly
registered with the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended (the "Securities
Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Since January 1, 1994, the Company has timely
filed all reports, registrations, proxy or information statements
and all other documents, together with any amendments required to
be made thereto, required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively, the "SEC
Reports"). The Company previously has furnished to Purchaser
true copies of all the SEC Reports, together with all exhibits
thereto that Purchaser has requested. The financial statements
contained in the SEC Reports fairly presented (or will fairly
present, as the case may be) the financial position of the
Company as of the dates mentioned and the results of operations,
changes in stockholders' equity and changes in financial position
or cash flows for the periods then ended in conformity with GAAP
applied on a consistent basis throughout the periods involved.
As of their respective dates, the SEC Reports complied (or will
comply, as the case may be) in all material respects with all
rules and regulations promulgated by the SEC and did not (or will
not, as the case may be) contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
Section 2.9 ABSENCE OF CHANGES. Except as set forth on
the Disclosure Statement, since September 30, 1996, (i) neither
the Company nor any of its subsidiaries have incurred any
liabilities or obligations, direct or contingent, or entered into
any transactions, not in the ordinary course business, that are
material to the Company, (ii) neither the Company nor any of its
subsidiaries have purchased any of its outstanding capital stock
or declared, paid or otherwise made any dividend or distribution
of any kind on its capital stock, (iii) there has not been any
change in the capital stock, long-term debt or short-term debt of
the Company, and (iv) there has not been any material adverse
change, or any development involving a prospective material
adverse change, in or affecting the condition (financial or
otherwise), results of operations, business or prospects of the
Company or any subsidiary.
Section 2.10 NO DEFAULTS. Except as set forth on the
Disclosure Statement and except where a default or event of
default does not and would not constitute a Material Adverse
Event, no default or event of default by the Company or any
Subsidiary exists under this Agreement or any of the other
Operative Documents, or under any other instrument or agreement
to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or its respective properties may be
bound or, to the knowledge of the Company, affected, and no event
has occurred and is continuing that with notice or the passage of
time or both would constitute a default or event of default
thereunder.
Section 2.11 COMPLIANCE WITH LAW. Except where failure to
do so does not and would not constitute a Material Adverse Event,
the Company has obtained all licenses, permits and governmental
approvals and authorizations necessary or proper in order to
conduct its business and affairs as heretofore conducted and as
hereafter intended to be conducted. To the Company's knowledge,
the Company is in compliance with all laws, regulations, decrees
and orders applicable to it (including but not limited to laws,
regulations, decrees and orders relating to environmental,
occupational and health standards and controls, antitrust,
monopoly, restraint of trade or unfair competition) to the extent
that noncompliance, in the aggregate, cannot reasonably be
expected to have a material adverse effect on its business,
operations, property or financial condition and will not
materially adversely affect its ability to perform its
obligations under the Operative Documents.
Section 2.12 TAXES. Except as set forth on the Disclosure
Statement, the Company and its Subsidiaries have filed or caused
to be filed all federal, state and local income, excise and
franchise tax returns required to be filed (except for returns
that have been appropriately extended), and has paid, or provided
for the payment of, all taxes shown to be due and payable on said
returns and all other taxes, impositions, assessments, fees or
other charges imposed on it by any governmental authority, agency
or instrumentality, prior to any delinquency with respect thereto
(other than taxes, impositions, assessments, fees and charges
currently being contested in good faith by appropriate
proceedings, for which appropriate amounts have been reserr legal
entity. mpany does not know of any proposed assessment for
additional taxes or any basis therefor. No tax liens have been
filed against the Company or any of its properties. The
Company's federal income tax liability has been finally
determined by the Internal Revenue Service and satisfied for all
taxable years up to and including the taxable year ended December
31, 1991, or closed by applicable statutes of limitation.
Section 2.13 CERTAIN TRANSACTIONS. Except as set forth on
the Disclosure Statement, the Company is not indebted, directly
or indirectly, to any of its officers or directors, or to thand
will not conpouses or children, in excess of an aggregate amount
of $60,000, and none of its officers or directors or any members
of their immediate families are indebted to the Company in excess
of an aggregate amount of $60,000 or have any direct or indirect
ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business
relationship of nature which would require disclosure pursuant to
Item 404(b) of Regulation S-K under the Securities Act, or any
firm or corporation which competes with the Company, except that
an officer and/or director of the Company may own no more than 1%
of the outstanding stock of any publicly traded company which
competes directly with the Company. Except as set forth on the
Disclosure Statement, no officer or director or any member of
their immediate families is, directly or indirectly, interested
in any material contract with the Company. Except as set forth
on the Disclosure Statement, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or
corporation.
Section 2.14 TITLE TO PROPERTY. The Company and each
Subsidiary has good and marketable title to all of real and
personal property owned by it, free and clear of all liens,
security interests, pledges, encumbrances, equities claims and
restrictions of every kind and nature whatsoever, except as
disclosed on the Disclosure Statement and except for such liens,
security interests, pledges, encumbrances, equities claims and
restrictions which are not in the aggregate material to the
business, operations or financial condition of the Company and
its Subsidiaries taken as a whole. Any real property and
buildings held under lease by the Company or any Subsidiary are
held under valid existing and enforceable leases, except as
disclosed on the Disclosure Statement or which are not material
and do not interfere with the use to be made of such buildings or
property by the Company.
Section 2.15 INTELLECTUAL PROPERTY. Except as set forth
on the Disclosure Statement, the Company is the lawful owner of
its proprietary information free and clear of any claim, right,
trademark, patent or copyright protection of any third party. As
used herein, "PROPRIETARY INFORMATION" includes without
limitation (i) any computer software and related documentation,
inventions, technical and nontechnical data related thereto, and
(ii) other documentation, inventions and data related to
patterns, plans, methods, techniques, drawings, finances,
customer lists, suppliers, products, special pricing and cost
information, designs, processes, procedures, formulas, research
data owned or used by the Company or any Subsidiary or marketing
studies conducted by the Company, all of which the Company
considers to be commercially important and competitively
sensitive and which generally has not been disclosed to third
parties other than customers in the ordinary course of business.
Except as set forth on the Disclosure Statement, the Company has
good and marketable title to all patents, trademarks, trade
names, service marks, copyrights or other intangible property
rights, and registrations or applications for registration
thereof, owned by the Company or any Subsidiary or used or
required by the Company or any Subsidiary in the operation of its
business as presently being conducted. the Company has no
knowledge of any infringements or conflict with asserted rights
of others with respect to copyrights, patents, trademarks,
service marks, trade names, trade secrets or other intangible
property rights or know-how which could result in any material
adverse effect upon the Company. To the Company's knowledge, no
products or processes of the Company infringe or conflict with
any rights of patent or copyright, or any discovery, invention
product or process, that is the subject of a patent or copyright
application or registration known to the Company. The Company
follows such procedures as the Board of Directors of the Company
deem necessary or appropriate to provide reasonable protection of
the Company's trade secrets and proprietary rights in
intellectual property of all kinds. To the knowledge of the
Company, no person employed by or affiliated with the Company has
employed or proposes to employ any trade secret or any
information or documentation proprietary to any former employer,
and to the knowledge of the Company, no person employed by or
affiliated with the Company has violated any confidential
relationship that such person may have had with any third person,
in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any
service or proposed service of the Company.
Section 2.16 ACCOUNTING MATTERS. The Company and each of
its subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain assets accountability for the assets of the Company and
each of its subsidiaries; (iii) access to the assets of the
Company and each of its subsidiaries are permitted only in
accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets of the Company
and each of its subsidiaries are compared with the existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences.
Section 2.17 DISTRIBUTIONS TO COMPANY. No subsidiary of
the Company is currently prohibited, directly or indirectly, from
paying any dividends to the Company, from making any other
distributions on such subsidiary's capital stock, from repaying
to the Company any loans or advances to such subsidiary or from
transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company.
Section 2.18 PRIOR SALES. All offers and sales of the
Company's capital stock prior to the date hereof were at all
relevant times exempt from the registration requirements of the
Securities Act or were duly registered under the Securities Act,
and were duly registered or were the subject of an available
exemption from the requirements of all applicable state
securities or Blue Sky laws.
Section 2.19 REGULATORY COMPLIANCE. Except as set forth
on the Disclosure Statement, the conduct of the business of the
Company is not dependent on any license, permit or other
authorization of any federal, state or local regulatory body, and
except as set forth on the Disclosure Statement, such business is
not subject to the regulation of any federal, state or local
government regulatory body by reason of the nature of the
business being conducted. All licenses, permits and
authorizations set forth on the Disclosure Statement are in full
force and effect.
Section 2.20 1940 ACT COMPLIANCE. The Company is an
"eligible portfolio company" as such term is defined in Section
2(a)(46) of the Investment Company Act of 1940, as amended, and
the issuance and sale by the Company of the Debentures does not
constitute a "public offering" as such term is used in Section
55(a)(1) thereof.
Section 2.21 DISCLOSURE. No representation or warranty
given as of the date hereof by the Company contained in this
Agreement, the Disclosure Statement or any schedule attached
hereto or any statement in any document, certificate or other
instrument furnished or to be furnished to the Purchaser pursuant
hereto, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or
omits or will (as of the time so furnished) omit to state any
material fact which is necessary in order to make the statements
contained herein or therein not misleading. The information,
documents and schedules contained or referenced in the Disclosure
Statement are true, accurate and complete in all material
respects.
Section 2.22 SURVIVAL. The representations and warranties
of the Company contained in this Agreement shall survive until
this Agreement terminates in accordance with Section 12.7 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Company
as follows:
Section 3.1 AUTHORIZATION. Purchaser has full legal
right, power and authority to enter into and perform its
obligations under this Agreement and any other document executed
and delivered by Purchaser in connection herewith, without the
consent or approval of any other person, firm, governmental
agency or other legal entity. The execution and delivery of this
Agreement and any other document executed and delivered by
Purchaser in connection herewith, and the performance by
Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all
necessary governmental approvals, if any were required, and do
not and will not contravene or conflict with the charter or
bylaws of Purchaser. The officer(s) executing this Agreement and
any other document executed and delivered by Purchaser in
connection herewith, is duly authorized to act on behalf of
Purchaser.
Section 3.2 VALIDITY AND BINDING EFFECT. This Agreement
and any other document executed and delivered by Purchaser in
connection herewith are the legal, valid and binding obligations
of the Purchaser, enforceable against it in accordance with their
respective terms.
Section 3.3 INVESTMENT REPRESENTATIONS. In connection
with the issuance to Purchaser of the Debentures or Shares of
Common Stock issuable upon conversion of the Debenture (the
"Registrable Securities") upon conversion of the Debentures
pursuant to this Agreement:
(a) PURCHASE FOR INVESTMENT. Purchaser is acquiring the
Debentures and any Registrable Securities upon conversion of the
Debentures for its own account as principal, for investment and
not with a view to the distribution or resale thereof in
violation of the Securities Act or any applicable state
securities law or with any present intention of distributing or
commitments or understandings with any Persons to sell, transfer
or grant participations in the Debentures or any Registrable
Securities.
(b) NO REGISTRATION; RULE 144. (i) Neither the Debentures
nor the Registrable Securities have been registered under the
Securities Act, and the Debentures are, and any Registrable
Securities will be, "restricted" securities, as defined in Rule
144; (ii) neither the Debentures nor any of the Registrable
Securities may be resold unless they are registered under the
Securities Act or unless an exemption from registration is
available; (iii) Purchaser understands that the availability of
Rule 144 for the sale and transfer of the Debentures or any
Registrable Securities is limited, and that certain conditions
and events must exist before Purchaser would be able to utilize
Rule 144 in connection with the sale or other disposition of the
Debentures or any Registrable Securities.
(c) INVESTMENT COMPANY; INFORMATION. Purchaser is an
investment company registered under the Investment Company Act of
1940, as amended, and, to the knowledge of Purchaser, has
received the financial and other information which it has
requested from the Company. The Company has made available to
Purchaser the opportunity to ask questions and receive answers
from the Company concerning the terms and conditions of the
offering of the Debentures hereunder and to obtain any additional
information necessary to verify the accuracy of any information
contained in this Agreement or furnished as above stated.
(d) NO TRANSFER. Purchaser will not, directly or
indirectly, offer to sell, sell, transfer, convey or otherwise
dispose of all or any portion of the Debentures or any
Registrable Securities or solicit any offer to buy, purchase or
otherwise acquire all or any portion of the Debenture of any
Registrable Securities except in the manner and to the extent
described in Sections 8.1 and 8.2 of this Agreement.
(e) TRANSFER INSTRUCTIONS. The Company may impose
appropriate transfer restrictions on its books and on the stock
transfer ledger and other books maintained by the Company's
transfer agent to implement the provisions of this Section 3.3
and Sections 8.1 and 8.2 of this Agreement.
(f) TRANSFER TO SUBSIDIARY. Notwithstanding anything in
this Section 3.3 to the contrary, Purchaser may transfer and
assign to its rights and obligations under this Agreement to one
or more of its wholly-owned subsidiaries, provided that any such
subsidiary shall have executed an investment letter containing
the representations, and warranties contained in this Section 3.3
and acknowledging the restrictions contained in Sections 8.1 and
8.2 of this Agreement.
Section 3.4 SURVIVAL. The representations and warranties
of the Purchaser contained in this Agreement shall survive until
this Agreement terminates in accordance with Section 12.7 hereof.
ARTICLE IV
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase and pay for the
Debentures on the Closing Date shall be subject to the
fulfillment on or before the Closing Date of each of the
following conditions:
Section 4.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in this
Agreement and in any Schedule hereto or any document or
instrument delivered to Purchaser or its representatives
hereunder, shall have been true and correct when made and shall
be true and correct as of the Closing Date as if made on such
date, except to the extent such representations and warranties
expressly relate to a specific date. The Company shall have duly
performed all of the covenants and agreements to be performed by
it hereunder on or prior to the Closing Date.
Section 4.2 OFFICER'S CERTIFICATE. The Company shall
have delivered to Purchaser a certificate, dated the Closing
Date, signed by the President of the Company in a form
satisfactory to Purchaser.
Section 4.3 SATISFACTORY PROCEEDINGS. All proceedings
taken in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation
thereof, shall be satisfactory in form and substance to Purchaser
and Purchaser's counsel, and the Company shall have delivered to
Purchaser a certificate, dated the Closing Date, signed by the
Secretary of the Company in a form satisfactory to Purchaser.
Section 4.4 LEGAL OPINION. Purchaser shall have received
the opinion of Blair & Roach, counsel for the Company, dated the
Closing Date, addressed to Purchaser, in form and substance
satisfactory to Purchaser.
Section 4.5 THE COMPANY'S EXISTENCE AND AUTHORITY. The
Company shall have delivered to Purchaser the following
certificates of public officials, in each case as of a recent
date:
(a) the certificate of incorporation of the Company,
certified by the Secretary of State of Delaware;
(b) a certificate of existence or good standing of the
Company in the State of Delaware and as a foreign corporation in
each of the jurisdictions set forth in the Disclosure Statement;
(c) Charters and good standing certificates for the
following subsidiaries: AT Supply, Inc.; Interactive Solutions,
Inc.; Teltronics/SRX, Inc.; and TTG Acquisition Corp.
Section 4.6 REQUIRED CONSENTS. Any consents or approvals
required to be obtained from any third party, including any
holder of indebtedness or any outstanding security of the
Company, and any amendments of agreements which shall be
necessary to permit the consummation of the transactions
contemplated hereby on the Closing Date, shall have been obtained
and all such consents or amendments shall be satisfactory in form
and substance to Purchaser and Purchaser's counsel.
Section 4.7 WAIVER OF CONDITIONS. If on the Closing Date
the Company fails to tender to Purchaser the Debentures to be
issued to Purchaser on such date or if the conditions specified
in this ARTICLE IV have not been fulfilled, Purchaser may
thereupon elect to be relieved of all further obligations under
this Agreement. Without limiting the foregoing, if the
conditions specified in this ARTICLE IV have not been fulfilled,
Purchaser may waive compliance by the Company with any such
condition to such extent as Purchaser, in Purchaser's sole
discretion, may determine. Nothing in this Section 4.7 shall
operate to relieve the Company of any of its obligations
hereunder or to waive any of Purchaser's rights against the
Company.
ARTICLE V
COVENANTS OF COMPANY
From and after the Closing Date and continuing so long as
any amount remains unpaid on any of the Debentures:
Section 5.1 USE OF PROCEEDS. The Company shall use the
proceeds of the Debentures only for the purposes set forth on
SCHEDULE 5.1 attached hereto.
Section 5.2 PAYMENT OF DEBENTURES. The Company shall pay
the indebtedness evidenced by the Debentures according to the
terms thereof and shall timely pay or perform all of the other
obligations of the Company under this Agreement.
Section 5.3 REPURCHASE OF DEBENTURE. Neither the Company
nor any Subsidiary or Affiliate, directly or indirectly, may
repurchase or make any offer to repurchase any Debentures unless
the offer has been made to repurchase Debentures, pro rata, from
all holders of the Debentures at the same time and upon the same
terms. In case the Company repurchases or otherwise acquires any
Debentures, such Debentures shall immediately thereafter be
canceled, and no Debentures shall be issued in substitution
therefor. Without limiting the foregoing, upon the purchase or
other acquisition of any Debentures by the Company or any
Subsidiary or Affiliate, such Debentures shall no longer be
outstanding for purposes of any Section of this Agreement
relating to the taking by the holders of the Debentures of any
actions with respect hereto, including, without limitation,
Sections 9.3 and 10.1.
Section 5.4 CORPORATE EXISTENCE, ETC. The Company will
preserve and keep in force and effect, and will cause each
Subsidiary to preserve and keep in force and effect, its
corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a
foreign corporation in each jurisdiction where such qualification
is required by applicable law and all licenses and permits
necessary to the proper conduct of its business.
Section 5.5 MAINTENANCE, ETC. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain,
preserve and keep, its properties and assets which are used or
useful in the conduct of its business (whether owned in fee or
pursuant to a leasehold interest) in good repair and working
order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the
efficiency thereof shall be maintained.
Section 5.6 NATURE OF BUSINESS. Neither the Company nor
any Subsidiary will engage in any business if, as a result, the
general nature of the business, taken on a consolidated basis,
which would then be engaged in by the Company and its
Subsidiaries would be substantially changed from the general
nature of the business engaged in by the Company and its
Subsidiaries on the date of this Agreement.
Section 5.7 INSURANCE. The Company will maintain, and
will cause each Subsidiary to maintain, insurance coverage by
financially sound and reputable insurers with respect to their
respective properties and business in such forms and amounts and
against such risks, casualties and contingencies as are customary
for corporations of established reputation engaged in the same or
a similar business and owning and operating similar properties.
Section 5.8 TAXES, CLAIMS FOR LABOR AND MATERIALS. The
Company will promptly pay and discharge, and will cause each
Subsidiary promptly to pay and discharge, (i) all lawful taxes,
assessments and governmental charges or levies imposed upon the
property or business of the Company or such Subsidiary,
respectively, (ii) all trade accounts payable in accordance with
usual and customary business terms, and (iii) all claims for
work, labor or materials, which if unpaid might become a lien or
charge upon any property of the Company or such Subsidiary;
provided the Company or such Subsidiary shall not be required to
pay any such tax, assessment, charge, levy, account payable or
claim if (i) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or
proceedings which will prevent the forfeiture or sale of any
property of the Company or such Subsidiary or any material
interference with the use thereof by the Company or such
Subsidiary, and (ii) the Company or such Subsidiary shall set
aside on its books, reserves deemed by it to be adequate with
respect thereto.
Section 5.9 COMPLIANCE WITH LAWS. Except where failure
to do so does not and would not constitute a Material Adverse
Event, Borrower shall maintain its business operations and
property owned or used in connection therewith in compliance with
(i) all applicable federal, state and local laws, regulations and
ordinances, and such laws, regulations and ordinances of foreign
jurisdictions, governing such business operations and the use and
ownership of such property, and (ii) all agreements, licenses,
franchises, indentures and mortgages to which Borrower is a party
or by which Borrower or any of its properties is bound. Without
limiting the foregoing, Borrower shall pay all of its
indebtedness promptly and substantially in accordance with the
terms thereof.
Section 5.10 ERISA MATTERS. If the Company has in effect,
or hereafter institutes, a pension plan that is subject to the
requirements of Title IV of the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88
Stat. 829, 29 U.S.C.A. section 1001 et seq. (1975), as amended
from time to time ("ERISA"), then the following warranty and
covenants shall be applicable during such period as any such plan
(the "PLAN") shall be in effect: (i) the Company hereby warrants
that no fact that might constitute grounds for the involuntary
termination of the Plan, or for the appointment by the
appropriate United States District Court of a trustee to
administer the Plan, exists at the time of execution of this
Agreement; (ii) the Company hereby covenants that throughout the
existence of the Plan, the Company's contributions under the Plan
will meet the minimum funding standards required by ERISA and the
Company will not institute a distress termination of the Plan;
and (iii) the Company covenants that it will send to Purchaser a
copy of any notice of a reportable event (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the
Pension Benefit Guaranty Corporation, at the time that such
notice is so filed.
Section 5.11 BOOKS AND RECORDS; RIGHTS OF INSPECTION. The
Company will keep, and will cause each Subsidiary to keep, proper
books of record and account in which full and correct entries
will be made of all dealings or transactions of or in relation to
the business and affairs of the Company or such Subsidiary, in
accordance with generally accepted accounting principles
consistently maintained. The Company shall permit a
representative of Purchaser to visit any of its properties and
inspect its corporate books and financial records, and will
discuss its accounts, affairs and finances with a representative
of Purchaser, during reasonable business hours, at all such times
as Purchaser may reasonably request.
Section 5.12 REPORTS. For so long as Purchaser holds any
portion of the Debentures, the Company will furnish to Purchaser
the following:
(a) MONTHLY STATEMENTS. Within twenty (20) days of
the end of each month, monthly internal financial reports
which at a minimum shall consist of a balance sheet of the
Company as of the close of such month and related statements
of income and cash flows for the one-month period then, as
well as any additional financial reports for such period
routinely prepared with respect to the Company and the Subsidiaries;
(b) QUARTERLY STATEMENTS. Except as set forth on
Schedule 5.12(b), as soon as available and in any event
within forty-five (45) days after the end of each quarterly
fiscal period (except the last) of each fiscal year, copies
of:
(i) consolidated and consolidating balance sheets of
the Company and Subsidiaries as of the close of
the three-month period then ended, setting forth
in comparative form the consolidated figures for
the corresponding period of the preceding fiscal
year,
(ii) consolidated and consolidating statements of
income and retained earnings of the Company and
Subsidiaries for the three-month period then
ended, setting forth in comparative form the
consolidated figures for the corresponding period
of the preceding fiscal year, and
(iii) consolidated and consolidating statements of cash
flows of the Company and Subsidiaries for the
portion of the fiscal year ending with such
three-month period, setting forth in comparative
form the consolidated figures for the
corresponding period of the preceding fiscal
year,
all in reasonable detail and certified as complete and
correct, by an authorized financial officer of Company;
(c) ANNUAL STATEMENTS. As soon as available and in
any event within ninety (90) days after the close of each
fiscal year of the Company, copies of:
(i) consolidated and consolidating balance sheets of
the Company and Subsidiaries as of the close of
such fiscal year,
(ii) consolidated and consolidating statements of
income and retained earnings and cash flows of the
Company and Subsidiaries for such fiscal year, and
(iii) consolidated statements of shareholders' equity
for such fiscal year,
in each case setting forth in comparative form the consolidated figures
for the preceding fiscal year, all in reasonable detail and accompanied
by an unqualified report thereon of a firm of independent public
accountants of recognized national standing;
(d) AUDIT REPORTS. Promptly upon receipt thereof, one copy
of each interim or special audit made by independent accountants
of the books of the Company or any Subsidiary;
(e) SEC AND OTHER REPORTS. (i) One copy of each
financial statement, report, notice or proxy statement sent
by the Company to stockholders generally, simultaneously
with the mailing of such to the Company's stockholders; (ii)
each periodic or current report, and any registration
statement or prospectus filed by the Company or any
Subsidiary with any securities exchange or the SEC or any
successor agency, promptly upon filing with the SEC; and (iii) promptly
upon their becoming available, any orders in any proceedings to which
the Company or any of its Subsidiaries is a party, issued by any
governmental agency, federal or state, having jurisdiction over the
Company or any of its Subsidiaries. The Company specifically covenants
to timely file each such item required to be filed with the
SEC and each state requiring securities laws filings; and
(f) REQUESTED INFORMATION. With reasonable
promptness, such other data and information as Purchaser or
any such institutional holder may reasonably request.
Section 5.13 LIMITATIONS ON DEBT AND OBLIGATIONS. Neither
the Company nor any Subsidiary shall issue, assume, guarantee or
otherwise become liable or permit to exist any Indebtedness
except: (i) Indebtedness existing on the date hereof and
reflected on (a) the Company's unaudited balance sheet as of
September 30, 1996, and (b) the Disclosure Statement, as the same
Indebtedness may be extended, renewed, refunded, amended or
modified (but the principal amount thereof not increased); (ii)
the indebtedness incurred pursuant to the Debentures; (iii)
accounts payable and other trade payables incurred in the
ordinary course of business; (iv) obligations of the Company
pursuant to capitalized leases and/or purchase money financing of
equipment; (v) Indebtedness that refinances secured Indebtedness
under clause (i) above, provided that the collateral for such new
indebtedness is the collateral from the refinanced secured
Indebtedness and the aggregate principal amount of such
Indebtedness does not exceed the principal amount outstanding
under the refinanced Indebtedness; or (vi) Indebtedness incurred
in connection with the acquisition of a business (including the
assets of a business) provided such Indebtedness is secured
solely by the assets of the business so acquired.
Notwithstanding the foregoing, the aggregate principal amount of
any Indebtedness secured by the accounts receivable and/or
inventory of the Company and its Subsidiaries (whether such
Indebtedness is permitted under clause (i) or in clause (v)), may
be increased based upon the amount of the accounts receivable
and/or inventory eligible as collateral, so long as the ratio of
outstanding principal amount of such Indebtedness to "eligible
receivables" (howsoever defined) and/or "inventory" remains the
same.
Section 5.14 GUARANTIES. The Company will not, and will
not permit any Subsidiary to, become or be liable in respect of
any Guaranty except Guaranties by Company which are limited in
amount to a stated maximum dollar exposure and are incurred in
compliance with the provisions of this Agreement.
Section 5.15 LIMITATION ON LIENS. Without the prior
written consent of Purchaser, the Company will not, and will not
permit any Subsidiary to, create or incur, or suffer to be
incurred or to exist, any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (collectively, "LIENS")
on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or
transfer any property for the purpose of subjecting the same to
the payment of obligations in priority to the payment of its or
their general creditors, or acquire or agree to acquire, or
permit any Subsidiary to acquire, any property or assets upon
conditional sales agreement or other title retention devices,
except (i) those Liens which exist as of the date hereof; (ii)
Liens hereafter created on Indebtedness which is permitted under
Section 5.13(v) or (vi); or (iii) purchase money security
interests on property acquired by the Company or any Subsidiary
in an amount not to exceed in the aggregate 10% more than the
amount approved by the Board of Directors for such expenditures
in the Company's Annual Plan, as hereinafter defined.
Section 5.16 RESTRICTED PAYMENTS. The Company will not,
except as hereinafter provided:
(i) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any
class (except dividends or other distributions payable
solely in shares of capital stock of Company);
(ii) directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital
stock of any class or any warrants, rights or options
to purchase or acquire any shares of its capital stock
(other than in exchange for or out of the net proceeds
to the Company from the substantially concurrent issue
or sale of other shares of capital stock of the
Company or warrants, rights or options to purchase or
acquire any shares of its capital stock); or
(iii) make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in
respect of its capital stock;
if after giving effect thereto an Event of Default would exist.
Section 5.17 INVESTMENTS. The Company will not, and will
not permit any Subsidiary to, make any Investments outside the
ordinary course of business for the Company or any Subsidiary,
without the prior written consent of Purchaser, except:
(i) Investments in direct obligations of the United States
of America, or any agency or instrumentality of the
United States of America, the payment or guaranty of
which constitutes a full faith and credit obligation
of the United States of America, in either case
maturing in twelve months or less from the date of
acquisition thereof;
(ii) Investments in certificates of deposit maturing within
one year from the date of origin, issued by a bank of
trust company organized under the laws of the United
States of any state thereof, having capital, surplus
and undivided profits aggregating at least
$100,000,000 and whose long-term certificates of
deposit are, at the time of acquisition thereof by
Company or a Restricted Subsidiary, rated AA or better
by Standard & Poor's Corporation or Aa or better by
Moody's Investors Service, Inc.;
(iii) Investments in commercial paper maturing in 270 days
or less from the date of issuance which, at the time
of acquisition by the Company or any Subsidiary is
accorded the highest rating by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or
another nationally recognized credit rating agency of
similar standing;
(iv) loans or advances in the usual and ordinary course of
business to officers, directors and employees for
expenses (including moving expenses related to a
transfer) incidental to carrying on the business of
Company or any Subsidiary; and
(v) receivables arising from the sale of goods and
services in the ordinary course of business of Company
and its Subsidiaries.
Section 5.18 MERGERS, CONSOLIDATIONS AND SALES OF ASSETS.
(a) The Company will not, and will not permit any Subsidiary to
(1) consolidate with or be a party to a merger or share exchange
with any other corporation or (2) sell, lease or otherwise
dispose of all or any substantial part (as defined in paragraph
(d) of this Section 5.18) of the assets of Company and its
Subsidiaries; PROVIDED, HOWEVER, that:
(i) any Subsidiary may merge or consolidate with or
into the Company or any wholly-owned Subsidiary so long as
in any merger or consolidation involving the Company, the
Company shall be the surviving or continuing corporation;
(ii) the Company may consolidate or merger with any
other corporation if (A) Company shall be the surviving or
continuing corporation, (B) at the time of such
consolidation or merger and after giving effect thereto, no
Default or Event of Default shall have occurred and be
continuing, and (C) after giving effect to such
consolidation or merger the Company would be permitted to
incur at least $1.00 of additional indebtedness under the
provisions of Section 5.18; and
(iii) any Subsidiary may sell, lease or otherwise
dispose of all or any substantial part of its assets to the
Company or any wholly-owned Subsidiary.
(b) The Company will not permit any Subsidiary to issue or
sell any shares of stock of any class (including as "STOCK" for
the purposes of this Section 5.18, any warrants, rights or
options to purchase or otherwise acquire stock or other
Securities exchangeable for or convertible into stock) of such
Subsidiary to any Person other than the Company or a wholly-owned
Subsidiary, except for the purpose of qualifying directors, or
except in satisfaction of the validly pre-existing preemptive
rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a Subsidiary
whereby the Company and/or such Subsidiary maintain their same
proportionate interest in such Subsidiary.
(c) The Company will not sell, transfer or otherwise
dispose of any shares of stock in any Subsidiary (except to
qualify directors) or any indebtedness of any Subsidiary, and
will not permit any Subsidiary to sell, transfer or otherwise
dispose of (except to the Company or a wholly-owned Subsidiary)
any shares of stock or any indebtedness of any other Subsidiary,
unless:
(1) simultaneously with such sale, transfer or
disposition, all shares of stock and all indebtedness of
such Subsidiary at the time owned by the Company and by
every other Subsidiary shall be sold, transferred or
disposed of as an entirety;
(2) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the
retention of such stock and indebtedness is no longer in the
best interests of the Company;
(3) such stock and Indebtedness is sold, transferred
or otherwise disposed of to a Person, for a cash
consideration and on terms reasonably deemed by the Board
of Directors to be adequate and satisfactory;
(4) the Subsidiary being disposed of shall not have
any continuing investment in the Company or any other
Subsidiary not being simultaneously disposed of; and
(5) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of
the Company and its Subsidiaries.
(d) As used in this Section 5.18, a sale, lease or other
disposition of assets shall be deemed to be a "substantial part"
of the assets of the Company and its Subsidiaries only if the
book value of such assets, when added to the book value of all
other assets sold, leased or otherwise disposed of by the Company
and its Subsidiaries (other than in the ordinary course of
business) during the same twelve month period ending on the date
of such sale, lease or other disposition, exceeds 20% of the
consolidated net tangible assets of the Company and its
Subsidiaries determined as of the end of the immediately
preceding fiscal year.
Section 5.19 TRANSACTIONS WITH AFFILIATES. The Company
will not, and will not permit any Subsidiary to, enter into or be
a party to any transaction or arrangement with any officer,
director or Affiliate (including, without limitation, the
purchase from, sale to or exchange of property with, or the
rendering of any service by or for, any Affiliate), except in the
ordinary course of and pursuant to the reasonable requirements of
the Company's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to Company or such Subsidiary
than would obtain in a comparable arm's-length transaction with a
Person other than an Affiliate, in each case as determined in
good faith by a majority of the disinterested directors of the
Company (as the term "disinterested" is used in Section 144 of
the Delaware General Corporation Law).
Section 5.20 NOTICE. The Company shall promptly upon the
discovery thereof give written notice to Purchaser of (i) the
occurrence of any default or Event of Default or event which,
with the passage of time, would constitute an Event of Default,
under this Agreement, (ii) the occurrence of any default or event
of default under any other agreement providing for indebtedness
of the Company or any Subsidiary or under a capitalized lease
obligation, (iii) any actions, suits or proceedings instituted by
any Person against the Company or a Subsidiary or materially
affecting any of the assets of the Company or any Subsidiary, and
(iv) any dispute between the Company or any Subsidiary, on the
one hand, and any governmental regulatory body, on the other
hand, which dispute might interfere with the normal operations of
the Company or any Subsidiary; provided, however, that Purchaser
shall not disclose any such information provided in (iii) or (iv)
above to any third party other than Purchaser's counsel and
except to the extent compelled by law or otherwise authorized by
the Company.
Section 5.21 BOARD OF DIRECTORS; OBSERVER RIGHTS. (a)
Effective upon the closing of the transactions pursuant to
Section 1.2 hereof, (i) the size of the Board of Directors of the
Company shall be increased to five (5) directors, (ii) a nominee
of Purchaser shall be elected a director and (iii) at any time
within six (6) months of the date hereof or such later date as
the Purchaser shall determine in its sole discretion, the Board
of Directors shall fill the remaining vacancy by electing as
director a person who shall not be affiliated with either the
Company or any of its current directors or the Purchaser and who
shall be mutually agreed upon by three current directors and
Purchaser. For so long as the initial Purchaser or any Affiliate
owns Debentures representing at least 50% of the original
principal amount of the Debentures, the Company agrees to include
a nominee of the initial Purchaser in management's slate of
nominees to be elected to the Board of Directors and to recommend
to the stockholders the election of such nominee.
(b) For so long as the Debentures shall remain outstanding,
provided that no nominee of the initial Purchaser is a director,
the Company shall invite one representative of Purchaser to
attend, at the Company's expense, all meetings of the Company's
Board of Directors and all committees of the Company's Board of
Directors in a nonvoting capacity and, in this respect, shall
give such representative copies of all notices and meeting agenda
in advance of such meetings and shall permit such representative
to review all documents and other materials provided to directors
at such meetings. The Company shall also provide Purchaser, in
advance, with copies of all actions proposed to be taken by the
Board of Directors in lieu of meeting.
Section 5.22 INFORMATION. The Company will furnish to
Purchaser such financial data and other information relating to
the business of the Company as Purchaser may from time to time
reasonably request. In addition to the foregoing, no later than
ninety (90) days after the sale of the Debentures, the Company
shall furnish Purchaser a certificate, executed by the President
of the Company, itemizing the use of proceeds from the
Debentures, and the Company shall cooperate with Purchaser in
connection with post-closing review.
Section 5.23 FURTHER ASSURANCES. The Company will take
all actions reasonably requested by Purchaser to effect the
transactions contemplated by this Agreement and the other
Operative Documents.
Section 5.24 OPTIONAL REDEMPTIONS OF DEBENTURES. The
Debentures may not be redeemed, repaid or repurchased by the
Company at the option of the Company or any Subsidiary or
Affiliate at any time prior to the second anniversary of the date
of initial issuance of the Debentures. On and after the second
anniversary of the date of initial issuance, the Debentures shall
be subject to redemption, at the Company's option, in whole at
any time or in part from time to time, provided that in case of
each redemption at the Company's option hereunder, the Company
will give written notice thereof to each holder of a Debenture
to be redeemed not less than forty-five (45) nor more than
seventy-five (75) days prior to the date fixed for such
redemption (the "REDEMPTION DATE"), in each case specifying the
Redemption Date, the aggregate principal amount of the Debentures
to be redeemed on such date and the principal amount of
Debentures held by such holder to be redeemed on such date. In
the case of a redemption of part of the Debentures, such
redemption shall be effected pro rata among all holders of
Debentures.
Section 5.25 ANNUAL PLAN. The Board of Directors shall
adopt, no later than the first day of each fiscal year, a
financial plan for the Company, in such manner and form as
approved by the Board of Directors of the Company, which
financial plan shall include at least a projection of income and
expenses (including capital expenditures) and a projected cash
flow statement for each month in such fiscal year, and a
projected balance sheet as of the end of each month in such
fiscal year (the "ANNUAL PLAN").
ARTICLE VI
SUBORDINATION OF DEBENTURES
Section 6.1 SUBORDINATION. (a) Notwithstanding anything
to the contrary in this Agreement or in the Debentures, the
indebtedness evidenced by the Debentures, including principal and
interest, shall be subordinate and junior to the prior payment of
the indebtedness of the Company for borrowed money (except such
indebtedness of the Company other than the Debentures which is
expressly stated to be subordinate or junior in any respect to
other indebtedness of the Company), whether outstanding as of the
date of this Agreement (including any obligations of the Company
under any guaranty or suretyship agreement relating to
indebtedness for borrowed money by Subsidiaries of the Company),
or hereafter created constituting borrowed money from financial
institutions approved by the Board of Directors of the Company
and designated as being senior to the Debentures (but only to the
extent so designated), together with all obligations issued in
renewal, deferral, extension, refunding, amendment or
modification of any such indebtedness including, without
limitation, any and all indebtedness now or hereafter owing by
the Company to The CIT Group/Credit Finance, Inc. and its
successors and assigns (collectively, the "SENIOR INDEBTEDNESS").
Section 6.2 LIQUIDATION, ETC. (a) Upon any distribution
of assets of the Company in connection with any dissolution,
winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency, or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise), the
holders of all Senior Indebtedness shall first be entitled to
receive payment in full of the principal thereof, premium, if
any, and interest due thereon, and all costs and expenses
(including attorneys' fees) related thereto, before the holders
of the Debentures shall be entitled to receive any payment on
account of the principal of or interest on or any other amount
owing with respect to the Debentures (other than payment in
shares of capital stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, which
stock and securities are subordinated to the payment of all
Senior Indebtedness and securities received in lieu thereof which
may at the time be outstanding). Under the circumstances
provided herein, the holders of the Senior Indebtedness shall
have the right to receive and collect any distributions made with
respect to the Debentures until such time as the Senior
Indebtedness is paid in full, and shall have the further right to
take such actions as may be deemed necessary or required to so
receive and collect such distributions including making or filing
any proofs of claim relating thereto.
(b) Without in any way modifying the provisions of this
Article VI or affecting the subordination effected hereby if such
notice is not given, the Company shall give prompt written notice
to the Purchaser of any dissolution, winding up, liquidation or
reorganization of maker (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of
creditors or otherwise).
Section 6.3 SENIOR INDEBTEDNESS DEFAULT. The Company
shall not declare or pay any dividends or make any distributions
to the holders of capital stock of the Company, or purchase or
acquire for value, any of the Debentures if any default has
occurred and is continuing with respect to the payment of
principal of, premium if any or interest on any Senior
Indebtedness.
Section 6.4 SUBROGATION. Upon the prior payment in full
of all Senior Indebtedness, the Purchaser shall be subrogated to
the rights of the holders of the Senior Indebtedness to receive
payments or distributions of assets of the Company applicable to
the Senior Indebtedness until all amounts owing on the Debentures
shall be paid in full, and for the purpose of such subrogation,
no payments or distributions to the Purchaser otherwise payable
or distributable to the holders of Senior Indebtedness shall, as
between the Company, its creditors, other than the holders of
Senior Indebtedness, and Purchaser, shall be deemed to be payment
by the Company to or on account of the Debentures, it being
understood that the provisions of this Article VI are and are
intended solely for the purpose of defining the relative rights
of Purchaser, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
Section 6.5 COMPANY'S OBLIGATIONS NOT IMPAIRED. (a)
Nothing contained in this Article VI or in the Debentures is
intended to or shall impair, as between the Company and
Purchaser, the obligation of the Company, which is absolute and
unconditional, to pay the Purchaser the principal of and interest
on the Debentures as and when the same shall become due and
payable in accordance with the terms of the Debentures, or is
intended to or shall affect the relative rights of the Purchaser
other than with respect to the holders of the Senior
Indebtedness, nor, except as expressly provided in this Article
VI, shall anything herein or therein prevent the Purchaser from
exercising all remedies otherwise permitted by applicable law
upon the occurrence of an Event of Default under this Agreement
or under the Debentures.
(b) If any payment or distribution shall be received in
respect of the Debentures in contravention of the terms of this
Article VI, such payment or distribution shall be held in trust
for the holders of the Senior Indebtedness, and shall be
immediately delivered to such holders in the same form as
received.
ARTICLE VII
CONVERSION OF DEBENTURES
Section 7.1 CONVERSION PRIVILEGE. Subject to and upon
compliance with the provisions of this Article VII, the holder of
the Debentures shall have the right, at its option, at any time
and from time to time, to convert the principal amount of the
Debenture, or any portion thereof, into that number of fully paid
and nonassessable shares of Common Stock of the Company (the
"COMMON STOCK") (calculated as to each conversion to the nearest
1/100th of a share) obtained by dividing the principal amount of
the Debenture or portion thereof to be converted by the
Conversion Price. The Conversion Price shall be $4.00 per share
of Common Stock unless adjusted as set forth in Section 7.4
below.
Section 7.2 MANNER OF EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege, the Purchaser
shall surrender such Debenture to the Company, accompanied by
written notice (the "CONVERSION NOTICE") to the Company that the
Purchaser elects to convert such Debenture or the portion thereof
specified in said notice. The Conversion Notice shall also state
the name or names, together with address or addresses, in which
the certificate or certificates for shares of Common Stock which
shall be issuable on such conversion shall be issued, as well as
the information required under Section 8.2 below. Each Debenture
surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as that in which
such Debenture is registered, be accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by
the Purchaser or its duly authorized attorney. As promptly as
practicable after the surrender of such Debenture, as aforesaid,
the Company shall issue and shall deliver to the Purchaser a
certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such Debenture or
portion thereof in accordance with the provisions of this
Section, and any fractional interest in respect of a share of
Common Stock arising upon such conversion shall be settled as
provided in Section 7.3 below. In case the Debenture is
surrendered for partial conversion, the Company shall deliver to
Purchaser, at the expense of the Company, a new Debenture in an
aggregate principal amount equal to the unconverted portion of
the surrendered Debenture. Each conversion shall be deemed to
have been effected immediately prior to the close of business on
the date on which such Debenture shall have been surrendered and
the Conversion Notice received by the Company as aforesaid, and
the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time,
and such conversion shall be at the Conversion Price in effect at
such time, unless the stock transfer books of the Company shall
be closed on that date, in which event such person or persons
shall be deemed to have become such holder or holders of record
at the close of business on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at
the Conversion Price in effect on the date upon which such
Debenture shall have been surrendered and the Conversion Notice
received by the Company. No payment or adjustment shall be made
on conversion for interest accrued on the Debentures surrendered
for conversion or for dividends on Common Stock delivered on such
conversion.
Section 7.3 PAYMENT IN LIEU OF FRACTIONAL SHARES. No
fractional shares of Common Stock shall be issued upon conversion
of the Debentures. Instead of any fractional interest in a share
of Common Stock which would otherwise be deliverable upon the
conversion of the Debenture, the Company shall make an adjustment
to the nearest 1/100th of a share in cash at the current market
price thereof at the close of business on the Business Day next
preceding the day of conversion.
Section 7.4 ADJUSTMENT OF CONVERSION PRICE. The
Conversion Price shall be adjusted from time to time as follows:
(a) In case the Company shall hereafter (i) pay a dividend
or make a distribution on its Common Stock in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into
a greater number of shares, (iii) combine its outstanding shares
of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its Common Stock any shares of capital stock
of the Company, the Conversion Price in effect immediately prior
to such action shall be adjusted so that the holder of any
Debenture thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock or other capital
stock of the Company which it would have owned immediately
following such action had such Debenture been converted
immediately prior thereto. An adjustment made pursuant to this
subsection (a) shall become effective immediately after the
record date in the case of dividend or distribution and shall
become effectively immediately after the effective date in the
case of a subdivision, combination or reclassification. If, as a
result of an adjustment made pursuant to this subsection (a), the
holder of any Debenture thereafter surrendered for conversion
shall become entitled to receive shares of two or more classes of
capital stock or shares of Common Stock and other capital stock
of the Company, the Board of Directors of the Company (whose
determination shall be conclusive) shall determine the allocation
of the adjusted Conversion Price between or among shares of such
classes of capital stock or shares of Common Stock and other
capital stock.
(b) In case the Company shall hereafter issue rights or
warrants to holders of its outstanding shares of Common Stock
generally entitling them (for a period expiring within 45 days
after the record date mentioned below) to subscribe for or
purchase shares of Common Stock at a price per share less than
the current market price per share (as determined pursuant to
subsection (d) of this Section 7.4) of the Common Stock on the
record date mentioned below, the Conversion Price of the shares
of Common Stock shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance of such rights
or warrants by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares
so offered would purchase at such current market price, and of
which the denominator shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock
offered for subscription or purchase. Such adjustment shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or
warrants.
(c) In case the Company shall hereafter distribute to
holders of its outstanding Common Stock generally evidences of
its indebtedness or assets (excluding any cash dividend paid from
retained earnings of the Company and dividends or distributions
payable in stock from which adjustment is made pursuant to
subsection (a) of this Section 7.4) or rights or warrants to
subscribe to securities of the Company (excluding those referred
to in subsection (b) of this Section 7.4, then in each such case
the Conversion Price of the shares of Common Stock shall be
adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to
the date of such distribution by a fraction of which the
numerator shall be the current market price per share (determined
as provided in subsection (d) of this Section 7.4) of the Common
Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive) of the portion of the
evidences of indebtedness or assets so distributed to the holder
of one share of Common Stock or of such subscription rights or
warrants applicable to one share of Common Stock, and of which
the denominator shall be such current market price per share of
Common Stock. Such adjustment shall become effective immediately
after the record date for the determination of stockholders
entitled to receive such distribution.
(d) For the purpose of any computation under subsections
(b) and (c) of this Section 7.4, the current market price per
share of Common Stock on any date shall be deemed to be the
average of the daily market prices for the twenty (20)
consecutive Business Days before the day in question. The market
price for each such business day shall be (i) in the case of a
security listed or admitted to trading on any securities
exchange, the last reported sale price, regular way (as
determined in accordance with the practices of such exchange), on
such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day (and in the case of
a security traded on more than one national securities exchange,
at such price or such average, upon the exchange on which the
volume of trading during the last calendar year was the
greatest), (ii) in the case of a security not then listed or
admitted to trading on any securities exchange, the last reported
sale price on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, as
reported by a reputable quotation service designated by the
Company, (iii) in the case of a security not then listed or
admitted to trading on any securities exchange and as to which no
such reported sale price or bid and asked prices are available,
the average of the reported high bid and low asked prices on such
day, as reported by a reputable quotation service, or the WALL
STREET JOURNAL, or if there are no bids and asked prices on such
day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 days prior to
the date in question) for which prices have been so reported, and
(iv) in the case of a security determined by the Company's Board
of Directors as not having an active quoted market or in the case
of other property, such fair market value as shall be determined
by the Board of Directors.
(e) In any case in which this Section 7.4 shall require
that an adjustment be made immediately following a record date,
the Company may elect to defer (but only until five business days
following the filing by the Company with the Purchaser of the
certificate of independent public accountants described in
subsection (g) of this Section 7.4) issuing to the holder of any
Debenture converted after such record date the shares of Common
Stock issuable upon such conversion over and above the shares of
Common Stock issuable upon such conversion on the basis of the
Conversion Price prior to adjustment.
(f) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of
at least 1% of such price; PROVIDED, HOWEVER, that any
adjustments which by reason of this subsection (f) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment, and PROVIDED FURTHER, that
adjustment shall be required and made in accordance with the
provisions of this Section 7.4 (other than this subsection (f))
not later than such time as may be required in order to preserve
the tax-free nature of a distribution to the holders of
Debentures or Common Stock. All calculations under this Section
7.1(d) shall be made to the nearest cent or to the nearest
1/100th of a share, as the case may be. Anything in this Section
7.4 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Conversion Price, in
addition to those required by this Section 7.4, as it in its
discretion shall be determine to be advisable in order that any
stock dividend, subdivision of shares, distribution of rights to
purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable.
(g) Whenever the Conversion Price is adjusted as herein
provided, (i) the Company shall promptly deliver to the Purchaser
a certificate of a firm of independent public accountants setting
forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment
and the manner of computing the same, which certificate shall be
conclusive evidence of the correctness of such adjustment and
(ii) a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price shall forthwith
be given by the Company to Purchaser.
(h) In the event that at any time as a result of an
adjustment made pursuant to subsection (a) of this Section 7.4,
the holder of any Debenture thereafter surrendered for conversion
shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Conversion Price of
such other shares so receivable upon conversion of any Debenture
shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in this Section 7.4.
Section 7.5 NOTICE OF CERTAIN CORPORATION ACTION. In
case:
(a) the Company shall take any action which would require
an adjustment in the Conversion Price pursuant to Section 7.4(c);
or
(b) the Company shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights;
or
(c) there shall be any capital reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock), or any
consolidation or merger to which the Company is a part or any
statutory exchange of securities with another corporation and for
which approval of any stockholders of the Company is required, or
any sale or transfer of all or substantially all of the assets of
the Company; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then the Company shall provide to Purchaser, at least ten (10)
days prior to the applicable date hereinafter specified, a notice
stating (i) the date on which a record is to be taken for the
purpose of such distribution or rights, or, if a record is not to
be taken, the date as of which the holders of Common Stock of
record to be entitled to such distribution or rights are to be
determined, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation
or winding-up. Failure to give such notice or any defect therein
shall not affect the legality or validity of the proceedings
described in subsection (a), (b), (c) or (d) of this Section 7.5.
Section 7.6 THE COMPANY TO PROVIDE STOCK. The Company
covenants that it will at all times reserve and keep available,
free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its issued
shares of Common Stock held in its treasury, or both, for the
purpose of effecting conversions of the Debenture, the full
number of shares of Common Stock deliverable upon the conversion
of the Debentures.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any)
of the shares of Common Stock deliverable upon conversion of the
Debenture, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Conversion
Price.
Prior to the delivery of any securities which the Company
shall be obligated to deliver upon conversion of the Debentures,
the Company shall comply with all federal and state laws and
regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery
thereof by, any governmental authority, unless an exemption from
registration is available.
Section 7.7 TAXES ON CONVERSIONS. The Company will pay
any and all documentary stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of shares of Common
Stock upon conversion of the Debenture pursuant hereto; PROVIDED,
HOWEVER, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issue or delivery of shares of Common Stock in a name other than
that of Purchaser, and no such issue or delivery shall be made
unless and until the person requesting such issue or delivery has
paid to the Company the amount of any such tax or has
established, to the satisfaction of the Company, that such tax
has been paid.
Section 7.8 COVENANT AS TO STOCK. The Company covenants
that all shares of Common Stock which may be delivered upon
conversion of the Debenture will upon delivery be duly and
validly issued and fully paid and nonassessable, free of all
liens and charges and not subject to any preemptive rights.
Section 7.9 CONSOLIDATION OR MERGER. Notwithstanding any
other provision herein to the contrary, in case of any
consolidation or merger to which the Company is a party other
than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety
or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustments
under Section 7.4 but the Purchaser shall have the right
thereafter to convert such Debenture into the kind and amount of
securities, cash or other property which he would have owned or
have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had
such Debenture been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale or
conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set
forth in this Article VII with respect to the rights and
interests thereafter of the holders of the Debentures, to the end
that the provisions set forth in this Article VII shall
thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other
securities or property thereafter deliverable on the conversion
of the Debentures. Any such adjustment shall be approved by a
firm of independent public accountants, evidenced by a
certificate to that effect; and any adjustment so approved shall
for all purposes hereof conclusively be deemed to be an
appropriate adjustment.
The above provisions of this Section 7.1(a) shall similarly
apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
ARTICLE VIII
RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS
Section 8.1 LEGENDS; RESTRICTIONS ON CONVERSION AND
TRANSFER. Neither the Debenture nor the shares of Common Stock
issuable upon conversion of the Debenture have been registered
under the Securities Act or any state securities laws. Each
Debenture issued pursuant to this Agreement and each stock
certificate issued upon the conversion of any Debenture (except
as permitted by this Article VIII) shall bear a legend in
substantially the following form:
NEITHER THIS DEBENTURE NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON THE CONVERSION HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND
MAY NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS, OR (ii) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION
UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
The outstanding Common Stock of the Company evidenced by a
certificate bearing such a legend is sometimes referred to herein
as "Legend Stock." Any certificate issued at any time in
exchange or substitution for any certificate bearing such a
legend (except a new certificate issued upon completion of a
public distribution under a registration statement under the
Securities Act of the securities represented thereby) shall also
bear such a legend unless in the opinion of counsel to such
holder, specified in Section 8.2 below, the securities
represented thereby are no longer subject to the restrictions
described herein. The provisions of this Article VIII shall be
binding upon all subsequent holders of Legend Stock, shall also
be applicable to and inure to the benefit of all subsequent
holders of the Debentures.
Section 8.2 NOTICE OF INTENTION TO CONVERT OR TRANSFER;
OPINIONS OF COUNSEL. The Debentures and the Legend Stock to be
issued upon such conversion thereof shall not be transferable
except upon the conditions specified in this Article VIII. Each
holder of any Debenture or Legend Stock, by acceptance thereof,
agrees, prior to any transfer or such Debenture or Legend Stock
or in the Conversion Notice delivered pursuant to Section 7.2
above, in connection with any conversion of such Debenture, to
give written notice to the Company of such holder's intention to
effect such transfer or conversion and briefly describing the
manner of the proposed transfer or, in the case of conversion,
whether such holder intends to retain or dispose of the Common
Stock issuable upon the proposed conversion and, if applicable,
the intended method of disposition, such notice of intended
transfer or Conversion Notice shall be accompanied by, if
applicable, a copy of the opinion of counsel to such holder
reasonably satisfactory to the Company, to the effect that
registration under the Securities Act of such Debenture or Legend
Stock or Common Stock, as the case may be, in connection with
such proposed transfer, disposition or retention upon such
proposed conversion is not required. If in the opinion of such
counsel, the proposed transfer of such Debenture or Legend Stock,
or the proposed disposition or retention of Common Stock to be
issued upon such conversion, may be effected without registration
of such Debenture, Legend Stock or Common Stock, as the case may
be, under the Securities Act, such holder shall be entitled to
transfer such Debenture or Legend Stock or to dispose or retain
such Common Stock to be issued upon conversion, in accordance
with the terms of the notice delivered by such holder to the
Company. The Company will promptly upon such conversion or
transfer deliver new Debentures or certificates for Common Stock
not bearing a legend of the character set forth in Section 8.1,
unless in the opinion of such counsel subsequent disposition by
such holder or by others of the Common Stock to be issued upon
conversion or of the Legend Stock to be so transferred may
require registration under the Securities Act. If the proposed
transfer of such Debenture or Legend Stock, or the proposed
disposition or retention of the Common Stock to be issued upon
such conversion, may not be affected without registration of such
Debenture, Legend Stock or Common Stock under the Securities Act,
the holder thereof shall not be entitled to transfer such
Debenture, such Legend Stock or Common Stock in the absence of an
effective registration statement.
8.3 REQUESTED REGISTRATION.
(a) If the Company shall receive from Initiating Holders at
any time or times a written request that the Company effect any
registration with respect to Registrable Securities, in an
offering to be firmly underwritten by underwriters selected by
the Initiating Holders (subject to the consent of the Company,
which consent will not be unreasonably withheld), the Company
will:
(i) promptly give written notice of the proposed
registration to all other holders of Registrable
Securities; and
(ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation,
filing post-effective amendments, appropriate qualifications
under applicable blue sky or other state securities laws,
and appropriate compliance with the Securities Act) and as
would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are
specified in such request, together with all or such portion
of the Registrable Securities of any holders of Registrable
Securities joining in such request as are specified in a
written request received by the Company within twenty (20)
days after such written notice from the Company is mailed or
delivered.
The Company shall only be required to effect, pursuant to
this Section 8.3, three (3) registrations of Registrable
Securities.
(b) PROVISO. The Company shall not be obligated to effect,
or to take any action to effect, any such registration pursuant
to this Section 8.3:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to
service of process in effecting such registration,
qualification, or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be
required by the Securities Act;
(ii) During the period starting with the date fifteen
(15) days prior to the Company's good faith estimate of the
date of filing of, and ending on a date ninety (90) days
after the effective date of, a Company-initiated
registration, provided that the Company is actively
employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities which may be immediately
registered on Form S-3 pursuant to a request made under
Section 8.5 hereof.
(c) DEFERRAL OF REGISTRATION. The Company shall file a
registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt
of the request or requests of the Initiating Holders; PROVIDED,
HOWEVER, that if (i) in the good faith judgment of the Board of
Directors of the Company, such registration would be materially
detrimental to the Company because there exist bona fide
financing, acquisition or other activities of the Company and the
Board of Directors of the Company concludes, as a result, that it
is essential to defer the filing of such registration statement
at such time, and (ii) the Company shall furnish to the
Initiating Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be materially detrimental to
the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the
filing of such registration statement, then the Company shall
have the right to defer such filing (except as provided in
subsection (b)(ii) above) for a period of not more than ninety
(90) days after receipt of the request of the Initiating Holders,
and, provided further, that the Company shall not defer its
obligation in this manner more than once in any twelve-month
period.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of the
Sections 8.3(b) and 8.10 hereof, include other securities of the
Company, with respect to which registration rights have been
granted, and may include securities of the Company being sold for
the account of the Company, provided that all the Registrable
Shares for which the Initiating Holders have requested
registration shall be covered by such registration statement
before any other securities are included.
(d) UNDERWRITING. The right of any other holders of
Registrable Securities joining in a request for registration as
provided in Subsection (a)(i) above to registration pursuant to
this Section 8.3 shall be conditioned upon such holder's
participation in such underwriting and the inclusion of such
holder's Registrable Securities in the underwriting on the same
terms as those of the Initiating Holders (unless otherwise
mutually agreed by a majority in interest of the Initiating
Holders and such holder with respect to such participation and
inclusion).
(e) PROCEDURES. In any registration pursuant to Section
8.3, if the Company shall request inclusion of securities to be
sold for its own account, or if other persons entitled to
incidental registrations shall request inclusion in such
registration pursuant to Section 8.3, Subsection (a)(i) above,
the Initiating Holders shall, on behalf of all holders of
Registrable Securities, offer to include such securities in the
underwriting and may condition such offer on the acceptance by
the Company or such other persons of the further applicable
provisions of this Article VII. The Company shall (together with
all such other persons proposing to distribute their securities
through such underwriting) enter into an underwriting agreement
in customary form with the representative of the underwriter or
underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriters are
reasonably acceptable to the Company. Notwithstanding any other
provision of this Section, if the representative of the
underwriters advises the Initiating Holders of the need for an
Underwriter's Cutback, the number of shares to be included in the
underwriting or registration shall be allocated as set forth in
Section 8.10 hereof. If a person who has requested inclusion in
such registration as provided in this Subsection (e) does not
agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the
underwriter or the Initiating Holders, and the securities owned
by such person(s) shall be withdrawn from registration (the
"WITHDRAWN SECURITIES"). If there are any Withdrawn Securities
and if there was an Underwriter's Cutback, then the Company shall
offer to all holders who have retained rights to include
securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to
the number of Withdrawn Securities that would have been included
in the registration after giving effect to the Underwriter's
Cutback had such securities not been withdrawn, with such shares
to be allocated among such Holders requesting additional
inclusion in accordance with Section 8.13.
8.4 THE COMPANY REGISTRATION
(a) NOTICE AND PROCEDURES. If the Company shall determine
to register any of its Common Stock either for its own account or
the account of a security holder or holders exercising their
respective demand registration rights (other than pursuant to
Sections 8.3 or 8.5 hereof), other than a registration relating
solely to employee benefit plans (as defined under Rule 405 of
the Securities Act), or a registration relating solely to a Rule
145 transaction, or a registration on any registration form that
does not permit secondary sales, the Company will:
(i) promptly give written notice thereof to each
holder of Debentures or Registrable Securities; and
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky
laws or other compliance), except as set forth in Section
8.4(b) below, and in any underwriting involved therein, all
the Registrable Securities specified in a written request or
requests, made by any holder of Registrable Securities and
received by the Company within ten (10) days after the
written notice from the Company described in clause (i)
above is mailed or delivered by the Company, which written
request may specify the inclusion of all or a part of such
holder's Registrable Securities.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the holders of
Registrable Securities as a part of the written notice given
pursuant to Section 8.4(a)(i). In such event, the right of any
holders to registration pursuant to this Section shall be
conditioned upon such holder's participation in such underwriting
and the inclusion of such holder's Registrable Securities in the
underwriting to the extent provided herein. All holders of
Registrable proposing to distribute their securities through such
underwriting shall (together with the Company and the other
holders of securities of the Company with registration rights to
participate therein distributing their securities through such
underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters
selected by the Company.
Notwithstanding any other provision of this Section, if the
representative of the underwriters advises the Company of the
need for an Underwriter's Cutback, the representative may
(subject to the limitations set forth below) limit the number of
Registrable Securities to be included in the registration and
underwriting; PROVIDED, HOWEVER, that Registrable Securities
shall be included in any over-allotment option granted to the
underwriters before inclusion of any shares from the Company.
The Company shall advise all holders of securities requesting
registration of the Underwriter's Cutback, and the number of
shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to the
Company for securities being sold for its own account and
thereafter as set forth in Section 8.13. If any person does not
agree to the terms of any such underwriting, it shall be excluded
therefrom by written notice from the Company or the underwriter
and any securities so excluded or withdrawn from such
underwriting shall be withdrawn from such registration "WITHDRAWN
SECURITIES".
If there are Withdrawn Securities and if there was an
Underwriter's Cutback, the Company shall then offer to all
persons who have retained the right to include securities in the
registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares
of Withdrawn Securities that would have been included in the
registration after giving effect to the Underwriter's Cutback had
such securities not been withdrawn, with such shares to be
allocated among the persons requesting additional inclusion in
accordance with Section 8.13 hereof.
(c) LOCK UP AGREEMENTS. If requested in writing by the
Company and an underwriter of Common Stock for the Company, the
holders of Registrable Securities shall agree not to sell or
otherwise transfer or dispose of any Common Stock of the Company
held by such holder (other than those included in the
registration statement) for a period following the effective date
of a registration statement of the Company filed under the
Securities Act, PROVIDED that all officers and directors of the
Company, all holders of Registrable Securities, and all other
holders of rights to registration of any other security of the
Company enter into similar agreements identical in terms to that
of the holders of Registrable Securities.
8.5 REGISTRATION ON FORM S-3.
(c) After the Company has qualified for the use of Form
S-3, in addition to the rights contained in the foregoing
provisions of this Article VIII, the holders of Registrable
Securities shall have the right to request registrations on Form
S-3 or any comparable or successor form (such requests shall be
in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of
disposition of such shares by such holder or holders (including
whether such resales are to be made on a continuous basis
pursuant to Rule 415), PROVIDED, HOWEVER, that the Company shall
not be obligated to effect any such registration if (i) the
holder of Registrable Securities, together with the holders of
any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such
other shares of Common Stock (if any) on Form S-3 at an aggregate
price to the public of less than $500,000, or (ii) in the event
that the Company shall furnish the certification described in
paragraph 8.3(b)(ii) or 8.3(c) (but subject to the limitations
set forth therein), or (iii) the Company will be required to
obtain an audit (other than for its normal year-end audit) for
such registration to become effective. The Company shall only be
required to effect two (2) registrations of Registrable
Securities pursuant to this Section 8.5 in each calendar year,
PROVIDED, HOWEVER, that if the offering is to be effected on a
continuous or delayed basis pursuant to Rule 415, or any
successor rule, and the registration statement is kept effective
for a period in excess of 180-days, then the Company shall not be
required to effect another registration in that calendar year.
(d) If a request complying with the requirements of Section
8.5 hereof is delivered to the Company, the provisions of
Sections 8.3(a)(i) and (ii) and Section 8.3(b) hereof shall apply
to such registration. If the registration is for an underwritten
offering, the provisions of Sections 8.3(c) and 8.3(d) hereof
shall also apply to such registration.
8.6 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification or
compliance pursuant to Sections 8.3, 8.4 and 8.5 hereof, shall be
borne by the Company; PROVIDED, HOWEVER, that a holder shall bear
the Registration Expenses for any registration proceeding begun
pursuant to Section 8.3 and subsequently withdrawn by that holder
registering shares therein, unless such withdrawal is based upon
(a) material adverse information relating to the Company that is
different from the information known or available (upon request
from the Company or otherwise) to the Initiating Holders at the
time of their request for registration under Section 8.3, or (b)
material adverse changes in the financial markets which result in
a significant decline in the public market price for the
Company's Common Stock of at least twenty percent (20%) from the
date such registration proceeding is begun to the date of such
withdrawal. All Selling Expenses relating to securities so
registered shall be borne by the holders of such securities pro
rata on the basis of the number of shares of securities so
registered on their behalf.
8.7 REGISTRATION PROCEDURES. In the case of each
registration effected by the Company pursuant to this Agreement,
the Company will use its best efforts to:
(a) Prepare and file with the SEC a registration statement
with respect to the securities to registered on such form as the
Company deems appropri written notice tted or qualified to use,
and shall use all reasonable efforts to cause such registration
statement to become and remain effective for a period of ninety
(90) days or until the holders have completed the distribution
described in the registration statement relating thereto,
whichever first occurs or, in the case of any registration of
Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, for such period as
shall be necessary to keep the registration statement effective
until all such Registrable Securities are sold;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to the holders of Registrable Securities to be
included in a registration statement, at a reasonable time prior
to the filing thereof with the SEC, a copy of the registration
statement (and each amendment thereto) in the form the Company
proposes to file same; and furnish such number of prospectuses
and other documents incident thereto, including any amendment of
or supplement to the prospectus, as such holder of Registrable
Securities from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities
Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing, and
prepare and furnish to such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of
such shares, 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 or incomplete in the light of the
circumstances then existing;
(e) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on
which similar securities issued by the Company are then listed;
and provide a transfer agent and registrar for all the securities
registered pursuant to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not
later than the effective date of such registration;
(f) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
but not more than eighteen (18) months, beginning with the first
month after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act; and
(g) In connection with any underwritten offering pursuant
to a registration statement filed pursuant to Section 8.3 or 8.5
hereof, the Company will enter into an underwriting agreement
containing customary underwriting provisions so as to effect the
offer and sale of the Common Stock.
8.8 INDEMNIFICATION.
(a) The Company will indemnify each holder of Registrable
Securities, each of its officers, directors and partners, and
each person controlling such holder within the meaning of Section
15 of the Securities Act, with respect to which registration has
been effected pursuant to this Article VIII, and each
underwriter, if any, and each person who controls within the
meaning of Section 15 of the Securities Act any underwriter,
against all expenses, claims, losses, damages, and liabilities
(or actions, proceedings, or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus
(including any related registration statement, notification, or
the like) incident to any registration under this Article VIII,
or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such
registration, and will reimburse each such holder, each of its
officers, directors, partners, and each person controlling such
holder, each such underwriter, and each person who controls any
such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company
by such holder or underwriter and stated to be specifically for
use therein. It is agreed that the indemnity agreement contained
in this Section shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld).
(b) In connection with the registration or sale of shares
of Registrable Securities pursuant to this Article VIII, each
holder whose Registrable Securities are included in such
registration being effected under this Article VIII, will
indemnify the Company, each of its directors, officers, partners,
and each underwriter, if any, of the Company's securities covered
by such a registration statement, each person who controls the
Company or such underwriter within the meaning of Section 15 of
the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement or
prospectus, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse the Company and such directors, officers, partners,
underwriters, or control person for any legal or any other
expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, in
each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement or prospectus,
in reliance upon and in conformity with written information
furnished to the Company by such holder of the Registrable
Securities, and stated to be specifically for use therein;
PROVIDED, HOWEVER, that the obligations of such holder hereunder
shall not apply to amounts paid in settlement of any such claims,
losses, damages, or liabilities (or actions in respect thereof
(if such settlement is effected without the consent of such
holder, which consent shall not be unreasonably withheld); and
PROVIDED THAT in no event shall any indemnity under this Section
exceed the gross proceeds from the offering received by such
holder.
(c) Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the party
or parties required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of such
claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be
approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations under this Section, to the extent such failure is not
prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to
such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall
be reasonably required in connection with defense of such claim
and litigation resulting therefrom.
(d) If the indemnification provided for in this Section is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim,
damage, or expense referred to therein, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim,
damage, or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with
the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other
relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
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.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall
control.
8.9 INFORMATION BY HOLDER. Each holder of Registrable
Securities shall furnish to the Company in writing such
information regarding such holder and the distribution proposed
by such holder as the Company or underwriters may reasonably
request in writing and as shall be reasonably required in
connection with any registration, qualification, or compliance
referred to in this Section.
8.10 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which all of the Registrable Securities and other
shares Common Stock of the Company with registration rights (the
"OTHER SHARES") requested to be included in a registration on
behalf of the holders of Registrable Securities or other selling
stockholders cannot be so included as a result of limitations of
the aggregate number of shares of Registrable Securities and
Other Shares that may be so included, the number of shares of
Registrable Securities and Other Shares that may be so included
shall be allocated among the holders of Registrable Securities
and other selling stockholders requesting inclusion of shares pro
rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such holders
and other selling stockholders. If any holder of Registrable
Securities or other selling stockholder does not request
inclusion of the maximum number of shares of Registrable
Securities and Other Shares allocated to him pursuant to this
procedure, the remaining portion of his allocation shall be
reallocated among those requesting holders of Registrable
Securities and other selling stockholders whose allocations did
not satisfy their requests pro rata on the basis of the number of
shares of Registrable Securities and Other Shares which would be
held by such holders and other selling stockholders, and this
procedure shall be repeated until all of the shares of
Registrable Securities and Other Shares which may be included in
the registration on behalf of the holders of Registrable
Securities and other selling stockholders have been so allocated.
The Company shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in
order to include shares held by stockholders with no registration
rights or to include in that registration shares of stock issued
to employees, officers, directors, or consultants pursuant to the
Company's stock option plan, or in order to include in such
registration securities registered for the Company's own account.
8.11 SURVIVAL OF RIGHTS; TERMINATION OF REGISTRATION RIGHTS.
The provisions of Section 8.3 through 8.10 hereof shall survive
the payment in full and/or the conversion of the Debentures. The
right of any holder of Debentures or Legend Stock to request
registration or inclusion in any registration pursuant to this
Article VIII shall terminate on such date as all shares of
Registrable Securities held or entitled to be held upon
conversion by such holder may immediately be sold under Rule 144
during any 90-day period.
ARTICLE IX
EVENTS OF DEFAULT; REMEDIES
Section 9.1 EVENTS OF DEFAULT. The occurrence of any one
of the following shall constitute an "EVENT OF DEFAULT" under
this Agreement:
(a) Default shall occur in the payment of interest on any
Debenture when the same shall have become due; or
(b) Default shall occur in the making of any payment of the
principal of any Debenture or the premium, if any, by the Company
thereon at the expressed or any accelerated maturity date or at
any Redemption Date; or
(c) Default shall be made in the payment of the principal
of or interest on any indebtedness (other than the Debentures) of
the Company or any Subsidiary and such default shall continue
beyond the period of grace, if any, allowed with respect thereto;
or
(d) Default or the happening of any event shall occur under
any indenture, agreement, or other instrument under which any
indebtedness (other than the Debentures) of the Company or any
Subsidiary may be issued and such default or event shall continue
for a period of time sufficient to permit the acceleration of the
maturity of any such indebtedness of the Company or any
Subsidiary outstanding thereunder; or
(e) Default shall occur in the observance or performance of
any covenant or agreement contained in Section 5.3 or Section
5.13 through Section 5.19, hereof; or
(f) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied
within thirty (30) days after the earlier of (i) the date on
which the Company first obtains knowledge of such Default and
(ii) the date on which written notice thereof is given to the
Company by the holder of any Debenture; or
(g) Any representation or warranty made by the Company
herein, or made by the Company in any statement or certificate
furnished by the Company in connection with the consummation of
the issuance and delivery of the Debentures or furnished by the
Company pursuant hereto, is untrue in any material respect as of
the date of the issuance or making thereof; or
(h) Final judgment or judgments for the payment of money
aggregating in excess of $100,000 is or are outstanding against
the Company or any Subsidiary or against any property or assets
of either and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a
period of thirty (30) days from the date of its entry; or
(i) The Company or any Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or
makes an assignment for the benefit of creditors, or the Company
or any Subsidiary applies for or consents to the appointment of a
custodian, trustee, liquidator, or receiver for the Company or
such Subsidiary or for the major part of the property of either;
or
(j) A custodian, trustee, liquidator, or receiver is
appointed for the Company or any Subsidiary or for the major part
of the property of either and is not discharged within thirty
(30) days after such appointment; or
(k) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy
or similar law or laws for the relief of debtors, are instituted
by or against the Company or any Subsidiary and, if instituted
against the company or any Subsidiary, are consented to or are
not dismissed within thirty (30) days after such institution.
Section 9.2 NOTICE TO HOLDERS. When any Event of Default
described in the foregoing Section 9.1 has occurred, or if the
holder of any Debenture or of any other evidence of indebtedness
of the Company gives any notice or takes any other action with
respect to a claimed default, the Company agrees to give notice
within three (3) Business Days of such event to all holders of
the Debentures then outstanding.
Section 9.3 ACCELERATION OF MATURITIES. When any Event
of Default described in paragraph (a), (b) or (c) of Section 9.1
has happened and is continuing, any holder of any Debenture may,
and when any Event of Default described in paragraphs (d) through
(h), inclusive, of said Section 9.1 has happened and is
continuing the holder or holders of 50% or more of the principal
amount of Debentures at the time outstanding may, by notice to
the Company, declare the entire principal and all interest
accrued on all Debentures to be, and all Debentures shall
thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived. When any Event of Default
described in paragraph (i), (j), or (k) of Section 9.1 has
occurred, then all outstanding Debentures shall immediately
become due and payable without presentment, demand or notice of
any kind. Upon the Debentures becoming due and payable as a
result of any Event of Default as aforesaid, the Company will
forthwith pay to the holders of the Debentures the entire
principal and interest accrued on the Debentures. No course of
dealing on the part of any Debentureholder nor any delay or
failure on the part of any Debentureholder to exercise any right
shall operate as a waiver of such right or otherwise prejudice
such holder's rights, powers and remedies. The Company further
agrees, to the extent permitted by law, to pay to the holder or
holders of the Debentures all costs and expenses , including
reasonable attorneys' fees, incurred by them in the collection of
any Debentures upon any default hereunder or thereon.
ARTICLE X
AMENDMENTS, WAIVERS AND CONSENTS
Section 10.1 CONSENT REQUIRED. Any term, covenant,
agreement or condition of this Agreement may, with the consent of
the Company, be amended or compliance therewith may be waived
(either generally or in a particular instance and either
retroactively or prospectively, if the Company shall have
obtained the consent in writing of the holders of at least 50% in
aggregate principal amount of outstanding Debentures; provided
that without the written consent of the holders of all of the
Debentures then outstanding, no such waiver, modification,
alteration or amendment shall be effective (a) which will change
the time of payment of the principal of or the interest on any
Debenture or reduce the principal amount thereof or change the
rate of interest thereon, or (b) which will change any of the
provisions with respect to optional prepayments, or (c) which
will change the percentage of holders of the Debentures required
to consent to any such amendment, modification or waiver of any
of the provisions of this Article X or Article IX.
Section 10.2 SOLICITATION OF DEBENTUREHOLDERS. The
Company will not solicit, request or negotiate for or with
respect to any proposed amendment, modification or waiver of any
of the provisions of this Agreement or the Debentures unless each
holder of the Debentures (irrespective of the amount of
Debentures then owned by it) shall be informed thereof by the
Company and shall be afforded the opportunity of considering the
same and shall be supplied by the Company with sufficient
information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any
waiver effected pursuant to the provisions of this Section 10.2
shall be delivered by the Company to each holder of outstanding
Debentures forthwith following the date on which the same shall
have been executed and delivered by the holder or holders of the
requisite percentage of outstanding Debentures. The Company
will not, directly or indirectly, pay or cause to be paid by
remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any holder of the Debentures as
consideration for or as an inducement to the entering into by any
holder of the Debentures of any waiver or amendment of any of the
terms and provisions of this Agreement unless such remuneration
is concurrently paid, on the same terms, ratably to the holders
of all of the Debentures then outstanding.
Section 10.3 EFFECT OF AMENDMENT OR WAIVER. Any such
amendment or waiver shall apply equally to all of the holders of
the Debentures and shall be binding upon them, upon each future
holder of any Debenture and upon the Company, whether or not such
Debenture shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect
any obligation not expressly amended or waived or impair any
right consequent thereon.
ARTICLE XI
INTERPRETATION OF AGREEMENT; DEFINITIONS
Section 11.1 DEFINITIONS. Unless the context otherwise
requires, the terms hereinafter set forth when sued herein shall
have the following meanings and the following definitions shall
be equally applicable to both the singular and plural forms of
any of the terms herein defined:
"AFFILIATE" shall mean any Person (other than a Restricted
Subsidiary) (a) which directly or indirectly through one or more
intermediaries controls, or is controlled by , or is under common
control with, the Company, (b) which beneficially owns or holder
5% or more of any class of the Voting Stock of the Company or (c)
5% or more of the Voting Stock (or in the case of a Person which
is not a corporation, 5% or more of the equity interest) of which
is beneficially owned or held by the Company or a Subsidiary.
The term "control" means take 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
Stock, by contract or otherwise.
"BUSINESS DAY" shall mean any day other than a Saturday,
Sunday, or other day on which banks in Tennessee are authorized
to close.
"DEFAULT" shall mean any event or condition, the occurrence
of which would, with the lapse of time or the giving of notice,
or both, constitute an Event of Default as defined in Section
9.1.
"DISCLOSURE STATEMENT" shall mean the disclosure statement,
dated the date hereof, and attachments thereto delivered by the
Company to the Purchaser simultaneously with the execution of
this Agreement.
"ENVIRONMENTAL LEGAL REQUIREMENTS" shall mean any
international, federal, state or local statute, law, regulations,
order, consent decree, judgment, permit, license, code, covenant,
deed restriction, common law, treaty, convention, ordinance or
other requirement relating to public health, safety or the
environment, including, without limitation, those relating to
releases, discharges or emissions to air, water, land or
groundwater, to the withdrawal or use of groundwater, to the use
and handling of polychlorinated biphenyls or asbestos, to the
disposal, treatment, storage or management of hazardous or solid
waste, or Hazardous Substances or crude oil, or any fraction
thereof, or to exposure to toxic or hazardous materials, to the
handling, transportation, discharge or release of gaseous or
liquid Hazardous Substances and any regulation, order, notice or
demand issued pursuant to such law, statute or ordinance, in
each case applicable to the property of the Company or any of its
Restricted Subsidiaries or the operation, construction or
modification of any such property, including without limitation
the following: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986, the Solid
Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 197.16 and the Hazardous and Solid Waste
Amendments of 1984, the Hazardous Materials Transportation Act as
amended, the Federal Water Pollution Control Act, the Clean Air
Act, as amended, the Toxic Substances control Act of 197.16, the
Occupational Safety and Health Act of 197.17.1, as amended, the
Emergency Planning and Community Right-to-Know Act of 1986, the
National Environmental [CG1]Policy Act of 197.15, the Oil
Pollution Act of 1990 and any similar or implementing state law,
and any state statute and any further amendments to these laws
providing for financial responsibility for cleanup or other
actions with respect to the release or threatened release of
Hazardous Substances or crude oil, or any fraction thereof and
all rules and regulations promulgated thereunder.
"ERISA" shall mean the Employee Retirement Income Security
Act of 197.14, as amended and any successor statute of similar
import, together with the regulations thereunder, in each case as
in effect from time to time. References to sections of ERISA
shall be construed to also refer any successor sections.
"ERISA AFFILIATE" shall mean any corporation, trade or
business that is, along with the Company, a member of a
controlled group of corporations or a controlled group of trades
or businesses, as described in Section 414(b) and 414(c),
respectively, of the Internal Revenue Code of 1986, as amended,
or Section 4001 of the ERISA.
"EVENT OF DEFAULT" shall have the meaning set forth in
Section 9.1 hereof.
"FUNDED DEBT" of any Person shall mean (a) all Indebtedness
for borrowed money or which has been incurred in connection with
the acquisition of assets in each case having a final maturity of
one or more than one year from the date of origin thereof (or
which is renewable or extendible at the option of the obligor for
a period or periods more than one year from the date of origin),
including all payments in respect thereof that are required to be
made within one year from the date of any determination of Funded
Debt, whether or not included in Consolidated Current
Liabilities, (b) all Capitalized Rentals, and (c) all Guaranties
of Funded Debt of others.
"GUARANTIES" by any Person shall mean all obligations (other
than endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing, or in effect guaranteeing, any Indebtedness,
dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (a) to
purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness or
obligation, (ii) to maintain working capital or other balance
sheet condition or (iii) otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or
obligation, or (c) to lease property or to purchase Securities or
other property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of
the primary obligor to make payment of the Indebtedness or
obligation, or (d) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in
respect thereof. For the purposes of all computations made under
this Agreement, a Guaranty in respect of any Indebtedness for
borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which
has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such
obligation, liability or dividend.
"HAZARDOUS SUBSTANCE" shall mean any hazardous or toxic
material, substance or waste, pollutant or contaminant which is
regulated under any statute, law, ordinance, rule or regulation
of any local, state, regional or Federal authority having
jurisdiction over the property of the Company and its
Subsidiaries or its use, including but not limited to any
material, substance or waste which is: (a) defined as a hazardous
substance under Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. section 1317.1) as amended; (b) regulated
as a hazardous waste under Section 1004 or Section 3001 of the
Federal Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act (42 U.S.C. section 6901 et seq.) as
amended; (c) defined as a hazardous substance under Section 101
of the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. section 9601 et seq.) as amended; or (d)
defined or regulated as a hazardous substance or hazardous waste
under any rules or regulations promulgated under any of the
foregoing statutes.
"INDEBTEDNESS" of any Person shall mean and include all
obligations of such Person which in accordance with generally
accepted accounting principles shall be classified upon a balance
sheet of such Person as liabilities of such Person, and in any
event shall include all (a) obligations of such Person for
borrowed money or which have been incurred in connection with the
acquisition of property or assets, (b) obligations secured by any
lien or other charge upon property or assets owned by such
Person, even though such Person has not assumed or become liable
for the payment of such obligations, (c) obligations created or
arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person,
notwithstanding the fact that the rights and remedies of the
seller, lender or lessor under such agreement in the Event of
Default are limited to repossession or sale or property, (d)
Capitalized Rentals, and (e) Guaranties of obligations of others
of the character referred to in this definition.
"INITIATING HOLDERS" shall mean holders of Debentures and
Legend Stock who in the aggregate hold not less than twenty five
percent (25%) of the shares of Common Stock received or
receivable upon conversion of the aggregate principal amount of
the Debenture initially issued, and who exercise rights to
request registration under Section 8.3.
"INTEREST CHARGES" for any period shall mean all interest
and all amortization of debt discount and expense on any
particular Indebtedness for which such calculations are being
made. Computations of Interest Charges on a PRO FORMA basis for
Indebtedness having a variable interest rate shall be calculated
at the rate in effect on the date of any determination.
"INVESTMENTS" shall mean all investments, in cash or by
delivery of property made, directly or indirectly in any Person,
whether by acquisition of shares of capital stock, indebtedness
or other obligations or Securities or by loan, advance, capital
contribution or otherwise; PROVIDED, HOWEVER that "INVESTMENTS"
shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"LONG-TERM LEASE" shall mean any lease of real or personal
property (other than a Capitalized Lease) having an original
term, including any period for which the lease may be renewed or
extended at the option of the lessor, of more than three years.
"MATERIAL ADVERSE EVENT" shall mean any event or
circumstance, or set of events or circumstances, individually or
collectively, that reasonably could be expected to result in any
(i) adverse effect upon the validity or enforceability of any of
the Operative Documents, or (ii) material and adverse effect on
the financial condition of the Company as represented to
Purchaser herein or in any document delivered to Purchaser in
connection herewith, or (iii) default or potential default under
any of the Operative Documents.
"MULTIEMPLOYER PLAN" shall have the same meaning as in
ERISA.
"PERSON" shall mean an individual, partnership, corporation,
trust or unincorporated organization, and a government or agency
or political subdivision thereof.
"PLAN" means a "PENSION PLAN", as such term is defined in
ERISA, established or maintained by the Company or any ERISA
Affiliate or as to which the Company or any ERISA Affiliate
contributed or is a member or otherwise may have any liability.
"PURCHASER" shall mean Sirrom Capital Corporation, a
Tennessee corporation, and each transferee of the Debentures who
is entitled to the benefits and subject to the obligations of
this Agreement.
"REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the declaration or ordering
of the effectiveness of such registration statement and such
other action as might be required with respect to registration,
qualification or compliance under applicable state securities
laws.
"REGISTRATION EXPENSES" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including,
without limitation, all registration, qualification, and filing
fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, expenses of
any regular or special audits incident to or required by any such
registration and fees and reasonable disbursements of one counsel
for the holders as selling stockholders, but shall not include
Selling Expenses.
"REGISTRABLE SECURITIES" shall mean shares of Common Stock
issued or issuable pursuant to the conversion of the; PROVIDED,
HOWEVER, that Registrable Securities shall not include any shares
of Common Stock which have previously been registered under the
Securities Act.
"RENTALS" shall mean and include as of the date of any
determination thereof all fixed rents (including as such all
payments which the lessee is obligated to make to the lessor on
termination of the lease or surrender of the property) payable by
the Company or a Restricted Subsidiary, as lessee or sublessee
under a lease of real or personal property, but shall be
exclusive of any amounts required to be paid by the Company or a
Restricted Subsidiary (whether or not designated as rents or
additional rents) on account of maintenance, repairs, insurance,
taxes and similar charges. Fixed rents under any so-called
"percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee
regardless of sales volume or gross revenues.
"REPORTABLE EVENT" shall have the same meaning as in ERISA.
"RULE 144" shall mean Rule 144 as promulgated by the SEC
under the Securities Act, as such Rule may be amended from time
to time, or any similar successor rule that may be promulgated by
the SEC.
"RULE 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended
from time to time, or any similar successor rule that may be
promulgated by the SEC.
"SECURITY" shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the
sale of Registrable Securities and fees and disbursements of
counsel for any stockholder (other than the fees and
disbursements of counsel for the selling stockholders included in
Registration Expenses).
The term "SUBSIDIARY" shall mean, as to any particular
parent corporation, any corporation of which more than 50% (by
number of votes) of the Voting Stock shall be owned by such
parent corporation and/or one or more corporations which are
themselves Restricted Subsidiaries of such parent corporation.
The term "SUBSIDIARY" shall mean a subsidiary of the Company.
"UNDERWRITER'S CUTBACK" shall mean a reduction in the number
of shares to be included in any underwritten offering as the
result of receipt of written notice from the representative of
the underwriters to the effect that advise marketing factors
require a limitation on the number of shares to be underwritten.
"VOTING STOCK" shall mean Securities of any class or classes
the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
"WHOLLY-OWNED" when used in connection with any Subsidiary
shall mean a Subsidiary of which all of the issued and
outstanding shares of stock (except shares required as directors'
qualifying shares) and all Funded Debt or Current Debt shall be
owned by the Company and/or one or more of its Wholly-owned
Restricted Subsidiaries.
Section 11.2 ACCOUNTING PRINCIPLES. Where the character
or amount of any asset or liability or item of income or expense
is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of
this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
Section 11.3 DIRECTLY OR INDIRECTLY. Where any provision
in this Agreement refers to action to be taken by any Person, or
which such Person is prohibited from taking such provision shall
be applicable whether the action in question is taken directly or
indirectly by such Person.
SECTION XII
MISCELLANEOUS
Section 12.1 EXPENSES, STAMP TAX INDEMNITY. Whether or
not the transactions herein contemplated shall be consummated,
the Company agrees to pay directly all of Purchaser's
out-of-pocket expenses in connection with the entering into of
this Agreement and the consummation of the transactions
contemplated hereby, including but not limited to the reasonable
fees, expenses and disbursements of Sherrard & Roe, PLC,
Purchaser's counsel, the entering into of this Agreement and the
consummation of duplicating and printing cost and charges for
shipping the Debentures, adequately insured to Purchaser at
Purchaser's home office or at such other place as Purchaser may
designate, and so long as Purchaser hold any of the Debentures,
all such expenses relating to any amendments, waivers or consents
pursuant to the provisions hereof (whether or not the same are
actually executed and delivered), including, without limitation,
any amendments, waivers or consents resulting from any work-out,
restructuring or similar proceedings relating to the performance
by the Company of its obligations under this Agreement and the
Debentures. The Company also agrees that it will pay and save
Purchaser harmless against any and all liability with respect to
stamp and other documentary taxes, if any, which may be payable
in connection with the execution and delivery of this Agreement
or the Debentures, whether or not any Debentures are then
outstanding, it being understood that the Company shall have no
obligation to pay any income or property tax payable by
Purchaser. The Company agrees to protect and indemnify Purchaser
against any liability for any and all brokerage fees and
commissions payable or claimed to be payable to any Person in
connection with the transactions contemplated by this Agreement.
Section 12.2 DEBENTURE REGISTER. The Company shall cause
to be kept at its principal office a register for the
registration and transfer of the Debentures, and the Company will
register or transfer or cause to be registered or transferred, as
hereinafter provided and under such reasonable regulations as it
may prescribe, any Debenture issued pursuant to this Agreement.
At any time, and from time to time, the holder of any
Debenture which has been duly registered as provided above, may
transfer such Debenture upon surrender thereof at the principal
office of the Company, duly endorsed or accompanied by written
instrument of transfer duly executed by the holder of such
Debenture or its attorney duly authorized in writing.
The Person in whose name any Debenture shall be registered
shall be deemed and treated as the owner and holder thereof for
all purposes of this Agreement. Payment of or on account of the
principal, premium, if any, and interest on any Debenture shall
be made to or upon the written order of such holder.
Section 12.3 EXCHANGE OF DEBENTURES. At any time and from
time to time, upon not less than ten (10) days notice to that
effect given by the holder of any Debenture initially delivered
or of any Debenture substituted therefor pursuant to Section 12.2
or this Section 12.3, and upon surrender of such Debenture at its
office, the Company will deliver and exchange therefor, without
expense to the holder, Debentures for the same aggregate
principal amount as the then unpaid principal amount of the
Debenture so surrendered, in the denomination of $250,000 or any
amount in excess thereof as such holder shall specify, dated as
of the date to which interest has been paid on the Debenture so
surrendered, or if such surrender is prior to the payment of any
interest thereon, then dated as of the date of issue, registered
in the name of such Person or Persons as may be designated by
such holder, and otherwise of the same form and tenor as the
Debentures so surrendered for exchange.
Section 12.4 POWERS AND RIGHTS NOT WAIVED; REMEDIES
CUMULATIVE. No delay or failure on the part of the holder of any
Debenture in the exercise of any power or right shall operate as
a waiver thereof; nor shall any single or partial exercise of the
same preclude any other of further exercise thereof, or the
exercise of any other power or right, and the rights and remedies
of the holder of any Debenture are cumulative to and are not
exclusive of any rights or remedies any such holder would
otherwise have, and no waiver or consent, given or extended
pursuant to Article X hereof, shall extend to or affect any
obligation or right not expressly waived or consented to.
Section 12.5 NOTICES. All communications provided for
hereunder shall be in writing and shall be delivered personally,
or mailed by registered mail, or by prepaid overnight air
courier, or by facsimile communication, in each case addressed:
If to Purchaser: Sirrom Capital Corporation
500 Church Street, Suite 200
Nashville, Tennessee 37219
Fax: (615) 726-1208
Attention: Craig Macnab
with a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, TN 37219
Fax: (615) 742-4539
Attention: Donald I.N. McKenzie, Esq.
If to the Company: Teltronics, Inc.
2150 Whitfield Industrial Way
Sarasota, Florida 34243
Fax: (941) 751-7724
Attention: Ewen R. Cameron, President
with a copy to: Blair & Roach
2645 Sheridan Drive
Tonawanda, New York 14150
Fax: (716) 834-9197
Attention: John N. Blair, Esq.
or such other address as Purchaser or the subsequent holder of
any Debenture initially issued to Purchaser may designate to the
Company in writing, or such other address as the Company may in
writing designate to Purchaser or to a subsequent holder of the
Debenture initially issued to Purchaser, PROVIDED, HOWEVER, that
a notice sent by overnight air courier shall only be effective if
delivered at a street address designated for such purpose by such
person and a notice sent by facsimile communication shall only be
effective if made by confirmed transmission at a telephone number
designated for such purpose by such person or, in either case, as
Purchaser or a subsequent holder of any Debentures initially
issued to Purchaser may designate to the Company in writing or at
a telephone number herein set forth in the case of the Company.
Section 12.6 SUCCESSORS AND ASSIGNS; THIRD PARTY
BENEFICIARY. This Agreement shall be binding upon the Company
and its successors and assigns and shall inure to Purchaser's
benefit and to the benefit of Purchaser's successors and assigns,
including each successive holder or holders of any Debentures.
The Company and Purchaser each acknowledges and agrees that The
CIT Group/Credit Finance, Inc. and its successors and assigns are
deemed to be third party beneficiaries of this Agreement for
purposes of Article VI hereof.
Section 12.7 SURVIVAL OF COVENANTS AND REPRESENTATIONS.
All covenants, representations and warranties made by the Company
herein, in the Disclosure Statement and in any certificates
delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this
Agreement and the Debentures.
Section 12.8 SEVERABILITY. Should any part of this
Agreement for any reason be declared invalid or unenforceable,
such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect
as if this Agreement had been executed with the invalid or
unenforceable portion thereof eliminated and it is hereby
declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without
including therein any such part, parts or portion which may for
any reason, be hereafter declared invalid or unenforceable.
Section 12.9 GOVERNING LAW. This agreement and the
Debentures issued and sold hereunder shall be governed by and
construed in accordance with Tennessee law, without regard to its
conflict of law rules.
Section 12.10 CAPTIONS. The descriptive headings of the
various Sections or parts of this Agreement are for convenience
only and shall not affect the meaning or construction of any of
the provisions hereof.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this
Debenture Purchase Agreement to be executed and delivered by
their duly authorized officers as of the date first written
above.
COMPANY: TELTRONICS, INC.:
By: /s/Ewen R. Cameron
--------------------------
Ewen R. Cameron
President
PURCHASER: SIRROM CAPITAL CORPORATION
By: /s/Carl W. Stratton
--------------------------
Carl W. Stratton
Chief Financial Officer
<PAGE>
USE OF PROCEEDS
The Company anticipates that the proceeds from the sale of the
Debentures will be used in substantially the following manner:
Trade Payables 1,700,000
Solectron Note 500,000
SRX Inventory to Restart 500,000
PBX Business
Inventory to Launch 500,000
Mentis (1st 100 units)
General Working Capital 863,750
Fee to Tandem Capital 106,250
Fee to Stephens Inc. 80,000
---------
4,250,000
The figures set forth above are estimates based, in part, upon
the current state of the Company's business operations, the
Company's current plans and relevant economic and industry
considerations. Actual expenditures may vary depending upon
prevailing economic conditions, in which case changes in the
above allocations will be made at the discretion of the Company.
If the forecasted estimates of non-working capital expenditures
are inadequate, the Company may b required to draw additional
sums from working capital.
Pending utilization, management of the Company intends that the
net proceeds of the sale of the Debentures will be invested
temporarily in certificates of deposit, government securities,
commercial payer and/or deposited in commercial or savings bank
accounts.
<PAGE>
EXHIBIT 99.2
DEBENTURE
NEITHER THIS DEBENTURE NOR THE SHARES OF COMMON STOCK ISSUABLE
UPON THE CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS
(i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS, OR (ii)
IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY
REGISTRATION UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
TELTRONICS, INC.
11% SUBORDINATED CONVERTIBLE DEBENTURE DUE FEBRUARY 13, 2002
No. R-1 February 13, 1997
$4,250,000
For value received, TELTRONICS, INC., a Delaware corporation
(the "Company"), hereby promises to pay to Sirrom Capital
Corporation, or registered assigns, on the 13th day of February,
2002, the principal amount of Four Million Two Hundred Fifty
Thousand Dollars ($4,250,000) and to pay interest (computed on
the basis of a 360-day year of twelve 30-day months) on the
principal amount from time to time remaining unpaid hereon at the
rate of 11% per annum from the date hereof until maturity,
payable quarterly on the first day of each February, May, August
and November in each year commencing May 1, 1997, and at
maturity. The Company agrees to pay interest (computed on the
same basis) on overdue principal and premium, if any, and (to the
extent legally enforceable) on any overdue installment of
interest, at the rate of 13% per annum (or, in each case, at the
highest rate permitted by applicable law, whichever is less)
until paid.
Both the principal hereof and interest hereon are payable to
the order of the holder hereof at its address registered on the
books of the Company or by federal funds wire transfer to a bank
account designated in writing by the holder to the Company in
coin or currency of the United States of America which at the
time of payment shall be legal tender for the payment of public
and private debts. If any amount of principal, premium, if any,
or interest on or in respect of this Debenture becomes due and
payable on any date which is not a Business Day, such amount
shall be payable on the next preceding Business Day. "Business
Day" means any day other than a Saturday, Sunday, statutory
holiday or other day on which banks in Tennessee are required by
law to close or are customarily closed.
This Debenture is one of the 11% Subordinated Convertible
Debentures due February 13, 2002 of the Company in the aggregate
principal amount of $4,250,000 issued under and pursuant to the
terms and provisions of the Debenture Purchase Agreement, dated
as of February 11, 1997 (the "DEBENTURE AGREEMENT"), entered into
by the Company with the original purchaser referred to therein,
and this Debenture and the holder hereof are entitled, equally
and ratably with the holders of all other Debentures outstanding
under the Debenture Agreement, to all the benefits provided for
thereby or referred to therein, and to which Debenture Agreement
reference is hereby made for all such terms and provisions.
This Debenture is subordinated to certain other indebtedness
of the Company to the extent and with the effect set forth in the
Debenture Agreement.
This Debenture is convertible into shares of Common Stock,
par value $.001 per share, of the Company, in the manner and upon
the terms and conditions set forth in the Debenture Agreement.
If an Event of Default, as defined in the Debenture
Agreement, occurs and is continuing, the principal of this
Debenture and the other Debentures outstanding under the
Debenture Agreement may be declared due and payable in the manner
and with the effect provided in the Debenture Agreement.
This Debenture is registered on the books of the Company and
is transferable only by surrender thereof at the principal office
of the Company at 2150 Whitfield Industrial Way, Sarasota,
Florida 34243-4046, or such other address as the Company shall
have advised the holders of the Debenture in writing, duly
endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Debenture or its
attorney duly authorized in writing. Payment of or on account of
principal, premium, if any, and interest on this Debenture shall
be made only to or upon the order in writing of the registered
holder.
If the indebtedness represented by this Debenture or any
part thereof is placed in the hands of attorneys for collection
after an Event of Default, or the enforcement of any rights under
the Debenture Agreement, the Company agrees to pay the principal,
premium if any, and interest due and payable hereon, and an
amount equal to all costs of collecting this Debenture, including
reasonable attorneys' fees and expenses.
THIS DEBENTURE AND SAID DEBENTURE AGREEMENT ARE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF TENNESSEE.
[Corporate Seal] TELTRONICS, INC.
ATTEST: BY:
/s/ Michael A. Freid /s/ Ewen R. Cameron
- ---------------------- -----------------------
Michael A. Freid Ewen R. Cameron
Secretary President
