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...................................March 5, 1998
Date of Earliest Event Reported...,,.............February 26, 1998
Teltronics, Inc.
--------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 0-17893 59-2937938
--------------------------------------------------------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
Incorporation) Number)
2150 Whitfield Industrial Way, Sarasota, Florida 34243-9706
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code......... (941) 753-5000
<PAGE>
ITEM 5. OTHER EVENTS.
On February 26, 1998, the Registrant issued to Sirrom
Capital Corporation, d/b/a Tandem Capital ("Sirrom Capital"): (i)
25,000 shares of Series B Preferred Stock ("Series B Preferred")
for $2,500,000 under a Preferred Stock Purchase Agreement between
the Registrant and Sirrom Capital dated February 25, 1998; and
(ii) $1,750,000 of 12% Subordinated Secured Debentures Due
February 13, 2002 ("Debentures") under a Debenture Purchase
Agreement between the Registrant and Sirrom Capital dated
February 25, 1998. The Debentures are subordinated to certain
other indebtedness of the Registrant.
The Series B Preferred Stock have rights and preferences
as set forth in a Certificate of Designations Establishing Series
of Shares filed with the Secretary of State of Delaware including
voting rights; dividends payable in cash until February, 2002 at
the rate of $12.00 per share per annum payable quarterly; and
payments of $100 per share in the event of liquidation, dissolution
or winding up of the Registrant prior to any distributions to the
holders of any other class or series of capital stock of the Registrant,
including holders of Common Stock. The shares of Series B
Preferred Stock are convertible at the option of the holder, in
whole or in part, at any time at an initial conversion price of
$2.75 per share subject to adjustment under certain
circumstances. The Registrant has the option commencing February
26, 2000 to redeem all (but not less than all) of the Series B
Preferred at a price per share equal to $100 plus all accrued but
unpaid dividends and interest, if any, on any dividends in
arrears provided the average bid price of the Registrant's Common
Stock exceeds $5.50 per share with respect to each of the twenty
trading days immediately preceding the Registrant's notice of
redemption to the holder(s). After February 26, 2002, the Registrant
has the further option to redeem the Series B Preferred at a price per
share equal to $100 plus any accrued and unpaid dividends.
The aggregate $4,250,000 proceeds of the issuance of the
Series B Preferred and the Debentures were utilized to repurchase
the amounts outstanding under the Registrant's 11% Subordinated
Convertible Debentures Due February 13, 2002 issued to Sirrom
Capital in February, 1997.
On February 26, 1998 the Registrant also borrowed
$1,280,000 from Sirrom Capital under a Loan and Security
Agreement between the Registrant and Sirrom Capital dated
February 25, 1998 ("Loan Agreement") and delivered its: (i)
Secured Senior Subordinated Promissory Note in the principal
amount of $1,000,000 with interest at 12% per annum maturing in
February, 1999 the proceeds of which are to be used for working
capital of the Registrant and (ii) Secured Senior Subordinated
Promissory Note in the principal amount of $280,000 with interest
at 12% per annum maturing in October, 2000 the proceeds of which
were used to pay an equipment loan made to the Registrant by The
CIT Group/Credit Finance, Inc. ("CIT").
The Debentures and two Secured Senior Subordinated
Promissory Notes are secured by a first lien on the machinery and
equipment of the Registrant and its subsidiaries and a lien on
all other assets of the Registrant and its Subsidiaries
subordinate to prior liens on such other assets held by CIT. The
Registrant has the right to prepay the Debentures and two Secured
Senior Subordinated Promissory Notes at any time with no premium
or penalty for prepayment. The Debenture Purchase Agreement and Loan
Agreement contain certain financial covenants including restrictions
which could affect future funding of Interactive Solutions, Inc. by
the Registrant.
The Registrant also issued Warrants to Sirrom Capital
for an aggregate of 890,000 shares of the Registrant's Common
Stock exercisable at any time or from time to time prior to
February 26, 2003 at an initial price of $2.75 per share subject
to increase under certain conditions.
Simultaneously with the issuance of the Series B
Preferred stock, Debentures and the Loan Agreement, the
Registrant and Sirrom Capital entered into a Registration Rights
Agreement granting to Sirrom Capital the right to demand
registration under the Securities Act of 1993, as amended, of
shares of Common Stock of the Registrant issuable upon any
conversion of the Series B Preferred Stock and/or exercise of the
Warrants. Under the agreements, Sirrom Capital has the right to
appoint one member to the Board of Directors of the Registrant
which cannot exceed five total members without the approval of
Sirrom Capital.
There are numerous other provisions in the Agreements
filed as Exhibits to this Report on Form 8-K which are important
in order to derive the full understanding of the issuance and
terms of the Series B Preferred Stock, the Debenture Purchase
Agreement, the Debentures, the Loan Agreement and the two
Secured Senior Subordinated Notes. 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
10.1 Preferred Stock Purchase Agreement between Sirrom
Capital and the Registrant dated February 25, 1998.
10.2 Debenture Purchase Agreement between Sirrom Capital
and the Registrant dated February 25, 1998.
10.3 12% Subordinated Secured Debentures due on
February 13, 2002.
10.4 Loan And Security Agreement between Sirrom Capital and
the Registrant dated February 25, 1998.
10.5 Secured Senior Subordinated Promissory Note of Registrant
in the principal amount of $1,000,000 delivered to
Sirrom Capital.
10.6 Secured Senior Promissory Note of Registrant in the
principal amount of $280,000 delivered to Sirrom Capital.
10.7 Common Stock Purchase Warrant covering 525,000 shares of
Common Stock of the Registrant issued to Sirrom Capital
on February 26, 1998.
10.8 Common Stock Purchase Warrant covering 365,000 shares of
Common Stock of the Registrant issued to Sirrom Capital
on February 26, 1998.
10.9 Registration Rights Agreement dated February 25, 1998
between Registrant and Sirrom Capital.
3.1 Certificate of Designations Establishing Series of
Shares of Teltronics, Inc., filed with the Delaware
Secretary of State on February 24, 1998.
3.2 Amended Designation of Teltronics, Inc. filed with the
Delaware Secretary of State on February 25, 1998.
<PAGE>
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)
March 5, 1998 By: Ewen R. Cameron
President and CEO
<PAGE>
EXHIBIT 10.1
PREFERRED STOCK PURCHASE AGREEMENT
Between
SIRROM CAPITAL CORPORATION
(d/b/a TANDEM CAPITAL)
And
TELTRONICS, INC.
February 25, 1998
<PAGE>
Table of Contents
ARTICLE I - SALE AND PURCHASE OF STOCK 1
Section 1.1 Description of Series B Preferred Stock.. . . . . .1
Section 1.2 Commitment; Closing Date. . . . . . . . . . . . . .2
Section 1.3 Commitment Fee. . . . . . . . . . . . . . . . . . .2
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2
Section 2.1 Corporate Status. . . . . . . . . . . . . . . . . .2
Section 2.2 Capitalization. . . . . . . . . . . . . . . . . . .3
Section 2.3 Authorization; Absence of Conflicts . . . . . . . .4
Section 2.4 Validity and Binding Effect.. . . . . . . . . . . .4
Section 2.5 Financial Statements. . . . . . . . . . . . . . . .4
Section 2.6 SEC Reports.. . . . . . . . . . . . . . . . . . . .5
Section 2.7 Absence of Changes. . . . . . . . . . . . . . . . .5
Section 2.8 No Defaults.. . . . . . . . . . . . . . . . . . . .5
Section 2.9 Compliance With Law.. . . . . . . . . . . . . . . .6
Section 2.10 Litigation.. . . . . . . . . . . . . . . . . . . .6
Section 2.11 Taxes. . . . . . . . . . . . . . . . . . . . . . .6
Section 2.12 Certain Transactions.. . . . . . . . . . . . . . .6
Section 2.13 Title to Property. . . . . . . . . . . . . . . . .7
Section 2.14 Intellectual Property. . . . . . . . . . . . . . .7
Section 2.15 Debt.. . . . . . . . . . . . . . . . . . . . . . .7
Section 2.16 Material Contracts.. . . . . . . . . . . . . . . .8
Section 2.17 Environmental Matters. . . . . . . . . . . . . . .8
Section 2.18 Accounting Matters.. . . . . . . . . . . . . . . .9
Section 2.19 Distributions to Company.. . . . . . . . . . . . .9
Section 2.20 Prior Sales. . . . . . . . . . . . . . . . . . . .9
Section 2.21 Regulatory Compliance. . . . . . . . . . . . . . .9
Section 2.22 Margin Regulations.. . . . . . . . . . . . . . . .9
Section 2.24 Limited Offering.. . . . . . . . . . . . . . . . 10
Section 2.25 Registration Rights. . . . . . . . . . . . . . . 10
Section 2.26 Insurance. . . . . . . . . . . . . . . . . . . . 10
Section 2.27 Governmental Consents. . . . . . . . . . . . . . 10
Section 2.28 Employees. . . . . . . . . . . . . . . . . . . . 10
Section 2.29 ERISA. . . . . . . . . . . . . . . . . . . . . . 11
Section 2.30 Fees/Commissions.. . . . . . . . . . . . . . . . 11
Section 2.31 Disclosure.. . . . . . . . . . . . . . . . . . . 11
Section 2.32 Survival.. . . . . . . . . . . . . . . . . . . . 12
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER 12
Section 3.1 Corporate Status. . . . . . . . . . . . . . . . . 12
Section 3.2 Authorization.. . . . . . . . . . . . . . . . . . 12
Section 3.3 Validity and Binding Effect.. . . . . . . . . . . 12
Section 3.4 Accredited Investor Status; Purchase for
Investment. . . . . . . . . . . . . . . . . . . . 12
Section 3.5 Legends on Certificates.. . . . . . . . . . . . . 13
Section 3.6 Survival. . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF PURCHASER 13
Section 4.1 Representations and Warranties. . . . . . . . . . 13
Section 4.2 Officer's Certificate.. . . . . . . . . . . . . . 14
Section 4.3 Satisfactory Proceedings; Secretary's Certificate.14
Section 4.4 Legal Opinion.. . . . . . . . . . . . . . . . . . 14
Section 4.5 Authorization Agreement.. . . . . . . . . . . . . 14
Section 4.6 Certificate of Designations.. . . . . . . . . . . 14
Section 4.7 Registration Rights Agreement.. . . . . . . . . . 14
Section 4.8 The Company's Existence and Authority.. . . . . . 14
Section 4.9 Senior Secured Loan Agreement; Subordinated
Debentures; Warrants. . . . . . . . . . . . . . . 15
Section 4.10 Intercreditor Agreement. . . . . . . . . . . . . 15
Section 4.11 Required Consents. . . . . . . . . . . . . . . . 15
Section 4.12 Expenses.. . . . . . . . . . . . . . . . . . . . 15
Section 4.13 Waiver of Conditions.. . . . . . . . . . . . . . 15
ARTICLE V - COVENANTS OF COMPANY 16
Section 5.1 Use of Proceeds.. . . . . . . . . . . . . . . . . 16
Section 5.2 Dividends; Repurchase of Series B Preferred Stock.16
Section 5.3 Corporate Existence, Etc. . . . . . . . . . . . . 16
Section 5.4 Maintenance, Etc. . . . . . . . . . . . . . . . . 16
Section 5.5 Nature of Business. . . . . . . . . . . . . . . . 16
Section 5.6 Insurance.. . . . . . . . . . . . . . . . . . . . 17
Section 5.7 Taxes, Claims for Labor and Materials.. . . . . . 17
Section 5.8 Compliance with Laws, Agreements, Etc.. . . . . . 17
Section 5.9 ERISA Matters.. . . . . . . . . . . . . . . . . . 17
Section 5.10 Books and Records; Rights of Inspection. . . . . 17
Section 5.11 Reports. . . . . . . . . . . . . . . . . . . . . 18
Section 5.12 Annual Plan. . . . . . . . . . . . . . . . . . . 19
Section 5.13 Board of Directors; Observer Rights. . . . . . . 19
Section 5.14 Further Assurances.. . . . . . . . . . . . . . . 20
ARTICLE VI - AMENDMENTS, WAIVERS AND CONSENTS 20
Section 6.1 Consent Required. . . . . . . . . . . . . . . . . 20
Section 6.2 Effect of Amendment or Waiver.. . . . . . . . . . 20
ARTICLE VII - INTERPRETATION OF AGREEMENT; DEFINITIONS 20
Section 7.1 Definitions.. . . . . . . . . . . . . . . . . . . 20
Section 7.2 Accounting Principles.. . . . . . . . . . . . . . 22
ARTICLE VIII - MISCELLANEOUS 23
Section 8.1 Expenses; Stamp Tax Indemnity.. . . . . . . . . . 23
Section 8.2 Powers and Rights Not Waived; Remedies Cumulative.23
Section 8.3 Notices.. . . . . . . . . . . . . . . . . . . . . 23
Section 8.4 Successors and Assigns. . . . . . . . . . . . . . 24
Section 8.5 Survival of Covenants and Representations.. . . . 24
Section 8.6 Severability. . . . . . . . . . . . . . . . . . . 24
Section 8.7 Governing Law.. . . . . . . . . . . . . . . . . . 25
Section 8.8 Captions; Counterparts. . . . . . . . . . . . . . 25
Section 8.9 Entire Agreement. . . . . . . . . . . . . . . . . 25
Section 8.10 Specific Performances. . . . . . . . . . . . . . 25
Section 8.11 Attorneys' Fees. . . . . . . . . . . . . . . . . 25
Section 8.12 Disclosure Statement.. . . . . . . . . . . . . . 25
<PAGE> 1
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement")
entered into the 25th day of February, 1998, is by and among
TELTRONICS, INC., a Delaware corporation (the "Company"); and
SIRROM CAPITAL CORPORATION, d/b/a TANDEM CAPITAL, a Tennessee
corporation (the "Purchaser", sometimes referred to herein as
"Tandem").
W I T N E S S E T H:
WHEREAS, on February 13, 1997, the Company issued and sold
to Tandem its 11% Subordinated Convertible Debenture due February
13, 2002, in the principal amount of $4,250,000 (the "11%
Convertible Debentures"), pursuant to the terms and conditions of
that certain Debenture Purchase Agreement dated February 13,
1997, between the Company and Tandem (the "1997 Debenture
Purchase Agreement");
WHEREAS, for good and valid corporate purposes, the Company
wishes to repurchase the 11% Convertible Debentures and Tandem is
willing to sell to the Company the 11% Convertible Debentures in
consideration for $4,250,000;
WHEREAS, in order to obtain the funds to repurchase the 11%
Convertible Debentures and to obtain additional capital for use
in connection with its business, (a) the Company desires to issue
and sell certain preferred stock of the Company for $2,500,000,
and Purchaser is willing to purchase such shares of preferred
stock from the Company, on the terms on conditions set forth
herein, (b) the Company desires to issue and sell its 12%
Subordinated Secured Debentures, due February 13, 2002, in the
principal amount of $1,750,000 (the "New Debentures"), and the
Purchaser is willing to purchase the New Debentures, on the terms
and conditions set forth in that certain Debenture Purchase
Agreement between the Company and Tandem dated the date hereof
(the "1998 Debenture Purchase Agreement"), and (c) Tandem is
willing to make a secured loan to the Company in the amount of
$1,280,000, on the terms and conditions set forth in that certain
Loan and Security Agreement among the Company, certain
Subsidiaries of the Company and Tandem, dated the date hereof
(the "Tandem Loan Agreement").
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 STOCK
Section 1.1 Description of Series B Preferred Stock.
The Company has authorized the issue and sale of 25,000
shares of its Series B Convertible Preferred Stock (the "Series B
Preferred Stock") having the rights and preferences set forth in
the Company's proposed Certificate of Designations Establishing
Series of Shares and Articles of Amendment in the form attached
hereto as Exhibit A (the "Certificate of Designations"), for a
purchase price of $100.00 per share, or an aggregate purchase
price of $2,500,000.00. The Certificate of Designations shall be
filed with the Secretary of State of Delaware on or before the
<PAGE> 2
Closing Date (as defined below). The terms which are capitalized
herein shall have the meanings set forth in Section 7 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, 25,000 shares of Series B
Preferred Stock for a purchase price of $2,500,000.00.
Delivery of a single certificate representing the Series B
Preferred Stock will be made at the office 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 wire instructions set
forth on Exhibit B hereto, or by the surrender by Purchaser of
11% Convertible Debentures, in an amount equal to the purchase
price hereunder, at 10:00 a.m., Nashville time, on February 25,
1998, or such other date as the Company and Purchaser shall
agree, but no later than February 27, 1998 (the "Closing Date").
The stock certificate to be delivered to Purchaser on the Closing
Date will be registered in Purchaser's name or in the name of
such nominee as Purchaser may specify at least 24 hours prior to
the date fixed for delivery.
Section 1.3 Commitment Fee.
The Company agrees to pay, on or before the Closing Date, a
commitment fee to Purchaser in the amount of $12,500.
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 Registration Rights Agreement, to be dated as of the Closing
Date, by and between the Company and Purchaser (the "Registration
Rights Agreement"), and any other document executed and delivered
by the Company 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 on Schedule
2.1(a) hereto.
(b) Schedule 2.1(b) sets forth a complete list of each
corporation, partnership, joint venture, limited liability
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
<PAGE> 3
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 on Schedule 2.1(b), 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.
Section 2.2 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 40,000,000 shares of common stock, par value $.001 per share
(the "Common Stock"), of which 3,415,513 shares are issued and
outstanding, and (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 and Series A Preferred
Stock outstanding have been validly issued and are fully paid and
nonassessable. As of the Closing Date, the authorized Series A
Preferred Stock shall have been decreased to 100,000 shares and
25,000 shares of the undesignated preferred stock shall have been
designated as "Series B Convertible Preferred Stock" with the
rights, preferences and limitations set forth in the Certificate
of Designations. Except as listed on Schedule 2.2(a), 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 Series B Preferred
Stock or the issuance of Common Stock upon the conversion thereof.
(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,
there are no securities outstanding or committed to be issued by
the Company or any Subsidiary which are convertible into or
exchangeable for any shares of capital stock or other securities
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 shares of
Series B Preferred Stock to be issued pursuant to this Agreement,
(ii) the conversion privileges of the holders of the Series B
Preferred Stock to be issued pursuant to this Agreement, with
respect to which an aggregate of at least 909,091 shares of
Common Stock have been reserved for issuance upon such
conversion, (iii) the Stock Purchase Warrant to purchase 525,000
shares of Common Stock (the "Debenture Warrants") to be issued
pursuant to the 1998 Debenture Purchase Agreement, (iv) the Stock
Purchase Warrant to purchase 365,000 shares of Common Stock (the
"Loan Warrants") to be issued to Tandem pursuant to the Tandem
Loan Agreement; and (v) such options, warrants and other rights
to acquire capital stock of the Company, together with relevant
exercise prices and dates, set forth on Schedule 2.2(b). Except
as set forth on Schedule 2.2(b), all such shares have been duly
reserved for issuance, have been duly and validly authorized and
upon issuance in accordance with the terms of the respective
instruments, will be validly issued, fully paid and nonassessable.
<PAGE> 4
(c) The Series B Preferred Stock that is being purchased by
the Purchaser, when issued, sold, and delivered in accordance
with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other
than restrictions on transfer under this Agreement and under
applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series B Preferred Stock being
purchased under this Agreement has been duly and validly reserved
for issuance and, upon issuance in accordance with the terms of
the Certificate of Designations, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under applicable
state and federal securities laws.
Section 2.3 Authorization; Absence of Conflicts.
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 except as set forth on Schedule 2.3, each of which
will be obtained prior to Closing. The execution and delivery of
this Agreement, the issuance of the shares of Series B Preferred
Stock 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, and do not and will
not contravene or conflict with (a) the Articles of Incorporation
or Bylaws, as amended, of the Company, (b) any material agreement
to which the Company or any of its Subsidiaries is a party or by
which any of them or their properties is bound, or constitute a
default thereunder, or result 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 (c) 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 Operative Documents 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 Financial Statements.
The consolidated financial statements of the Company and
its Subsidiaries for the fiscal years ended December 31, 1994,
December 31, 1995, and December 31, 1996, and the unaudited
consolidated financial statements as of and for the nine-month
period ended September 30, 1997, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly
present the financial position, results of operations, cash flows
and changes in stockholders' equity of the Company and its
consolidated Subsidiaries, at the respective dates of and for the
periods to which they apply in such financial statements and have
been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
indicated, subject, in the case of interim financial statements, to
normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, have a Materially Adverse
Effect) and the absence of notes (that, if presented, would not
differ materially from those included in the most recent audited
financial
<PAGE> 5
statements). No financial statements of any other
person(s) are required by GAAP to be included in the consolidated
financial statements of the Company.
Section 2.6 SEC Reports.
The Company's Common Stock is listed on the NASDAQ Small Cap
Market and has been duly registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The symbol for the Company's Common Stock is "TELT". Since January
1, 1995, 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, and the
Company's annual report to stockholders for the year ended December
31, 1996, which annual report meets the requirements of Rule 14a-3
or 14e-3 under the Exchange Act (the "Annual Report"). 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 2.7 Absence of Changes.
Except as set forth on Schedule 2.7, since September 30, 1997,
(i) neither the Company nor any of its Subsidiaries has incurred
any liabilities or obligations, direct or contingent, or entered
into any transactions, not in the ordinary course of business, that
are material to the Company or any of its Subsidiaries, (ii)
neither the Company nor any of its Subsidiaries has purchased any
of its outstanding capital stock or declared, or paid any dividend
or other distribution or payment in respect of its capital stock,
(iii) there has not been any change in the authorized or issued
capital stock, long-term debt or short-term debt of the Company,
and (iv) there has not been any Materially Adverse Effect in or
affecting the business, operations, properties, prospects, assets,
or condition (financial or otherwise) of the Company or any
Subsidiary, and no event has occurred or circumstance exists that
may result in such a Materially Adverse Effect.
Section 2.8 No Defaults.
Except as set forth on Schedule 2.8 and except where a default
or event of default does not and would not constitute a Materially
Adverse Effect, no default or event of default by the Company or
any Subsidiary exists under this Agreement or under any 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.
<PAGE> 6
Section 2.9 Compliance With Law.
To the Company's knowledge, the Company and its Subsidiaries
are in compliance with all federal, state and local laws,
regulations, decrees and orders applicable to them (including but
not limited to occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition),
except to the extent that noncompliance, in the aggregate, cannot
reasonably be expected to cause a Materially Adverse Effect.
Section 2.10 Litigation.
Except as set forth on Schedule 2.10, there is no litigation,
arbitration, claim, proceeding or investigation pending or
threatened in writing in which the Company or any Subsidiary is a
party or to which any of its respective properties or assets is the
subject which, if determined adversely to the Company or such
Subsidiary, would individually or in the aggregate have a
Materially Adverse Effect.
Section 2.11 Taxes.
Except as set forth on Schedule 2.11, 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 have 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 reserved), and the Company does not know of any proposed
assessment for additional taxes or any basis therefor. No tax
liens have been filed against the Company, or its Subsidiaries or
any of their 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 2.12 Certain Transactions.
Except as set forth on Schedule 2.12(i) and except as to
indebtedness incurred in the ordinary course of business and
approved by the Board of Directors of the Company, neither the
Company nor any Subsidiary is indebted, directly or indirectly, to
any of its officers or directors, or to their respective spouses or
children, in excess of an aggregate amount of $60,000, and none of
the officers or directors or any members of their immediate
families are indebted to the Company or any Subsidiary 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 or any Subsidiary is affiliated or with which the Company
has a business relationship, or any firm or corporation which
competes with the Company or any Subsidiary, except that an officer
and/or director of the Company may own no more than 1.0% of the
outstanding stock of any publicly traded company which competes
directly with the Company. Except as set forth on Schedule
2.12(ii), no officer or director of the Company or any Subsidiary
or any member of their immediate families is, directly or
indirectly, interested in any material contract with the Company or
any Subsidiary. Except as set forth on Schedule 2.12(iii), neither
the Company nor any Subsidiary is a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
<PAGE> 7
Section 2.13 Title to Property.
The Company and each Subsidiary has good and marketable title
to all 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 Schedule 2.13 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, and no default has occurred or is continuing
thereunder might result in any Materially Adverse Effect, and the
Company and each Subsidiary enjoys peaceful and undisturbed
possession under all such leases, except as disclosed on Schedule
2.13 or which are not material and do not interfere with the use to
be made of such buildings or property by the Company or any
Subsidiary.
Section 2.14 Intellectual Property.
Except as set forth in Schedule 2.14, the Company is the
lawful owner or has a valid right to use the Proprietary
Information in its business free and clear of any claim, right,
trademark, patent or copyright protection of any third party. The
Company has good and marketable title to or has a valid right to
use 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, which
are listed on Schedule 2.14(b)(i), except as set forth on Schedule
2.14(b)(ii). 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 would
individually or in the aggregate have a Materially Adverse Effect.
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 Company deems
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 2.15 Debt.
Schedule 2.15(i) sets forth (i) a complete and correct list of
all loans, credit agreements, indentures, purchase agreements,
promissory notes and other evidences of indebtedness, Guaranties,
capital leases and other instruments, agreements and arrangements
presently in effect providing for or relating to extensions of
credit (including agreements and arrangements for the issuance of
letters of credit or for acceptance financing) in respect of which
the Company, any Subsidiary or any of their properties is in any
manner directly or contingently obligated; (ii) a correct statement
of the maximum principal or face amounts of the credit in question
that are outstanding and that can be outstanding; and (iii) a
correct statement of all liens, pledges or security interests of
any nature given or agreed to be given as security therefor or in
connection therewith. Consummation of the transactions hereby
contemplated and the performance of the obligations of the Company
under the
<PAGE> 8
Operative Documents will not result in any breach of, or
constitute a default under, or require the consent of any person
under, any loan, credit agreement, indenture, purchase agreement,
promissory note or other evidences of indebtedness, Guaranty,
capital lease or other instrument, agreement or arrangement set
forth on Schedule 2.15(i), except as set forth on Schedule
2.15(ii).
Section 2.16 Material Contracts.
Schedule 2.16(i) sets forth a complete and correct list of (a)
all contracts, agreements and other documents pursuant to which the
Company or any Subsidiary either (i) receives revenues or (ii)
makes payment to any third Person(s), in excess of $100,000 per
fiscal year, and (b) all contracts or other agreements required to
be filed by the Company with the SEC as an exhibit pursuant to Item
601(b)(10) of Regulation S-K under the Securities Act (each
instrument identified in Schedule 2.16 individually being an
"Applicable Contract" and collectively the "Applicable Contracts").
Each Applicable Contract is in full force and effect as of the date
hereof and the Company knows of no reason why such Applicable
Contracts would not remain in full force and effect pursuant to the
terms thereof. Consummation of the transactions hereby
contemplated and the performance of the obligations of the Company
under the Operative Documents will not result in any breach of, or
constitute a default under, or require the consent of any person
under, any Applicable Contract set forth on Schedule 2.16, except
as set forth on Schedule 2.16(ii).
Section 2.17 Environmental Matters.
The Company and each of its Subsidiaries have duly complied in
all material respects with, and its business, operations, assets,
equipment, property, leaseholds or other facilities of each are in
compliance in all material respects with, the provisions of all
federal, state and local environmental, health, and safety laws,
codes and ordinances, and all rules and regulations promulgated
thereunder. The Company and each of its Subsidiaries have been
issued and will maintain all required federal, state and local
permits, licenses, certificates and approvals relating to (i) air
emissions; (ii) discharges to surface water or groundwater;
(iii) noise emissions; (iv) solid or liquid waste disposal; (v) the
use, generation, storage, transportation or disposal of toxic or
hazardous substances or wastes (which shall include any and all
such materials listed in any federal, state or local law, code or
ordinance and all rules and regulations promulgated thereunder as
hazardous or potentially hazardous); or (vi) other environmental,
health or safety matters. Neither the Company nor any Subsidiary
has received notice of, or knows of, or suspects facts which might
constitute any material violations of any federal, state or local
environmental, health or safety laws, codes or ordinances, and any
rules or regulations promulgated thereunder with respect to its
businesses, operations, assets, equipment, property, leaseholds, or
other facilities. Except in accordance with a valid governmental
permit, license, certificate or approval, there has been no
emission, spill, release or discharge into or upon (a) the air;
(b) soils, or any improvements located thereon; (c) surface water
or groundwater; or (d) the sewer, septic system or waste treatment,
storage or disposal system servicing the premises, of any toxic or
hazardous substances or wastes at or from the premises owned or
occupied by the Company or its Subsidiaries. There has been no
complaint, order, directive, claim, citation or notice by any
governmental authority or any person or entity with respect to
(I) air emissions; (II) spills, releases or discharges to soils or
improvements located thereon, surface water, groundwater or the
sewer, septic system or waste treatment, storage or disposal
systems servicing the premises; (III) noise emissions; (IV) solid
or liquid waste disposal; (V) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or
waste; or (VI) other environmental, health or safety matters
affecting the Company or any of its Subsidiaries or their
respective businesses, operations, assets, equipment, property,
leaseholds or other facilities. Neither the Company nor any
Subsidiary has any material indebtedness, obligation or liability
(absolute or
<PAGE> 9
contingent, matured or not matured), with respect to
the storage, treatment, cleanup or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including
without limitation any such indebtedness, obligation, or liability
with respect to any current regulation, law or statute regarding
such storage, treatment, cleanup or disposal).
Section 2.18 Accounting Matters.
The books of account, minute books, stock record books and
other records of the Company and its Subsidiaries are complete and
correct, have been maintained in accordance with sound business
practices and accurately and fairly reflect the transactions and
dispositions of the assets of the Company. 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 GAAP
and to maintain 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 is 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 2.19 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.
The Company is not prohibited from paying cash dividends to the
holders of the Series B Preferred Stock except as set forth in
Schedule 2.19.
Section 2.20 Prior Sales.
All offers and sales by the Company of its capital stock since
January 1, 1995, were at all relevant times (i) exempt from the
registration requirements of the Securities Act or were duly
registered under the Securities Act, and (ii) were duly registered
or were the subject of an available exemption from the registration
requirements of all applicable state securities or Blue Sky laws.
Section 2.21 Regulatory Compliance.
The conduct of the business and the ownership of the assets of
the Company and its Subsidiaries does not require any license,
permit, approval, waiver or other authorization of any federal,
state or local governmental or regulatory body, and except as set
forth on Schedule 2.21, such business is not subject to the
regulation of any federal, state or local government or regulatory
body by reason of the nature of the business being conducted (as
distinct from regulation common to commercial enterprises in
general). All licenses, permits and authorizations set forth on
Schedule 2.21 are in full force and effect.
Section 2.22 Margin Regulations.
The Company is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used
<PAGE> 10
to purchase or carry any equity security of a class which is
registered pursuant to Section 12 of the Exchange Act.
Section 2.23 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 (the "Investment Company Act"), and the issuance and sale
by the Company of the Series B Preferred Stock does not constitute
a "public offering" as such term is used in Section 55(a)(1)
thereof.
Section 2.24 Limited Offering.
Subject in part to the truth and accuracy of Purchaser's
representations set forth in this Agreement, the offer, sale and
issuance of the Series B Preferred Stock are exempt from the
registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf has taken or
will take any action hereafter that would cause the loss of such
exemption.
Section 2.25 Registration Rights.
Except as described in Schedule 2.25, the Company is not under
any obligation to register under the Securities Act, as amended,
any of its presently outstanding securities or any of its
securities that may subsequently be issued.
Section 2.26 Insurance.
The Company has maintained, and has caused 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 comparable size
and condition (financial and otherwise) engaged in the same or a
similar business and owning and operating similar properties.
Section 2.27 Governmental Consents.
No consent, approval, qualification, order or authorization
of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this
Agreement or the offer, sale or issuance of the Series B Preferred
Stock by the Company.
Section 2.28 Employees.
Schedule 2.28 sets forth the number of full-time employees and
full-time equivalent employees of the Company and each Subsidiary
as of the most recent payroll date, which date is set forth
therein. To the best of the Company's knowledge, there is no
strike, labor dispute or union organization activities pending or
threatened between it and its employees. Except as set forth on
Schedule 2.28, none of the Company's employees belongs to any union
or collective bargaining unit. To the best of its knowledge, the
Company has complied in all material respects with all applicable
state and federal equal opportunity and other laws related to
employment. To the best of the Company's knowledge, no employee of
the Company is or will be in violation of any judgment, decree, or
order, or any term of any employment contract, patent disclosure
agreement, or other
<PAGE> 11
contract or agreement relating to the relationship of any such
employee with the Company, or any other party, because of the nature
of the business conducted or presently proposed to be conducted by
the Company or to the use by the employee of his or her best efforts
with respect to such business. Except as disclosed in Schedule 2.28,
the Company is not a party to or bound by any employment contract,
deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation
agreement. The Company is not aware that any officer or key employee,
or that any group of key employees, intends to terminate their employment
with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Except as
described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and as described in Schedule 2.28, subject
to general principles related to wrongful termination of employees,
the employment of each officer and employee of the Company is
terminable at the will of the Company.
Section 2.29 ERISA.
The Company is in compliance in all material respects with all
applicable provisions 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"). Except as disclosed in Schedule 2.29, neither a
reportable event nor a prohibited transaction (as defined in ERISA)
has occurred and is continuing with respect to any "pension plan"
(as such term is defined in ERISA, a "Plan"); no notice of intent to
terminate a Plan has been filed nor has any Plan been terminated;
no circumstances exist which constitute grounds entitling the
Pension Benefit Guaranty Corporation (together with any entity
succeeding to or all of its functions, the "PBGC") to institute
proceedings to terminate, or appoint a trustee to administer, a
Plan, nor has the PBGC instituted any such proceedings; neither the
Company nor any commonly controlled entity (as defined in ERISA)
has completely or partially withdrawn from a multiemployer plan (as
defined in ERISA); the Company and each commonly controlled entity
has met its minimum funding requirements under ERISA with respect
to all of its Plans and the present fair market value of all Plan
property exceeds the present value of all vested benefits under
each Plan, as determined on the most recent valuation date of the
Plan and in accordance with the provisions of ERISA and the
regulations thereunder for calculating the potential liability of
the Company or any commonly controlled entity to the PBGC or the
Plan under Title IV or ERISA; and neither the Company nor any
commonly controlled entity has incurred any liability to the PBGC
under ERISA.
Section 2.30 Fees/Commissions.
The Company has not agreed to pay any finder's fee,
commission, origination fee or other fee or charge to any person or
entity with respect to or as a result of the consummation of the
transactions contemplated hereunder, except for the processing fee
due to Purchaser pursuant to Section 1.3 hereof.
Section 2.31 Disclosure.
No representation or warranty given as of the date hereof by
the Company contained in this Agreement 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.
<PAGE> 12
Section 2.32 Survival.
The representations and warranties of the Company contained in
this Agreement shall survive in accordance with Section 8.5 hereof
until this Agreement terminates.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents to the Company, as follows:
Section 3.1 Corporate Status.
Purchaser is a corporation duly organized and validly existing
under the laws of the State of Tennessee and has the requisite
power and authority 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 and any other document executed or
delivered by Purchaser in connection herewith.
Section 3.2 Authorization.
Purchaser has full legal right, power and authority to enter
into and perform its obligations under this Agreement, the
Registration Rights 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 or
organizational powers of Purchaser, and do not and will not
contravene or conflict with (a) the organizational documents of
Purchaser, (b) any material agreement to which Purchaser is a party
or by which it or any of its properties is bound, or constitute a
default thereunder, or result in the creation or imposition of any
lien, charge, security interest or encumbrance of any nature upon
any of the property or assets of Purchaser pursuant to the terms of
any such agreement or instrument, or (c) violate any provision of
law or any applicable judgment, ordinance, regulation or order of
any court or governmental agency. The person(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 3.3 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 3.4 Accredited Investor Status; Purchase for Investment.
Purchaser is a registered investment company under the
Investment Company Act and as such is, and at the Closing Date will
be, an "accredited investor" under Rule 501(a) under the Securities
Act. Purchaser is acquiring the Series B Preferred Stock for its
own account, for investment, and not with a view to the
distribution or resale thereof, in whole or in part, in violation
of the Securities Act or any applicable state securities law, and
Purchaser has no present intention of selling, negotiating or
otherwise disposing of the Series B Preferred Stock, it being
understood that
<PAGE> 13
Purchaser intends to transfer and assign, without consideration,
the Series B Preferred Stock and all of Purchaser's rights and
obligations under this Agreement and the Operative Documents to one
or more Wholly-owned Subsidiaries of Purchaser, which Wholly-owned
Subsidiaries are and will also be "accredited investors" under
Rule 501(a). Purchaser is an "institutional investor" as defined
under Section 48-2-102 of the Tennessee Securities Act of 1980 for
purposes of the exemption set forth under Section 48-2-103(b)(3)
of such act.
Section 3.5 Legends on Certificates.
Purchaser understands that the certificates representing the
Series B Preferred Stock (or the Common Stock issued upon
conversion of the Series B Preferred Stock) shall bear the
following or similar legend and that appropriate stock transfer
instructions will be entered in the stock records of the Company:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY APPLICABLE STATE
SECURITIES LAW. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO OR FOR RESALE IN
CONNECTION WITH THE DISTRIBUTION THEREOF. NO
DISPOSITION OF THE SHARES MAY BE MADE IN THE ABSENCE OF
(1) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (2) AN OPINION OF COUNSEL ACCEPTABLE
TO THE COMPANY THAT SUCH DISPOSITION WITHOUT
REGISTRATION IS IN COMPLIANCE WITH THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAW.
Section 3.6 Survival.
The representations and warranties of Purchaser contained in
this Agreement shall survive the termination of this Agreement in
accordance with Section 8.5 hereof.
ARTICLE IV - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase and pay for the Series
B Preferred Stock 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 their 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.
<PAGE> 14
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
substantially in the form attached hereto as Exhibit C.
Section 4.3 Satisfactory Proceedings; Secretary's Certificate.
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 substantially in the form
attached hereto as Exhibit D.
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's
counsel, and covering the matters set forth in Exhibit E hereto.
Section 4.5 Authorization Agreement.
The Company shall have delivered to Purchaser an Authorization
Agreement for Pre-Authorized Payments (Debit), dated the Closing
Date, executed by a duly authorized officer of the Company, in the
form attached hereto as Exhibit F.
Section 4.6 Certificate of Designations.
The Certificate of Designations shall have been accepted by
the Office of the Secretary of State of Delaware as filed.
Section 4.7 Registration Rights Agreement.
The Company shall have executed and delivered to Purchaser the
Registration Rights Agreement.
Section 4.8 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 date within
ten (10) days of the Closing Date:
(a) the certificate of incorporation of the Company and each
of the Subsidiaries, certified by the Secretary of State or other
appropriate official in the jurisdiction in which each such entity
is incorporated;
(b) a certificate as to the legal existence and subsistence
of the Company and each of the Subsidiaries issued by the Secretary
of State or other appropriate official in the jurisdiction in which
each such entity is incorporated; and
<PAGE> 15
(c) a certificate as to the qualification to do business as
a foreign corporation in good standing of the Company and each of
the Subsidiaries, as appropriate, issued by the Secretary of State
or other appropriate official in each jurisdiction listed in
Schedule 2.1(a).
Section 4.9 Senior Secured Loan Agreement; Subordinated
Debentures; Warrants.
(a) Pursuant to the terms of the Tandem Loan Agreement, the
Company shall have borrowed from Tandem $1,280,000, and the Company
shall have issued to Tandem the Loan Warrants to purchase 365,000
shares of Common Stock.
(b) Pursuant to the terms of the 1998 Debenture Purchase
Agreement, the Company shall have sold to Tandem, and Tandem shall
have purchased from the Company, the Company's 12% Subordinated
Secured Debenture due February 13, 2002, in the principal amount of
$1,750,000, and the Company shall have issued to Tandem the
Debenture Warrants to purchase 525,000 shares of Common Stock.
(c) If payment of the purchase price shall be made by
delivery of the Company's 11% Convertible Debentures, Purchaser
shall have been paid all interest accrued thereon to the Closing
Date.
Section 4.10 Intercreditor Agreement
The Company shall have executed and delivered to Purchaser an
Intercreditor Agreement among the Company, its Subsidiaries,
Purchaser and The CIT Group/Credit Finance, Inc., in the form
attached hereto as Exhibit G.
Section 4.11 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, including
the consents set forth on Schedule 2.3, shall have been obtained
and all such consents or amendments shall be satisfactory in form
and substance to Purchaser and Purchaser's counsel.
Section 4.12 Expenses.
The Company shall have reimbursed Purchaser for all fees and
expenses as provided in Section 8.1 herein.
Section 4.13 Waiver of Conditions.
If on the Closing Date the Company fails to tender to
Purchaser the Series B Preferred Stock 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 4.13 shall
operate to relieve the Company of any of its obligations hereunder
or to waive any of Purchaser's rights against the Company.
<PAGE> 16
ARTICLE V - COVENANTS OF COMPANY
From and after the Closing Date and continuing so long as
Purchaser holds any shares of the Series B Preferred Stock:
Section 5.1 Use of Proceeds.
The Company shall use the proceeds of the sale of the Series B
Preferred Stock, together with the proceeds from the sale of the
New Debentures, only for the purposes of repurchasing the
outstanding 11% Convertible Debentures.
Section 5.2 Dividends; Repurchase of Series B Preferred Stock.
The Company shall declare and pay the Preferred Dividends (as
that term is defined in the Certificate of Designations) no later
than the respective dates set forth in the Certificate of
Designations, provided the Company may lawfully declare and pay a
dividend on such dates and further provided that the payments of
such dividends shall not be prohibited under the Tandem Loan
Agreement and/or the Loan and Security Agreement dated October 28,
1994 among the Company, certain subsidiaries of the Company, and
the CIT Group/Credit Finance, Inc., as amended from time to time.
Section 5.3 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 except where the failure to so
qualify would not have a Materially Adverse Effect and all licenses
and permits necessary to the proper conduct of its business.
Section 5.4 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 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 5.5 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.
<PAGE> 17
Section 5.6 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 comparable size
and condition (financial and otherwise) engaged in the same or a
similar business and owning and operating similar properties.
Section 5.7 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 (a) 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 (b) the Company or such Subsidiary
shall set aside on its books, reserves deemed by it to be adequate
with respect thereto.
Section 5.8 Compliance with Laws, Agreements, Etc.
Except where failure to do so does not and would not have a
Materially Adverse Effect, the Company 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
the Company is a party or by which the Company or any of its
properties is bound. Without limiting the foregoing, the Company
shall pay all of its indebtedness promptly and substantially in
accordance with the terms thereof.
Section 5.9 ERISA Matters.
If the Company has in effect, or hereafter institutes, a
pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be applicable
during such period as any such Plan shall be in effect: (i)
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 (ii) the Company 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 PBGC, at the
time that such notice is so filed.
Section 5.10 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 GAAP 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
<PAGE> 18
and finances with a representative of Purchaser, during reasonable
business hours, at all such times as Purchaser may reasonably request.
Section 5.11 Reports.
The Company will furnish to Purchaser the following (provided
that this obligation shall be deemed satisfied if the Company
delivers the following to Purchaser in connection with either the
1998 Debenture Purchase Agreement or the Tandem Loan Agreement):
(a) Monthly Statements. Within twenty (20) days of the
end of each month, beginning the month of March 1998, 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 statement of income and cash flows for the one month period
then ended, as well as any additional financial reports for such
period (i) distributed to directors of the Company or (ii)
routinely prepared with respect to the Company and the Subsidiaries
subsequent to the date hereof;
(b) Quarterly Statements. As soon as available and in
any event within thirty (30) 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 at the end 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 the 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, and
(ii) consolidated and consolidating statements
of income and retained earnings and cash flows of the
Company and Subsidiaries 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;
<PAGE> 19
(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. Promptly upon their
becoming available, one copy of each financial statement, report,
notice or proxy statement sent by the Company to stockholders
generally and of 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, and copies of 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;
(f) Press Releases. Promptly upon its release, a copy
of each press release issued by the Company; and
(g) Requested Information. With reasonable promptness,
such financial data and other information relating to the business
of the Company as Purchaser may from time to time reasonably
request.
Section 5.12 Annual Plan.
The Board of Directors shall adopt and the Company will
furnish to Purchaser, in such manner and form as approved by the
Board of Directors of the Company, no later than the first day of
each fiscal year, a financial plan for the Company, which shall
include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows 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"). The
Annual Plan may only be amended or revised, in any material manner,
with the approval of the Board of Directors. The Company shall
promptly furnish to Purchaser each amendment or revision to the
Annual Plan.
Section 5.13 Board of Directors; Observer Rights.
(a) For so long as any shares of the Series B Preferred
Stock shall remain outstanding, and in addition to any rights to
elect one or more directors pursuant to the Certificate of
Designations, upon request of Purchaser, the Company shall invite
one (1) 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. Notwithstanding anything herein to
the contrary, this provision shall not apply to a Purchaser if such
Purchaser exercises identical observer rights to attend meetings of
the Board of Directors pursuant to the 1998 Debenture Purchase
Agreement and/or the Tandem Loan Agreement.
(b) At any time or from time to time after the Closing Date
upon the request of Purchaser, the Board of Directors of the
Company shall promptly (i) cause the size of the Board of Directors
of the Company to be increased by one (1) director to five (5)
directors (unless a vacancy
<PAGE> 20
on the Board of Directors shall already exist) and (ii) fill the
vacancy created thereby (or such existing vacancy) by electing
as director a person who shall not be an Affiliate of or associated
with any of the Company, its current directors or the Purchaser
and who shall be mutually agreed upon by the three directors who
are not affiliated with the Purchaser and the Purchaser.
(c) Purchaser and the Company agree that, upon the Closing
hereunder, Craig Macnab shall be the director elected by the
holders of the Series B Preferred Stock pursuant to the Certificate
of Designation.
Section 5.14 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.
ARTICLE VI - AMENDMENTS, WAIVERS AND CONSENTS
Section 6.1 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% of the outstanding Series B Preferred Stock.
Section 6.2 Effect of Amendment or Waiver.
Any such amendment or waiver shall apply equally to all of the
holders of the Series B Preferred Stock and shall be binding upon
them, upon each future holder of any Series B Preferred Stock and
upon the Company. No such amendment or waiver shall extend to or
affect any obligation not expressly amended or waived or impair any
right consequent thereon.
ARTICLE VII - INTERPRETATION OF AGREEMENT; DEFINITIONS
Section 7.1 Definitions.
Unless the context otherwise requires, the terms hereinafter
set forth when used 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 (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 holds 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.
"Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which banks in Tennessee are authorized to
close.
<PAGE> 21
The term "control" (including the terms "controlling,"
"controlled by" and "under common control") shall mean the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a person, whether
through the ownership of Voting Stock, by contract, or otherwise.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, 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 to any successor sections.
"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.
The term "knowledge of the Company" shall mean, with respect
to a particular fact or other matter if a director or executive
officer of the Company or any Subsidiary is actually, or has been,
aware of such fact or other matter, after reasonable inquiry under
the circumstances.
"Materially Adverse Effect" shall mean a materially adverse
effect upon the business, assets, liabilities, financial condition,
results of operations or business prospects, in each case of the
Company and its Subsidiaries taken as a whole, or upon the ability
of the Company to perform its obligations under this Agreement, the
Debentures or the other Operative Documents.
<PAGE> 22
"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.
"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.
"Purchaser" shall mean Sirrom Capital Corporation, d/b/a
Tandem Capital, a Tennessee corporation, and each transferee of
shares of Series B Preferred Stock who is entitled to the benefits
and subject to the obligations of this Agreement.
"Security" shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
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
Subsidiaries of such parent corporation. The term "Subsidiary"
shall mean a subsidiary of the Company.
"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) shall be owned by the Company and/or one or more of its
Wholly-owned Subsidiaries.
Section 7.2 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.
<PAGE> 23
ARTICLE VIII - MISCELLANEOUS
Section 8.1 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 (a) the entering into of
this Agreement, the 1998 Debenture Purchase Agreement, and the
Tandem Loan Agreement and the consummation of the transactions
contemplated hereby and thereby, including but not limited to the
reasonable fees, expenses and disbursements of Purchaser's counsel,
and (b) so long as Purchaser holds any of the Series B Preferred
Stock, 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.
The Company also agrees that it will pay and save Purchaser
harmless against any and all liability with respect to stamp and
other taxes, if any, which may be payable in connection with the
execution and delivery of this Agreement or the issuance of the
Series B Preferred Stock, whether or not any shares of Series B
Preferred Stock are then outstanding. 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 retained by the Company in connection with the
transactions contemplated by this Agreement.
Section 8.2 Powers and Rights Not Waived; Remedies Cumulative.
No delay or failure on the part of the holder of any Series B
Preferred Stock 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 Series B Preferred Stock are cumulative to and
are not exclusive of any rights or remedies any such holder would
otherwise have, and no waiver or consent shall extend to or affect
any obligation or right not expressly waived or consented to.
Section 8.3 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: Tandem Capital, Inc.
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, Tennessee 37219
Fax: (615) 742-4539
Attention: Donald I.N. McKenzie, Esq.
<PAGE> 24
If to 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 the Purchaser or the subsequent holder of
any Series B Preferred Stock 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 Series B Preferred Stock 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 a Purchaser or a
subsequent holder of any Series B Preferred Stock initially issued
Purchaser may designate to the Company in writing or at a telephone
number herein set forth in the case of the Company.
Section 8.4 Successors and Assigns.
Purchaser's interest in this Agreement and the other Operative
Documents may be endorsed, assigned and/or transferred in whole or
in part by Purchaser, and any such holder and/or assignee of the
same shall succeed to and be possessed of the rights and powers of
Purchaser under all of the same to the extent transferred and
assigned. The Company shall not assign any of its rights nor
delegate any of its duties under this Agreement or any of the other
Operative Documents by operation of law or otherwise without the
prior express written consent of Purchaser, and in the event the
Company obtains such consent, this Agreement and the other
Operative Documents shall be binding upon such assignee.
Section 8.5 Survival of Covenants and Representations.
All representations and warranties made by the Company herein
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 Series B Preferred Stock.
All covenants made by the Company herein shall survive the closing
and delivery of this Agreement and the Operative Documents in
accordance with their respective terms.
Section 8.6 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.
<PAGE> 25
Section 8.7 Governing Law.
The corporate law of Delaware shall govern all issues
concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by the internal law, and not the law of
conflicts, of Tennessee.
Section 8.8 Captions; Counterparts.
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. This
Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument.
Section 8.9 Entire Agreement.
This Agreement together with the Certificate of Designations
constitutes the entire agreement of the parties with regard to the
sale of the Series B Preferred Stock.
Section 8.10 Specific Performances.
Should the Company violate any of Sections 5.11, 5.12, and
5.13 of this Agreement, then, in addition to all legal and
equitable remedies available to the Purchaser, the provisions
thereof shall be enforceable by specific performance and injunctive
relief. The parties agree and stipulate that the right of
Purchaser to obtain specific performance, injunctive relief, or
both, are specifically bargained for due to the mutual recognition
that the amount of actual damages arising from violation of the
covenants in Sections 5.11, 5.12, and 5.13 will be difficult or
impossible to ascertain both now and in the future and that such
violation will cause irreparable harm to Purchaser.
Section 8.11 Attorneys' Fees.
If legal action is commenced to enforce any provision of this
Agreement, the prevailing party in such action shall be entitled to
recover its attorneys' fees through all appellate levels in
addition to any other relief that may be granted.
Section 8.12 Disclosure Statement.
The disclosures contained in the Disclosure Statement attached
hereto with respect to any section number hereof shall be deemed to
constitute the contents of the schedule of such number referenced
herein.
<PAGE>
[SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Series
B Preferred Stock Purchase Agreement to be executed and delivered
by their duly authorized officers as of the date first written
above.
COMPANY:
TELTRONICS, INC.
By: Ewen R. Cameron, President
PURCHASER:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: Craig Macnab
Its: Vice President
<PAGE>
EXHIBIT 10.2
DEBENTURE PURCHASE AGREEMENT
Between
SIRROM CAPITAL CORPORATION,
d/b/a TANDEM CAPITAL
And
TELTRONICS, INC.
February 25, 1998
<PAGE> 1
DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "Agreement") entered
into the 25th day of February, 1998, is by and between SIRROM
CAPITAL CORPORATION d/b/a TANDEM CAPITAL, a Tennessee corporation
(the "Company") and TELTRONICS, INC., a Delaware corporation (the
"Purchaser," sometimes referred to herein as "Tandem").
WITNESSETH:
WHEREAS, on February 13, 1997, the Company issued and sold
to Tandem its 11% Subordinated Convertible Debenture due February
13, 2002, in the principal amount of $4,250,000 (the "11%
Convertible Debentures"), pursuant to the terms and conditions of
that certain Debenture Purchase Agreement dated February 13,
1997, between the Company and Tandem (the "1997 Debenture
Purchase Agreement");
WHEREAS, for good and valid corporate purposes, the Company
wishes to repurchase the 11% Convertible Debentures and Tandem is
willing to sell to the Company the 11% Convertible Debentures in
consideration for $4,250,000;
WHEREAS, in order to obtain the funds to repurchase the 11%
Convertible Debentures and to obtain additional capital for use
in connection with its business, (a) the Company desires to issue
and sell certain preferred stock of the Company for $2,500,000,
and Purchaser is willing to purchase such shares of preferred
stock from the Company, on the terms on conditions set forth in
that certain Preferred Stock Purchase Agreement between the
Company and Tandem dated the date hereof (the "Preferred Stock
Purchase Agreement"), (b) the Company desires to issue and sell
its 12% Subordinated Secured Debentures, due February 13, 2002,
in the principal amount of $1,750,000, and Purchaser is willing
to purchase such debentures, on the terms and conditions set
forth herein, and (c) Tandem is willing to make a secured loan to
the Company in the amount of $1,280,000, on the terms and
conditions set forth in that certain Loan and Security Agreement
among the Company, certain Subsidiaries of the Company and
Tandem, dated the date hereof (the "Tandem Loan Agreement").
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;
ISSUANCE OF WARRANTS
Section 1.1 Debentures; Security.
(a) The Company has authorized the issue and sale of One
Million Seven Hundred Fifty Thousand and no/100ths Dollars
($1,750,000.00) aggregate principal amount of its 12%
Subordinated Secured Debentures due on February 13, 2002 (the
"Debentures"), to be dated the date
<PAGE> 2
of issue and to bear interest from such date at the rate of 12% per
annum, subject to increase upon the failure to occur of certain
events described therein. Interest is payable quarterly by
automatic debit on the first day of each February, May, August and
November in each year (commencing February 1, 1998) and at maturity,
to mature on the fifth anniversary of the date of issuance, to bear
such other terms and to be substantially in the form attached hereto as
Exhibit A-1. Interest on the Debentures shall be computed on the
basis of a 360-day year of twelve 30-day months. The Debentures
may be redeemed or repaid at the option of the Company, subject
to the restrictions in Section 5.3 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 hereof unless the context shall otherwise require.
(b) As collateral security for the obligations of the
Company under the Debentures and this Agreement, the Company
hereby grants to Purchaser a security interest in the personal
property of the Company, together with all proceeds thereof, of
the types described on Schedule 1.1(b) attached hereto
(collectively, the "Collateral"). Upon issuance, the Debentures
will be and, until fully paid and performed as provided therein
and under this Agreement, shall continue to be secured by the
Collateral.
Section 1.2 Warrants; Registration Rights Agreement.
(a) Simultaneously with the purchase and sale of the
Debentures, the Company shall grant, issue, and deliver to
Purchaser its Stock Purchase Warrant for the purchase of 525,000
shares of Common Stock of the Company, with an exercise price of
$2.75 per share, dated the Closing Date (as defined in Section
1.3 below) and substantially in the form attached hereto as
Exhibit A-2 (the "Warrant") and an accompanying Registration
Rights Agreement, dated the Closing Date, by and between the
Company and Purchaser, and substantially in the form attached
hereto as Exhibit A-3 (the "Registration Rights Agreement").
Section 1.3 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 aggregate
principal amount of $1,750,000 at a price of 100% of the
principal amount thereof.
Delivery of the Debentures will be made at the office 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 wire instructions
set forth on Exhibit B hereto, or by the surrender by Purchaser
of 11% Convertible Debentures in an amount equal to the purchase
price hereunder, at 10:00 A.M., Nashville time, on February 25,
1998, or such other date, but no later than February 27, 1998, 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-1, all as Purchaser may specify at least 24
hours prior to the date fixed for delivery.
<PAGE> 3
Section 1.4 Processing Fee.
The Company agrees to pay to Purchaser on or before the
Closing Date a processing fee in an amount equal to $8,750.00.
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, the Warrant, the Registration Rights Agreement,
and any other document executed and delivered by the Company 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 on Schedule 2.1(a) hereto.
(b) Schedule 2.1(b) sets forth a complete list of each
corporation, partnership, joint venture, limited liability
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 on Schedule 2.1(b), 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.
Section 2.2 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 40,000,000 shares of common stock, par value $.001 per share
(the "Common Stock"), of which 3,415,513 shares are issued and
outstanding, and (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
<PAGE> 4
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 and Series A Preferred
Stock outstanding have been validly issued and are fully paid and
nonassessable. As of the Closing Date, the authorized Series A
Preferred Stock shall have been decreased to 100,000 shares and
25,000 shares of the undesignated preferred stock shall have been
designated as "Series B Convertible Preferred Stock" with the
rights, preferences and limitations set forth in the Certificate
of Designations (the "Series B Preferred Stock"). Except as
listed on Schedule 2.2(a), 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 Series B Preferred Stock or the issuance of
Common Stock upon the conversion thereof.
(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,
there are no securities outstanding or committed to be issued by
the Company or any Subsidiary which are convertible into or
exchangeable for any shares of capital stock or other securities
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 Warrant to
be issued pursuant to this Agreement; (ii) the Stock Purchase
Warrant to purchase 365,000 shares of Common Stock (the "Loan
Warrants") to be issued to Tandem pursuant to the Tandem Loan
Agreement; (iii) such options, warrants and other rights to
acquire capital stock of the Company, together with relevant
exercise prices and dates set forth on Schedule 2.2(b), (iv) the
shares of Series B Preferred Stock to be issued pursuant to the
Preferred Stock Purchase Agreement, and (v) the conversion
privileges of the holders of the Series B Preferred Stock to be
issued pursuant to the Preferred Stock Purchase Agreement.
Except as set forth on Schedule 2.2(b), all such shares have been
duly reserved for issuance, have been duly and validly authorized
and upon issuance in accordance with the terms of the respective
instruments, will be validly issued, fully paid and
nonassessable.
Section 2.3 Authorization; Absence of Conflicts.
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, except as set forth on Schedule 2.3, each of which
will be obtained prior to closing. The execution and delivery of
this Agreement, the issuance of the Debentures and Warrant
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, and do not and will not
contravene or conflict with (a) the Articles of Incorporation or
Bylaws of the Company, as amended, (b) any material agreement to
which the Company or any of its Subsidiaries is a party or by
which any of them or their properties is bound, or constitute a
default thereunder, or result 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
<PAGE> 5
(c) 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, the
Operative Documents, 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 Financial Statements.
The consolidated financial statements of the Company and
its Subsidiaries for the fiscal years ended December 31, 1994,
December 31, 1995, and December 31, 1996, and the unaudited
consolidated financial statements as of and for the nine (9)
months ended September 30, 1997, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly
present the financial position, results of operations, cash flows
and changes in stockholders' equity of the Company and its
consolidated Subsidiaries, at the respective dates of and for the
periods to which they apply in such financial statements and have
been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
indicated, subject, in the case of interim financial statements,
to normal recurring year-end adjustments (the effect of which
will not, individually or in the aggregate, have a Materially
Adverse Effect). No financial statements of any other person(s)
are required by GAAP to be included in the consolidated financial
statements of the Company.
Section 2.6 SEC Reports.
The Company's Common Stock is listed on the NASDAQ Small Cap
Market and has been duly registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The trading symbol for the Company's Common Stock is "TELT."
Since January 1, 1995, 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, and the Company's annual report to
stockholders for the year ended December 31, 1996, which annual
report meets the requirements of Rule 14a-3 or 14e-3 under the
Exchange Act (the "Annual Report"). 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.
<PAGE> 6
Section 2.7 Absence of Changes.
Except as set forth on Schedule 2.7, since September 30,
1997, (i) neither the Company nor any of its Subsidiaries has
incurred any liabilities or obligations, direct or contingent, or
entered into any transactions, not in the ordinary course of
business, that are material to the Company or any of its
Subsidiaries, (ii) neither the Company nor any of its
Subsidiaries has purchased any of its outstanding capital stock
or declared, or paid any dividend or other distribution or
payment in respect of its capital stock, (iii) there has not been
any change in the authorized or issued capital stock, long-term
debt or short-term debt of the Company, and (iv) there has not
been any Materially Adverse Effect in or affecting the business,
operations, properties, prospects, assets, or condition
(financial or otherwise) of the Company or any Subsidiary, and no
event has occurred or circumstance exists that may result in a
Materially Adverse Effect.
Section 2.8 No Defaults.
Except as set forth on Schedule 2.8 and except where a
default or event of default does not and would not constitute a
Materially Adverse Effect, no default or event of default by the
Company or any Subsidiary exists under this Agreement or under
any 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 2.9 Compliance With Law.
To the Company's knowledge, the Company and its Subsidiaries
are in compliance with all federal, state and local laws,
regulations, decrees and orders applicable to them (including but
not limited to 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 cause a Materially Adverse Effect.
Section 2.10 Litigation.
Except as set forth on Schedule 2.10, there is no
litigation, arbitration, claim, proceeding or investigation
pending or threatened in writing to which the Company or any
Subsidiary is a party or to which any of its respective
properties or assets is the subject which, if determined
adversely to the Company or such Subsidiary, would individually
or in the aggregate have a Materially Adverse Effect.
Section 2.11 Taxes.
Except as set forth on Schedule 2.11, 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 have 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
<PAGE> 7
which appropriate amounts have been reserved), and the Company does
not know of any proposed assessment for additional taxes or any basis
therefor. No tax liens have been filed against the Company, or
its Subsidiaries or any of their 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 2.12 Certain Transactions.
Except as set forth on Schedule 2.12(i) and except as to
indebtedness incurred in the ordinary course of business and
approved by the Board of Directors of the Company, neither the
Company nor any Subsidiary is indebted, directly or indirectly,
to any of its officers or directors, or to their respective
spouses or children, in excess of an aggregate amount of $60,000,
and none of the officers or directors or any members of their
immediate families are indebted to the Company or any Subsidiary
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 or any Subsidiary is affiliated or with which the
Company has a business relationship, or any firm or corporation
which competes with the Company or any Subsidiary, except that an
officer and/or director of the Company may own no more than 1.0%
of the outstanding stock of any publicly traded company which
competes directly with the Company. Except as set forth on
Schedule 2.12(ii), no officer or director of the Company or any
Subsidiary or any member of their immediate families is, directly
or indirectly, interested in any material contract with the
Company or any Subsidiary. Except as set forth on
Schedule 2.12(iii), neither the Company nor any Subsidiary is a
guarantor or indemnitor of any indebtedness of any other person,
firm or corporation.
Section 2.13 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 Schedule 2.13 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, and no default
has occurred or is continuing thereunder might result in any
Materially Adverse Effect, and the Company and each Subsidiary
enjoys peaceful and undisturbed possession under all such leases,
except as disclosed on Schedule 2.13 or which are not material
and do not interfere with the use to be made of such buildings or
property by the Company.
<PAGE> 8
Section 2.14 Intellectual Property.
Except as set forth in Schedule 2.14, the Company is the
lawful owner or has a valid right to use the Proprietary
Information in its business free and clear of any claim, right,
trademark, patent or copyright protection of any third party.
The Company has good and marketable title to or has a valid right
to use 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, which are listed on Schedule 2.14(b)(i), except as set
forth on Schedule 2.14(b)(ii). 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 would individually or in the aggregate have a
Materially Adverse Effect. 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
has adopted and follows such procedures as the Company deems
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 2.15 Debt.
Schedule 2.15(i) sets forth (i) a complete and correct list
of all loans, credit agreements, indentures, purchase agreements,
promissory notes and other evidences of indebtedness, Guaranties,
capital leases and other instruments, agreements and arrangements
presently in effect providing for or relating to extensions of
credit (including agreements and arrangements for the issuance of
letters of credit or for acceptance financing) in respect of
which the Company, any Subsidiary or any of their properties is
in any manner directly or contingently obligated; (ii) a correct
statement of the maximum principal or face amounts of the credit
in question that are outstanding and that can be outstanding; and
(iii) a correct statement of all liens, pledges or security
interests of any nature given or agreed to be given as security
therefor or in connection therewith. Consummation of the
transactions hereby contemplated and the performance of the
obligations of the Company under the Operative Documents will not
result in any breach of, or constitute a default under, or
require the consent of any person under, any loan, credit
agreement, indenture, purchase agreement, promissory note or
other evidences of indebtedness, Guaranty, capital lease or other
instrument, agreement or arrangement set forth on Schedule
2.15(i) except as set forth on Schedule 2.15(ii).
Section 2.16 Material Contracts.
Schedule 2.16 sets forth a complete and correct list of (a)
all contracts, agreements and other documents pursuant to which
the Company or any Subsidiary either (i) receives revenues or
(ii) makes payment to any third Person(s), in excess of $100,000
per fiscal year, and (b) contracts or other agreements required
to be filed by the Company with the SEC as an exhibit pursuant to Item
<PAGE> 9
601(b)(10) of Regulation S-K under the Securities Act (each
instrument identified in Schedule 2.16 individually being an
"Applicable Contract" and collectively the "Applicable
Contracts"). Each Applicable Contract is in full force and
effect as of the date hereof and the Company knows of no reason
why such Applicable Contracts would not remain in full force and
effect pursuant to the terms thereof. Consummation of the
transactions hereby contemplated and the performance of the
obligations of the Company under the Operative Documents will not
result in any breach of, or constitute a default under, or
require the consent of any person under, any Applicable Contract
set forth on Schedule 2.16(i) except as set forth on Schedule
2.16(ii).
Section 2.17 Environmental Matters.
The Company and each of its Subsidiaries have duly complied
with, and its business, operations, assets, equipment, property,
leaseholds or other facilities of each are in compliance with,
the provisions of all federal, state and local environmental,
health, and safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder. The Company and each of its
Subsidiaries have been issued and will maintain all required
federal, state and local permits, licenses, certificates and
approvals relating to (i) air emissions; (ii) discharges to
surface water or groundwater; (iii) noise emissions; (iv) solid
or liquid waste disposal; (v) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or
wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules
and regulations promulgated thereunder as hazardous or
potentially hazardous); or (vi) other environmental, health or
safety matters. Neither the Company nor any Subsidiary has
received notice of, or knows of, or suspects facts which might
constitute any violations of any federal, state or local
environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder with respect to
its businesses, operations, assets, equipment, property,
leaseholds, or other facilities. Except in accordance with a
valid governmental permit, license, certificate or approval,
there has been no emission, spill, release or discharge into or
upon (a) the air; (b) soils, or any improvements located thereon;
(c) surface water or groundwater; or (d) the sewer, septic system
or waste treatment, storage or disposal system servicing the
premises, of any toxic or hazardous substances or wastes at or
from the premises owned or occupied by the Company or its
Subsidiaries. There has been no complaint, order, directive,
claim, citation or notice by any governmental authority or any
person or entity with respect to (I) air emissions; (II) spills,
releases or discharges to soils or improvements located thereon,
surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the premises;
(III) noise emissions; (IV) solid or liquid waste disposal;
(V) the use, generation, storage, transportation or disposal of
toxic or hazardous substances or waste; or (VI) other
environmental, health or safety matters affecting the Company or
any of its Subsidiaries or their respective businesses,
operations, assets, equipment, property, leaseholds or other
facilities. Neither the Company nor any Subsidiary has any
indebtedness, obligation or liability (absolute or contingent,
matured or not matured), with respect to the storage, treatment,
cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation
any such indebtedness, obligation, or liability with respect to
any current regulation, law or statute regarding such storage,
treatment, cleanup or disposal).
<PAGE> 10
Section 2.18 Accounting Matters.
The books of account, minute books, stock record books and
other records of the Company and its Subsidiaries are complete
and correct, have been maintained in accordance with sound
business practices and accurately and fairly reflect the
transactions and dispositions of the assets of the Company. 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 GAAP and to maintain 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
is 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 2.19 Distributions to Company.
The Company is not prohibited from paying cash dividends to
the holders of the Series B Preferred Stock except as set forth
in Schedule 2.19. 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 2.20 Prior Sales.
All offers and sales by the Company of its capital stock
since January 1, 1995, were at all relevant times (i) exempt from
the registration requirements of the Securities Act or were duly
registered under the Securities Act, and (ii) were duly
registered or were the subject of an available exemption from the
registration requirements of all applicable state securities or
Blue Sky laws.
Section 2.21 Regulatory Compliance.
Except as set forth on Schedule 2.21, the conduct of the
business and the ownership of the assets of the Company and its
Subsidiaries is not (and is not intended to be, as hereinafter
conducted) does not require any license, permit approved, waiver
or other authorization of any federal, state or local
governmental or regulatory body, and except as set forth on
Schedule 2.21, such business is not subject to the regulation of
any federal, state or local government or regulatory body by
reason of the nature of the business being conducted (as distinct
from regulation common to commercial enterprises in general).
All licenses, permits and authorizations set forth on Schedule
2.21 are in full force and effect.
Section 2.22 Margin Regulations.
The Company is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock.
No proceeds received pursuant to this Agreement will be used
<PAGE> 11
to purchase or carry any equity security of a class which is
registered pursuant to Section 12 of the Exchange Act.
Section 2.23 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 (the "Investment Company Act"), and the issuance
and sale by the Company of the Debentures and the Warrant does
not constitute a "public offering" as such term is used in
Section 55(a)(1) thereof.
Section 2.24 Limited Offering.
Subject in part to the truth and accuracy of Purchaser's
representations set forth in this Agreement, the offer, sale and
issuance of the Debentures and the Warrant are exempt from the
registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf has taken
or will take any action hereafter that would cause the loss of
such exemption.
Section 2.25 Registration Rights.
Except as described in Schedule 2.25, the Company is not
under any obligation to register under the Securities Act or the
Trust Indenture Act of 1939, as amended, any of its presently
outstanding securities or any of its securities that may
subsequently be issued.
Section 2.26 Insurance.
The Company has maintained, and has caused 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
comparable size and condition (financial and otherwise) engaged
in the same or a similar business and owning and operating
similar properties.
Section 2.27 Governmental Consents.
No consent, approval, qualification, order or authorization
of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection
with the Company's valid execution, delivery, or performance of
this Agreement or the offer, sale or issuance of the Debentures
by the Company.
Section 2.28 Employees.
Schedule 2.28 sets forth the number of full-time employees
and full-time equivalent employees of the Company and each Subsidiary
as of the most recent payroll date, which date is set forth therein.
To the best of the Company's knowledge, there is no strike, labor
dispute or union organization activities pending or threatened
between it and its employees. None of the Company's employees
belongs to any union or collective bargaining unit. To the best of
its knowledge, the Company has complied in all material respects
with all applicable state and federal equal opportunity
<PAGE> 12
and other laws related to employment. To the best of
the Company's knowledge, no employee of the Company is or will be
in violation of any judgment, decree, or order, or any term of
any employment contract, patent disclosure agreement, or other
contract or agreement relating to the relationship of any such
employee with the Company, or any other party, because of the
nature of the business conducted or presently proposed to be
conducted by the Company or to the use by the employee of his or
her best efforts with respect to such business. Except as
disclosed in Schedule 2.28, the Company is not a party to or
bound by any employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement.
The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of
employees, the employment of each officer and employee of the
Company is terminable at the will of the Company.
Section 2.29 ERISA.
The Company is in compliance in all material respects with
all applicable provisions 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"). Except as disclosed in Schedule
2.29, neither a reportable event nor a prohibited transaction (as
defined in ERISA) has occurred and is continuing with respect to
any "pension plan" (as such term is defined in ERISA, a "Plan");
no notice of intent to terminate a Plan has been filed nor has
any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation
(together with any entity succeeding to or all of its functions,
the "PBGC") to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any
such proceedings; neither the Company nor any commonly controlled
entity (as defined in ERISA) has completely or partially
withdrawn from a multiemployer plan (as defined in ERISA); the
Company and each commonly controlled entity has met its minimum
funding requirements under ERISA with respect to all of its Plans
and the present fair market value of all Plan property exceeds
the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA and the regulations
thereunder for calculating the potential liability of the Company
or any commonly controlled entity to the PBGC or the Plan under
Title IV or ERISA; and neither the Company nor any commonly
controlled entity has incurred any liability to the PBGC under
ERISA.
Section 2.30 Financing Statements.
Neither (i) that certain Financing Statement filed in the
Office of the Secretary of State of the State of Florida on
August 18, 1997 (File No. 970000184501) nor (ii) that certain
Financing Statement filed in the Office of the Secretary of State
of the State of Florida on July 2, 1997 (File No. 970000146543)
perfect a security interest in any of the assets of Interactive
Solutions, Inc., a Delaware corporation and a subsidiary of the
Company.
Section 2.31 Fees/Commissions.
The Company has not agreed to pay any finder's fee,
commission, origination fee or other fee or charge to any person
or entity with respect to or as a result of the consummation of the
<PAGE> 13
transactions contemplated hereunder, except for the
processing fee due to Purchaser pursuant to Section 1.3 hereof.
Section 2.32 Disclosure.
No representation or warranty given as of the date hereof by
the Company contained in this Agreement 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.
Section 2.33 Survival.
The representations and warranties of the Company contained
in this Agreement shall survive in accordance with Section 11.5
hereof until this Agreement terminates.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents to the Company as follows:
Section 3.1 Corporate Status.
Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Tennessee 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 and any other
document executed or delivered by Purchaser in connection
herewith.
Section 3.2 Authorization.
Purchaser has full legal right, power and authority to enter
into and perform its obligations under the Operative Documents,
without the consent or approval of any other person, firm,
governmental agency or other legal entity. The execution and
delivery of the Operative Documents, 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 (a) the Charter or
Bylaws of Purchaser, (b) any material agreement to which
Purchaser is a party or by which it or any of its properties is
bound, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge, security interest or
encumbrance of any nature upon any of the property or assets of
Purchaser pursuant to the terms of any such agreement or
instrument, or (c) 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 and
any other document executed and delivered by Purchaser in
connection herewith, is duly authorized to act on behalf of
Purchaser.
<PAGE> 14
Section 3.3 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 3.4 Accredited Investor; Investment Intent.
Purchaser is a registered investment company under the
Investment Company Act and as such is, and at the Closing Date
will be, an "accredited investor" under Rule 501(a) under the
Securities Act. Purchaser is acquiring the Debentures and the
Warrant for its own account, for investment, and not with a view
to the distribution or resale thereof, in whole or in part, in
violation of the Securities Act or any applicable state
securities law, and Purchaser has no present intention of
selling, negotiating or otherwise disposing of the Debentures
and/or the Warrant, it being understood that Purchaser intends to
transfer and assign, without consideration, the Debentures and
the Warrant and all of Purchaser's rights and obligations under
this Agreement and the Operative Documents to one or more Wholly-
owned Subsidiaries of Purchaser, which Wholly-owned Subsidiaries
are and will also be "accredited investors" under Rule 501(a).
Purchaser is an "institutional investor" as defined under Section
48-2-102 of the Tennessee Securities Act of 1980 for purposes of
the exemption set forth under Section 48-2-103(b)(3) of such act.
Section 3.5 Survival.
The representations and warranties of the Purchaser
contained in this Agreement shall survive the termination of this
Agreement in accordance with Section 11.5 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
substantially in the form attached hereto as Exhibit C.
<PAGE> 15
Section 4.3 Satisfactory Proceedings; Secretary's Certificate.
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
substantially in the form attached hereto as Exhibit D.
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's
counsel, and covering the matters set forth in Exhibit E hereto.
Section 4.5 Authorization Agreement.
The Company shall have delivered to Purchaser an
Authorization Agreement for Pre-Authorized Payments (Debit),
dated the Closing Date, executed by a duly authorized officer(s)
of the Company, in the form attached hereto as Exhibit F.
Section 4.6 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 date
within ten (10) days of the Closing Date:
(a) the certificate of incorporation of the Company
and each of the Subsidiaries, certified by the Secretary of State
or other appropriate official in the jurisdiction each such
entity is incorporated;
(b) a certificate as to the legal existence and good
standing of the Company and each of the Subsidiaries issued by
the Secretary of State or other appropriate official in the
jurisdiction each such entity is incorporated; and
(c) a certificate as to the qualification to do
business as a foreign corporation and good standing of the
Company and each of the Subsidiaries, as appropriate, issued by
the Secretary of State or other appropriate official in each
jurisdiction listed in Schedule 2.1(a).
Section 4.7 Delivery of Operative Documents.
The Company shall have delivered to Purchaser the following
documents, executed by the Company and dated the Closing Date:
(a) the Debenture;
(b) the Warrant; and
(c) the Registration Rights Agreement.
<PAGE> 16
Section 4.8 Warrant Valuation Letter.
The Company shall have delivered to Purchaser a Warrant
Valuation letter in the form attached as Exhibit G acceptable to
Purchaser.
Section 4.9 Senior Secured Loan Agreement; Preferred Stock.
(a) Pursuant to the terms of the Tandem Loan Agreement, the
Company shall have borrowed from Tandem $1,280,000, and the
Company shall have issued to Tandem the Loan Warrants to purchase
365,000 shares of Common Stock.
(b) The Company shall have sold to Purchaser, and Purchaser
shall have purchased, 25,000 shares of Series B Preferred Stock
of the Company pursuant to the terms of the Preferred Stock
Purchase Agreement.
(c) If payment of the purchase price shall be made by
delivery of the Company's 11% Convertible Debentures, Purchaser
shall have been paid all interest accrued thereon to the Closing
Date.
Section 4.10 Intercreditor Agreement.
The Company shall have executed and delivered to Purchaser
an Intercreditor Agreement among the Company, its Subsidiaries,
Purchaser and The CIT Group/Credit Finance, Inc. ("CIT"), in the
form attached hereto as Exhibit H.
Section 4.11 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,
including the consents set forth on Schedule 2.3, shall have been
obtained and all such consents or amendments shall be
satisfactory in form and substance to Purchaser and Purchaser's
counsel.
Section 4.12 Expenses.
The Company shall have reimbursed the Purchaser for all fees
and expenses as provided in Section 11.1 herein.
Section 4.13 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
<PAGE> 17
Purchaser, in Purchaser's sole discretion, may determine.
Nothing in this Section 4.13 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 sale of the
Debentures, together with the proceeds from the sale of the
Series B Preferred Stock, only for the purposes of repurchasing
the outstanding 11% Convertible Debentures.
Section 5.2 Payment of Debentures.
The Company shall perform and observe all of its obligations
to the holder(s) of the Debentures set forth herein and in the
Debentures.
Section 5.3 Optional Redemptions of Debentures; Procedures.
The Debentures may be redeemed, repaid or repurchased by the
Company or any Subsidiary or Affiliate, at the option of the
Company, in whole at any time or in part from time to time,
without additional charge or penalty, provided that in the case
of a redemption of part of the Debentures, such redemption shall
be effected pro rata among all holders of Debentures. 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 [Acceleration of
Maturities].
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 except where the failure to so
qualify would not have a Materially Adverse Effect, 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
<PAGE> 18
(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 comparable
size and condition (financial and otherwise) 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 (a) 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 (b) 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, Agreements, Etc.
Except where failure to do so does not and would not have a
Materially Adverse Effect, the Company and each Subsidiary 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 the Company and each Subsidiary
is a party or by which the Company or any of their properties are
bound. Without limiting the foregoing, the Company and each
Subsidiary shall pay all of its indebtedness promptly and
substantially in accordance with the terms thereof.
Section 5.10 ERISA Matters.
<PAGE> 19
If the Company has in effect, or hereafter institutes, a
pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be
applicable during such period as any such Plan shall be in
effect: (i) 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 (ii) the Company 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 PBGC, 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 GAAP 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.
The Company will furnish to Purchaser the following:
(a) Monthly Statements. Within twenty (20) days of
the end of each month, beginning the month of March 1998, 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 ended, as well as any additional financial reports
for such period routinely prepared with respect to the Company
and the Subsidiaries;
(b) Quarterly Statements. As soon as available and in
any event within thirty (30) 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 at the end 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 the Company;
<PAGE> 20
(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, and
(ii) consolidated and consolidating statements of
income and retained earnings and cash flows of the
Company and Subsidiaries 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. Promptly upon their
becoming available, one copy of each financial statement, report,
notice or proxy statement sent by the Company to stockholders
generally and of 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, and copies of 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) Press Releases. Promptly upon its release, a copy
of each press release issued by the Company.
(g) Requested Information. With reasonable
promptness, such financial data and other information relating to
the business of the Company as Purchaser may from time to time
reasonably request.
<PAGE> 21
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 owing from time to time to
the CIT Group/Credit Finance, Inc. (and its successors and
assigns) by the Company or any Subsidiary, as the same may be
extended, renewed, refunded, amended or modified (but the
principal amount thereof not increased); provided, however, that
if the "Maximum Credit" (as defined in the CIT Credit Agreement)
is reduced from $7,000,000 to $5,500,000 pursuant to the CIT
Credit Agreement, then the principal amount of such Indebtedness
to CIT shall not be increased thereafter above $5,500,000; (ii)
Indebtedness existing on the date hereof and reflected on
Schedule 5.13 hereto; (iii) the indebtedness incurred pursuant to
the Debentures and the Tandem Loan Agreement; (iv) accounts
payable and other trade payables incurred in the ordinary course
of business; (v) obligations of the Company pursuant to
capitalized leases and/or purchase money financing of equipment;
(vi) 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; (vii) 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; (viii)
additional Indebtedness which is senior to or ranking pari passu
with the Debentures in a principal amount not to exceed $50,000;
or (viii) the indebtedness incurred pursuant to the Tandem Loan
Agreement. 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 (vi)), 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; provided, however, that nothing
contained herein shall restrict the right of any holder of
Indebtedness referred to under clause (i) or (vi) above from
decreasing the advance rates applicable to any inventory or
accounts or thereafter increasing such rates to no more than the
rates in effect on the date hereof.
Section 5.14 Guaranties.
Without the prior written consent of Purchaser, the Company
will not, and will not permit any Subsidiary to, become or be
liable in respect of any Guaranty except Guaranties by the
Company which are limited in maximum financial exposure to the
amounts set forth in, and are incurred in compliance with, the
provisions of Section 5.13 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
<PAGE> 22
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.
For so long as the Debentures are outstanding, the Company
will not, without the prior written consent of Purchaser and
except as hereinafter provided:
(a) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class except
(i) dividends or other distributions payable solely in shares of
capital stock of Company and (ii) cash dividends payable on the
Series B Preferred Stock, provided that no Event of Default
exists hereunder;
(b) 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; or
(c) make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in respect of
its capital stock.
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:
(a) 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;
(b) Investments in certificates of deposit maturing
within one year from the date of origin, issued by a bank or
trust company organized under the laws of the United States or
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 Subsidiary, rated AA or better by Standard &
Poor's Corporation or Aa or better by Moody's Investors Service,
Inc.;
(c) 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;
<PAGE> 23
(d) 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 the Company or any Subsidiary; and
(e) receivables arising from the sale of goods and
services in the ordinary course of business of the Company and
its Subsidiaries.
Section 5.18 Mergers, Consolidations and Sales of Assets.
(a) Without the prior written consent of Purchaser,
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; and
(ii) any Subsidiary may sell, lease or otherwise
dispose of all or any substantial part of its assets to
the Company or any other Wholly-owned Subsidiary.
(b) Without the prior written consent of Purchaser,
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) Without the prior written consent of Purchaser,
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 all of the
following conditions are met:
(i) 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;
(ii) 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;
<PAGE> 24
(iii) 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;
(iv) the Subsidiary being disposed of shall not
have any continuing investment in the Company or any
other Subsidiary not being simultaneously disposed of;
and
(v) such sale or other disposition does not
involve a substantial part (as hereinafter defined) of
the assets of the Company and its Subsidiaries taken as
a whole.
(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 15% 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, or (iv) any
investigation initiated by, or any dispute between and any
governmental regulatory body, on the one hand, and the Company or
any Subsidiary, on the other hand, which dispute might interfere
with the normal operations of the Company or any Subsidiary;
provided, however, that Purchaser shall not be required by this
Agreement to 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.
<PAGE> 25
Section 5.21 Annual Plan.
The Board of Directors shall adopt and the Company will
furnish to Purchaser, in such manner and form as approved by the
Board of Directors of the Company, no later than the first day of
each fiscal year, a financial plan for the Company, which shall
include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows 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").
The Annual Plan may only be amended or revised, in any material
manner, with the approval of the Board of Directors. The Company
shall promptly furnish to Purchaser each amendment or revision to
the Annual Plan.
Section 5.22 Board of Directors; Observer Rights.
(a) At any time or from time to time after the Closing Date
upon the request of Purchaser, the Board of Directors of the
Company shall promptly (i) cause the size of the Board of
Directors of the Company to be increased by one (1) director to
five (5) directors (unless a vacancy on the Board of Directors
shall already exist) and (ii) fill the vacancy created thereby
(or such existing vacancy) by electing as director a person who
shall not be an Affiliate of or associated with any of the
Company, its current directors or the Purchaser and who shall be
mutually agreed upon by the three directors who are not
affiliated with the Purchaser and the Purchaser.
(b) For so long as the initial Purchaser or any Affiliate
owns at least 50% of the original principal amount of the
Debentures, the Company agrees to include a nominee of Purchaser
in management's slate of nominees to be elected to the Board of
Directors and to recommend to the shareholders of the Company the
election of such nominee. Any designee or nominee of Purchaser
hereunder shall be reimbursed for all reasonable expenses
incurred as a director and shall be entitled to receive such
compensation as may be received by other non-employee directors
of the Company. Notwithstanding anything in this Section 5.22(b)
to the contrary, this provision shall not apply to a Purchaser if
any shares of Series B Preferred Stock remain outstanding.
(c) In addition to the right described in Section 5.22(b)
hereof, 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. Notwithstanding anything in this Section 5.22(c) to the
contrary, this provision shall not apply to a Purchaser if such
Purchaser exercises identical observer rights to attend meetings
of the Board of Directors pursuant to the Preferred Stock
Purchase Agreement and/or the Tandem Loan Agreement.
Section 5.23 Key Executives.
The officers and key employees of the Company whose names
and current positions are set forth on Schedule 5.23 hereto shall
continue to be employed by the Company in such position and with
the current duties and responsibilities for at least that
position, unless (i) such employment ceases because of death, or
(ii) the Company replaces such officer or employee within ninety (90)
<PAGE> 26
days of the person's notice of resignation with another
executive who shall be reasonably acceptable to Purchaser.
Section 5.24 Funding of Subsidiary.
Without the prior written consent of Purchaser, neither the
Company nor any Subsidiary of the Company, shall make any advance
or capital contribution to, provide funding for, or become
liable, directly or indirectly, by guaranty, endorsement or
otherwise, for any obligation of Interactive Solutions, Inc., a
Delaware corporation and a partly-owned subsidiary of the Company
("ISI"); provided, however, that the Company may loan up to an
aggregate of $300,000 to ISI prior to April 30, 1998; provided
further, that the Company may make additional loans to ISI from
time to time after April 30, 1998 if (i) the Company, on a
consolidated basis, had net profits for the immediately preceding
calendar month as reflected in the financial statements delivered
pursuant to Section 5.12(a) hereof and (ii) the Board of
Directors of the Company approves each such loan prior to the
making thereof; provided further, that any such loan shall be
evidenced by a promissory note by ISI in favor of the Company.
Section 5.25 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.
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 or hereafter created (including any obligations of the
Company under any guaranty or suretyship agreement relating to
indebtedness for borrowed money by Subsidiaries of the Company),
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 as permitted hereunder including, without
limitation, (i) any and all indebtedness now or hereafter owing
by the Company to The CIT Group/Credit Finance, Inc. and its
successors and assigns and (ii) any and all indebtedness owing to
Tandem under the Tandem Loan Agreement not to exceed the
aggregate principal amount outstanding on the date hereof
(collectively, the "Senior Indebtedness").
Section 6.2 Liquidation, Etc.
<PAGE> 27
(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 or event of default has occurred and is continuing with
respect to any of the 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
<PAGE> 28
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
RESTRICTIONS ON TRANSFER
Section 7.1 Legends; Restrictions on Transfer.
The Debentures have not been registered under the Securities
Act or any state securities laws. Each Debenture issued pursuant
to this Agreement (except as permitted by this Article VII) shall
bear a legend in substantially the following form:
THIS DEBENTURE HAS NOT 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 provisions of this Article VII shall be binding upon all
subsequent holders of the Debentures unless in the opinion of
counsel to any such holder, specified in Section 7.2 below, the
Debentures are no longer subject to the restrictions described
herein.
Section 7.2 Notice of Intention to Transfer; Opinions of
Counsel.
The Debentures shall not be transferable except upon the
conditions specified in this Article VII. Each holder of any
Debenture, by acceptance thereof, agrees, prior to any transfer
or such Debenture, to give written notice to the Company of such
holder's intention to effect such transfer and briefly describe
the manner of the proposed transfer. Such notice of intended
transfer shall be accompanied by, if applicable, an opinion of
counsel to such holder reasonably satisfactory to the Company, to
the effect that registration under the Securities Act of such
Debenture in connection with such proposed transfer is not required.
If in the opinion of such counsel, the proposed transfer of such
Debenture may be effected without registration of such Debenture,
under the Securities Act, such holder shall be entitled to transfer
such Debenture in accordance with the terms of the notice delivered
by such holder to the Company. The Company will promptly upon such
transfer deliver new Debentures not bearing a legend of the character
set forth in Section 7.1, unless in the opinion of
<PAGE> 29
such counsel subsequent disposition by such holder of the Debentures
to be so transferred may require registration under the Securities
Act. If the proposed transfer of such Debenture may not be effected
without registration of such Debenture under the Securities Act,
the holder thereof shall not be entitled to transfer such Debenture,
in the absence of an effective registration statement.
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.1 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 date fixed by the Company for prepayment; 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 contract, agreement, lease, indenture 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 Sections 5.2, 5.12 through
5.18, 5.22 or 5.23 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
<PAGE> 30
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 sixty (60)
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 sixty (60) days after such institution.
Section 8.2 Notice to Holders.
When any Event of Default described in the foregoing Section
8.1 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 8.3 Notice to Holders; Acceleration of Maturities.
When any Event of Default described in the foregoing Section
8.1 has occurred, or if the holder of any other evidence of
indebtedness of the Company gives any notice or takes any 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 Debentures then outstanding. When any Event of
Default described in paragraph (a), (b) or (c) of Section 8.1 has
happened and is continuing, any holder of any Debenture may, and
when any Event of Default described in paragraphs (d) through
(i), inclusive, of said Section 8.1 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 (j) or (k) of Section 8.1 has occurred,
then all outstanding Debentures shall immediately become due and
payable without presentment, demand or notice of any kind, all of
which are hereby expressly waived. 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
<PAGE> 31
expenses, including reasonable attorneys' fees, incurred by them in
the collection of any Debentures upon any default hereunder or thereon.
ARTICLE IX
AMENDMENTS, WAIVERS AND CONSENTS
Section 9.1 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, (b) which will
change any of the provisions hereof 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
IX [Amendments, etc.] or Article VIII [Defaults; Remedies].
Section 9.2 Solicitation of Debenture Holders.
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 9.3 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 X
INTERPRETATION OF AGREEMENT; DEFINITIONS
Section 10.1 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:
<PAGE> 32
"Affiliate" shall mean any Person (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 holds 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.
"Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which banks in Tennessee are authorized
to close.
"CIT Credit Agreement" shall mean that certain Loan and
Security Agreement dated October 28, 1994 among the Company,
certain subsidiaries of the Company, and the CIT Group/Credit
Finance, Inc., as amended from time to time.
The term "control" (including the terms "controlling,"
"controlled by" and "under common control") shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of Voting Stock, by contract, or
otherwise.
"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.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, 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.
"Event of Default" shall have the meaning set forth in
Section 9.1 hereof.
"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.
<PAGE> 33
"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 GAAP 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.
"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.
The term "knowledge of the Company" shall mean, with respect
to a particular fact or other matter if a director or executive
officer of the Company or any Subsidiary is actually, or has
been, aware of such fact or other matter, after reasonable
inquiry under the circumstances.
"Materially Adverse Effect" shall mean a materially adverse
effect upon the business, assets, liabilities, financial
condition, results of operations or business prospects, in each
case of the Company and its Subsidiaries taken as a whole, or
upon the ability of the Company to perform its obligations under
this Agreement, the Debentures or the other Operative Documents.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Operative Documents" shall mean (i) this Debenture Purchase
Agreement; (ii) the Debenture, (iii) the Warrant; and (iv) the
Registration Rights Agreement.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, and a government or agency
or political subdivision thereof.
<PAGE> 34
"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.
"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.
"Security" shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
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.
"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) shall be owned by the Company and/or one or
more of its Wholly-owned Subsidiaries.
Section 10.2 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 10.3 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.
<PAGE> 35
Section 10.4 Disclosure Statement.
The disclosures contained in the Disclosure Statement
attached hereto with respect to any section number hereof shall
be deemed to constitute the contents of the schedule of such
number referenced herein.
ARTICLE XI
MISCELLANEOUS
Section 11.1 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 (a) the
entering into of this Agreement, the Preferred Stock Purchase
Agreement, and the Senior Secured Loan Agreement and the
consummation of the transactions contemplated hereby and thereby,
including but not limited to the reasonable fees, expenses and
disbursements of Sherrard & Roe, PLC, Purchaser's counsel, and
(b) so long as Purchaser holds any of the Debentures, all such
expenses relating to any amendment, waiver or consent 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 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.
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 11.2 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 VIII hereof, shall extend to or affect any
obligation or right not expressly waived or consented to.
Section 11.3 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:
<PAGE> 36
If to Purchaser: Tandem Capital, Inc.
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, Tennessee 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 11.4 Successor and Assigns.
Purchaser's interest in this Agreement, the Debentures and
the other Operative Documents may be endorsed, assigned and/or
transferred in whole or in part by Purchaser, and any such holder
and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the
extent transferred and assigned. The Company shall not assign
any of its rights nor delegate any of its duties under this
Agreement or any of the other Operative Documents by operation of
law or otherwise without the prior express written consent of
Purchaser, and in the event the Company obtains such consent,
this Agreement and the other Operative Documents shall be binding
upon such assignee.
Section 11.5 Survival of Covenants and Representations.
<PAGE> 37
All representations and warranties made by the Company
herein 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 Series B
Preferred Stock. All covenants made by the Company herein shall
survive the closing and delivery of this Agreement and the
Operative Documents in accordance with their respective terms.
Section 11.6 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 11.7 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 11.8 Captions; Counterparts.
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. This
Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument.
Section 11.9 Third Party Beneficiaries.
The parties hereto hereby acknowledge and agree that, solely
with respect to the subordination provisions contained in Article VI
hereof, The CIT Group/Credit Finance, Inc. and its successors and
assigns shall have the rights and privileges of a third party
beneficiary. Nothing contained herein shall be interpreted to create
any additional rights in The CIT Group/Credit Finance, Inc. or its
successors or assigns or to create any rights whatsoever in any
other Person.
Section 11.10 Entire Agreement.
This Agreement constitutes the entire agreement of the
parties with regard to the sale of the Debentures.
Section 11.11 Disclosure Statement.
The disclosures contained in the Disclosure Statement
attached hereto with respect to any section number hereof shall
be deemed to constitute the contents of the schedule of such
number referenced herein.
<PAGE>
[SIGNATURE PAGE TO DEBENTURE PURCHASE AGREEMENT]
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: Ewen Cameron, President
PURCHASER:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: Craig Macnab
Its: Vice President
<PAGE>
Schedule 1.1(b)
to Debenture Purchase Agreement
(a) Equipment. All machinery and equipment, all data
processing and office equipment, all computer equipment,
hardware, firmware and software, all furniture, fixtures,
appliances and all other goods of every type and description,
whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all
replacements thereof and additions thereto;
(b) Inventory. All inventory and goods, whether held for
lease, sale or furnishing under contracts of service, all
agreements for lease of same and rentals therefrom, whether now
in existence or owned or hereafter acquired and wherever located;
(c) General Intangibles. All rights, interests, choses in
action, causes of action, claims and all other intangible
property of every kind and nature, in each instance whether now
owned or hereafter acquired, including, but not limited to, all
corporate and business records; all loans, royalties, and other
obligations receivable; all trade secrets, inventions, designs,
patents, patent applications, registered or unregistered service
marks, trade names, trademarks, copyrights and the goodwill
associated therewith and incorporated therein, and all
registrations and applications for registration related thereto;
all goodwill, licenses, permits, franchises, customer lists and
credit files; all customer and supplier contracts, firm sale
orders, rights under license and franchise agreements, and other
contracts and contract rights; all right, title and interest
under leases, subleases, licenses and concessions and other
agreements relating to real or personal property and any security
agreements relating thereto; all rights to indemnification; all
proceeds of insurance of which the Company is beneficiary; all
letters of credit, guarantees, liens, security interests and
other security held by or granted to the Company; and all other
intangible property, whether or not similar to the foregoing;
(d) Accounts, Chattel Paper, Instruments and Documents.
All accounts, accounts receivable, chattel paper, instruments and
documents, whether now in existence or owned or hereafter
acquired, entered into, created or arising, and wherever located
(provided that the parties agree that except and until an Event
and Default, the Company shall be entitled to collect all
accounts receivable and use the proceeds collected for their own
purposes and in their sole discretion, except as otherwise
restricted by the provisions of this Agreement); and
(e) Other Property. All other personal property or
interests in property now owned or hereafter acquired.
<PAGE>
EXHIBIT 10.3
THIS DEBENTURE HAS NOT 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.
12% Subordinated Secured Debenture Due February 13, 2002
No. R-1 February 26, 1998
$1,750,000
For value received, Teltronics, Inc., a Delaware corporation
(the "Company"), hereby promises to pay to Sirrom Capital
Corporation at Tandem Capital, Inc., 500 Church Street, Suite
200, Nashville, Tennessee 37219, or registered assigns, on the
thirteenth day of February, 2002, the principal amount of One
Million Seven Hundred Fifty Thousand Dollars ($1,750,000) 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 12% per annum from the
date hereof until maturity, payable quarterly on the fifteenth
day of each February, May, August, and November in each year,
commencing May 15, 1998, 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 stated rate plus
3%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 12% Subordinated Secured
Debentures due February 13, 2002 of the Company in the aggregate
principal amount of $1,750,000, issued under and pursuant to the
terms and provisions of the Debenture Purchase Agreement, dated
February 25, 1998 (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.
<PAGE> 2
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 may be redeemed, repaid or repurchased by the
Company, at the option of the Company, in whole at any time or in
part from time to time, without additional charge or penalty;
provided that in the case of any redemption, repayment or
repurchase in part of this Debenture, it shall be effected pro
rata among all the holders of any part hereof.
The indebtedness and other obligations evidenced by this
Debenture are further evidenced and/or secured by (i) the
Debenture Agreement and (ii) certain other instruments and
documents as may be required to protect and preserve the rights
of the Company and the holder hereof as more specifically
described 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 and in accordance with the
provisions of Section 7.2 of the Debenture Agreement. 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.
[Remainder of page intentionally left blank.]
<PAGE> 3
[SIGNATURE PAGE TO DEBENTURE]
[Corporate Seal] Teltronics, Inc.
ATTEST: Mark E. Scott By: Ewen R. Cameron
Secretary President
<PAGE>
EXHIBIT 10.4
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (the "Agreement"), dated as
of the 25th day of February, 1998, is made and entered into on
the terms and conditions hereinafter set forth, by and among
TELTRONICS, INC., a Delaware corporation ("Teltronics"), TTG
ACQUISITION CORP., a Delaware corporation, Teltronics/SRX, Inc.,
a Delaware corporation, AT SUPPLY, INC., a Texas corporation, and
INTERACTIVE SOLUTIONS, INC., a Delaware corporation (each of the
foregoing entities, including Teltronics, is sometimes referred
to herein as a "Borrower", and the foregoing entities, including
Teltronics, are sometimes collectively referred to herein as the
"Borrowers"), and SIRROM CAPITAL CORPORATION d/b/a TANDEM
CAPITAL, a Tennessee corporation ("Lender").
RECITALS:
Borrowers have requested that Lender make available to
Borrowers loans in the aggregate principal amount of $1,280,000,
upon the terms and conditions hereinafter set forth, and for the
purposes hereinafter set forth (each, a "Loan" and collectively
the "Loans").
NOW, THEREFORE, in consideration of the agreement of Lender
to make the Loans, the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged,
Borrowers and Lender hereby agree as follows:
ARTICLE I
THE LOAN
Section 1.1 Evidence of Loan Indebtedness and Repayment.
The Loans shall be evidenced by (i) a Secured Senior
Subordinated Promissory Note in the principal amount of
$1,000,000 substantially in the form attached hereto as Exhibit
A-1 (the "A Loan Note") and (ii) a Secured Senior Subordinated
Promissory Note in the principal amount of $280,000 substantially
in the form attached hereto as Exhibit A-2 (the "B Loan Note"),
executed by each Borrower in favor of Lender (the A Loan Note and
the B Loan Note, collectively, the "Notes"). Each Loan shall be
in the original principal amount indicated in the Notes, shall be
payable in accordance with the terms of each such Note, and shall
be prepayable at any time, in whole or in part, without penalty
or premium.
Section 1.2 Advances.
Subject to the terms and conditions of this Agreement,
Lender shall fund the Loans to Borrowers in a single advance on
the date of this Agreement, net of any portion of the Processing
Fee (as defined in Section 1.3) which is not paid in advance and
net of fees and expenses of Lender, including, without
limitation, the fees and expenses of counsel to Lender.
<PAGE> 2
Section 1.3 Processing Fee.
In connection with the making of the Loan, Borrowers shall
pay to Lender a processing fee in the amount of $32,000 (the
"Processing Fee"), which amount, together with the expenses of
Lender, shall be deducted from the loan proceeds.
Section 1.4 Stock Purchase Warrant.
(a) Issuance of Warrant; Registration Rights. In
consideration for Lender's entering into this Agreement and for
making the Loans contemplated herein, Teltronics shall deliver to
Lender a Stock Purchase Warrant to purchase 365,000 shares of
common stock, par value $.001 per share, of Teltronics
("Teltronics Common Stock") at an exercise price of $2.75 per
share (which number of shares and price shall be adjusted upon
the occurrence of certain events as described therein),
substantially in the form attached hereto as Exhibit B (the
"Warrant"), executed by Teltronics in favor of Lender. The
holder(s) of shares of Teltronics Common Stock issued or issuable
upon exercise of the Warrant shall be entitled to registration
rights as described in a Registration Rights Agreement, dated the
date of this Agreement and substantially in the form attached
hereto as Exhibit C, delivered by Teltronics to Lender (the
"Registration Rights Agreement").
(b) Investment Representations. Lender represents and
warrants to Teltronics that (i) Lender is a registered investment
company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and as such is, an "accredited
investor" under Rule 501(a) under the Securities Act of 1933, as
amended (the "Securities Act"); (ii) Lender is acquiring the
Warrant for its own account, for investment, and not with a view
to the distribution or resale thereof, in whole or in part, in
violation of the Securities Act or any applicable state
securities law, and Lender has no present intention of selling,
negotiating or otherwise disposing of the Warrant, it being
understood that Lender intends to transfer and assign, without
consideration, the Warrant and all of Lender's rights and
obligations under the Warrant and the Registration Rights
Agreement to one or more wholly-owned subsidiaries of Lender,
which subsidiaries are and will also be "accredited investors"
under Rule 501(a); and (iii) Lender is an "institutional
investor" as defined under Section 48-2-102 of the Tennessee
Securities Act of 1980 for purposes of the exemption set forth
under Section 48-2-103(b)(3) of such act.
Section 1.5 Intercreditor Agreement.
The relative rights in the Collateral (as defined in Section
2.1) of the Lender, on the one hand, and the CIT Group/Credit
Finance, Inc. ("CIT"), pursuant to the provisions of that certain
Loan and Security Agreement dated October 28, 1994 among the
Company, Teltronics and certain of the Borrowers, as amended from
time to time (the "CIT Credit Agreement"), on the other hand,
shall be governed by the terms of an Intercreditor Agreement
among Lender, CIT and Borrowers in the form attached hereto as
Exhibit D (the "Intercreditor Agreement").
<PAGE> 3
ARTICLE II
SECURITY
Section 2.1 Security.
As security for the Secured Obligations (as defined in
Section 2.2), each Borrower hereby grants to Lender a security
interest in the following described property, and any and all
proceeds and products thereof (collectively, the "Collateral"):
(a) Equipment. All machinery and equipment, all data
processing and office equipment, all computer equipment,
hardware, firmware and software, all furniture, fixtures,
appliances and all other goods of every type and description,
whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all
replacements thereof and additions thereto;
(b) Inventory. All inventory and goods, whether held for
lease, sale or furnishing under contracts of service, all
agreements for lease of same and rentals therefrom, whether now
in existence or owned or hereafter acquired and wherever located;
(c) General Intangibles. All rights, interests, choses in
action, causes of action, claims and all other intangible
property of every kind and nature, in each instance whether now
owned or hereafter acquired, including, but not limited to, all
corporate and business records; all loans, royalties, and other
obligations receivable; all trade secrets, inventions, designs,
patents, patent applications, registered or unregistered service
marks, trade names, trademarks, copyrights and the goodwill
associated therewith and incorporated therein, and all
registrations and applications for registration related thereto;
all goodwill, licenses, permits, franchises, customer lists and
credit files; all customer and supplier contracts, firm sale
orders, rights under license and franchise agreements, and other
contracts and contract rights; all right, title and interest
under leases, subleases, licenses and concessions and other
agreements relating to real or personal property and any security
agreements relating thereto; all rights to indemnification; all
proceeds of insurance of which any Borrower is beneficiary; all
letters of credit, guarantees, liens, security interests and
other security held by or granted to any Borrower; and all other
intangible property, whether or not similar to the foregoing;
(d) Accounts, Chattel Paper, Instruments and Documents.
All accounts, accounts receivable, chattel paper, instruments and
documents, whether now in existence or owned or hereafter
acquired, entered into, created or arising, and wherever located
(provided that the parties agree that except and until an Event
and Default hereunder, Borrowers shall be entitled to collect all
accounts receivable and use the proceeds collected for their own
purposes and in their sole discretion, except as otherwise
restricted by the provisions of this Agreement); and
(e) Other Property. All other personal property or
interests in property now owned or hereafter acquired.
Section 2.2 Secured Obligations.
Without limiting any of the provisions thereof, the Security
Instruments (as defined in Section 2.3) shall secure the
following indebtedness and obligations (the "Secured
Obligations"):
<PAGE> 4
(a) the full and timely payment of the indebtedness
evidenced by the Notes, together with interest thereon, and any
extensions, modifications, consolidations or renewals thereof,
and any notes given in payment thereof;
(b) the full and prompt performance of all of the
obligations of any Borrower to Lender under the Loan Documents
(as defined in Section 2.3) to which any Borrower is a party;
(c) the full and prompt payment of all court costs and
other costs and expenses of whatever kind reasonably incurred in
the collection of the indebtedness evidenced by the Notes, the
enforcement or protection of the security interests of the
Security Instruments (as defined in Section 2.3) or the exercise
of any rights or remedies of Lender with respect to the
indebtedness evidenced by the Notes, including without limitation
the reasonable attorney and paralegal fees and costs incurred by
Lender, all of which Borrowers agrees to pay to Lender upon
demand; and
(d) the full and prompt payment and performance of any and
all other indebtedness and other obligations of any Borrower to
Lender, direct or contingent, however evidenced or denominated,
and however and whenever incurred, including but not limited to
indebtedness incurred pursuant to any present or future
commitment to lend money of Lender to any Borrower, together with
interest thereon, and any extensions, modifications,
consolidations and/or renewals thereof and any notes given in
payment thereof.
Section 2.3 Security Instruments.
The Secured Obligations shall also be secured by the assets
of each Borrower in which a security interest is granted pursuant
to that certain Trademark and Patent Security Agreement in
substantially the form attached hereto as Exhibit E (the
"Trademark and Patent Security Agreement"). This Agreement, the
Trademark and Patent Security Agreement and any other
instruments, documents or agreements now or hereafter securing
the Secured Obligations are herein collectively referred to as
the "Security Instruments". The Security Instruments, together
with the Notes and any other instruments and documents now or
hereafter evidencing, securing or in any way related to the
indebtedness evidenced by the Notes are herein individually
referred to as a "Loan Document" and collectively referred to as
the "Loan Documents".
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BORROWER
Each of the Borrowers, jointly and severally, hereby
represents and warrants to Lender as follows:
Section 3.1 Corporate Status.
(a) Each Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation, 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
and the other Loan Documents to which it is a party. Each
Borrower is duly qualified to do business and is in good standing
in each state or other jurisdiction in which a failure to be so
qualified could give rise to a Material Adverse Event, as
hereinafter defined. The states or other jurisdictions in which
any Borrower is so qualified are set forth on Schedule 3.1(a).
For purposes of this Agreement, "Material Adverse Event" means
any event or circumstance, or set of
<PAGE> 5
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 Loan Document, or
(ii) material and adverse effect on the condition (financial or
otherwise), business, operations, properties or prospects of a
Borrower, or (iii) default hereunder or thereunder.
(b) None of Borrowers owns, directly or indirectly, any
capital stock or other equity interest of any corporation,
partnership, joint venture, limited liability company or other
business organization (a "Subsidiary"), except that Teltronics
owns: (i) all of the outstanding capital stock of TTG
Acquisition Corp., (ii) all of the outstanding capital stock of
Teltronics/SRX, Inc., (iii) eighty-five percent (85%) of the
voting stock of Interactive Solutions, Inc. on a fully-diluted,
as-converted basis, and (iv) eighty percent (80%) of the voting
stock of AT Supply, Inc. on a fully-diluted, as-converted basis.
(c) The authorized capital stock of each of the Borrowers,
the number of shares of each of Borrowers issued and outstanding
and, in the case of each of the Borrowers other than Teltronics,
the holder(s) of all such issued and outstanding shares, is set
forth on Schedule 3.1(c).
(d) Except as specified in Schedule 3.1(d), there are no
outstanding options, warrants or rights to purchase or acquire
from any Borrower any securities of any Borrower, there are no
securities outstanding or committed to be issued by any Borrower
which are convertible into or exchangeable for any shares of
capital stock or other securities of any Borrower, and there are
no contracts, commitments, agreements, understandings,
arrangements or restrictions relating to any shares of capital
stock or other securities of any Borrower, whether or not
outstanding, to which any Borrower is a party or by which it is
bound or, to the best knowledge of each Borrower, to which any of
its shareholders is a party or by which any such shareholder is
bound. All of the shares of capital stock of each of the
Borrowers are validly issued, fully paid and non-assessable and
were not issued in violation of any preemptive rights, rights of
first refusal, anti-dilution rights or any similar rights held by
any party. None of the Borrowers has violated any federal or
state securities laws in connection with the issuance of any
securities.
(e) Except as set forth on Schedule 3.1(e), none of the
Borrowers is under any registration obligation under the
Securities Act, any state securities law or the Trust Indenture
Act of 1939, as amended, with respect to any equity securities or
debt securities of any Borrower, whether presently outstanding,
issuable upon exercise or conversion of any instrument or
subsequently issuable.
Section 3.2 Authorization.
Each Borrower has full legal right, power and authority to
enter into and perform its obligations under the Loan Documents,
without the consent or approval of any other person, firm,
governmental agency or other legal entity, other than consents
listed on Schedule 3.2, which consents have previously been
obtained. Each Borrower has all necessary right, power and
authority to grant to Lender a valid and enforceable security
interest in the Collateral. The execution and delivery of this
Agreement, the borrowing hereunder, the execution and delivery of
each Loan Document to which any Borrower is a party, and the
performance by each Borrower of its obligations hereunder and
thereunder are within the corporate powers of such Borrower and
have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental
approvals, if any were required, and do not and will not
contravene or conflict with the articles of incorporation or
bylaws of such Borrower or any material agreement to which any
Borrower is a party or which is binding upon such Borrower or its
properties or any provision of law,
<PAGE> 6
any applicable judgment, ordinance, regulation or order of any
court or governmental agency. The officers executing this Agreement,
the Notes and all of the other Loan Documents to which any Borrower
is a party, are duly authorized to act on behalf of each such Borrower.
Section 3.3 Validity and Binding Effect.
This Agreement and the other Loan Documents are the legal,
valid and binding obligations of each Borrower, enforceable in
accordance with their respective terms.
Section 3.4 Priority of Liens; Title to Property.
Except as disclosed on Schedule 3.4, there are no
outstanding loans, liens, pledges, security interests, agreements
or other financings which provide any third person with a lien
against any of the collateral securing the Secured Obligations,
whether such collateral is pledged pursuant to this Agreement or
any other Security Instruments. Except as disclosed on Schedule
3.4, each Borrower has good and marketable title to all of its
property, free and clear of any and all claims, liens,
encumbrances, equities and restrictions, except such claims,
liens, encumbrances, equities and restrictions which would not,
in the aggregate, cause a Material Adverse Event.
Section 3.5 Location of Collateral.
The location of the chief executive office and principal
place of business of each Borrower is set forth on Schedule
3.5(a), and all records or documents with respect to intangible
personal property comprising the Collateral are maintained at one
of such addresses. All of the Collateral comprised of tangible
personal property is located at one of the addresses set forth on
Schedule 3.5(a) or one of the addresses set forth on Schedule
3.5(b).
Section 3.6 Litigation.
Except as set forth on Schedule 3.6, there are no actions,
suits or proceedings pending, or, to the knowledge of any
Borrower, threatened, against or affecting any Borrower or
involving the validity or enforceability of any of the Loan
Documents or the priority of the liens thereof, 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 any Borrower to perform each and every
one of its obligations under and by virtue of the Loan Documents;
and to each Borrower's knowledge, no Borrower is in default with
respect to any order, writ, injunction, decree or demand of any
court or any governmental authority.
Section 3.7 Financial Statements.
The consolidated financial statements of Teltronics and its
Subsidiaries, including each Borrower, for the fiscal years ended
December 31, 1994, December 31, 1995, and December 31, 1996, and
the unaudited consolidated financial statements as of and for the
nine (9) months ended September 30, 1997, and the related notes,
copies of which Teltronics previously has delivered to Lender,
fairly present the financial position, results of operations,
cash flows and changes in stockholders' equity of Teltronics and
its consolidated Subsidiaries, at the respective dates of and for
the periods to which they apply in such financial statements and
have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout
the periods indicated, subject, in the case of interim financial
statements, to normal recurring year-end adjustments (the effect
of which will not, individually or in the aggregate, cause a
Material Adverse Event). No material adverse change has
<PAGE> 7
occurred in the condition (financial or otherwise), business, operations,
properties or prospects of any Borrower since September 30, 1997,
and no additional indebtedness or obligations have been incurred
by any Borrower since the date(s) thereof, other than trade
payables incurred in the ordinary course of business.
Section 3.8 No Defaults.
Consummation of the transactions hereby contemplated and the
performance of the obligations of each Borrower under and by
virtue of the Loan Documents will not result in any breach of,
contravene, conflict with, or constitute a default under, (i) the
charter documents or bylaws of any Borrower, (ii) any provision
of law, any applicable judgment, ordinance, regulation, or under
order of any court or governmental agency which breach,
contravention, conflict or default could give rise to a Material
Adverse Event, or (iii) any mortgage, security deed or agreement,
deed of trust, lease, loan or credit agreement, partnership
agreement, license, franchise or any other material instrument or
agreement to which any Borrower is a party or by which any
Borrower or its properties may be bound or, to the knowledge of
any Borrower, affected.
Section 3.9 Compliance With Law.
To its knowledge, each Borrower is in compliance with all
federal, state and local laws, regulations, decrees and orders
applicable to it (including but not limited to occupational and
health standards and controls, antitrust, monopoly, restraint of
trade or unfair competition), except to the extent that
noncompliance, in the aggregate, would not give rise to a
Material Adverse Event.
Section 3.10 Environmental Matters.
No Borrower has knowledge of (i) the presence, except in
compliance with Applicable Environmental Laws, of any Hazardous
Substances (as defined below) on any property owned, leased or
otherwise controlled by any Borrower (collectively, the
"Property"); (ii) any spills, releases, discharges, or disposal
of Hazardous Substances that have occurred or are presently
occurring on or onto any of the Property; (iii) the presence on
any of the Property of underground or above-ground storage tanks
or pipelines which are required to be licensed by any local,
state or federal agency; (iv) any spills or disposal of Hazardous
Substances that have occurred or are occurring off the Property
as a result of any construction on or operation and use of the
Property; (v) any failure by any Borrower to comply with any
Applicable Environmental Laws (as defined below); (vi) any
notices related to any Borrower or any of the Property claiming a
violation of any Applicable Environmental Laws, or the
commencement of any action or proceeding against any Borrower or
related to any of the Property alleging a violation of Applicable
Environmental Laws; (vii) any notices related to any Borrower or
any of the Property requiring compliance with Applicable
Environmental Laws, or demanding payment or contribution for
injury to the environment or human health; or (viii) any
outstanding notices or citations relating to violations by any
former owner or operator of any of the Property. For the
purposes of this Agreement, (A) "Hazardous Substances" means any
substance or material defined or designated as a hazardous or
toxic waste, material or substance, or other similar term, by any
federal, state, or local environmental statute, regulation, or
ordinance presently in effect, including, without limitation,
asbestos in any form, urea formaldehyde foam insulation,
petroleum products, and polychlorinated biphenyls; and (B)
"Applicable Environmental Laws" means any and all applicable
local, state, and federal environmental laws, regulations,
ordinances, and administrative and judicial orders relating to
the generation, recycling, reuse, sale, storage, handling,
transport, or disposal of any Hazardous Substances.
<PAGE> 8
Section 3.11 Taxes.
Each Borrower has 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 reserved), and no Borrower knows of
any proposed assessment for additional taxes or any basis
therefor. No tax liens have been filed against any Borrower or
any of their properties.
Section 3.12 Certain Transactions.
Except as set forth on Schedule 3.12(i) and except as to
indebtedness incurred in the ordinary course of business and
approved by the Board of Directors of Teltronics, no Borrower is
indebted, directly or indirectly, to any of its officers or
directors, or to their respective spouses or children, in excess
of an aggregate amount of $60,000, and none of the officers or
directors or any members of their immediate families are indebted
to Borrowers in excess of an aggregate amount of $60,000 or have
any direct or indirect ownership interest in any firm or
corporation with which any Borrower is affiliated or with which
any Borrower has a business relationship, or any firm or
corporation which competes with any Borrower, except that an
officer and/or director of any Borrower may own no more than 1.0%
of the outstanding stock of any publicly traded company which
competes directly with such Borrower. Except as set forth on
Schedule 3.12(ii), no officer or director of any Borrower or any
member of their immediate families is, directly or indirectly,
interested in any material contract with any Borrower. Except as
set forth on Schedule 3.12(iii), no Borrower is a guarantor or
indemnitor of any indebtedness of any other person, firm or
corporation.
Section 3.13 Corporate or Trade Names.
Except as set forth on Schedule 3.13, in the preceding five
(5) years, no Borrower has been known as or conducted business
under any name other than the name used by such Borrower in
executing this Agreement.
Section 3.14 Intellectual Property.
Each Borrower is the lawful owner or licensee of all
proprietary information used by it in the operation of its
business except to the extent that the failure to own or license
such proprietary information could not give rise to a Material
Adverse Event, and all proprietary information owned by each
Borrower is owned 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 data 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 any Borrower or marketing studies conducted by any
Borrower, all of which is commercially important and
competitively sensitive and which generally has not been
disclosed to third parties other than customers in the ordinary
course of business. Each Borrower has good title or has a valid
and enforceable license to all patents, trademarks, trade names,
service marks, copyrights or other
<PAGE> 9
intangible property rights, and registrations or applications for
registration thereof, owned by such Borrower or used or required by
such Borrower in the operation of its business as presently being conducted.
No Borrower has any knowledge of any infringement 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 utilized by any Borrower.
To the knowledge of each Borrower, no products or processes of
any Borrower 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 any Borrower. Each Borrower follows such
procedures as are necessary to provide reasonable protection of
such Borrower's trade secrets and proprietary rights in
intellectual property of all kinds. To the knowledge of each
Borrower, no person employed by or affiliated with any Borrower
has employed or proposes to employ any trade secret or any
information or documentation proprietary to any former employer
and, to the knowledge of each Borrower, no person employed by or
affiliated with any Borrower has violated any confidential
relationship that such person may have had with any third person,
in connection with the development, manufacture, sale or lease of
any product or proposed product or the development or sale of any
service or proposed service of any Borrower.
Section 3.15 Regulatory Compliance.
No business of any Borrower is subject to the special
regulation of any federal, state or local governmental regulatory
body by reason of the nature of the business being conducted.
Except where failure to do so does not and would not constitute a
Material Adverse Event, each Borrower 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
and as necessary for the conduct of its business and for the
ownership, maintenance and operation of its properties and
assets. All such licenses, permits and authorizations are in
full force and effect.
Section 3.16 ERISA.
Each Borrower is in compliance in all material respects with
all applicable provisions 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"). Except as disclosed in Schedule
3.16, neither a reportable event nor a prohibited transaction (as
defined in ERISA) has occurred and is continuing with respect to
any "pension plan" (as such term is defined in ERISA, a "Plan");
no notice of intent to terminate a Plan has been filed nor has
any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation
(together with any entity succeeding to or all of its functions,
the "PBGC") to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any
such proceedings; neither any Borrower nor any commonly
controlled entity (as defined in ERISA) has completely or
partially withdrawn from a multiemployer plan (as defined in
ERISA); each Borrower and each commonly controlled entity has met
its minimum funding requirements under ERISA with respect to all
of its Plans and the present fair market value of all Plan
property exceeds the present value of all vested benefits under
each Plan, as determined on the most recent valuation date of the
Plan and in accordance with the provisions of ERISA and the
regulations thereunder for calculating the potential liability of
the Company or any commonly controlled entity to the PBGC or the
Plan under Title IV or ERISA; and neither the Company nor any
commonly controlled entity has incurred any liability to the PBGC
under ERISA.
<PAGE> 10
Section 3.17 Regulations G, T, U and X.
No Borrower is engaged in the business of extending credit
for the purposes of purchasing or carrying margin stock, and no
proceeds of the Loans will be used for a purpose which violates,
or would be inconsistent with, Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System.
Section 3.18 Government Regulation.
No Borrower is an "investment company" within the meaning of
the Investment Company Act, or a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or subject to regulation
under the Federal Power Act, the Interstate Commerce Act or any
other federal law or state laws limiting its ability to incur
indebtedness or to execute, deliver or perform the Loan
Documents.
Section 3.19 SEC Reports.
Teltronics' Common Stock has been duly registered with the
Securities and Exchange Commission ("SEC") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Since
January 1, 1995, Teltronics 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").
Teltronics previously has furnished to Lender true copies of all
the SEC Reports, together with all exhibits thereto that Lender
has requested, and Teltronics' annual report to stockholders for
the year ended December 31, 1996, which annual report meets the
requirements of Rule 14a-3 or 14e-3 under the Exchange Act (the
"Annual Report"). The financial statements contained in the SEC
Reports fairly presented (or will fairly present, as the case may
be) the financial position of Teltronics and its consolidated
Subsidiaries 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 3.20 Accounting Matters.
The books of account, minute books, stock record books and
other records of each Borrower are complete and correct, have
been maintained in accordance with sound business practices and
accurately and fairly reflect the transactions and dispositions
of the assets of such Borrower. Each Borrower maintains 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 GAAP and to maintain accountability
for the assets of each Borrower; (iii) access to the assets of
each Borrower is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded
accountability for assets of each Borrower are compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
<PAGE> 11
Section 3.21 Insurance.
Each Borrower has maintained 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 comparable size and condition (financial and
otherwise) engaged in the same or a similar business and owning
and operating similar properties.
Section 3.22 Employees.
Schedule 3.22 sets forth the number of full-time employees
and full-time equivalent employees of and each Borrower as of the
most recent payroll date, which date is set forth therein. To
the best of each Borrower's knowledge, there is no strike, labor
dispute or union organization activities pending or threatened
between it and its employees. None of the employees of any
Borrower belongs to any union or collective bargaining unit. To
the best of its knowledge, each Borrower has complied in all
material respects with all applicable state and federal equal
opportunity and other laws related to employment. To the best of
each Borrower's knowledge, no employee of each Borrower is or
will be in violation of any judgment, decree, or order, or any
term of any employment contract, patent disclosure agreement, or
other contract or agreement relating to the relationship of any
such employee with the Borrower, or any other party, because of
the nature of the business conducted or presently proposed to be
conducted by the Borrower or to the use by the employee of his or
her best efforts with respect to such business. Except as
disclosed in Schedule 3.22, no Borrower is a party to or bound by
any employment contract, deferred compensation agreement, bonus
plan, incentive plan, profit sharing plan, retirement agreement,
or other employee compensation agreement. No Borrower is aware
that any officer or key employee, or that any group of key
employees, intends to terminate their employment with such
Borrower, nor does such Borrower have a present intention to
terminate the employment of any of the foregoing. Subject to
general principles related to wrongful termination of employees,
the employment of each officer and employee of a Borrower is
terminable at the will of the Borrower.
Section 3.23 Financing Statements.
Neither (i) that certain Financing Statement filed in
the Office of the Secretary of State of the State of Florida on
August 18, 1997 (File No. 970000184501) nor (ii) that certain
Financing Statement filed in the Office of the Secretary of State
of the State of Florida on July 2, 1997 (File No. 970000146543)
perfect a security interest in any of the assets of Interactive
Solutions, Inc., a Delaware corporation and a subsidiary of
Teltronics.
Section 3.24 Statements Not False or Misleading.
No representation or warranty given as of the date hereof by
any Borrower contained in this Agreement or any schedule attached
hereto or any statement in any document, certificate or other
instrument furnished or to be furnished to Lender 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 therein not misleading.
<PAGE> 12
Section 3.25 Survival.
The representations and warranties of each Borrower
contained in this Agreement or any schedule attached hereto or
any statement in any document, certificate or other instrument
furnished or to be furnished to Lender pursuant hereto, shall
survive until this Agreement terminates in accordance with
Article 7 hereof.
ARTICLE IV
COVENANTS AND AGREEMENTS OF BORROWER
Each of the Borrowers hereby covenants and agrees as follows:
Section 4.1 Use of Proceeds.
Borrowers shall use the proceeds of the Loans solely for the
purposes set forth on Schedule 4.1 hereto, including payment to
CIT of amounts described in the Pay-Off Letter, in the form of
Exhibit J attached hereto.
Section 4.2 Corporate Existence, No Dissolution, Etc.
Each Borrower will 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. No Borrower
will permit dissolution or liquidation of such Borrower or any
other Borrower.
Section 4.3 Maintenance of Assets, Etc.
Each Borrower will 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 4.4 Nature of Business.
No Borrower 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 Borrowers would be
substantially changed from the general nature of the business
engaged in by Teltronics and the other Borrowers on the date of
this Agreement.
Section 4.5 Insurance.
Without limiting any of the requirements of any of the other
Loan Documents, each Borrower shall maintain, in amounts
customary for entities engaged in comparable business activities,
fire, liability and other forms of insurance on its properties
(including but not limited to the collateral now or hereafter
securing payment and performance of the Secured Obligations),
against such hazards and in at least such amounts as is customary
in such Borrower's business. Lender shall be named as an
additional insured with respect to liability insurance and loss
payee with respect to hazard insurance. Each such insurance
policy shall require the insurer to notify Lender in writing at
<PAGE> 13
least thirty (30) days prior to any cancellation or material
alteration of such policy. At the request of Lender, each
Borrower will deliver forthwith a certificate specifying the
details of such insurance in effect.
Section 4.6 Taxes, Claims for Labor and Materials.
Each Borrower shall (i) file all tax returns and appropriate
schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (ii) pay and discharge all
taxes, assessments and governmental charges or levies imposed
upon such Borrower, upon its income and profits or upon any
properties belonging to it, prior to the date on which penalties
attach thereto, and (iii) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a
lien or charge upon any of its properties; provided that each
Borrower shall have the right to contest in good faith and by
appropriate proceedings the applicability or validity of any such
tax, assessment, charge or levy without paying such tax,
assessment, charge or levy so long as adequate reserves with
respect thereto are maintained in accordance with GAAP.
Section 4.7 Compliance with Law and Agreements.
Except where failure to do so does not and would not
constitute a Material Adverse Event, each Borrower shall (a)
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 such Borrower is a party or by
which such Borrower or any of its properties is bound and (b) pay
all of its indebtedness promptly and substantially in accordance
with the terms thereof.
Section 4.8 ERISA Matters.
If any Borrower has in effect, or hereafter institutes, a
Plan, then the following covenants shall be applicable during
such period as any such Plan shall be in effect: (i) throughout
the existence of the Plan, such Borrower's contributions under
the Plan will meet the minimum funding standards required by
ERISA and the Borrower will not institute a distress termination
of the Plan; and (ii) such Borrower will send to Lender 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 4.9 Books and Records; Rights of Inspection.
Each Borrower shall 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
Borrower, in accordance with GAAP consistently maintained. Each
Borrower shall permit a representative of Lender to visit any of
its properties and inspect its properties (including, but not
limited to, the Collateral and the other items of collateral
described in the Security Instruments), corporate books and
financial records, and will discuss its accounts, affairs and
finances with such Borrower or the principal offices of such
Borrower,, during reasonable business hours, at all such times as
Lender may reasonably request.
<PAGE> 14
Section 4.10 Reports.
Teltronics, and where indicated, the other Borrowers, shall
furnish to Lender the following:
(a) Monthly Statements. Within twenty (20) days of the end
of each month, beginning the month of March 1998, monthly
internal financial reports which at a minimum shall consist of a
consolidated balance sheet of Teltronics as of the close of such
month and related consolidated statements of income and cash
flows for the one-month period then ended and for the prior
months of the current fiscal year (on a year to date basis), each
compared to the same period in the previous fiscal year, all in
reasonable detail, and unaudited but prepared on the basis of
GAAP consistently applied (except for the absence of footnotes
and subject to year-end adjustments, as well as any additional
financial reports for such period routinely prepared with respect
to the Borrowers;
(b) Quarterly Statements. As soon as available and in any
event within thirty (30) 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
Teltronics and each Borrower as of the close of the
three-month period then ended, setting forth in
comparative form the consolidated figures at the end of
the preceding fiscal year,
(ii) consolidated and consolidating statements of
income and retained earnings of Teltronics and each
Borrower 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 Teltronics and each Borrower 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 Teltronics;
(c) Annual Statements. As soon as available and in any
event within ninety (90) days after the close of each fiscal year
of Teltronics, copies of:
(i) consolidated and consolidating balance sheets of
Teltronics and each Borrower as of the close of such
fiscal year, and
(ii) consolidated and consolidating statements of
income and retained earnings and cash flows of
Teltronics and each Borrower 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 any Borrower;
<PAGE> 15
(e) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice
or proxy statement sent by Teltronics to stockholders generally
and of each periodic or current report, and any registration
statement or prospectus filed by Teltronics or any Borrower with
any securities exchange or the SEC or any successor agency, and
copies of any orders in any proceedings to which Teltronics or
any Borrower is a party, issued by any governmental agency,
federal or state, having jurisdiction over the Borrowers. All
such filings or reports shall be true and correct in all material
respects and shall not omit to state a fact or facts, the absence
of which would make any such filing or report false or
misleading. Teltronics specifically covenants to timely file
each such item required to be filed with the SEC and each state
requiring securities laws filings;
(f) Press Releases. Promptly upon its release, a copy of
each press release issued by any Borrower;
(g) Officers' Compliance Certificate. Within ninety (90)
days after the end of each fiscal year of Teltronics, a
certificate executed by the chief executive or chief financial
officer of each Borrower stating that, (A) each Borrower has
kept, observed, performed and fulfilled each covenant, term and
condition of this Agreement and the other Loan Documents during
the preceding fiscal year, and (B) no Event of Default hereunder
has occurred and is continuing (or if such officer has knowledge
that an Event of Default has occurred and is continuing,
specifying the nature of same, the period of existence of same
and the action such Borrowers propose to take in connection
therewith); and
(h) Requested Information. With reasonable promptness,
such financial data and other information relating to the
business of the Borrowers as Lender may from time to time
reasonably request.
Section 4.11 Limitations on Debt and Obligations.
No Borrower shall issue, assume, guarantee or otherwise
become liable or permit to exist any Debt except: (i) Debt owing
from time to time to the CIT Group/Credit Finance, Inc. (and its
successors and assigns) by any Borrower, as the same Debt may be
extended, renewed, refunded, amended or modified (but the
principal amount thereof not increased), provided, however, that
if the "Maximum Credit" (as defined in the CIT Credit Agreement)
is reduced from $7,000,000 to $5,500,000 pursuant to the CIT
Credit Agreement, then the principal amount of such Debt to CIT
shall not be increased thereafter above $5,500,000; (ii) Debt
existing on the date hereof and reflected on Schedule 5.13
hereto; (iii) the Debt incurred pursuant to the Notes; (iv)
accounts payable and other trade payables incurred in the
ordinary course of business; (v) obligations of the Borrowers
pursuant to capitalized leases and/or purchase money financing of
equipment; (vi) Debt that refinances secured Debt under clause
(i) above, provided that the collateral for such new indebtedness
is the collateral from the refinanced secured Debt and the
aggregate principal amount of such Debt does not exceed the
principal amount outstanding under the refinanced Debt; (vii)
Debt incurred in connection with the acquisition of a business
(including the assets of a business) provided such Debt is
secured solely by the assets of the business so acquired; (viii)
additional Debt which is senior to or ranking pari passu with the
Debt evidenced by the Notes in a principal amount not to exceed
$50,000; or (ix) the Debt incurred pursuant to the 12%
Subordinated Debentures (as defined in Section 5.1(m)).
Notwithstanding the foregoing, the aggregate principal amount of
any Debt secured by the accounts receivable and/or inventory of
the Borrowers (whether such Debt is permitted under clause (i) or
in clause (vi)), 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
<PAGE> 16
of such Debt to "eligible receivables" (howsoever defined) and/or
"inventory" remains the same; provided, however, that nothing contained
herein shall restrict the right of any holder of Debt referred to
under clause (i) or (vi) above from decreasing the advance rates
applicable to any inventory or accounts or thereafter increasing
such rates to no more than the rates in effect on the date
hereof. For purposes of this Agreement, "Debt" of any person
means, without duplication, (a) all obligations of such person
for borrowed money and all obligations of such person evidenced
by bonds, debentures, notes or other similar instruments on which
interest charges are customarily paid, (b) all obligations,
contingent or otherwise, relative to the face amount of all
letters of credit, whether or not drawn, and banker's acceptances
issued for the account of such person, and (c) all obligations of
such person (contingent or otherwise) to guarantee the
obligations of, purchase or otherwise acquire, or otherwise
assure a creditor against loss in respect of, another person.
Section 4.12 Liability for Other Parties.
Other than guaranties or endorsements by Teltronics or any
100%-owned Subsidiary of Teltronics in favor of Teltronics or any
100%-owned Subsidiary of Teltronics not otherwise prohibited by
the provisions of Section 4.11 hereof, no Borrower will become
liable, directly or indirectly, for any obligation of any other
person, by guaranty, endorsement, or otherwise, except by
endorsement in the ordinary course of business of negotiable
instruments payable at sight for deposit or collection.
Section 4.13 Sales of Collateral; Limitations on Liens.
Without Lender's prior written consent (a) other than in the
ordinary course of its business, no Borrower will sell, exchange,
lease or otherwise dispose of any Collateral, and (b) no Borrower
will 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 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, 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 Debt which is permitted under Section 4.11(v) or (vi);
(iii) purchase money security interests on property acquired by
any Borrower in an amount not to exceed in the aggregate 10% more
than the amount approved by the Board of Directors of Teltronics
for such expenditures in the Annual Plan (as defined in Section
4.20); or (iv) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other
similar liens arising in the ordinary course of business and
securing obligations (other than indebtedness for borrowed money)
that (A) are not overdue for a period of more than 60 days, or
(B) are being contested in good faith by proper proceedings and
as to which appropriate reserves are being maintained in
accordance with GAAP on the books of such Borrower.
Section 4.14 Restricted Payments.
Without the prior written consent of hereunder and except as
hereinafter provided, no Borrower will:
(a) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class except
(i) dividends or other distributions payable solely in shares of
capital stock of Teltronics, (ii) cash dividends payable by
Teltronics on shares of its Series B Convertible
<PAGE> 17
Preferred Stock, provided that no Event of Default exists hereunder,
and (iii) cash dividends payable by any wholly-owned Subsidiary
to Teltronics;
(b) directly or indirectly 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; or
(c) make any other payment or distribution, either directly
or indirectly, in respect of its capital stock.
Section 4.15 Loans and Investments.
No Borrower will make any Investments (as defined below)
outside the ordinary course of business for such Borrower,
without the prior written consent of Lender, except:
(a) 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;
(b) Investments in certificates of deposit maturing within
one year from the date of origin, issued by a bank or trust
company organized under the laws of the United States or 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 Subsidiary, rated AA or better by Standard &
Poor's Corporation or Aa or better by Moody's Investors Service,
Inc.;
(c) 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;
(d) 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 such Borrower; and
(e) receivables arising from the sale of goods and services
in the ordinary course of business of such Borrower.
For purposes of this Agreement, "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.
Section 4.16 Mergers, Consolidations and Sales of Assets.
(a) Without the prior written consent of Lender, no
Borrower will 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 (c) of this Section 4.16) of the assets of such
Borrower; provided, however, that:
<PAGE> 18
(i) any Borrower may merge or consolidate with or into
Teltronics or any wholly-owned Subsidiary so long as in
any merger or consolidation involving Teltronics,
Teltronics shall be the surviving or continuing
corporation; and
(ii) any Borrower may sell, lease or otherwise dispose
of all or any substantial part of its assets to
Teltronics or any other wholly-owned Subsidiary of
Teltronics.
(b) Without the prior written consent of Lender, no
Borrower will 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
Teltronics or a wholly-owned Subsidiary of Teltronics) any shares
of stock or any indebtedness of any other Subsidiary, unless all
of the following conditions are met:
(i) simultaneously with such sale, transfer or
disposition, all shares of stock and all indebtedness
of such Subsidiary at the time owned by Teltronics and
by every other Subsidiary shall be sold, transferred or
disposed of as an entirety;
(ii) the Board of Directors of Teltronics 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 Teltronics;
(iii) 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 of Teltronics to be adequate and
satisfactory;
(iv) the Subsidiary being disposed of shall not have
any continuing investment in Teltronics or any other
Subsidiary not being simultaneously disposed of; and
(v) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets
of Teltronics and its Subsidiaries taken as a whole.
(c) As used in this Section 4.16, a sale, lease or other
disposition of assets shall be deemed to be a "substantial part"
of the assets of a Borrower 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 all other Borrowers (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 15% of the consolidated net tangible assets
of all Borrowers determined as of the end of the immediately
preceding fiscal year.
Section 4.17 Issuance of Stock.
Upon the issuance of additional shares of capital stock of
Teltronics or securities or other rights convertible into or
exchangeable or exercisable for shares of capital stock of
Teltronics (other than pursuant to employee stock option plans),
Teltronics shall promptly disclose to Lender, in writing, the
number of shares (or the amount of other securities) so issued,
the price therefor, and such other information as Lender may from
time to time request. No Borrower (other than Teltronics) shall
issue any additional shares of its capital stock, other than to
Teltronics or to a wholly-owned Subsidiary of Teltronics.
<PAGE> 19
Section 4.18 Transactions with Affiliates.
No Borrower will 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 such Borrower's
business and upon fair and reasonable terms no less favorable to
such Borrower 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 Borrower (as the term "disinterested" is used in
Section 144 of the Delaware General Corporation Law). For
purposes of this Agreement, "Affiliate" shall mean any person (a)
which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with a
Borrower, (b) which beneficially owns or holds 5% or more of any
class of the voting stock of a Borrower, 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 a Borrower.
Section 4.19 Notice of Certain Events.
Each Borrower shall, promptly upon the discovery thereof,
give written notice to Lender 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
or a default under any other Loan Document, (ii) the occurrence
of any default or event of default under any other agreement
between a Borrower and any other person providing for Debt or
securing any indebtedness, or under a capitalized lease
obligation, (iii) any actions, suits or proceedings instituted by
any person against any Borrower or materially affecting any of
the assets of any Borrower, or (iv) any investigation initiated
by, or any dispute between and any governmental regulatory body,
on the one hand, and any Borrower, on the other hand, which
dispute might interfere with the normal operations of such
Borrower.
Section 4.20 Annual Plan.
The Board of Directors of Teltronics shall adopt and
Teltronics will furnish to Lender, in such manner and form as
approved by the Board of Directors, no later than the first day
of each fiscal year, a financial plan for Teltronics and its
Subsidiaries (including the Borrowers), which shall include at
least a projection of income and expenses (including capital
expenditures) and a projected cash flows 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"). The
Annual Plan may only be amended or revised, in any material
manner, with the approval of the Board of Directors of
Teltronics. Teltronics shall promptly furnish to Lender each
amendment or revision to the Annual Plan.
Section 4.21 Board of Directors; Observer Rights.
Teltronics shall invite one representative of Lender to
attend, at Teltronics' expense, all meetings of the Board of
Directors of Teltronics and all committees of its 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. Teltronics shall also provide Lender, in
advance, with copies of all actions proposed to be taken by the
Board of Directors of Teltronics in lieu of meeting.
Notwithstanding anything in this Section 4.21 to the contrary,
this provision shall not apply to a Lender if such Lender
exercises identical observer rights to attend meetings of the
Board of Directors of Teltronics pursuant to that certain
Preferred Stock Purchase
<PAGE> 20
Agreement, dated of even date herewith, by and between Teltronics
and Lender or that certain Debenture Purchase Agreement, of even
date herewith, by and between Teltronics and Lender.
Section 4.22 Key Executives.
The officers and key employees of the Borrower whose names
and current positions are set forth on Schedule 4.22 hereto shall
continue to be employed by such Borrower in such position and
with the current duties and responsibilities for at least that
position unless (i) such employment ceases because of death, or
(ii) such Borrower replaces such officer or key employee within
ninety (90) days of the person's notice of resignation with
another executive who shall be reasonably acceptable to Lender.
Section 4.23 Further Assurances.
Borrowers will take all actions reasonably requested by
Lender to create and maintain in Lender's favor valid liens upon
and perfected security interests in any Collateral secured
pursuant to this Agreement or the other Security Instruments and
all other security for the Secured Obligations now or hereafter
held by or for Lender. Without limiting the foregoing, Borrowers
agree to execute such further instruments (including financing
statements and continuation statements) as may be required or
permitted by any law relating to notices of, or affidavits in
connection with, the perfection of Lender's liens and security
interests, and to cooperate with Lender in the filing or
recording and renewal thereof.
Section 4.24 Environmental Requirements.
In addition to, and not in derogation of, the requirements
of Section 4.7, each Borrower will comply with all laws,
governmental standards and regulations applicable to such
Borrower or to properties owned or leased by such Borrower, in
respect of occupational health and safety and Applicable
Environmental Laws (unless such laws, standards or regulations
are being contested in good faith by appropriate proceedings and
adequate reserves therefor have been established), promptly
notify Lender of its receipt of any notice of a violation of any
such law, standard or regulation, and indemnify and hold Lender
harmless from all loss, cost, damage, liability, claim and
expense incurred by or imposed upon Lender on account of such
Borrower's failure to perform its obligations under this Section
4.24.
Section 4.25 Name Change.
No Borrower will change its name without providing Lender
with at least sixty (60) days prior written notice thereof.
Section 4.26 Funding of Interactive Solution, Inc.
Without the prior written consent of Lender, no Borrower,
including Teltronics, shall make any advance or capital
contribution to, provide funding for, or become liable, directly
or indirectly, by guaranty, endorsement or otherwise, for any
obligation of Interactive Solutions, Inc., a Delaware corporation
and a partly-owned subsidiary of Teltronics ("ISI"); provided,
however, that Teltronics may loan up to an aggregate of $300,000
to ISI prior to April 30, 1998; provided further, that Teltronics
may make additional loans to ISI from time to time after April
30, 1998 if (i) Teltronics, on a consolidated basis, had net
profits for the immediately preceding calendar month as reflected
in the financial statements delivered pursuant to Section 5.12(a)
hereof and (ii) the Board of Directors
<PAGE> 21
of Teltronics approves each such loan prior to the making thereof;
provided further, that any such loan shall be evidenced by a
promissory note by ISI in favor of Teltronics.
Section 4.27 Location of Business and Collateral.
Each Borrower shall give written notice to Lender (i) thirty
(30) days prior to the opening of any new business office,
setting forth the address (including county) of such new
location, (ii) thirty (30) days prior to changing the location of
records with respect to intangible personal property constituting
collateral security for the Secured Obligations, and
(iii) whenever any Collateral comprised of tangible personal
property will be located in a county or state that is not set
forth on Schedule 3.5(a) or Schedule 3.5(b) hereof for a period
of four (4) months or longer. Prior to establishing any new
business office location or locating any collateral in a county
or state that is not set forth on Schedule 3.5(a) or Schedule
3.5(b) hereof for a period of four (4) months or longer, each
Borrower shall have (i) executed and delivered to Lender all
financing statements and financing statement amendments which
Lender may reasonably request in connection therewith in order to
perfect and protect the security interests and priority of Lender
in such Collateral, (ii) paid in full all filing fees and taxes,
if any, payable in connection with such filings and (iii)
complied with any other requirement in this Agreement or any
other Loan Document relating to the location of any Collateral.
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1 Conditions of Lender's Obligations.
The obligation of Lender to make the Loans is subject to the
receipt by Lender of the following documents, each of which shall
be satisfactory to Lender in form and substance, and to the
fulfillment of each of the other following conditions:
(a) Corporate Documents. A copy of the articles or
certificate of incorporation, as appropriate, of each Borrower,
as certified by the Secretary of State of the jurisdiction of
incorporation thereof, and certificates of legal existence and
good standing from the Secretary of State or other appropriate
official of the jurisdiction of incorporation thereof and each
jurisdiction in which any Borrower is legally required to qualify
to transact business as a foreign corporation, each as of a date
within ten (10) days of the date of closing.
(b) Security Instruments. Each of the Security
Instruments, duly executed by each Borrower, as applicable,
including the Trademark and Patent Security Agreement.
(c) Officer's Certificate. The certificate of the president
and chief executive officer of each Borrower, substantially in
the form of Exhibit F hereto, certifying that, after giving
effect to this Agreement, all representations and warranties
herein are true and correct and there is no default or Event of
Default in existence as of such date, nor any event which, given
the passage of time, would constitute an Event of Default.
(d) Secretary's Certificate. A certificate of the
Secretary of each Borrower to the effect set forth in Exhibit G.
(e) Opinion of Counsel. The written opinion of Blair &
Roach, counsel to the Borrowers, in form satisfactory to Lender,
and substantially in the form of Exhibit H hereto.
<PAGE> 22
(f) The Notes. The Notes, in each case duly completed and
executed by each Borrower.
(g) Warrant. Teltronics shall have duly executed and
delivered (i) the Warrant, and (ii) the Warrant Valuation Letter
in the form attached hereto as Exhibit I.
(h) UCC-1 Financing Statements. Financing statements on
Form UCC-1, duly completed and executed by each Borrower,
perfecting the security interest of Lender in the Collateral.
(i) Governmental Consents and Approvals. All consents and
true copies of required governmental approvals, if any, necessary
to the execution, delivery and performance of the Loan Documents
and the transactions contemplated hereby and thereby.
(j) Debit Authorization Agreement. An Authorization
Agreement for Pre-Authorized Payments (Debit), executed by a duly
authorized officer(s) of each Borrower, in the form attached
hereto as Exhibit J.
(k) Pay-Off Letter and Release of Lien. A Pay-Off Letter,
in the form of Exhibit K attached hereto, executed by CIT to the
effect that (i) upon payment of the amount stated therein (which
amount shall include related accrued interest and fees and a per
diem charge for each additional day of outstanding indebtedness)
by Borrowers or any of them to CIT, CIT shall (i) promptly
terminate or cause to be terminated any security interest of CIT
in all Collateral of Borrowers, or any of them, other than
Collateral consisting of accounts receivable or inventory of
Borrowers, and (ii) take such other actions as Lender may request
to release CIT's security interest in and lien on all Collateral
other than accounts receivable or inventory of Borrowers.
(l) Intercreditor Agreement. The Intercreditor Agreement,
executed by duly authorized officers of each Borrower and CIT, in
the form of Exhibit D hereto.
(m) Sale of Preferred Stock and Debentures. Evidence
satisfactory to Lender and counsel to Lender as to (i) the sale
by Teltronics to Sirrom Capital Corporation d/b/a Tandem Capital
("Tandem") of 25,000 shares of Series B Convertible Preferred
Stock of Teltronics for an aggregate purchase price of
$2,500,000, (ii) the sale by Teltronics to Tandem of its 12%
Subordinated Debentures due February 13, 2002, in the principal
amount of $1,750,000 (the "12% Subordinated Debentures"), and the
grant by Teltronics to Tandem of its warrant for the purchase of
525,000 shares of Teltronics Common Stock, upon the same terms
and substantially in the form of the Warrant attached hereto as
Exhibit B, and (iii) the delivery by Tandem to Teltronics of
Teltronics' 11% Subordinated Convertible Debentures due February
13, 2000, in the principal amount of $4,250,000, and payment by
Teltronics of all interest accrued thereon to the date of delivery.
ARTICLE VI
DEFAULT AND REMEDIES
Section 6.1 Events of Default.
The occurrence of any of the following shall constitute an
Event of Default hereunder:
(a) Default in the payment when due of any portion of the
principal amount of the indebtedness evidenced by either of the
Notes, or default in the payment when due of any interest on the
indebtedness evidenced by either of the Notes;
<PAGE> 23
(b) Any representation by any Borrower hereunder or under
any of the other Loan Documents, or delivery by any Borrower of
any schedule, statement, resolution, report, certificate, notice
or writing to Lender, is untrue in any material respect on the
date as of which made, stated or certified;
(c) A default or event of default shall occur, or there
shall occur such other failure by any Borrower to perform its
obligations under, any of Sections 4.10, 4.14, 4.15, 4.16, 4.21
or 4.22 hereof;
(d) A default or event of default shall occur in the
observance or performance by any Borrower of any other provision
of this Agreement which is not remedied within thirty (30) days
after the earlier of (i) the date on which any Borrower first
obtains knowledge of such default or event of default and (ii)
the date on which written notice thereof is given to the
Borrowers by the Lender;
(e) Any Borrower (i) shall admit in writing its inability
to pay its debts generally as they become due; or (ii) shall make
an assignment for the benefit of creditors or petition or apply
to any tribunal for the appointment of a custodian, receiver or
trustee for it or a substantial part of its assets; or (iii)
shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; or (iv) shall have had any such petition or
application filed or any such proceeding commenced against it in
which an order for relief is entered or an adjudication or
appointment is made; or (v) shall indicate, by any act or
omission, its consent to, approval of, or acquiescence in any
such petition, application, proceeding or order for relief or the
appointment of a custodian, receiver or trustee for it or a
substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue
undischarged for a period of sixty (60) days or more;
(f) Any Borrower shall be liquidated, dissolved,
partitioned or terminated, or the articles or certificate of
incorporation of Borrower shall expire or be revoked;
(g) Any Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any indebtedness of any Borrower now or hereafter
owed to Lender, other than the Loans, subject to any applicable
grace period; or
(h) (i) Any Borrower shall fail to pay any principal of or
premium or interest on any indebtedness owed by Borrower (other
than the Loans), which is outstanding in a principal amount of at
least $100,000 in the aggregate, when the same becomes due and
payable (whether by scheduled maturity, acceleration, demand or
otherwise), and such failure shall continue after any cure period
applicable thereto; or (ii) any other event shall occur or
condition shall exist under any agreement or instrument relating
to any such indebtedness and shall continue after any applicable
cure period, if the effect of such event or condition is to
accelerate or permit the acceleration of such indebtedness; or
(iii) any such indebtedness shall be accelerated or otherwise
declared to be due and payable prior to the stated maturity
thereof; or (iv) any such indebtedness shall be required to be
prepaid, redeemed, purchased or defeased, or an offer to repay,
redeem, purchase or defease such indebtedness shall be required
to be made, in each case prior to the stated maturity thereof; or
(i) Any person set forth on Schedule 4.22 attached hereto
shall cease to hold the office of Teltronics and devote
substantially all of his or her professional time and attention
to the business
<PAGE> 24
and affairs of Teltronics (unless a successor or successors
reasonably acceptable to Lender shall be appointed within ninety
(90) days of any announcement of resignation of any such person).
Section 6.2 Acceleration of Maturity; Remedies.
Upon the occurrence of any Event of Default described in
Section 6.1(e), the indebtedness evidenced by the Notes as well
as any and all other indebtedness of any Borrower to Lender shall
be immediately due and payable in full; and upon the occurrence
of any other Event of Default described in Section 6.1, Lender at
any time thereafter may at its option accelerate the maturity of
the indebtedness evidenced by the Notes as well as any and all
other indebtedness of any Borrower to Lender, whereupon such
indebtedness shall be and become immediately due and payable; all
without notice of any kind. Upon the occurrence of any such
Event of Default and the acceleration of the maturity of the
indebtedness evidenced by the Notes:
(a) Lender shall be immediately entitled to exercise any
and all rights and remedies possessed by Lender pursuant to the
terms of the Security Instruments and all of the other Loan
Documents.
(b) Lender shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as adopted in the
respective states pursuant to which security interests in the
Collateral are governed.
(c) Lender shall have any and all other rights and remedies
that Lender may now or hereafter possess at law, in equity or by
statute.
Section 6.3 Remedies Cumulative; No Waiver.
No right, power or remedy conferred upon or reserved to
Lender by this Agreement or any of the other Loan Documents is
intended to be exclusive of any other right, power or remedy, but
each and every such right, power and remedy shall be cumulative
and concurrent and shall be in addition to any other right, power
and remedy given hereunder, under any of the other Loan Documents
or now or hereafter existing at law, in equity or by statute. No
delay or omission by Lender to exercise any right, power or
remedy accruing upon the occurrence of any Event of Default shall
exhaust or impair any such right, power or remedy or shall be
construed to be a waiver of any such Event of Default or an
acquiescence therein, and every right, power and remedy given by
this Agreement and the other Loan Documents to Lender may be
exercised from time to time and as often as may be deemed
expedient by Lender.
Section 6.4 Proceeds of Remedies.
Any or all proceeds resulting from the exercise of any or
all of the foregoing remedies shall be applied as set forth in
the Loan Document(s) providing the remedy or remedies exercised;
if none is specified, or if the remedy is provided by this
Agreement, then as follows:
(a) First, to the costs and expenses, including reasonable
attorney and paralegal fees and costs, incurred by Lender in
connection with the exercise of its remedies;
(b) Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole
discretion, to cure the default that has occurred;
<PAGE> 25
(c) Third, to the payment of accrued and unpaid interest on
the indebtedness evidenced by the Notes;
(d) Fourth, to the payment of the unpaid principal of the Notes;
(e) Fifth, to the payment of all other Secured Obligations; and
(f) Sixth, the remainder, if any, to the Borrowers or to
any other person lawfully thereunto entitled.
ARTICLE VII
TERMINATION
This Agreement shall remain in full force and effect until
the payment in full by Borrowers of all amounts owed to Lender
under the Loan Documents, within a reasonable time after which
Lender shall take such actions as necessary to release its
security interests in the Collateral, including the filing of
appropriate UCC-3 termination statements.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Performance By Lender.
If any Borrower shall default in the payment, performance or
observance of any covenant, term or condition of this Agreement,
Lender may, at its option, pay, perform or observe the same, and
all payments made or reasonable costs or expenses incurred by
Lender in connection therewith (including but not limited to
reasonable attorney and paralegal fees and costs), with interest
thereon at the highest default rate provided in each such Note,
shall be immediately repaid to Lender by Borrowers and shall
constitute a part of the Secured Obligations and be secured
hereby until fully repaid. Lender, in its commercially
reasonable discretion and without any liability therefor, shall
determine the necessity for any such actions and of the amounts,
if any, to be paid.
Section 8.2 Successors and Assigns Included in Parties.
Whenever in this Agreement one of the parties hereto is
named or referred to, the heirs, legal representatives,
successors, successors-in-title and assigns of such parties shall
be included, and all covenants and agreements contained in this
Agreement by or on behalf of Borrowers or by or on behalf of
Lender shall bind and inure to the benefit of their respective
heirs, legal representatives, successors-in-title and assigns,
whether so expressed or not.
Section 8.3 Costs and Expenses.
Each Borrower agrees to pay all costs and expenses incurred
by Lender in connection with the making of the Loans, including
but not limited to filing fees, recording taxes and reasonable
attorney and paralegal fees and costs, promptly upon demand of
Lender. Each Borrower further agrees to pay all of the
reasonable out-of-pocket costs and reasonable expenses incurred
by Lender in connection with the maintenance of its security
interest in the Collateral, protection of the Collateral and
collection of the Loans, including but not limited to reasonable
attorney and paralegal fees and
<PAGE> 26
costs related thereto (including any such incurred in connection
with any appellate litigation)promptly upon demand of Lender.
Section 8.4 Assignment.
The Notes, this Agreement and the other Loan Documents may
be endorsed, assigned and transferred in whole or in part by
Lender, and any such subsequent holder or assignee of the same
shall succeed to and be possessed of the rights and powers of
Lender under all of the same to the extent transferred and
assigned. Lender may grant participations in the Notes, this
Agreement and the other Loan Documents (or any portion thereof).
Lender shall notify Teltronics in writing of any such
endorsement, assignment or transfer by Lender. No Borrower shall
assign any of its rights nor delegate any of its duties hereunder
or under any of the other Loan Documents without the prior
express written consent of Lender.
Section 8.5 Time of the Essence.
Except as specifically provided herein, time is of the
essence with respect to each and every covenant, agreement and
obligation of any Borrower hereunder and under all of the other
Loan Documents.
Section 8.6 Severability.
If any provisions of this Agreement or the application
thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and
the application of such provisions to other persons or
circumstances shall not be affected thereby nor shall the
validity and enforceability thereof be affected.
Section 8.7 Interest and Loan Charges Not to Exceed Maximum
Allowed by Law.
Anything in this Agreement, the Note, the Security
Instruments or any of the other Loan Documents to the contrary
notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loans, acceleration of the
maturity of the unpaid balance of the Loans or otherwise, shall
the interest and other consideration agreed to be paid to Lender
for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in
effect from time to time. It is understood and agreed by the
parties that, if for any reason whatsoever the interest or other
consideration paid or contracted to be paid by Borrowers in
respect of the indebtedness evidenced by the Notes shall exceed
the maximum amounts collectible under applicable laws in effect
from time to time, then ipso facto, the obligation to pay such
interest and other consideration shall be reduced to the maximum
amounts collectible under applicable laws in effect from time to
time, and any amounts collected by Lender that exceed such
maximum amounts shall be applied to the reduction of the
principal balance of the indebtedness evidenced by the Notes or
refunded to Borrowers, in Lender's sole discretion, so that at no
time shall the interest and other consideration paid or payable
in respect of the indebtedness evidenced by the Notes exceed the
maximum amounts permitted from time to time by applicable law.
Section 8.8 Article and Section Headings; Defined Terms.
Numbered and titled article and section headings and defined
terms are for convenience only and shall not be construed as
amplifying or limiting any of the provisions of this Agreement.
<PAGE> 27
Section 8.9 Notices.
Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing,
signed by the party giving such notice, election or demand and
shall be delivered personally, faxed (provided that such notice
is mailed to the other party promptly thereafter), or sent by
certified mail or nationally recognized overnight courier service
(such as Federal Express) to the other party at the address set
forth below, or at such other address as may be supplied in
writing and of which receipt has been acknowledged in writing.
The date of personal delivery, the date of successful fax
transmission, the third day after the date of mailing, or the
business day after the date of delivery to such courier service,
as the case may be, shall be the date of such notice, election or
demand. For the purposes of this Agreement, notices, elections
or demands made pursuant hereto shall be made to the following
addresses:
If to Lender: Tandem Capital, Inc.
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, Tennessee 37219-3304
Attention: Donald I.N. McKenzie
Fax: 615-742-4539
if to any Borrower, Teltronics, Inc.
addressed to 2150 Whitfield Industrial Way
such Borrower: 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.
Section 8.10 Entire Agreement.
This Agreement and the other written agreements between
Borrowers and Lender executed contemporaneously herewith
represent the entire agreement between the parties concerning the
subject matter hereof, and all oral discussions and prior
agreements are merged herein.
Section 8.11 Counterparts.
This Agreement may be executed in multiple originals or
counterparts, each of which shall be deemed an original and all
or which when taken together shall constitute but one and the
same instrument.
<PAGE> 28
Section 8.12 Governing Law.
This Agreement shall be construed and enforced under the
internal laws of the State of Tennessee, without reference to the
conflict of laws principles thereof.
Section 8.13 Amendments; Incorporation.
No amendment or modification hereof shall be effective
except in a writing executed by each of the parties hereto. All
schedules, exhibits, riders, and other documents and instruments
referenced herein shall be deemed to be incorporated herein and
made a part hereof.
Section 8.14 Waiver of Jury Trial.
LENDER AND EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAW)
ANY RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER,
RELATING TO, OR CONNECTED WITH THIS AGREEMENT, THE COLLATERAL OR
ANY OTHER AGREEMENT, INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY
OR DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH
DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER
INTO THIS AGREEMENT.
Section 8.15 Disclosure Statement.
The disclosures contained in the Disclosure Statement
attached hereto with respect to any section number hereof shall
be deemed to constitute the contents of the schedule of such
number referenced herein.
[Signatures on following pages]
<PAGE>
[SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this
Loan and Security Agreement, or have caused this Agreement to be
executed by their duly authorized officers, as of the day and
year first above written.
BORROWERS:
TELTRONICS, INC.
By: Ewen R. Cameron, President
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
TTG ACQUISITION CORP.
By: Ewen R. Cameron, President
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
AT SUPPLY, INC.
By: Ewen R. Cameron, Chairman
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
[Signatures continue on next page]
<PAGE>
INTERACTIVE SOLUTIONS, INC.
By: Ewen R. Cameron, Chairman
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
TELTRONICS/SRX, INC.
By: Ewen R. Cameron
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
LENDER:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: Craig Macnab, Vice-President
<PAGE>
Index of Attachments
Exhibit A-1 Form of Secured Promissory Note -- $1,000,000
Exhibit A-2 Form of Secured Promissory Note -- $280,000
Exhibit B Warrant -- 365,000 shares
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of CIT Intercreditor Agreement
Exhibit E Form of Trademark and Patent Security Agreement
Exhibit F Form of Officer's Certificate/Borrower
Exhibit G Form of Secretary's Certificate/Borrower
Exhibit H Form of Opinion of Borrower's Counsel
Exhibit I Form of Warrant Valuation Letter
Exhibit J Form of Debit Authorization Agreement/Loans
Exhibit K Form of CIT Pay-Off Letter
Schedule 3.1(a) Jurisdictions in Which Borrower is Qualified
Schedule 3.1(c) Outstanding Stock
Schedule 3.1(d) Options
Schedule 3.1(e) Preemptive Rights with Respect to Warrant
Schedule 3.2 Required Consents
Schedule 3.4 Outstanding Loans, Liens, Security Interests, Etc.
Schedule 3.5(a) Chief Executive Office/Principal Place of Business
Schedule 3.5(b) Location of Collateral
Schedule 3.6 Litigation
Schedule 3.12(i) Related Party Transactions
Schedule 3.12(ii) Related Party Contracts
Schedule 3.12(iii) Related Party Guarantees
Schedule 3.13 Corporate or Trade Names
Schedule 3.16 ERISA
Schedule 3.22 Employees
Schedule 4.1 Use of Proceeds
Schedule 4.22 Key Executives
Schedule 4.25 Key Man Insurance
<PAGE>
EXHIBIT 10.5
$1,000,000.00 Nashville, Tennessee
February 26, 1998
SENIOR SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, TELTRONICS, INC., a
Delaware corporation, TTG ACQUISITION CORP., a Delaware
corporation, TELTRONICS/SRX, Inc., a Delaware corporation, AT
SUPPLY, INC., a Texas corporation, and INTERACTIVE SOLUTIONS,
INC., a Delaware corporation (the foregoing entities collectively
referred to herein as the "Maker"), jointly and severally promise
to pay to the order of SIRROM CAPITAL CORPORATION d/b/a TANDEM
CAPITAL, INC., a Tennessee corporation ("Payee" and, together
with any subsequent holder(s) hereof, "Holder"), to Payee's
account number 2020000089216 at First Union National Bank,
Nashville, Tennessee, ABA routing number 064000059, or at such
other place as Holder may designate to Maker in writing from time
to time, on February 25, 1999 (the "Maturity Date"), the
principal sum of ONE MILLION and NO/100 DOLLARS ($1,000,000.00),
together with interest on the outstanding principal balance
hereof from the date of each advance at the rate of twelve
percent (12 %) per annum computed on the basis of a 360-day year.
Interest on the outstanding principal balance hereof shall
be due and payable quarterly, in arrears, with the first
installment being payable on May 15, 1998 and subsequent
installments being payable on August 15, 1998, November 15, 1998
and thereafter on the Maturity Date, at which time the entire
outstanding principal balance, together with all accrued and
unpaid interest, shall be immediately due and payable in full.
The indebtedness evidenced hereby may be prepaid in whole or
in part at any time and from time to time, without penalty. Any
such prepayments shall be credited first to any accrued and
unpaid interest and then to the outstanding principal balance
hereof.
Time is of the essence of this Note.
This is the Note referenced in, and issued pursuant to, the
Loan and Security Agreement of even date herewith between the
Maker and the Payee (as amended, supplemented or otherwise
modified from time to time, the "Loan Agreement"). The
indebtedness evidenced by this Note was incurred pursuant to, and
is governed and secured by the Loan Agreement and the other "Loan
Documents" defined and referenced therein. Reference is made to
the Loan Agreement for a description of the terms and conditions
governing this Note and the indebtedness evidenced hereby,
including but not limited to the circumstances under which the
indebtedness evidenced by this Note may be declared, or may
automatically become, immediately due and payable prior to the
Maturity Date.
To the extent permitted by applicable law, upon the
occurrence of any Event of Default (as such term is defined in
the Loan Agreement), at the option of Holder and without notice
to Maker, all overdue interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter
until paid at an annual rate equal to the otherwise applicable
interest rate plus an additional two percent (2%) per annum
(computed on the basis of a 360-day year).
<PAGE> 2
If this Note is placed in the hands of an attorney for
collection or for enforcement or protection of the security, or
if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby or the enforcement or protection of
the security, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including, without
limitation, all reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of
demand, protest and nonpayment are hereby waived by Maker and all
other parties hereto. No failure to accelerate the indebtedness
evidenced hereby by reason of default hereunder, acceptance of a
past-due installment or other indulgences granted from time to
time, shall be construed as a novation of this Note or as a
waiver of such right of acceleration or of the right of Holder
thereafter to insist upon strict compliance with the terms of
this Note or to prevent the exercise of such right of
acceleration or any other right granted hereunder or by
applicable laws. No extension of the time for payment of the
indebtedness evidenced hereby or any installment due hereunder,
made by agreement with any person now or hereafter liable for
payment of the indebtedness evidenced hereby, shall operate to
release, discharge, modify, change or affect the original
liability of Maker hereunder or that of any other person now or
hereafter liable for payment of the indebtedness evidenced
hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is
sought.
All interest accruing under this Note is subject to the
terms of Section 8.7 of the Loan Agreement. Without limitation
to the foregoing, all agreements herein made are expressly
limited so that in no event whatsoever, whether by reason of
advancement of proceeds hereof, acceleration of maturity of the
unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or
to be advanced hereunder exceed the maximum amounts collectible
under applicable laws in effect from time to time (the "Maximum
Rate"). If, from any circumstances whatsoever, the fulfillment
of any provision of this Note or any other agreement or
instrument now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby shall involve the
payment of interest in excess of said Maximum Rate, then, ipso
facto, the obligation to pay interest hereunder shall be reduced
to said Maximum Rate; and if from any circumstance whatsoever,
Holder shall ever receive interest, the amount of which would
exceed the amount collectible at said Maximum Rate, such amount
as would be excessive interest shall be applied to the reduction
of the principal balance remaining unpaid hereunder and not to
the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments
existing or hereafter arising between Maker and Holder with
respect to the indebtedness evidenced hereby.
This Note shall be construed and enforced under the internal
laws of the State of Tennessee, without reference to the conflict
of laws principles thereof.
As used herein, the terms "Maker" and "Holder" shall be
deemed to include their respective successors, legal
representatives and assigns, whether by voluntary action of the
parties or by operation of law.
<PAGE>
[SIGNATURE PAGE TO SENIOR SECURED PROMISSORY NOTE ($1,000,000)]
MAKER:
TELTRONICS, INC.
By: Ewen R. Cameron, President
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
TTG ACQUSITION CORP.
By: Ewen R. Cameron, President
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
AT SUPPLY, INC.
By: Ewen R. Cameron, Chairman
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
INTERACTIVE SOLUTIONS, INC.
By: Ewen R. Cameron, Chairman
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
[Signatures continued on next page]
<PAGE>
TELTRONICS/SRX, INC.
By: Ewen R. Cameron, Chairman
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.6
$280,000.00 Nashville, Tennessee
February 26, 1998
SENIOR SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, TELTRONICS, INC., a
Delaware corporation, TTG ACQUISITION CORP., a Delaware
corporation, TELTRONICS/SRX, Inc., a Delaware corporation, AT
SUPPLY, INC., a Texas corporation, and INTERACTIVE SOLUTIONS,
INC., a Delaware corporation (the foregoing entities collectively
referred to herein as the "Maker"), jointly and severally promise
to pay to the order of SIRROM CAPITAL CORPORATION d/b/a TANDEM
CAPITAL, INC., a Tennessee corporation ("Payee" and, together
with any subsequent holder(s) hereof, "Holder"), to Payee's
account number 2020000089216 at First Union National Bank,
Nashville, Tennessee, ABA routing number 064000059, or at such
other place as Holder may designate to Maker in writing from time
to time, on October 1, 2000 (the "Maturity Date"), the principal
sum of TWO HUNDRED EIGHTY THOUSAND and NO/100 DOLLARS
($280,000.00), together with interest on the outstanding
principal balance hereof from the date of each advance at the
rate of twelve percent (12 %) per annum computed on the basis of
a 360-day year.
Beginning May 15, 1998, monthly principal and interest
payments in an amount necessary to amortize $10,272.00 per month
during the period commencing on the date hereof and ending on the
Maturity Date, at the applicable interest rate, shall be due and
payable monthly, on the fifteenth day of each consecutive month.
The unpaid principal balance hereof, together with all accrued
but unpaid interest, shall be due and payable on the Maturity
Date.
The indebtedness evidenced hereby may be prepaid in whole or
in part at any time and from time to time, without penalty. Any
such prepayments shall be credited first to any accrued and
unpaid interest and then to the outstanding principal balance
hereof.
Time is of the essence of this Note.
This is the Note referenced in, and issued pursuant to, the
Loan and Security Agreement of even date herewith between the
Maker and the Payee (as amended, supplemented or otherwise
modified from time to time, the "Loan Agreement"). The
indebtedness evidenced by this Note was incurred pursuant to, and
is governed and secured by the Loan Agreement and the other "Loan
Documents" referenced therein. Reference is made to the Loan
Agreement for a description of the terms and conditions governing
this Note and the indebtedness evidenced hereby, including but
not limited to the circumstances under which the indebtedness
evidenced by this Note may be declared, or may automatically
become, immediately due and payable prior to the Maturity Date.
To the extent permitted by applicable law, upon the
occurrence of any Event of Default (as such term is defined in
the Loan Agreement), at the option of Holder and without notice
to Maker, all overdue interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter
until paid at an annual rate equal to the otherwise applicable
interest rate plus an additional two percent (2%) per annum
(computed on the basis of a 360-day year).
If this Note is placed in the hands of an attorney for
collection or for enforcement or protection of the security, or if
Holder incurs any costs incident to the collection of the indebtedness
<PAGE> 2
evidenced hereby or the enforcement or protection of
the security, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including, without
limitation, all reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of
demand, protest and nonpayment are hereby waived by Maker and all
other parties hereto. No failure to accelerate the indebtedness
evidenced hereby by reason of default hereunder, acceptance of a
past-due installment or other indulgences granted from time to
time, shall be construed as a novation of this Note or as a
waiver of such right of acceleration or of the right of Holder
thereafter to insist upon strict compliance with the terms of
this Note or to prevent the exercise of such right of
acceleration or any other right granted hereunder or by
applicable laws. No extension of the time for payment of the
indebtedness evidenced hereby or any installment due hereunder,
made by agreement with any person now or hereafter liable for
payment of the indebtedness evidenced hereby, shall operate to
release, discharge, modify, change or affect the original
liability of Maker hereunder or that of any other person now or
hereafter liable for payment of the indebtedness evidenced
hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is
sought.
All interest accruing under this Note is subject to the
terms of Section 8.7 of the Loan Agreement. Without limitation
to the foregoing, all agreements herein made are expressly
limited so that in no event whatsoever, whether by reason of
advancement of proceeds hereof, acceleration of maturity of the
unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or
to be advanced hereunder exceed the maximum amounts collectible
under applicable laws in effect from time to time (the "Maximum
Rate"). If, from any circumstances whatsoever, the fulfillment
of any provision of this Note or any other agreement or
instrument now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby shall involve the
payment of interest in excess of said Maximum Rate, then, ipso
facto, the obligation to pay interest hereunder shall be reduced
to said Maximum Rate; and if from any circumstance whatsoever,
Holder shall ever receive interest, the amount of which would
exceed the amount collectible at said Maximum Rate, such amount
as would be excessive interest shall be applied to the reduction
of the principal balance remaining unpaid hereunder and not to
the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments
existing or hereafter arising between Maker and Holder with
respect to the indebtedness evidenced hereby.
This Note shall be construed and enforced under the internal
laws of the State of Tennessee, without reference to the conflict
of laws principles thereof.
As used herein, the terms "Maker" and "Holder" shall be
deemed to include their respective successors, legal
representatives and assigns, whether by voluntary action of the
parties or by operation of law.
[Signatures on next page]
<PAGE>
[SIGNATURE PAGE TO SENIOR SECURED PROMISSORY NOTE ($280,000)]
MAKER:
TELTRONICS, INC.
By: Ewen R. Cameron, President
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
TTG ACQUSITION CORP.
By: Ewen R. Cameron, President
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
AT SUPPLY, INC.
By: Ewen R. Cameron, Chairman
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
INTERACTIVE SOLUTIONS, INC.
By: Ewen R. Cameron, Chairman
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
[Signatures continued on next page]
<PAGE>
TELTRONICS/SRX, INC.
By: Ewen R. Cameron, Chairman
Attest: Mark E. Scott, Secretary
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.7
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE ACT
AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED
IN CONNECTION WITH SUCH PROPOSED TRANSFER.
Warrant No. S-1
STOCK PURCHASE WARRANT
This Warrant is issued this 26th day of February, 1998, by
TELTRONICS, INC., a Delaware corporation (the "Company"), to
SIRROM CAPITAL CORPORATION d/b/a TANDEM CAPITAL, a Tennessee
corporation ("Tandem" which, together with any subsequent
assignee or transferee hereof is hereinafter referred to
collectively as "Holder" or "Holders").
AGREEMENT:
1. Issuance of Warrant; Term. For and in consideration of
Tandem purchasing from the Company its 12% Subordinated Debenture
due February 13, 2002, in the initial principal amount of One
Million, Seven Hundred Fifty Thousand Dollars ($1,750,000) (the
"Debenture") pursuant to the terms of a Debenture Purchase
Agreement, dated February 25, 1998, between the Company and
Tandem (the "Debenture Purchase Agreement"), and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company hereby grants to Holder the
right to purchase Five Hundred Twenty-Five Thousand (525,000)
shares of the Company's common stock, par value $.001 per share
(the "Common Stock"). The shares of Common Stock issuable upon
exercise of this Warrant are hereinafter referred to as the
"Shares." The number of such shares and the Exercise Price (as
defined below) are subject to adjustment as provided herein. As
used herein, the term "Warrant" includes this Warrant and any
warrants delivered in exchange therefor as provided herein, and
the term "Warrant Issue Date" shall mean February 26, 1998. This
Warrant shall be exercisable at any time and from time to time
during the term commencing on the date hereof and ending at 5:00
p.m. Eastern time on February 26, 2003.
2. Exercise Price. The exercise price (the "Exercise
Price") per share for which all or any of the Shares may be
purchased pursuant to the terms of this Warrant shall be Two
Dollars and Seventy-Five Cents ($2.75), as adjusted from time to
time pursuant to Section 7 hereof.
3. Exercise.
(a) Manner of Exercise. This Warrant may be exercised
by the Holder hereof (but only on the conditions hereinafter set
forth) as to all or any increment or increments of one thousand
(1,000) Shares (or the balance of the Shares if less than 1,000),
upon delivery to the Company at the following address: 2150
Whitfield Industrial Way, Sarasota, Florida 34243 or such other
address as the Company shall designate in a written notice to the
Holder hereof, of the Notice of Exercise in the form of Annex A
hereto, duly completed and executed on behalf of the Holder,
together with this Warrant and payment to the Company of the
aggregate Exercise Price of the Shares so purchased. The
Exercise Price shall be payable, at the option of the Holder, (i)
by certified or bank check, (ii) by the surrender by the Holder
for cancellation of Debentures or any portion thereof having an
outstanding principal balance at least equal to the aggregate
Exercise Price, or (iii) by a combination of (i) and (ii) above.
Upon exercise of this Warrant as aforesaid, the Company shall as
promptly as practicable, and in any event within ten (10) days
thereafter, execute and deliver to the Holder of this Warrant a
certificate or certificates for the total number of whole Shares
for which this Warrant is being exercised in such names and
denominations as are requested by such Holder. If this Warrant
shall be exercised with respect to less than all of the Shares,
the Holder shall be entitled to receive a new Warrant covering
the number of Shares in respect of which this Warrant shall not
have been exercised, which new Warrant shall in all other
respects be identical to this Warrant. The Company covenants and
agrees that it will pay when due any and all state and federal
issue taxes which may be payable in respect of the issuance of
this Warrant or the issuance of any Shares upon exercise of this
Warrant.
(b) Conversion Rights. In lieu of exercising this
Warrant pursuant to Section 3(a) above, the Holder shall have the
right to require the Company to convert this Warrant, in whole or
in part and at any time or times into Shares (the "Conversion
Right"), upon delivery to the Company at its address in Section
3(a) or such other address as the Company shall designate in a
written notice to the Holder hereof, of the Notice of Exercise,
with the election to convert duly completed and executed on
behalf of the Holder, together with this Warrant. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number
of Shares which is equal to the quotient obtained by dividing (x)
the net value of the number of Shares into which this Warrant is
being converted at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for the
Shares into which this Warrant is being converted immediately
prior to the exercise of the Conversion Right from a number equal
to the product of (i) the Fair Market Value (as such term is
defined in Section 7(e)) per share as at such time, multiplied by
(ii) that number of Shares purchasable upon exercise of this
Warrant (or portion hereof that is being converted at the time
the Conversion Right is exercised) immediately prior to the
exercise of the Conversion Right (taking into account all
applicable adjustments pursuant to Section 7)), by (y) the Fair
Market Value per share. Any references in any Warrants to the
"exercise" of this Warrant, and the use of the term exercise
herein, shall be deemed to include (without limitation) any
exercise of the Conversion Right.
4. Covenants and Conditions. The above provisions are
subject to the following:
(a) Securities Laws Compliance. Neither this Warrant
nor the Shares have been registered under the Securities Act of
1933, as amended ("Securities Act") or any state securities laws
("Blue Sky Laws"). This Warrant has been acquired for investment
purposes and not with a view to distribution or resale in
violation of the registration provisions of the Securities Act;
except for the transfer of the Warrant to one or more wholly-
owned subsidiaries of Sirrom Capital Corporation, which
subsidiary(s) shall be an "accredited investor," as defined in
Rule 501(a) under the Securities Act, this Warrant may not be
sold or otherwise transferred without (i) an effective
registration statement for such Warrant under the Securities Act
and such applicable Blue Sky Laws, or (ii) an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to the
Company and its counsel, that registration is not required under
the Securities Act or under any applicable Blue Sky Laws (the
Company hereby acknowledges that Sherrard & Roe, PLC is
acceptable counsel). Transfer of the Shares issued upon the
exercise of this Warrant shall be restricted in the same manner
and to the same extent as the Warrant and the certificates
representing such Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (II) IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH
ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other
documents and instruments as counsel for the Company reasonably
deems necessary to effect the compliance of the issuance of this
Warrant and any Shares of Common Stock issued upon exercise
hereof with applicable federal and state securities laws,
including, if requested, completing and executing a
representation letter in the form attached hereto as Annex C.
(b) Covenants of the Company. The Company covenants
and agrees that all shares of Common Stock which may be issued
upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully
paid and nonassessable, free from all taxes, liens, charges with
respect to the issuance thereof. The Company further covenants
that it shall at all times during the term of this Warrant
reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of
this Warrant and, from time to time, will take all steps
necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of its Common Stock for issuance
upon exercise of the Warrant.
5. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a
warrant register containing the names and address of the Holder
or Holders. Any Holder of this Warrant or any portion thereof
may change its address as shown on the warrant register by
written notice to the Company requesting such change. Any notice
or written communication required or permitted to be given to the
Holder may be delivered or given by registered or certified mail
to such Holder as shown on the warrant register and at the
address shown on the warrant register. Until this Warrant is
transferred on the warrant register of the Company, the Company
may treat the Holder as shown on the warrant register as the
absolute owner of this Warrant for all purposes, notwithstanding
any notice to the contrary.
(b) Transferability. Subject to compliance with the
provisions of Section 4(a) hereof, this Warrant may be
transferred, in whole or in part, to any person, by presentation
of the Warrant to the Company together with the Notice of
Assignment in the form of Annex B hereto, duly endorsed for
transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the
form hereof in the name of the assignee(s) and in the
denominations specified in such instructions in the Assignment
Form. The Company shall pay all expenses incurred by it in
connection with the preparation, issuance and delivery of new
Warrants under this Section 5.
6. Warrant Holder Not Shareholder; Rights Offering.
Except as otherwise provided herein, this Warrant does not confer
upon the Holder, as such, any right whatsoever as a shareholder
of the Company. Notwithstanding the foregoing, if the Company
should offer to all of the Company's shareholders the right to
purchase any securities of the Company, then all Shares of Common
Stock that are subject to this Warrant shall be deemed to be
outstanding and owned by the Holder and the Holder shall be
entitled to participate in such rights offering.
7. Adjustment of Exercise Price and Number of Shares
Issuable. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time
as follows:
(a) Stock Splits, Recapitalization, Etc. If all or
any portion of this Warrant shall be exercised subsequent to any
stock split, stock dividend, recapitalization, combination of
shares of the Company, or other similar event occurring after the
date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the
aggregate number and class of shares which such Holder would have
received if this Warrant had been exercised immediately prior to
the record date for such stock split, stock dividend,
recapitalization, combination of shares, or other similar event.
(b) Merger, Etc. If the Company at any time merges or
consolidates with or into any other corporation or enters into a
similar transaction (other than a merger in which the Company is
the surviving corporation and in connection with which there is
no reclassification or other change in the Common Stock or other
securities of the Company or any issuance of stock, securities or
property to the holders of its outstanding shares of Common
Stock), then the Company shall notify the Holder of any such
event and, effective upon the record or other date of
determination of persons affected by such merger, consolidation
or similar transaction, the securities which the Holder would be
entitled to receive on the exercise hereof shall include the kind
and amount of securities, cash and property that would have been
held by the Holder if on such determination date the Holder had
been the holder of record of the securities, cash and properties
issuable upon exercise of the Warrant on such determination date
(or the right thereto prior to the effective date thereof). In
the event of any merger, consolidation or similar transaction
referred to above in this Section 7(b), the Company shall, and
shall cause any successor corporation as a condition precedent to
such transaction to, execute and deliver to each Holder a new
Warrant (i) providing that the owner of such Warrant, upon
exercise thereof, shall have the right to purchase the securities
as adjusted as described above, and (ii) containing provisions
for subsequent adjustments in a manner and on terms as nearly
equivalent as may be practicable to the adjustments provided for
in this Section 7(b).
(c) Adjustment on Certain Dilutive Issues.
(i) Definitions. For purposes of this Section
7(c), the following definitions apply:
(1) "Options" shall mean rights,
options, or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible
Securities (as defined below), except for (A) currently
exercisable options to purchase an aggregate of 4,000
shares of Common Stock outstanding on the Original
Warrant Issue Date (the "Outstanding Options"); (B)
rights or options to acquire up to an aggregate of
1,250,000 shares of Common Stock which may be granted
to employees, directors or consultants to the Company
pursuant to the Company's 1995 Incentive Stock Option
Plan, provided that the exercise price for all options
granted after the Warrant Issue Date shall be no less
than the Fair Market Value (as defined in Section 7(e)
below) on the date of grant (the "Plan Options"); and
(C) warrants to purchase an aggregate of 890,000 shares
of Common Stock granted and reserved for issuance on
the Original Issue Date (the "Current Warrants").
(2) "Convertible Securities" shall mean
any evidences of indebtedness, shares of stock (other
than Common Stock and the Company's Series B
Convertible Preferred Stock (the "Series B Preferred"))
or other securities convertible into or exchangeable
for Common Stock.
(3) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or deemed
to be issued pursuant to Section 7(c)(iii)) by the
Corporation after Warrant Issue Date, other than shares
of Common Stock issued or issuable upon (i) conversion
of shares of Series B Preferred Stock or as a dividend
or distribution on Series B Preferred Stock; (ii) the
exercise of the Outstanding Options; (iii) the exercise
of any Plan Options; (iv) the conversion of any of the
1,000,000 shares of Non-Voting Common Stock into no
more than 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; or (v) the exercise of the Current
Warrants.
(ii) Adjustment of Exercise Price. In the
event that the consideration per share (determined pursuant to
Section 7(c)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the Company is less than the
Fair Market Value (as defined in Section 7(e) hereof) on the date
of the issue of such Additional Share of Common Stock, then the
Exercise Price and the number of shares shall be adjusted as
provided herein.
(iii) Issue of Options and Convertible
Securities. In the event the Company at any time or from time
to time after the Warrant Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 7(c)(v)
hereof) of such Additional Shares of Common Stock would be less
than the Fair Market Value (as defined in Section 7(e) hereof) on
the date of such issue, or such record date, as the case may be,
and provided that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(1) no further adjustments in the
Exercise Price shall be made upon the subsequent issue
of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(2) if such Options or Convertible
Securities by their terms provide, with the passage of
time or otherwise, for any increase or decrease in the
consideration payable to the Company, or decrease or
increase in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange
thereof, the Exercise Price computed upon the original
issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under
such Convertible Securities, provided, however, that no
such adjustment of the Exercise Price shall affect
Common Stock previously issued upon exercise or
conversion of this Warrant;
(3) upon the expiration of any such
Options or any rights of conversion or exchange under
such Convertible Securities that shall not have been
exercised, the Exercise Price computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration,
be recomputed as if:
(a) in the case of Convertible
Securities or Options for Common Stock, the only
Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Company for the issue of all
such Options, whether or not exercised, plus the
consideration actually received by the Company upon
such exercise, or for the issue of all such Convertible
Securities that were actually converted or exchanged,
plus the additional consideration, if any, actually
received by the Company upon such conversion or
exchange, and
(b) in the case of Options for
Convertible Securities, only the Convertible
Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such
Options, and the consideration received by the Company
for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually
received by the Company for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Company (determined pursuant to Section 7(c)(v)) upon
the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(4) no readjustment pursuant to Section
7(c)(iii)(2) or (3) above shall have the effect of
increasing the Exercise Price to an amount which
exceeds the lower of (a) the Exercise Price prior to
the initial adjustment to which the readjustment
applies, or (b) the Exercise Price that would have
resulted from any issuance of Additional Shares of
Common Stock between the date of the initial adjustment
date and such readjustment date; and
(5) in the event of any change in the
number of shares of Common Stock issuable upon the
exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a
change resulting from the antidilution provisions
thereof, the Exercise Price then in effect shall
forthwith be readjusted to such Exercise Price as would
have been obtained had the adjustment which was
initially made upon the issuance of such unexercised
Option or unconverted Convertible Security, been made
upon the basis of such subsequent change, but no
further adjustment shall be made for the actual
issuance of Common Stock upon the exercise or
conversion of any such Option or Convertible Security.
(iv) Adjustment of Exercise Price Upon Issuance of
Additional Shares of Common Stock. In the event the Company at
any time after the Warrant Issue Date shall issue Additional
Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 7(c)(iii)), without
consideration or for a consideration per share less than the Fair
Market Value (as defined in Section 7(e) below) on the date of
such issue, then and in such event, the Conversion Price shall be
reduced to a price (calculated to the nearest cent) equal to
either (A) the per share consideration for such Additional Shares
of Common Stock (or deemed Additional Shares of Common Stock)
pursuant to Section 5(e)(iii), or (B) in the case of Additional
Shares of Common Stock issued (or deemed to have been issued)
without consideration, the par value of the Common Stock.
The provisions of this Section 7(c)(iv) do not apply if the
provisions of any of Section 7(a) or (b) apply.
(v) Determination of Consideration. The
consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash, Property, and Other
Consideration. Such consideration shall:
(a) insofar as it consists of
cash, be computed as the aggregate amount of cash
received by the Company excluding amounts paid or
payable for accrued interest or accrued dividends;
(b) insofar as it consists of
property, services, or other consideration other than
cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board
of Directors; and
(c) in the event Additional Shares
of Common Stock are issued together with other shares
or securities or other assets of the Company for
consideration which covers both, be the proportion of
the consideration so received, computed as provided in
clauses (a) and (b) above, as is determined in good
faith by the Board of Directors.
(2) Options and Convertible Securities.
The consideration per share received by the Company for
Additional Shares of Common Stock deemed to have been
issued pursuant to Options and Convertible Securities,
shall be deemed to be the sum of the consideration paid
for such Option or Convertible Security, if any, plus
the lowest consideration per share then payable upon
the exercise of Options, as set forth in the
instruments relating to such Options or Convertible
Securities, without regard to any provision contained
therein designed to protect against dilution. If
Options or Convertible Securities are issued together
with other securities or instruments of the Company,
the Board of Directors shall determine in good faith
the amount of consideration paid for such Option or
Convertible Securities.
(d) Certificate as to Adjustments. In each case of
any adjustment or readjustment pursuant to Section 7(a)-(c) of
the Exercise Price or the number of shares issuable pursuant to
this Warrant, the Company shall forthwith notify the Holder or
Holders of this Warrant of each such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated.
(e) No Fractional Shares; Fair Market Value. If any
adjustment pursuant to Section 7(a) - (c) would create a
fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares subject to this Warrant
shall be the next higher number of shares, rounding all fractions
upward. "Fair Market Value" per share of Common Stock shall mean
(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.
8. Certain Notices. In case at any time the Company shall
propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable
in stock or make any special dividend or other distribution to
the holders of its Common Stock;
(c) offer for subscription to the holders of any of
its Common Stock any additional shares of stock in any class or
series or other rights;
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell
of all or substantially all of its assets to, another
corporation;
(e) voluntarily dissolve, liquidate or wind up of the
affairs of the Company; or
(f) redeem or purchase any shares of its capital stock
or securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to
the Holder of the Warrant, by certified or registered mail, (i)
at least twenty (20) days' prior written notice of the date on
which the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, and (ii) in the case of
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least twenty
(20) days' prior written notice of the date when the same shall
take place. Any notice required by clause (i) shall also
specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
9. Registration Rights. The shares of Common Stock
issuable upon exercise of this Warrant shall be "Registrable
Securities" under that certain Registration Rights Agreement,
dated February 26, 1998, between the Company and Tandem, and the
Holder of this Warrant shall be entitled to the benefits, and
subject to the obligations, of the Registration Rights Agreement
in accordance with its terms.
10. Governing Law and Amendments. The corporate law of
Delaware shall govern all issues concerning the relative rights
of the Company and the holders of its Common Stock. In all other
matters, this Warrant shall be construed and enforced under the
laws of the State of Tennessee. No amendment or modification
hereof shall be effective except in a writing executed by each of
the Company and the Holder.
11. Equity Participation. This Warrant is issued in
connection with the Debenture Purchase Agreement. It is intended
that this Warrant constitute an equity participation under and
pursuant to T.C.A. Section 47-24-101, et seq. and that equity
participation be permitted under said statutes and not constitute
interest on the Debenture. If under any circumstances
whatsoever, fulfillment of any obligation of this Warrant, the
Debenture Purchase Agreement, or any other agreement or document
executed in connection with the Debenture Purchase Agreement,
shall violate the lawful limit of any applicable usury statute or
any other applicable law with regard to obligations of like
character and amount, then the obligation to be fulfilled shall
be reduced to such lawful limit, such that in no event shall
there occur, under this Warrant, the Debenture Purchase
Agreement, or any other document or instrument executed in
connection with the Debenture Purchase Agreement, any violation
of such lawful limit, but such obligation shall be fulfilled to
the lawful limit. If any sum is collected in excess of the
lawful limit, such excess shall be applied to reduce the
principal amount of the Debenture.
<PAGE>
[SIGNATURE PAGE TO STOCK PURCHASE WARRANT (DEBENTURE)]
IN WITNESS WHEREOF, Teltronics, Inc. has caused this Warrant
to be executed by its duly authorized officer as of the date
first above written.
TELTRONICS, INC.
By: Ewen Cameron, President
HOLDER:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: Craig Macnab
Its: Vice President
<PAGE>
ANNEX A
NOTICE OF EXERCISE
To: TELTRONICS, INC.
(1) The undersigned hereby:
[Initial and complete one]
(a) ___ elects to purchase __________ shares of Common
Stock of TELTRONICS, INC., pursuant to the provisions
of Section 3(a) of the attached Warrant, and tenders
herewith payment of the purchase price in full for
such shares in the amount of $____________; or
(b) ___ elects to exercise this Warrant for the purchase of
__________ shares of Common Stock, pursuant to the
conversion right set forth in Section 3(c) of the
attached Warrant.
(2) In exercising this Warrant, the undersigned hereby
confirms and acknowledges that the shares of Common Stock to
be issued upon conversion thereof are being acquired solely
for the account of the undersigned, and for investment, and
that the undersigned will not offer, sell or otherwise
dispose of any such shares of Common Stock except under
circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any applicable state
securities laws.
(3) Please issue a certificate(s) representing said shares
of Common Stock in the name of the undersigned or in such
other name as is specified below:
_______________________________________
(Name)
_______________________________________
(Name)
(4) Please issue a new Warrant for the unexercised portion
of the attached Warrant in the name of the undersigned or in
such other name as is specified below:
_______________________________________
(Name)
_____________________ _______________________________________
(Date) (Signature)
<PAGE>
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee
named below all of the rights of the undersigned under the within
Warrant, with respect to the number of shares of Common Stock set
forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint Attorney
__________________ to make such transfer on the books of
TELTRONICS, INC., maintained for the purpose, with full power of
substitution in the premises.
The undersigned also represents that, by assignment hereof,
the Assignee acknowledges that this Warrant and the shares of
stock to be issued upon exercise hereof or conversion thereof are
being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or any shares of
stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation
of the Securities Act of 1933, as amended (the "Securities Act"),
or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee
shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so
purchased are being acquired for investment and not with a view
toward distribution or resale in violation of the registration
provisions of the Securities Act or any state securities laws.
Dated: _______________________
____________________________________
Signature of Holder
<PAGE>
EXHIBIT 10.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE ACT
AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED
IN CONNECTION WITH SUCH PROPOSED TRANSFER.
Warrant No. S-2
STOCK PURCHASE WARRANT
This Warrant is issued this 26th day of February, 1998, by
TELTRONICS, INC., a Delaware corporation (the "Company"), to
SIRROM CAPITAL CORPORATION d/b/a TANDEM CAPITAL, a Tennessee
corporation ("Tandem" which, together with any subsequent
assignee or transferee hereof is hereinafter referred to
collectively as "Holder" or "Holders").
AGREEMENT:
1. Issuance of Warrant; Term. For and in consideration of
Tandem making loans to the Company and certain of its
subsidiaries in an aggregate principal amount of 1,280,000 and
No/100 Dollars ($1,280,000.00), pursuant to the terms of one or
more Secured Promissory Notes, of even date herewith (together
with any and all extensions, replacements and renewals thereof,
the "Notes") and a Loan and Security Agreement, of even date
herewith (as amended, supplemented or otherwise modified from
time to time, the "Loan Agreement"), and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to
purchase Three Hundred Sixty-Five Thousand (365,000) shares of
the Company's common stock, par value $.001 per share (the
"Common Stock"). The shares of Common Stock issuable upon
exercise of this Warrant are hereinafter referred to as the
"Shares." The number of such shares and the Exercise Price (as
defined below) are subject to adjustment as provided herein. As
used herein, the term "Warrant" includes this Warrant and any
warrants delivered in exchange therefor as provided herein, and
the term "Warrant Issue Date" shall mean February 26, 1998. This
Warrant shall be exercisable at any time and from time to time
during the term commencing on the date hereof and ending at 5:00
p.m. Eastern time on February 26, 2003.
2. Exercise Price. The exercise price (the "Exercise
Price") per share for which all or any of the Shares may be
purchased pursuant to the terms of this Warrant shall be Two
Dollars and Seventy-Five Cents ($2.75), as adjusted from time to
time pursuant to Section 7 hereof.
3. Exercise.
(a) Manner of Exercise. This Warrant may be exercised
by the Holder hereof (but only on the conditions hereinafter set
forth) as to all or any increment or increments of one thousand
(1,000) Shares (or the balance of the Shares if less than 1,000),
upon delivery to the Company at the following address: 2150
Whitfield Industrial Way, Sarasota, Florida 34243 or such other
address as the Company shall designate in a written notice to the
Holder hereof, of the Notice of Exercise in the form of Annex A
hereto, duly completed and executed on behalf of the Holder,
together with this Warrant and payment to the Company of the
aggregate Exercise Price of the Shares so purchased. The
Exercise Price shall be payable, at the option of the Holder, (i)
by certified or bank check, (ii) by the surrender by the Holder
for cancellation of Debentures or any portion thereof having an
outstanding principal balance at least equal to the aggregate
Exercise Price, or (iii) by a combination of (i) and (ii) above.
Upon exercise of this Warrant as aforesaid, the Company shall as
promptly as practicable, and in any event within ten (10) days
thereafter, execute and deliver to the Holder of this Warrant a
certificate or certificates for the total number of whole Shares
for which this Warrant is being exercised in such names and
denominations as are requested by such Holder. If this Warrant
shall be exercised with respect to less than all of the Shares,
the Holder shall be entitled to receive a new Warrant covering
the number of Shares in respect of which this Warrant shall not
have been exercised, which new Warrant shall in all other
respects be identical to this Warrant. The Company covenants and
agrees that it will pay when due any and all state and federal
issue taxes which may be payable in respect of the issuance of
this Warrant or the issuance of any Shares upon exercise of this Warrant.
(b) Conversion Rights. In lieu of exercising this
Warrant pursuant to Section 3(a) above, the Holder shall have the
right to require the Company to convert this Warrant, in whole or
in part and at any time or times into Shares (the "Conversion
Right"), upon delivery to the Company at its address in Section
3(a) or such other address as the Company shall designate in a
written notice to the Holder hereof, of the Notice of Exercise,
with the election to convert duly completed and executed on
behalf of the Holder, together with this Warrant. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number
of Shares which is equal to the quotient obtained by dividing (x)
the net value of the number of Shares into which this Warrant is
being converted at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for the
Shares into which this Warrant is being converted immediately
prior to the exercise of the Conversion Right from a number equal
to the product of (i) the Fair Market Value (as such term is
defined in Section 7(e)) per share as at such time, multiplied by
(ii) that number of Shares purchasable upon exercise of this
Warrant (or portion hereof that is being converted at the time
the Conversion Right is exercised) immediately prior to the
exercise of the Conversion Right (taking into account all
applicable adjustments pursuant to Section 7)), by (y) the Fair
Market Value per share. Any references in any Warrants to the
"exercise" of this Warrant, and the use of the term exercise
herein, shall be deemed to include (without limitation) any
exercise of the Conversion Right.
4. Covenants and Conditions. The above provisions are
subject to the following:
(a) Securities Laws Compliance. Neither this Warrant
nor the Shares have been registered under the Securities Act of
1933, as amended ("Securities Act") or any state securities laws
("Blue Sky Laws"). This Warrant has been acquired for investment
purposes and not with a view to distribution or resale in
violation of the registration provisions of the Securities Act;
except for the transfer of the Warrant to one or more wholly-
owned subsidiaries of Sirrom Capital Corporation, which
subsidiary(s) shall be an "accredited investor," as defined in
Rule 501(a) under the Securities Act, this Warrant may not be
sold or otherwise transferred without (i) an effective
registration statement for such Warrant under the Securities Act
and such applicable Blue Sky Laws, or (ii) an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to the
Company and its counsel, that registration is not required under
the Securities Act or under any applicable Blue Sky Laws (the
Company hereby acknowledges that Sherrard & Roe, PLC is
acceptable counsel). Transfer of the Shares issued upon the
exercise of this Warrant shall be restricted in the same manner
and to the same extent as the Warrant and the certificates
representing such Shares shall bear substantially the following
legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (II) IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH
ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
The Holder hereof and the Company agree to execute such other
documents and instruments as counsel for the Company reasonably
deems necessary to effect the compliance of the issuance of this
Warrant and any Shares of Common Stock issued upon exercise
hereof with applicable federal and state securities laws,
including, if requested, completing and executing a
representation letter in the form attached hereto as Annex C.
(b) Covenants of the Company. The Company covenants
and agrees that all shares of Common Stock which may be issued
upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully
paid and nonassessable, free from all taxes, liens, charges with
respect to the issuance thereof. The Company further covenants
that it shall at all times during the term of this Warrant
reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of
this Warrant and, from time to time, will take all steps
necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of its Common Stock for issuance
upon exercise of the Warrant.
5. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a
warrant register containing the names and address of the Holder
or Holders. Any Holder of this Warrant or any portion thereof
may change its address as shown on the warrant register by
written notice to the Company requesting such change. Any notice
or written communication required or permitted to be given to the
Holder may be delivered or given by registered or certified mail
to such Holder as shown on the warrant register and at the
address shown on the warrant register. Until this Warrant is
transferred on the warrant register of the Company, the Company
may treat the Holder as shown on the warrant register as the
absolute owner of this Warrant for all purposes, notwithstanding
any notice to the contrary.
(b) Transferability. Subject to compliance with the
provisions of Section 4(a) hereof, this Warrant may be
transferred, in whole or in part, to any person, by presentation
of the Warrant to the Company together with the Notice of
Assignment in the form of Annex B hereto, duly endorsed for
transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the
form hereof in the name of the assignee(s) and in the
denominations specified in such instructions in the Assignment
Form. The Company shall pay all expenses incurred by it in
connection with the preparation, issuance and delivery of new
Warrants under this Section 5.
6. Warrant Holder Not Shareholder; Rights Offering.
Except as otherwise provided herein, this Warrant does not confer
upon the Holder, as such, any right whatsoever as a shareholder
of the Company. Notwithstanding the foregoing, if the Company
should offer to all of the Company's shareholders the right to
purchase any securities of the Company, then all Shares of Common
Stock that are subject to this Warrant shall be deemed to be
outstanding and owned by the Holder and the Holder shall be
entitled to participate in such rights offering.
7. Adjustment of Exercise Price and Number of Shares
Issuable. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time
as follows:
(a) Stock Splits, Recapitalization, Etc. If all or
any portion of this Warrant shall be exercised subsequent to any
stock split, stock dividend, recapitalization, combination of
shares of the Company, or other similar event occurring after the
date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the
aggregate number and class of shares which such Holder would have
received if this Warrant had been exercised immediately prior to
the record date for such stock split, stock dividend,
recapitalization, combination of shares, or other similar event.
(b) Merger, Etc. If the Company at any time merges or
consolidates with or into any other corporation or enters into a
similar transaction (other than a merger in which the Company is
the surviving corporation and in connection with which there is
no reclassification or other change in the Common Stock or other
securities of the Company or any issuance of stock, securities or
property to the holders of its outstanding shares of Common
Stock), then the Company shall notify the Holder of any such
event and, effective upon the record or other date of
determination of persons affected by such merger, consolidation
or similar transaction, the securities which the Holder would be
entitled to receive on the exercise hereof shall include the kind
and amount of securities, cash and property that would have been
held by the Holder if on such determination date the Holder had
been the holder of record of the securities, cash and properties
issuable upon exercise of the Warrant on such determination date
(or the right thereto prior to the effective date thereof). In
the event of any merger, consolidation or similar transaction
referred to above in this Section 7(b), the Company shall, and
shall cause any successor corporation as a condition precedent to
such transaction to, execute and deliver to each Holder a new
Warrant (i) providing that the owner of such Warrant, upon
exercise thereof, shall have the right to purchase the securities
as adjusted as described above, and (ii) containing provisions
for subsequent adjustments in a manner and on terms as nearly
equivalent as may be practicable to the adjustments provided for
in this Section 7(b).
(c) Adjustment on Certain Dilutive Issues.
(i) Definitions. For purposes of this Section
7(c), the following definitions apply:
(1) "Options" shall mean rights,
options, or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible
Securities (as defined below), except for (A) currently
exercisable options to purchase an aggregate of 4,000
shares of Common Stock outstanding on the Original
Warrant Issue Date (the "Outstanding Options"); (B)
rights or options to acquire up to an aggregate of
1,250,000 shares of Common Stock which may be granted
to employees, directors or consultants to the Company
pursuant to the Company's 1995 Incentive Stock Option
Plan, provided that the exercise price for all options
granted after the Warrant Issue Date shall be no less
than the Fair Market Value (as defined in Section 7(e)
below) on the date of grant (the "Plan Options"); and
(C) warrants to purchase an aggregate of 890,000 shares
of Common Stock granted and reserved for issuance on
the Original Issue Date (the "Current Warrants").
(2) "Convertible Securities" shall mean
any evidences of indebtedness, shares of stock (other
than Common Stock and the Company's Series B
Convertible Preferred Stock (the "Series B Preferred"))
or other securities convertible into or exchangeable
for Common Stock.
(3) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or deemed
to be issued pursuant to Section 7(c)(iii)) by the
Corporation after Warrant Issue Date, other than shares
of Common Stock issued or issuable upon (i) conversion
of shares of Series B Preferred Stock or as a dividend
or distribution on Series B Preferred Stock; (ii) the
exercise of the Outstanding Options; (iii) the exercise
of any Plan Options; (iv) the conversion of any of the
1,000,000 shares of Non-Voting Common Stock into no
more than 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; or (v) the exercise of the Current
Warrants.
(ii) Adjustment of Exercise Price. In the
event that the consideration per share (determined pursuant to
Section 7(c)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the Company is less than the
Fair Market Value (as defined in Section 7(e) hereof) on the date
of the issue of such Additional Share of Common Stock, then the
Exercise Price and the number of shares shall be adjusted as
provided herein.
(iii) Issue of Options and Convertible
Securities. In the event the Company at any time or from time
to time after the Warrant Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 7(c)(v)
hereof) of such Additional Shares of Common Stock would be less
than the Fair Market Value (as defined in Section 7(e) hereof) on
the date of such issue, or such record date, as the case may be,
and provided that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(1) no further adjustments in the
Exercise Price shall be made upon the subsequent issue
of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(2) if such Options or Convertible
Securities by their terms provide, with the passage of
time or otherwise, for any increase or decrease in the
consideration payable to the Company, or decrease or
increase in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange
thereof, the Exercise Price computed upon the original
issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under
such Convertible Securities, provided, however, that no
such adjustment of the Exercise Price shall affect
Common Stock previously issued upon exercise or
conversion of this Warrant;
(3) upon the expiration of any such
Options or any rights of conversion or exchange under
such Convertible Securities that shall not have been
exercised, the Exercise Price computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration,
be recomputed as if:
(a) in the case of Convertible
Securities or Options for Common Stock, the only
Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Company for the issue of all
such Options, whether or not exercised, plus the
consideration actually received by the Company upon
such exercise, or for the issue of all such Convertible
Securities that were actually converted or exchanged,
plus the additional consideration, if any, actually
received by the Company upon such conversion or
exchange, and
(b) in the case of Options for
Convertible Securities, only the Convertible
Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such
Options, and the consideration received by the Company
for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually
received by the Company for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Company (determined pursuant to Section 7(c)(v)) upon
the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(4) no readjustment pursuant to Section
7(c)(iii)(2) or (3) above shall have the effect of
increasing the Exercise Price to an amount which
exceeds the lower of (a) the Exercise Price prior to
the initial adjustment to which the readjustment
applies, or (b) the Exercise Price that would have
resulted from any issuance of Additional Shares of
Common Stock between the date of the initial adjustment
date and such readjustment date; and
(5) in the event of any change in the
number of shares of Common Stock issuable upon the
exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a
change resulting from the antidilution provisions
thereof, the Exercise Price then in effect shall
forthwith be readjusted to such Exercise Price as would
have been obtained had the adjustment which was
initially made upon the issuance of such unexercised
Option or unconverted Convertible Security, been made
upon the basis of such subsequent change, but no
further adjustment shall be made for the actual
issuance of Common Stock upon the exercise or
conversion of any such Option or Convertible Security.
(iv) Adjustment of Exercise Price Upon Issuance of
Additional Shares of Common Stock. In the event the Company at
any time after the Warrant Issue Date shall issue Additional
Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 7(c)(iii)), without
consideration or for a consideration per share less than the Fair
Market Value (as defined in Section 7(e) below) on the date of
such issue, then and in such event, the Conversion Price shall be
reduced to a price (calculated to the nearest cent) equal to
either (A) the per share consideration for such Additional Shares
of Common Stock (or deemed Additional Shares of Common Stock)
pursuant to Section 5(e)(iii), or (B) in the case of Additional
Shares of Common Stock issued (or deemed to have been issued)
without consideration, the par value of the Common Stock.
The provisions of this Section 7(c)(iv) do not apply if the
provisions of any of Section 7(a) or (b) apply.
(v) Determination of Consideration. The
consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash, Property, and Other
Consideration. Such consideration shall:
(a) insofar as it consists of
cash, be computed as the aggregate amount of cash
received by the Company excluding amounts paid or
payable for accrued interest or accrued dividends;
(b) insofar as it consists of
property, services, or other consideration other than
cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board
of Directors; and
(c) in the event Additional Shares
of Common Stock are issued together with other shares
or securities or other assets of the Company for
consideration which covers both, be the proportion of
the consideration so received, computed as provided in
clauses (a) and (b) above, as is determined in good
faith by the Board of Directors.
(2) Options and Convertible Securities.
The consideration per share received by the Company for
Additional Shares of Common Stock deemed to have been
issued pursuant to Options and Convertible Securities,
shall be deemed to be the sum of the consideration paid
for such Option or Convertible Security, if any, plus
the lowest consideration per share then payable upon
the exercise of Options, as set forth in the
instruments relating to such Options or Convertible
Securities, without regard to any provision contained
therein designed to protect against dilution. If
Options or Convertible Securities are issued together
with other securities or instruments of the Company,
the Board of Directors shall determine in good faith
the amount of consideration paid for such Option or
Convertible Securities.
(d) Certificate as to Adjustments. In each case of
any adjustment or readjustment pursuant to Section 7(a)-(c) of
the Exercise Price or the number of shares issuable pursuant to
this Warrant, the Company shall forthwith notify the Holder or
Holders of this Warrant of each such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated.
(e) No Fractional Shares; Fair Market Value. If any
adjustment pursuant to Section 7(a) - (c) would create a
fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares subject to this Warrant
shall be the next higher number of shares, rounding all fractions
upward. "Fair Market Value" per share of Common Stock shall mean
(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.
8. Certain Notices. In case at any time the Company shall
propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable
in stock or make any special dividend or other distribution to
the holders of its Common Stock;
(c) offer for subscription to the holders of any of
its Common Stock any additional shares of stock in any class or
series or other rights;
(d) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell
of all or substantially all of its assets to, another
corporation;
(e) voluntarily dissolve, liquidate or wind up of the
affairs of the Company; or
(f) redeem or purchase any shares of its capital stock
or securities convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to
the Holder of the Warrant, by certified or registered mail, (i)
at least twenty (20) days' prior written notice of the date on
which the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, and (ii) in the case of
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least twenty
(20) days' prior written notice of the date when the same shall
take place. Any notice required by clause (i) shall also
specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
9. Registration Rights. The shares of Common Stock
issuable upon exercise of this Warrant shall be "Registrable
Securities" under that certain Registration Rights Agreement,
dated February 26, 1998, between the Company and Tandem, and the
Holder of this Warrant shall be entitled to the benefits, and
subject to the obligations, of the Registration Rights Agreement
in accordance with its terms.
10. Governing Law and Amendments. The corporate law of
Delaware shall govern all issues concerning the relative rights
of the Company and the holders of its Common Stock. In all other
matters, this Warrant shall be construed and enforced under the
laws of the State of Tennessee. No amendment or modification
hereof shall be effective except in a writing executed by each of
the Company and the Holder.
11. Equity Participation. This Warrant is issued in
connection with the Debenture Purchase Agreement. It is intended
that this Warrant constitute an equity participation under and
pursuant to T.C.A. Section 47-24-101, et seq. and that equity
participation be permitted under said statutes and not constitute
interest on the Debenture. If under any circumstances
whatsoever, fulfillment of any obligation of this Warrant, the
Debenture Purchase Agreement, or any other agreement or document
executed in connection with the Debenture Purchase Agreement,
shall violate the lawful limit of any applicable usury statute or
any other applicable law with regard to obligations of like
character and amount, then the obligation to be fulfilled shall
be reduced to such lawful limit, such that in no event shall
there occur, under this Warrant, the Debenture Purchase
Agreement, or any other document or instrument executed in
connection with the Debenture Purchase Agreement, any violation
of such lawful limit, but such obligation shall be fulfilled to
the lawful limit. If any sum is collected in excess of the
lawful limit, such excess shall be applied to reduce the
principal amount of the Debenture.
<PAGE>
[SIGNATURE PAGE TO STOCK PURCHASE WARRANT (LOAN)]
IN WITNESS WHEREOF, Teltronics, Inc. has caused this Warrant
to be executed by its duly authorized officer as of the date
first above written.
TELTRONICS, INC.
By: Ewen Cameron, President
HOLDER:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: Craig Macnab
Its: Vice President
<PAGE>
ANNEX A
NOTICE OF EXERCISE
To: TELTRONICS, INC.
(1) The undersigned hereby:
[Initial and complete one]
(a) ___ elects to purchase ___________ shares of Common
Stock of TELTRONICS, INC., pursuant to the provisions
of Section 3(a) of the attached Warrant, and tenders
herewith payment of the purchase price in full for
such shares in the amount of $____________; or
(b) ___ elects to exercise this Warrant for the purchase of
__________ shares of Common Stock, pursuant to the
conversion right set forth in Section 3(c) of the
attached Warrant.
(2) In exercising this Warrant, the undersigned hereby
confirms and acknowledges that the shares of Common Stock to
be issued upon conversion thereof are being acquired solely
for the account of the undersigned, and for investment, and
that the undersigned will not offer, sell or otherwise
dispose of any such shares of Common Stock except under
circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any applicable state
securities laws.
(3) Please issue a certificate(s) representing said shares
of Common Stock in the name of the undersigned or in such
other name as is specified below:
_______________________________________
(Name)
_______________________________________
(Name)
(4) Please issue a new Warrant for the unexercised portion
of the attached Warrant in the name of the undersigned or in
such other name as is specified below:
_______________________________________
(Name)
_________________________ _______________________________________
(Date) (Signature)
<PAGE>
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee
named below all of the rights of the undersigned under the within
Warrant, with respect to the number of shares of Common Stock set
forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint Attorney
__________________ to make such transfer on the books of
TELTRONICS, INC., maintained for the purpose, with full power of
substitution in the premises.
The undersigned also represents that, by assignment hereof,
the Assignee acknowledges that this Warrant and the shares of
stock to be issued upon exercise hereof or conversion thereof are
being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or any shares of
stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation
of the Securities Act of 1933, as amended (the "Securities Act"),
or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee
shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so
purchased are being acquired for investment and not with a view
toward distribution or resale in violation of the registration
provisions of the Securities Act or any state securities laws.
Dated: _______________________
____________________________________
Signature of Holder
<PAGE>
EXHIBIT 10.9
EXHIBIT A-3 (Debenture Purchase Agreement)
EXHIBIT C (Loan Agreement)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated
this 25th day of February, 1998, is by and between TELTRONICS,
INC., a Delaware corporation (the "Company") and SIRROM CAPITAL
CORPORATION d/b/a TANDEM CAPITAL, a Tennessee corporation
("Tandem", which, together with any subsequent assignees subject
to the provisions hereof, the "Holder").
WITNESSETH:
WHEREAS, on the date hereof the Company has granted the
Holder warrants (the "Warrants") and anything which is defined,
dated the date hereof, to purchase an aggregate of 890,000 shares
of the Company's common stock, par value $.001 per share (the
"Common Stock"), subject to the terms and conditions set forth in
the Warrants (such shares of Common Stock being the "Warrant
Shares");
WHEREAS, on the date hereof, the Company has sold to the
Holder, and the Holder has purchased from, the Company, an
aggregate of 25,000 shares of the Company's Series B Convertible
Preferred Stock (the "Series B Preferred Stock") of the Company,
which Series B Preferred Stock is convertible into shares of
Common Stock pursuant to the rights, preferences and limitations
of the Series B Preferred Stock (such shares of Common Stock
being the "Conversion Shares"); and
WHEREAS, none of the Warrant Shares or the Conversion Shares
have been registered under the Securities Act (as defined below)
and, as a inducement to Holder, the Company has agreed to grant
to Holder certain registration rights with respect to the Warrant
Shares and the Conversion Shares as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Demand Registration.
(a) Demand Right. If the Company shall receive from
Initiating Holders (as defined in Section 10) at any time or
times a written request that the Company effect any registration
with respect to Registrable Securities (the "Demand Request"), in
an offering to be firmly underwritten by underwriter(s) selected
by the Initiating Holders (which underwriter(s) shall be
reasonably acceptable to the Company).
(i) promptly give written notice of the proposed
registration to all other holders of Registrable
Securities ("Notice of Demand Request"); and
(ii) as soon as practicable, use its best efforts to
file a registration statement covering the Registrable
Securities so requested to be registered and 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 of 1933 (the "Securities Act") and as
would permit or facilitate the sale and distribution of
all of such Registrable Securities as are specified in
such request, together with all or such portion of the
Registrable Securities of any other holders of
Registrable Securities joining in such request as are
specified in a written request received by the Company
within twenty (20) days after the date of the Notice of
Demand Request.
The Company shall only be required to effect, pursuant to
this Section 1, four (4) registrations of Registrable Securities.
A requested registration shall not count for these purposes
unless (A) such registration statement has been declared
effective and an offering closed in which at least 90% of the
Registrable Securities requested to be included in such
registration by the Initiating Holders shall have been sold or
(B) the registration has been withdrawn by the Initiating Holders
and the Initiating Holders have not paid the Registration
Expenses pursuant to Section 4 hereof in circumstances in which
they were required to bear such expenses.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Sections
1(b) and (7) hereof and the prior written consent of the
Initiating Holders, 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 Securities for
which the Initiating Holders have requested registration shall be
covered by such registration statement before any such other
securities are included.
(b) Proviso. The Company shall not be obligated to effect,
or to take any action to effect, any such registration pursuant
to this Section 1:
(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 thirty
(30) days prior to the Company's good faith estimate of
the date of filing of, and ending on a date seventy-
five (75) 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 3 hereof.
(c) Deferral of Registration. If (i) in the good faith
judgment of the Board of Directors of the Company, the filing of
a registration statement as soon as practicable after receipt of
the request of the Initiating Holders would be materially
detrimental to the Company because there exist bona fidefinancing,
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 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, provided that
the Company shall not defer its obligation in this manner more
than once in any twelve-month period, and provided further that
the Initiating Holders shall be entitled to withdraw the request
for registration and, if such request is withdrawn, such
registration shall not count as a permitted requested
registration hereunder and the Company shall pay all Registration
Expenses incurred in connection with such withdrawn registration
request.
(d) Underwriting. The right of any other holders of
Registrable Securities joining in a request for registration as
provided in Section 1(a)(ii) above to registration pursuant to
this Section 1 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 1,
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 Subsection (c) 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 Section 1. The
Company shall (together with all Holders and such other persons
proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary
form with the representative(s) of the underwriter(s) selected
for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section, if
the representative of the underwriter(s) advises the Initiating
Holders of the need for an Underwriter's Cutback (as defined in
Section 10), the number of shares to be included in the
underwriting or registration shall be allocated as set forth in
Section 8 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.
2. Piggyback Registration.
(a) Notice and Procedures. If the Company proposes 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 1 or 3 hereof), the Company will:
(i) promptly give written notice thereof to the Holder
or, if different, to each holder of 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 2(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 fifteen (15) days after the written notice from
the Company described in clause (i) above, which
written request may specify the inclusion of all or a
part of such holder's Registrable Securities.
The provisions of this Section 2 shall not apply to any
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.
(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 2(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 Securities 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(s)
selected by the Company.
Notwithstanding any other provision of this Section 2, 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 9. 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 such holders requesting additional inclusion in
accordance with Section 9.
(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.
3. Registration on Form S-3.
(a) After the Company has qualified for the use of Form S-3,
in addition to the rights contained in the foregoing provisions of
this Agreement, the holders of Registrable Securities shall have the
right to request registrations on Form S-3 or any comparable or successor
form. Each such request shall be in writing and shall state the
anticipated number of shares of Registrable Securities to be disposed
of and the anticipated gross proceeds of such shares, and the intended
methods of disposition of such shares by such holder or holders, including
whether such resales are to be made on a delayed or continuous
basis pursuant to Rule 415. The Company shall not be obligated
to effect any registration pursuant to this Section 3 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
Subsection 1(b)(ii) or Subsection 1(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 3 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.
(b) If a request complying with the requirements of Section
3(a) hereof is delivered to the Company, the provisions of
Sections 1(a)(i) and (ii) and Section 1(b) hereof shall apply to
such registration. If the registration is for an underwritten
offering, the provisions of Sections 1(d) and 1(e) hereof shall
also apply to such registration.
4. Expenses of Registration.
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Sections 1,
2, and 3 hereof, shall be borne by the Company; provided,
however, that a holder of Registrable Securities shall bear the
Registration Expenses for any registration proceeding begun
pursuant to Section 1 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 1, 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
registered pursuant to Sections 1, 2, and 3 hereof, 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.
5. Registration Procedures.
In the case of each registration effected by the Company
pursuant to this Agreement, the Company will use its best efforts
to effect the registration and sale of Registrable Securities in
accordance with the intended method of disposition thereof, and
pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to the securities to be registered on such form as
the Company deems appropriate and is permitted 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 or supplement thereto) in the form
the Company proposes to file the 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
in order to facilitate the disposition of such Registrable
Securities owned by such Seller;
(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 in the
light of the circumstances, 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 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 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
day of the Company's first full fiscal quarter 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 1 or 3
hereof, enter into an underwriting agreement containing customary
underwriting provisions so as to effect the offer and sale of the
Registrable Securities.
6. 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 Agreement, and each underwriter,
if any, and each person who controls within the meaning of
Section 15 of the Securities Act any such 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 Agreement, 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 Agreement, each holder
whose Registrable Securities are included in such registration
being effected under this Agreement, 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 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 net amount of 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.
7. 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 Agreement.
8. 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.
9. Survival of Rights; Termination of Registration Rights.
The provisions of this Agreement shall survive the
conversion of the Series B Preferred Stock and/or the exercise of
the Warrants. The right of any holder of Registrable Securities
to request registration or inclusion in any registration pursuant
to this Agreement shall terminate on such date as all shares of
Registrable Securities held or entitled to be held upon
conversion by such holder shall equal less than one percent
(1.00%) of the Company's outstanding Common Stock.
10. Definitions.
Unless the context otherwise requires, the terms hereinafter
set forth when used herein shall have the following meanings:
"Holder" shall mean any Person who holds Registrable
Securities and any holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been
transferred in compliance herewith.
"Initiating Holders" shall mean holders of the Registrable
Securities who in the aggregate hold not less than twenty five
percent (25%) of the aggregate of the original Registrable
Securities, and who exercise rights to request registration under
Section 1.
"Person" shall mean an individual, corporation, partnership,
limited liability company, joint venture, sole proprietorship,
trust or other entity, business association or organization.
"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
custodians, fees and disbursements of counsel for the Company and
its independent certified public accountants, blue sky fees and
expenses, and reasonable fees and disbursements of one counsel
for the holders or selling stockholders, which counsel shall be
chosen by the holders of a majority of the Registrable Securities
included in such registration, but shall not include Selling
Expenses.
"Registrable Securities" shall mean (i) shares of Common
Stock issued or issuable upon conversion of the Series B
Preferred Stock or upon exercise of the Warrants, and (ii) any
Common Stock issued as a dividend or other distribution with
respect to, or in exchange for, or in replacement of, the shares
referred to in clause (i); provided, however, that Registrable
Securities shall not include any securities which have been
distributed to the public pursuant to an offering registered
under the Securities Act, or sold to the public through a broker,
dealer or market maker in compliance with Rule 144.
"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 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.
"SEC" shall mean the Securities and Exchange Commission.
"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 one counsel for the holders of Registrable
Securities, as selling stockholders, included in Registration
Expenses).
"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(s) of
the underwriters to the effect that the number of shares
requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a
price range acceptable to either the Company (in a primary
registration) or the majority of the holders initially requesting
such registration (in a secondary registration).
11. Other Registration Rights.
Except as provided in this Agreement, the Company shall not
hereafter grant to any person the right to request the Company to
register any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such
securities, without the prior written consent of the holders of a
majority of the Registrable Securities, provided that the Company
may grant rights to other persons to participate in piggyback
registrations as provided in Section 2 hereof so long as such
rights are subordinate to the rights of the holders of
Registrable Securities with respect to such piggyback
registrations.
12. Notice.
All notices, demands or other communications to be given or
delivered under this Agreement shall be in writing, signed by the
party giving such notice, demand or communication and shall be
deemed to have been given (i) when delivered personally to the
recipient, (ii) one (1) day after being sent to the recipient by
a nationally recognized overnight courier service (charges
prepaid) or sent by facsimile transmission, or (iii) three (3)
business days after being mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid.
Such notices, demands and other communications shall be sent to
each party at the address set forth below, or at such other
address as may have been previously supplied by written notice to
the sending party:
Holder: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Attention: Craig Macnab
Fax: (615) 726-1208
with a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219
Attention: Donald I. N. McKenzie, Esq.
Fax: (615) 742-4539
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.
13. Miscellaneous.
(a) Remedies. Any person having rights under any provision
of this Agreement will be entitled to enforce such rights
specifically to recover damages caused by reason of any breach of
any provision of this Agreement and to exercise all other rights
granted by law. The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may at its sole
discretion apply to any court of law or equity of competent
jurisdiction (without posting any bond or other security) for
specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
(b) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived
only upon the prior written consent of the Company, the Holder
(as long as the Holder holds any Registrable Securities) and
holders of at least a majority of any other outstanding
Registrable Securities and any such amendment or waiver shall be
binding on all Holders, provided that in no event shall the
obligation of any Holder hereunder be materially increased except
with the written consent of such Holder.
(c) Successors and Assigns. All covenants and agreements
in this Agreement by or on behalf of any of the parties hereto
shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not.
In addition, whether or not any express assignment has been made,
provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the
benefit of, and enforceable by, any subsequent holder of
Registrable Securities.
(d) Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be in effect only to the
extent that such prohibition or invalidity, without invalidating
the remainder of this Agreement.
(e) Counterparts. This Agreement may be executed
simultaneously in counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts
taken together will constitute one and the same Agreement.
(f) Descriptive Headings. The section numbers and
descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
(g) Governing Law. The Delaware General Corporation Law
shall govern all issues and questions concerning the relative
rights of the Company and its stockholders. All other issues and
questions concerning the construction, validity, interpretation
and enforcement of this Agreement shall be governed by and
construed in accordance with the laws of the state of Tennessee,
without giving effect to any choice of law or conflict of law
rules or provisions that would cause the application of the laws
of any jurisdiction other than the state of Tennessee.
(h) Jurisdiction and Venue. The Company and Holder hereby
consent to the jurisdiction of the courts of Davidson County in
the State of Tennessee and the United States District Court for
the Middle District of Tennessee, as well as to the jurisdiction
of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising
out of any of its obligations arising under this Agreement or
with respect to the transactions contemplated hereby, and
expressly waives any and all objections it may have as to venue
in any of such courts.
(i) Notice of Transfer. The Holder and any other
holder of Registrable Securities agrees to notify the Company of
any transfers of Registrable Securities; provided, however, that
any failure to give such notice shall not adversely effect the
rights to which any holder or transferee of Registrable
Securities would otherwise be entitled hereunder.
[Remainder of page left intentionally blank.]
<PAGE>
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be executed by their duly
authorized officers as of the date first above written.
COMPANY:
TELTRONICS, INC.
By: Ewen R. Cameron
President
HOLDER:
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: Craig Macnab
Its: Vice President
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS ESTABLISHING SERIES OF SHARES
AND ARTICLES OF AMENDMENT
OF
TELTRONICS, INC.
To the Secretary of State of the State of Delaware:
Pursuant to the provisions of Section 151 of the Delaware
General Corporation Law (the "DGCL"), the undersigned corporation
submits this certificate for the purposes of (i) decreasing the
authorized number of shares of a series of preferred stock and
(ii) establishing and designating a series of shares and fixing
and determining the relative rights and preferences thereof:
1. The name of the corporation is Teltronics, Inc.
2. The following resolutions, (i) decreasing the
authorized number of shares of a series of preferred stock and
(ii) establishing and designating a series of shares and fixing
and determining the relative rights and preferences thereof, were
duly adopted by the Board of Directors of Teltronics, Inc. (the
"Corporation") at a meeting of the directors held on February 16, 1998.
RESOLVED, that pursuant to Section 151(g) of the DGCL and
pursuant to the powers set forth in Section 1 of the Certificate
of Designation of Preferences of Series A Preferred Stock
Pursuant to Section 151(g) of the General Corporation Law of
Delaware, filed with the Secretary of State of the State of
Delaware on August 19, 1996, the Board of Directors of the
Corporation hereby decreases the number of shares designated as
Series A Preferred Stock from 250,000 shares to 100,000 shares,
which is the number of shares of Series A Preferred Stock
outstanding on the date hereof, and that such 150,000 shares
previously designated as "Series A Preferred Stock" shall resume
the status of Preferred Stock pursuant to Article FOURTH of the
Restated Certificate of Incorporation of the Corporation (the
"Restated Certificate"); and
RESOLVED, that pursuant to the powers expressly delegated to
the Board of Directors by Article FOURTH, subparagraph (D) of the
Restated Certificate and pursuant to Section 151 of the DGCL, the
Board of Directors of the Corporation hereby establishes and
designates a series of preferred stock and fixes and determines
as set forth herein the relative rights and preferences thereof as follows:
Section 1. Designation. There shall be established a
series of preferred stock, which shall consist of 25,000 shares
of the authorized preferred stock and shall be designated Series
B Convertible Preferred Stock (herein referred to as the "Series
B Preferred Stock").
Section 2. Dividends.
(a) The holders of Series B Preferred Stock shall be
entitled to receive dividends (the "Preferred Dividend") payable
in cash at the rate of $12.00 per share per annum or such rate as
modified under Section 2(b) herein (the "Dividend Rate") on a
cumulative basis from the actual date of original issue of each
share of Series B Preferred Stock (the "Original Issue Date"),
whether or not declared, out of funds legally available therefor,
payable quarterly in arrears on the fifteenth day of each
February, May, August, and November in each year (each a
"Dividend Payment Date"). Payments shall commence on May 15,
1998. Each such Preferred Dividend shall be payable to the
holders of record of the Series B Preferred Stock at the close of
business on the preceding December 31, March 31, June 30, and
September 30, respectively. Each dividend shall be declared by
the Board of Directors no more than fifteen (15) days prior to
its respective record date. Payments shall equal $3.00 per share
on each Dividend Payment Date or such lesser amount as shall
result from any proration in respect of any partial quarterly
period. The amount of Preferred Dividends payable upon the
occurrence of any event described in Sections 3, 5 or 7 hereof
shall be computed by multiplying the applicable Dividend Rate by
a fraction, the numerator of which shall be the number of days
since the preceding Dividend Payment Date to the date of payment
of such partial Preferred Dividend and the denominator of which
shall be 360.
(b) Beginning on February 16, 2002, the Dividend Rate
shall be adjusted by increasing the Dividend Rate to $20.00 per
share per annum, with the quarterly Preferred Dividend being
increased to $5.00 per share.
(c) So long as any of the shares of Series B Preferred
Stock are outstanding, no dividends (other than dividends or
distributions paid in shares of or options, warrants or rights to
subscribe for or purchase shares of Common Stock) shall be
declared or paid or set apart for payment by the Corporation or
other distribution of cash or other property declared or made
directly or indirectly by the Corporation or any affiliate or any
person acting on behalf of the Corporation or any of its
affiliates with respect to any shares of Common Stock, Non-Voting
Common Stock, Series A Preferred Stock or other capital stock
over which the Series B Preferred Stock has preference or
priority in the payments of dividends or in the distribution of
assets on any liquidation, dissolution or winding up of the
Corporation ("Junior Stock"), nor shall any shares of Junior
Stock be redeemed, purchased or otherwise acquired (other than a
purchase or other acquisition of Common Stock made for purposes
of any employee incentive or benefit plan of the Corporation or
any subsidiary) for any consideration (or any moneys be paid to
or made available for a sinking-fund for the redemption of any
shares of any such stock) directly or indirectly by the
Corporation or any affiliate or any person acting on behalf of
the Corporation or any of its affiliates (except by conversion
into or exchange for Junior Stock), nor shall any other cash or
other property otherwise be paid or distributed to or for the
benefit of any holder of shares of Junior Stock in respect
thereof, directly or indirectly, by the Corporation or any
affiliate or any person acting on behalf of the Corporation or
any of its affiliates unless in each case (x) the full Preferred
Dividends (including all accumulated, accrued and unpaid
dividends) on all outstanding shares of Series B Preferred Stock
shall have been paid or such dividends have been declared and set
apart for payment for the current dividend periods with respect
to the Series B Preferred Stock and (y) sufficient funds shall
have been paid or set apart for the payment of the full Preferred
Dividend for the current dividend period with respect to the
Series B Preferred Stock.
(d) If and whenever a quarterly Preferred Dividend is
not paid on a Dividend Payment Date (whether or not declared),
then the amount of such Preferred Dividend remaining in arrears
and unpaid from time to time shall bear interest from such
Dividend Payment Date until the date it is paid in full at an
annual rate equal to ten percent (10%). Interest payable in
respect of Preferred Dividends which are in arrears shall be
computed on the basis of twelve (12) 30 day months and a 360-
day year. No payment shall be applied to the Preferred Dividend
due on a Dividend Payment Date unless and until all arrears,
including interest thereon, with respect to accumulated, accrued
but unpaid Preferred Dividends shall have been paid.
Section 3. Liquidation, Dissolution, or Winding Up.
(a) In the event of any liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary,
the holders of the Series B Preferred Stock shall be entitled to
be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all
classes and before any sums shall be paid or any assets
distributed among the holders of shares of any other class or
series of capital stock of the Corporation, including Common
Stock, an amount per share equal to One Hundred Dollars ($100.00)
plus an amount equal to all the accrued but unpaid Preferred
Dividends (whether or not declared), and the amount equal to all
interest, if any, on any Preferred Dividends in arrears, in each
case to the date of final distribution to such holders (the
"Preference Amount"). Until the holders of the Series B
Preferred Stock have been paid the Preference Amount in full, no
payment will be made to any holder of Junior Stock upon the
liquidation, dissolution or winding up of the Corporation. If
the assets of the Corporation shall be insufficient to permit the
payment in full to the holders of the Series B Preferred Stock of
the Preference Amounts then the entire assets of the Corporation
available for such distribution shall be distributed ratably
among the holders of the Series B Preferred Stock in proportion
to the Preference Amount each such holder is otherwise entitled
to receive. After payment of the Preference Amount shall have
been made in full to the holders of the Series B Preferred Stock
or funds necessary for such payment shall have been set aside by
the Corporation in trust for the account of holders of the Series
B Preferred Stock so as to be available for such payment, holders
of the Series B Preferred Stock shall not be entitled to
participate in the distribution of any remaining assets of the
Corporation.
(b) Any consolidation, merger or a statutory share
exchange (other than (i) merger with a wholly-owned subsidiary of
the Corporation, (ii) a mere reincorporation transaction, or
(iii) a merger pursuant to which the Corporation is the surviving
entity and the capitalization of the Corporation remains
unchanged) in which the outstanding shares of capital stock of
the Corporation are exchanged for securities or other
consideration of or from another corporation, or a sale of all or
substantially all the assets or stock of the Corporation, shall
be deemed to be a liquidation, dissolution, or winding up of the
affairs of the Corporation within the meaning of this Section 3,
and shall entitle the holders of the Series B Preferred Stock to
receive on the effective date of such event the Preference
Amount, in cash, securities or other property; provided, however,
that any such event shall not be so regarded as a liquidation,
dissolution, or winding up of the affairs of the Corporation with
respect to the Series B Preferred Stock if the holders of two-
thirds (2/3) of the outstanding shares of the Series B Preferred
Stock approve such event or elect not to have any such event
deemed to be a liquidation, dissolution, or winding up of the
affairs of the Corporation by giving written notice thereof to
the Corporation at least ten (10) days prior to the effective
date of such event.
(c) Whenever the distribution provided for in this
Section 3 shall be paid in property other than cash, the value of
such distribution shall be the fair value thereof determined in
good faith by the Board of Directors of the Corporation.
Section 4. Voting Rights.
(a) Except as otherwise required by law, or as
specifically provided herein, the holders of Series B Preferred
Stock shall have full voting rights and powers, and the holders
of shares of Series B Preferred Stock shall vote together with
the holders of Common Stock and Series A Preferred Stock as a
single class on all matters submitted to a vote of the
stockholders of the Corporation; provided, however, that solely
with respect to the right to elect and remove directors, the
holders of Series B Preferred Stock shall not be entitled to vote
pursuant to this Section 4(a), but the provisions of Section 4(b)
and (c) shall govern the rights of the holders of Series B
Preferred Stock with respect to the election or removal of
directors. In any vote pursuant to the preceding sentence, each
holder of Series B Preferred Stock shall be entitled to that
number of votes equal to the number of shares of Common Stock
which would be issuable upon conversion of such shares of Series
B Preferred Stock, as provided in Section 5(a) hereof (the "As
Converted Number of Shares") of such holder (with fractional
shares rounded up or down to the nearest whole number) at the
record date for the determination of stockholders entitled to
vote on such matters or, if no such record date is established,
at the date such vote is taken or any written consent of
stockholders is solicited. The holders of the Series B Preferred
Stock shall be entitled to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation.
(b) The holders of the Series B Preferred Stock,
voting separately as one class, shall have the exclusive and
special right at all times to elect one (1) director (the
"Preferred Director") to the Board of Directors of the
Corporation provided, however, that so long as any shares of
Series B Preferred Stock are outstanding, the Board of Directors
shall not consist of more than five (5) members. The Preferred
Director shall be elected by the vote of the holders of a
majority, and removed by the vote of the holders of two-thirds
(2/3), of the shares of Series B Preferred Stock then
outstanding. The right of holders of the Series B Preferred
Stock contained in this Section 4(b) may be exercised either at a
special meeting of the holders of Series B Preferred Stock or at
any annual or special meeting of the stockholders of the
Corporation, or by written consent of such holders in lieu of a
meeting. Upon the written request of the holders of record of at
least a majority of the Series B Preferred Stock then
outstanding, the Secretary of the Corporation shall call a
special meeting of the holders of Series B Preferred Stock for
the purpose of (i) removing any Preferred Director elected
pursuant to this Section 4(b) and/or (ii) electing a director to
fill a vacancy of the directorship authorized to be filled by the
holders of Series B Preferred Stock pursuant to this Section
4(b). Such meeting shall be held at the earliest practicable date.
At any meeting held for the purpose of electing or removing a
Preferred Director, the presence, in person or by proxy, of the
holders of record of a majority of the Series B Preferred Stock
then outstanding shall be required to constitute a quorum of the
Series B Preferred Stock for such election.
A vacancy in the directorship to be elected by the holders of
Series B Preferred Stock pursuant to this Section 4(b) may be
filled only by vote or written consent in lieu of a meeting of
the holders of a majority of the shares of Series B Preferred
Stock then outstanding and may not be filled by the remaining directors.
(c) If and whenever four (4) quarterly dividends
(whether or not consecutive) payable on the Series B Preferred
Stock shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid
in full), whether or not earned or declared, the number of
directors then constituting the Board of Directors shall be
increased to a number which allows for holders of the Series B
Preferred Stock to elect a majority of the entire Board of
Directors at a special meeting of stockholders called as
hereinafter provided. Whenever all arrears in dividends on the
Series B Preferred Stock (together with interest on dividends in
arrears pursuant to Section 2(d) above) shall have been paid and
dividends thereon for the current quarterly dividend period shall
have been paid or declared and set apart for payment, then the
right of the holders of the Series B Preferred Stock to elect
such additional directors shall cease (but subject always to the
same provision of the vesting of such special voting rights in
the case of any similar future arrearages in four (4) quarterly
dividends), and the terms of office of all persons elected as
additional directors by the holders of the Series B Preferred
Stock pursuant to this Section 4(c) shall forthwith terminate and
the number of the Board of Directors shall be reduced
accordingly. At any time after such additional voting power
shall have been so vested in the holders of the Series B
Preferred Stock, the Secretary of the Corporation may, and upon
the written request of any holder of Preferred stock (addressed
to the Secretary at the principal office of the Corporation)
shall, call a special meeting of the holders of the Series B
Preferred Stock for the election of the additional directors to
be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws of the Corporation
for a special meeting of the stockholders or as required by law.
If any such special meeting required to be called as above
provided shall not be called by the Secretary within twenty (20)
days after receipt of any such request, then any holder of Series
B Preferred Stock may call such meeting, upon the notice above
provided, and for that purpose shall have access to the stock
books of the Corporation. The additional Preferred Directors
elected at any special meeting shall hold office until the next
annual meeting of the stockholders or special meeting held in
lieu thereof if such office shall not have previously terminated
as above provided. If any vacancy shall occur among the
additional Preferred Directors, a successor shall be elected by
the Board of Directors, upon the nomination of the then remaining
Preferred Directors or the successor of such remaining directors,
to serve until the next annual meeting of the stockholders or
special meeting held in place thereof if such office shall not
have previously terminated as above provided.
Section 5. Conversion Rights. The holders of the
Series B Preferred Stock shall have the following conversion rights:
(a) Right to Convert. Each share of Series B
Preferred Stock shall be convertible at any time, and from time
to time, at the option of the holder thereof, into such number of
fully paid and nonassessable shares of Common Stock as is
determined by dividing One Hundred Dollars ($100.00) (the
"Numerator") by the Conversion Price (as defined below) in effect
at the time of conversion. The conversion price at which shares
of Common Stock shall be deliverable upon conversion of Series B
Preferred Stock without the payment of additional consideration
by the holder thereof (the "Conversion Price") initially shall be
Two and 75/100 Dollars ($2.75). Such initial Conversion Price,
and the rate at which shares of Series B Preferred Stock may be
converted into shares of Common Stock, shall be subject to
adjustment as provided below. The conversion rights of the
holders of Series B Preferred Stock shall terminate (i) in the
event of a liquidation of the Corporation, at the close of
business on the first full day preceding the date fixed for the
payment of any amounts distributable on liquidation to the
holders of Series B Preferred Stock; and (ii) in the event shares
of Series B Preferred Stock are called for redemption pursuant to
Section 7 hereof, at the close of business on the Redemption Date
(as defined in Section 7(a) below), unless the Corporation shall
default in making payment in full of the Redemption Price.
(b) Adjustment to Conversion Price Upon Occurrence of
Extraordinary Common Stock Event. Upon the happening of an
Extraordinary Common Stock Event (as hereinafter defined), the
Conversion Price for the Series B Preferred Stock, simultaneously
with the happening of such Extraordinary Common Stock Event,
shall be adjusted by multiplying the then-effective Conversion
Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which
shall be the number of shares of Common Stock outstanding
immediately after such Extraordinary Common Stock Event, and the
product so obtained thereafter shall be the Conversion Price for
the Series B Preferred Stock. The Conversion Price, as so
adjusted, shall be readjusted in the same manner upon the
happening of any successive Extraordinary Common Stock Event(s).
"Extraordinary Common Stock Event" shall mean (i) the issuance
of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) a stock split or
subdivision of outstanding shares of Common Stock into a greater
number of shares of Common Stock, or (iii) a reverse stock split
or combination of outstanding shares of Common Stock into a
smaller number of shares of Common Stock.
(c) Recapitalization or Reclassification. If the
Common Stock issuable upon the conversion of the Series B
Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock of the
Corporation, whether by recapitalization, reclassification, or
otherwise (other than a subdivision or combination of shares or
stock dividend provided for in Section 5(b) hereof, or a
reorganization, merger, share exchange, consolidation, or sale of
assets provided for in Section 5(d) hereof), then and in each
such event the holder of each share of Series B Preferred Stock
shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and
property receivable upon such recapitalization, reclassification,
or other change by holders of the number of shares of Common
Stock into which such share of Series B Preferred Stock might
have been converted immediately prior to such recapitalization,
reclassification, or change, all subject to further adjustment as
provided herein.
(d) Capital Reorganization, Merger, Share Exchange,
Consolidation, or Sale of Assets. If at any time or from time to
time there shall be a capital reorganization of the Common Stock,
including a merger, share exchange, consolidation, or sale of all
or substantially all of assets of the Corporation (other than a
subdivision or combination of shares or stock dividend provided
for in Section 5(b) hereof or a recapitalization or
reclassification provided for in Section 5(c) hereof), then, as a
part of such reorganization, provision shall be made so that the
holders of the Series B Preferred Stock thereafter shall be
entitled to receive, upon conversion of each share of the Series
B Preferred Stock, the number of shares of stock or other
securities or property to which a holder of the number of shares
of Common Stock into which such shares of Series B Preferred
Stock might have been converted immediately prior to such capital
reorganization would have been entitled to receive. In any such
case, appropriate adjustment shall be made in the application of
the provisions of this Section 5 with respect to the rights of
the holders of the Series B Preferred Stock after the
reorganization to the end that the provisions of this Section 5
(including adjustment of the Conversion Price then in effect and
the number of shares acquired upon conversion of the Series B
Preferred Stock) shall be applicable after that event in as
nearly equivalent a manner as may be practicable.
Notwithstanding the foregoing, in the case of a consolidation,
merger, share exchange, or sale of all or substantially all the
assets of the Corporation, the provisions of Section 3(b) shall
apply to the Series B Preferred Stock, and this Section 5(d)
shall not apply, unless, as provided in Section 3(b) the holders
of two-thirds (2/3) of the outstanding shares of Series B
Preferred Stock elect that such event shall not be deemed to be a
liquidation, dissolution, or winding up of the affairs of the
Corporation.
(e) Certain Dilutive Issues.
(i) Special Definitions. For purposes of this
Section 5(e), the following definitions apply:
(1) "Options" shall mean rights,
options, or warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities (as
defined below), except for (A) currently exercisable options
to purchase an aggregate of 4,000 shares of Common Stock
outstanding on the Original Issue Date (the "Outstanding
Options"); (B) rights or options to acquire up to an
aggregate of 1,250,000 shares of Common Stock which may be
granted to employees, directors or consultants to the
Corporation pursuant to the Corporation's 1995 Incentive
Stock Option Plan, provided that the exercise price for all
options granted after the Original Issue Date shall be no
less than the Fair Market Value (as defined in Section 5(h)
below) on the date of grant (the "Plan Options"); and (C)
warrants to purchase an aggregate of 890,000 shares of
Common Stock granted and reserved for issuance on the
Original Issue Date (the "Current Warrants").
(2) "Convertible Securities" shall mean
any evidences of indebtedness, shares of stock (other than
Common Stock and Series B Preferred Stock) or other
securities convertible into or exchangeable for Common
Stock.
(3) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or deemed to
be issued pursuant to Section 5(e)(iii)) by the Corporation
after the Original Issue Date, other than shares of Common
Stock issued or issuable upon (i) conversion of shares of
Series B Preferred Stock or as a dividend or distribution on
Series B Preferred Stock; (ii) the exercise of the
Outstanding Options; (iii) the exercise of any Plan Options;
(iv) the conversion of any of the 1,000,000 shares of Non-
Voting Common Stock into no more than 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; or (v) the exercise of the Current
Warrants.
(ii) No Adjustment of Conversion Price. Any
provision herein to the contrary notwithstanding, no adjustment
in the number of shares of Common Stock into which shares of
Series B Preferred Stock is convertible shall be made, by
adjustment in the Conversion Price, unless the consideration per
share (determined pursuant to Section 5(e)(v) hereof) for an
Additional Share of Common Stock issued or deemed to be issued by
the Corporation is less than the Fair Market Value (as defined in
Section 5(h) below) on the date of the issue of such Additional
Shares of Common Stock.
(iii) Issue of Options and Convertible
Securities. In the event the Corporation at any time or from
time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities,
then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such number) of Common
Stock issuable upon the exercise of such Options or, in the case
of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of
the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have
been issued unless the consideration per share (determined
pursuant to Section 5(e)(v) hereof) of such Additional Shares of
Common Stock would be less than the Fair Market Value (as defined
in Section 5(h) below) on the date of to such issue, or such
record date, as the case may be, and provided that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in the
Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible
Securities by their terms provide, with the passage of time or
otherwise, for any increase or decrease in the consideration
payable to the Corporation, or decrease or increase in the number
of shares of Common Stock issuable upon the exercise, conversion
or exchange thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities, provided, however,
that no such adjustment of the Conversion Price shall affect
Common Stock previously issued upon conversion of shares of
Series B Preferred Stock;
(3) upon the expiration of any such
Options or any rights of conversion or exchange under such
Convertible Securities that shall not have been exercised, the
Conversion Price computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto), and
any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock, the only Additional
Shares of Common Stock issued were the shares of Common Stock, if
any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually
received by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration actually
received by the Corporation upon such exercise, or for the issue
of all such Convertible Securities that were actually converted
or exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange, and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time
of issue of such Options, and the consideration received by the
Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by
the Corporation (determined pursuant to Section 5(e)(v)) upon the
issue of the Convertible Securities with respect to which such
Options were actually exercised;
(4) no readjustment pursuant to Section
5(e)(iii)(2) or (3) above shall have the effect of increasing the
Conversion Price to an amount which exceeds the lower of (a) the
Conversion Price prior to the initial adjustment to which the
readjustment applies, or (b) the Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock
between the date of the initial adjustment date and such
readjustment date; and
(5) in the event of any change in the
number of shares of Common Stock issuable upon the exercise,
conversion or exchange of any Option or Convertible Security,
including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in
effect shall forthwith be readjusted to such Conversion Price as
would have been obtained had the adjustment which was initially
made upon the issuance of such unexercised Option or unconverted
Convertible Security, been made upon the basis of such subsequent
change, but no further adjustment shall be made for the actual
issuance of Common Stock upon the exercise or conversion of any
such Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common Stock. In the event the
Corporation at any time after the Original Issue Date shall
issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section
5(e)(iii)), without consideration or for a consideration per
share less than the Fair Market Value (as defined in Section 5(h)
below) on the date of such issue, then and in such event, the
Conversion Price shall be reduced to a price (calculated to the
nearest cent) equal to either (A) the per share consideration for
such Additional Shares of Common Stock (or deemed Additional
Shares of Common Stock) pursuant to Section 5(e)(iii), or (B) in
the case of Additional Shares of Common Stock issued (or deemed
to have been issued) without consideration, the par value of the
Common Stock.
The provisions of this Section 5(e)(iv) do not apply if the
provisions of any of Section 5(b), (c) or (d) apply.
(v) Determination of Consideration. The
consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash, Property, and Other
Consideration. Such consideration shall:
(a) insofar as it consists of
cash, be computed as the aggregate amount of cash received by the
Corporation excluding amounts paid or payable for accrued
interest or accrued dividends;
(b) insofar as it consists of
property, services, or other consideration other than cash, be
computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(c) in the event Additional Shares
of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration
which covers both, be the proportion of the consideration so
received, computed as provided in clauses (a) and (b) above, as
is determined in good faith by the Board of Directors.
(2) Options and Convertible Securities.
The consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to Options and Convertible Securities, shall be deemed
to be the sum of the consideration paid for such Option or
Convertible Security, if any, plus the lowest consideration per
share then payable upon the exercise of Options, as set forth in
the instruments relating to such Options or Convertible
Securities, without regard to any provision contained therein
designed to protect against dilution. If Options or Convertible
Securities are issued together with other securities or
instruments of the Corporation, the Board of Directors shall
determine in good faith the amount of consideration paid for such
Option or Convertible Securities.
(f) Certificate as to Adjustments. In each case of an
adjustment or readjustment of the Conversion Price of the Series
B Preferred Stock, the Corporation will furnish each holder of
the Series B Preferred Stock with a certificate prepared by the
Chief Financial Officer of the Corporation showing such
adjustment or readjustment and stating in detail the facts upon
which such adjustment or readjustment is based.
(g) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Series B Preferred Stock shall
surrender the certificate(s) representing the shares being
converted to the Corporation at its principal office, accompanied
by written notice to the Corporation at that office that such
stockholder elects to convert such shares (a "Conversion
Notice"). The Conversion Notice also shall state the name(s) and
address(es) in which the certificate(s) for shares of Common
Stock issuable upon such conversion shall be issued. The
certificate(s) for shares of Series B Preferred Stock
surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date when
the Conversion Notice is received by the Corporation together
with the certificate(s) representing the shares of Series B
Preferred Stock being converted shall be the "Conversion Date."
As promptly as practicable after the Conversion Date, the
Corporation shall issue and deliver to the holder of the shares
of Series B Preferred Stock being converted, or on its written
order, such certificate(s) as it may request of the number of
whole shares of Common Stock issuable upon the conversion of such
shares of Series B Preferred Stock in accordance with the
provisions of this Section 5 and cash, as provided in
Section 5(h), in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be
deemed to have been effected immediately prior to the close of
business on the Conversion Date, and at such time the rights of
the holder as a holder of the converted shares of Series B
Preferred Stock shall cease and the person(s) in whose name(s)
any certificate(s) for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder(s)
of record of the shares of Common Stock represented thereby.
(h) Cash in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares
shall be issued upon the conversion of shares of Series B
Preferred Stock. Instead of any fractional shares of Common
Stock that otherwise would be issuable upon conversion of a
series of Series B Preferred Stock, the Corporation shall pay to
the holder of the shares of Series B Preferred Stock that were
converted a cash adjustment in respect of such fractional shares
in an amount equal to the same fraction of the Fair Market Value
price per share of the Common Stock at the close of business on
the Conversion Date. "Fair Market Value" shall mean (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 Corporation, (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 bid 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
Corporation'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. The
determination as to whether any fractional shares are issuable
shall be based upon the total number of shares of Series B
Preferred Stock being converted at any one time by any holder
thereof, not upon each share of Series B Preferred Stock being
converted.
(i) Reservation of Common Stock. The Corporation at
all times shall reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series B Preferred
Stock, such number of its shares of Common Stock as from time to
time shall be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock.
Section 6. Restrictions and Limitations; Voting as a
Class. So long as any shares of Series B Preferred Stock remain
outstanding, in addition to any other vote or consent of
stockholders required by law or the Restated Certificate, the
Corporation will not take any of the following actions without
the affirmative vote or consent (with each share of Series B
Preferred Stock being entitled to one vote) of the holders of at
least two-thirds (2/3) of the outstanding shares of the Series B
Preferred Stock, given in writing or by resolution adopted at a
meeting called for such purpose:
(a) amend the Restated Certificate or Bylaws of the
Corporation if such amendment would:
(i) reduce the Dividend Rate on the Series B
Preferred Stock provided for herein, make such dividends
noncumulative, defer the date from which dividends will
accrue, cancel accrued and unpaid dividends, or change the
relative seniority rights of the holders of the Series B
Preferred Stock as to the payment of dividends in relation
to the holders of any other capital stock of the
Corporation;
(ii) reduce the amount payable to the holders of
the Series B Preferred Stock upon the voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, or change the relative seniority of the
liquidation preferences of the holders of the Series B
Preferred Stock;
(iii) reduce the Redemption Price specified in
Section 7 hereof with respect to the Series B Preferred
Stock;
(iv) cancel or modify the conversion rights of the
Series B Preferred Stock provided for in Section 5 hereof; or
(v) adversely affect any of the rights,
preferences or privileges provided for herein for the benefit of
any shares of Series B Preferred Stock; provided that no issuance
of equity securities which shall have been approved under Section
6(d) hereof (or which does not require approval under such
Section 6(d)) shall be deemed to have such an adverse effect.
(b) redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose)
any share or shares of Series B Preferred Stock otherwise than by
redemption of Series B Preferred Stock in accordance with
Section 7 hereof or by conversion in accordance with Section 5 hereof;
(c) redeem, purchase or otherwise acquire (or pay into
or set aside for a sinking fund for such purpose) any share or
shares of Junior Stock, except for a purchase or other
acquisition of Common Stock made for purposes of any employee
incentive or benefit plan of the Corporation or any subsidiary;
(d) authorize or issue, or obligate itself to issue,
any other equity security (i) senior to or on a parity with the
Series B Preferred Stock as to dividend rights or redemption
rights or liquidation preferences or (ii) which entitles the
holders thereof to voting rights equal to at least twenty percent
(20%) of the outstanding voting power of all capital stock of the
Corporation or to elect directors which constitute twenty percent
(20%) or more of the Board of Directors;
(e) effect any sale, lease, assignment, transfer, or
other conveyance of all or substantially all of the assets of the
Corporation or any of its subsidiaries, or any consolidation,
merger or a share exchange involving the Corporation or any of
its subsidiaries, except (i) a merger with a wholly-owned
subsidiary of the Corporation, (ii) a mere reincorporation
transaction, (iii) a merger pursuant to which the Corporation is
the surviving entity and the capitalization of the Corporation
remains unchanged, or (iv) upon an election by the holders of
Series B Preferred Stock pursuant to Section 3(b) hereof;
(f) increase or decrease (other than by redemption or
as a result of the conversion thereof) the total number of
authorized shares of any class or series of capital stock; or
(g) effect any change in the rights or limitations of
the Common Stock, or any recapitalization of the Corporation.
Section 7. Redemption.
(a) Redemption at the Option of the Corporation.
Shares of Series B Preferred Stock shall not be redeemable by the
Corporation at any time prior to the second anniversary of the
Original Issue Date. On and after the second (2nd) anniversary
of the Original Issue Date, at the option of the Corporation, the
Corporation may fix a date (the "Redemption Date") on which it
shall redeem all (but not less than all) of the then outstanding
shares of Series B Preferred Stock by paying in cash, out of
funds legally available therefor, to the holders thereof and in
respect of each such share of Series B Preferred Stock, the
Redemption Price (as defined below), (i) at any time prior to the
fourth anniversary of the Original Issue Date but only in the
event that the average bid price of the Common Stock of the
Corporation exceeds Five Dollars and 50/100 ($5.50) per share
(without giving effect to any stock splits, stock dividends or
recapitalizations after the Original Issue Date), with respect to
each of the twenty (20) consecutive Trading Days (as defined
below) immediately preceding the date of the Redemption Notice
(as defined in Section 7(b) below), or (ii) at any time on or
after the fourth anniversary of the Original Issue Date.
A holder of Series B Preferred Stock may elect, by written notice
delivered to the Corporation not less than ten (10) days prior to
the Redemption Date, to waive its right to have redeemed all (but
not less than all) of the shares of Series B Preferred Stock held
by such holder which are eligible to be redeemed on such
Redemption Date, provided that on such Redemption Date each such
share of Series B Preferred Stock which is not redeemed shall be
converted automatically into shares of Common Stock at the
Conversion Price then in effect on such Redemption Date. The
term "Trading Day" shall mean any day other than Saturday or
Sunday on which national securities exchanges are open for
trading and trades in the Corporation's Common Stock occur. The
term "Redemption Price" shall mean an amount per share equal to
the Preference Amount (determined as provided in Section 3(a)
hereof).
(b) Procedures for Redemption of Series B Preferred
Stock. At least thirty (30) days but not more than forty-five
(45) days prior to the Redemption Date the Corporation shall mail
a written notice, first class postage prepaid, to each holder of
record at the close of business on the business day preceding the
day on which notice is given, of the Series B Preferred Stock to
be redeemed, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the
redemption to be effected, specifying (i) that all shares of
Series B Preferred Stock shall be redeemed from such holder, (ii)
the Redemption Date, (iii) the Redemption Price, (iv) the place
at which payment may be obtained, (v) advising such holder of its
right to elect to waive its right to have all (but not less than
all) such shares redeemed and that, if such election is made,
such shares of Series B Preferred Stock which are not redeemed
shall be converted automatically into shares of Common Stock at
the Conversion Price then in effect (setting forth such
Conversion Price), and (vi) calling upon such holder to surrender
to the Corporation, in the manner and at the place designated,
its certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). On or after the Redemption
Date, each holder of Series B Preferred Stock to be redeemed
shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be
canceled. From and after each Redemption Date, unless there
shall have been a default in payment of the Redemption Price, any
shares of Series B Preferred Stock redeemed on such Redemption
Date shall not be entitled to any further rights as Series B
Preferred Stock and shall not be deemed outstanding for any
purpose. If the funds of the Corporation legally available for
redemption of shares of Series B Preferred Stock on any
Redemption Date are insufficient to redeem the total number of
shares of Series B Preferred Stock to be redeemed on such date,
those funds which are legally available will be used to redeem
the maximum possible number of such shares ratably among the
holders of such shares to be redeemed based upon the number of
shares of Series B Preferred Stock held by each such holder. The
shares of Series B Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of
the Corporation are legally available for the redemption of
shares of Series B Preferred Stock such funds will be used
immediately to redeem the balance of the shares which the
Corporation has become obliged to redeem on any Redemption Date,
but which it has not redeemed, it being understood that any such
redemption shall not constitute a waiver by a holder of Series B
Preferred Stock of any rights arising from the failure to redeem
on the Redemption Date.
Section 8. No Reissuance of Convertible Series B Preferred
Stock; Status of Stock. No share of Series B Preferred Stock acquired
by the Corporation by reason of redemption, purchase, conversion,
or otherwise shall be reissued, and all such shares shall be restored
to the status of authorized but unissued shares of preferred stock,
without designation as to rights, limitations or preferences.
Section 9. No Dilution or Impairment. The Corporation
will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation,
merger, share exchange, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Series B
Preferred Stock set forth herein, but will at all times in good
faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in
order to protect the rights of the holders of the Series B
Preferred Stock against dilution or other impairment.
Section 10. Notices of Record Date. In the event of any:
(a) taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase, or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger, consolidation, or share exchange of the
Corporation, or any transfer of all or substantially all the
assets of the Corporation to any other corporation, or any other
entity or person; or
(c) voluntary or involuntary dissolution, liquidation,
or winding up the Corporation;
then and in each such event the Corporation shall mail or cause
to be mailed to each holder of Series B Preferred Stock a notice
specifying (i) the record date for such dividend, distribution,
or right and a description of such dividend, distribution, or
right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation,
merger, share exchange, dissolution, liquidation, or winding up
is expected to become effective, and (iii) the time, if any, that
is to be fixed as to when the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, share
exchange, dissolution, liquidation, or winding up. Such notice
shall be mailed at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
3. This Certificate of Designations, which will constitute
an amendment to the Corporation's Restated Certificate of
Incorporation, shall be effective upon filing by the Secretary of State.
Dated this 23rd day of February, 1998.
Teltronics, Inc.
By: Ewen R. Cameron
President
(SEAL)
ATTEST: Mark E. Scott
Secretary
<PAGE>
EXHIBIT 3.2
AMENDED DESIGNATION
OF
Teltronics, Inc.
To the Secretary of State of the State of Delaware:
Pursuant to the provisions of Section 151 of the Delaware
General Corporation Law (the "DGCL"), the undersigned corporation
submits this certificate for the purposes of decreasing the
authorized number of shares of a series of preferred stock:
1. The name of the corporation is Teltronics, Inc.
2. The following resolutions decreasing the authorized
number of shares of a series of preferred stock were duly adopted
by the Board of Directors of Teltronics, Inc. (the "Corporation")
at a meeting of the directors held on February 16, 1998.
RESOLVED, that pursuant to Section 151(g) of the DGCL and
pursuant to the powers set forth in Section 1 of the Certificate
of Designation of Preferences of Series A Preferred Stock
Pursuant to Section 151(g) of the General Corporation Law of
Delaware, filed with the Secretary of State of the State of
Delaware on August 19, 1996, the Board of Directors of the
Corporation hereby decreases the number of shares designated as
Series A Preferred Stock from 250,000 shares to 100,000 shares,
which is the number of shares of Series A Preferred Stock
outstanding on the date hereof, and that such 150,000 shares
previously designated as "Series A Preferred Stock" shall resume
the status of Preferred Stock pursuant to Article FOURTH of the
Restated Certificate of Incorporation of the Corporation (the
"Restated Certificate").
3. This Certificate of Designations, which will constitute
an amendment to the Corporation's Restated Certificate of
Incorporation, shall be effective upon filing by the Secretary of
State.
Dated this 25th day of February, 1998.
Teltronics, Inc.
By: Ewen R. Cameron
President
(SEAL)
ATTEST: Mark E. Scott
Secretary
