EXHIBIT 10.4
DEBENTURE PURCHASE AGREEMENT
BETWEEN
SIRROM CAPITAL CORPORATION,
D/B/A TANDEM CAPITAL
AND
AQUA CARE SYSTEMS, INC.
JUNE 30, 1998
DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "AGREEMENT") entered into the
30th day of June, 1998, is by and between AQUA CARE SYSTEMS, INC., a Delaware
corporation (the "COMPANY"), the Wholly-owned Subsidiaries of the Company listed
on SCHEDULE A attached hereto (the "GUARANTORS"), and SIRROM CAPITAL CORPORATIOn
d/b/a TANDEM CAPITAL, a Tennessee corporation (the "PURCHASER").
WITNESSETH:
WHEREAS, in order to obtain additional capital for use in connection
with its business, the Company desires to issue and sell its 12% Subordinated
Secured Debentures, due June 30, 2003, in the aggregate principal amount of
$1,500,000, and Purchaser is willing to purchase such debentures, on the terms
and conditions set forth herein;
WHEREAS, in connection with the issuance and sale of the
above-described debentures, the Company will issue to Purchaser certain warrants
to purchase shares of Common Stock of the Company, as more fully described
herein and therein.
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 Five
Hundred Thousand and no/100ths Dollars ($1,500,000.00) aggregate principal
amount of its 12% Subordinated Secured Debentures due on June 30, 2003,
substantially in the form attached hereto as EXHIBIT A (collectively, the
"DEBENTURES"), to be dated the date of issue and to bear interest from such date
at the rate of 12% per annum. Interest on the Debentures is payable quarterly by
automatic debit on the first day of each February, May, August and November in
each year (commencing August 1, 1998) and at maturity, which maturity shall
occur on the fifth (5th) anniversary of the date of issuance. 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 collaterally assigns to the
holders of the Debentures all of its right, title and interest in and to, and
grants the holders of the Debentures a lien upon and security
interest in, all of the types of property described on SCHEDULE 1.1(B)(I)
attached hereto, wherever located, whether now owned or hereafter acquired,
together with all substitutions, replacements, improvements, accessions or
appurtenances thereto and proceeds (including, without limitation, insurance
proceeds) thereof (collectively, the "COMPANY COLLATERAL").
(c) As further security for the obligations of the Company under the
Debentures and this Agreement, contemporaneous with the purchase and sale of the
Debentures, the Guarantors, jointly and severally, have executed a Guaranty and
Suretyship Agreement, dated as of the date hereof, in form and substance
satisfactory to the Purchaser (the "SUBSIDIARY GUARANTY"), guaranteeing the
performance by the Company of its obligations under the Debentures and this
Agreement. As collateral security for the obligations of the Guarantors under
the Subsidiary Guaranty, each of the Guarantors hereby collaterally assigns to
the holders of the Debentures all of its right, title and interest in and to,
and grants the holders of the Debentures a lien upon and security interest in,
all of the types of property described on SCHEDULE 1.1(B)(I) attached hereto,
wherever located, whether now owned or hereafter acquired, together with all
substitutions, replacements, improvements, accessions or appurtenances thereto
and proceeds (including, without limitation, insurance proceeds) thereof
(collectively, the "GUARANTOR COLLATERAL" and, together with the Company
Collateral, 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.
Contemporaneously with the purchase and sale of the Debentures, the
Company shall grant, issue and deliver to Purchaser (i) a Stock Purchase Warrant
for the purchase of 82,500 shares of Common Stock of the Company, substantially
in the from attached hereto as EXHIBIT B-1, and (ii) a Stock Purchase Warrant
for the purchase of 33,000 shares of Common Stock of the Company, substantially
in the form attached hereto as EXHIBIT B-1, which shall provide for redemption
by the Company of part or all of such warrant upon the occurrence or
non-occurrence of certain events, in each case dated the Closing Date (as
defined in Section 1.3 below), with an initial exercise price equal to the
lesser of $3.00 per share of Common Stock or the average bid price per share of
Common Stock for the twenty (20) trading days prior to the Closing Date (but in
no event less than $2.50 per share of Common Stock), which initial exercise
price may be adjusted subsequently upon the occurrence or non-occurrence of
certain events (collectively, the "WARRANTS").
Section 1.3 ADDITIONAL WARRANTS.
(a) ISSUANCE OF ADDITIONAL WARRANTS. In the event that any indebtedness
evidenced by the Debentures or any interest or other charges in connection
therewith shall be outstanding (i) on the earlier to occur of June 30, 1999 or
the date that is the first anniversary of the date of this Agreement or (ii)
thereafter, on any anniversary of such earlier date, then on each such date the
Company shall issue to Purchaser a Stock Purchase Warrant for the purchase of
30,000 shares of Common Stock of the Company (in all cases, as appropriately
adjusted to take into account any stock splits or reverse stock splits occurring
after the date hereof), dated as of such date, with an initial exercise price
equal to the average bid price per share of Common Stock for the twenty (20)
trading days prior to such date (collectively, the "ADDITIONAL WARRANTS"). Any
Additional Warrants issuable pursuant to the terms hereof shall be identical in
all respects (other than the number of
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shares of Common Stock issuable upon exercise thereof and other than as
contemplated in Section 1.3(b) below) to the form of Warrant attached hereto as
EXHIBIT B-1. The Company shall pay when due any and all state and federal taxes
which may be payable in respect of the issuance of the Additional Warrants or
the issuance of any shares of Common Stock of the Company upon exercise of the
Additional Warrants.
(b) ADJUSTMENT IN NUMBER OF SHARES ISSUABLE AND EXERCISE PRICE. The
number of shares of Common Stock (or other securities or property) of the
Company issuable upon exercise of the Additional Warrants set forth above and
the exercise price per share set forth in the Additional Warrants shall be
subject to adjustment on the same terms as any such adjustments required to be
made under the terms of the Warrant attached hereto as EXHIBIT B-1
notwithstanding that such Additional Warrants are not issued and outstanding at
the time of the occurrence giving rise to any such adjustments required to be
made pursuant to the terms of the Warrant.
Section 1.4 REGISTRATION RIGHTS AGREEMENT.
The shares of Common Stock issuable upon exercise of the Warrants and,
if required to be issued as provided herein, the Additional Warrants, will be
registrable in accordance with the terms of that certain Registration Rights
Agreement, dated the Closing Date, by and between the Company and Purchaser and
substantially in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT").
Section 1.5 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 $1,500,000 at a price of 100% of
the principal amount thereof.
Delivery of the Debentures will be made at the office of Xxxxxxxx &
Xxx, PLC, 000 Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxx, Xxxxxxxxx 00000, 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 (received at least 24 hours in advance), at 10:00 A.M., Nashville
time, on June 30, 1998, or such other date (but no later than June 30, 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 the purchase
(unless different denominations are specified by such Purchaser), registered in
Purchaser's name or in the name of such nominee as Purchaser may specify, all as
Purchaser may specify at least 24 hours prior to the date fixed for delivery.
Section 1.6 PROCESSING FEE.
The Company agrees to pay to Purchaser, on or before the Closing Date,
a processing fee in an amount equal to $30,000. The Purchaser acknowledges
receipt of $15,000 of such processing fee.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTORS
The Company and the Guarantors, jointly and severally, hereby represent
and warrant 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 Warrants, the Additional Warrants, the Registration Rights
Agreement, and any other document executed and delivered by the Company in
connection herewith or therewith (together with any documents executed by any of
the Guarantors in connection herewith, including the Subsidiary Guaranty,
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 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 Operative
Documents to which it is a party. Each Subsidiary 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 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)
30,000,000 shares of common stock, par value $.001 per share (the "COMMON
STOCK"), of which 2,722,013 shares are issued and outstanding, and (ii)
5,000,000 shares of undesignated preferred stock, par value $.001 per share,
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 Certificate
of Incorporation, as amended (the "CERTIFICATE OF INCORPORATION"), of which no
shares have been designated and none are issued or outstanding. All shares of
Common Stock outstanding have been validly issued and are fully paid
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and nonassessable. 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
Warrants or the issuance of Common Stock upon the exercise thereof.
(b) Neither the Company nor any Subsidiary has granted, or agreed to
grant or issue, any options, warrants or rights to purchase or acquire from the
Company or any Subsidiary any shares of capital stock of the Company or any
Subsidiary, 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 or any Subsidiary,
and there are no contracts, commitments, agreements, understandings,
arrangements or restrictions as to which the Company or any Subsidiary is a
party, or by which it is bound, relating to any shares of capital stock or other
securities of the Company or any Subsidiary, whether or not outstanding, except
for (i) the Warrants and Additional Warrants to be issued pursuant to this
Agreement and (ii) 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.
Section 2.3 AUTHORIZATION; ABSENCE OF CONFLICTS.
The Company and each of the Subsidiaries has full legal right, power
and authority to enter into and perform its obligations under this Agreement and
any of the other Operative Documents to which it is a party without the consent
or approval of any other person, firm, governmental agency or other legal
entity, except for the consents and approvals 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, the Warrants and the Additional
Warrants hereunder, the execution and delivery of each of the other Operative
Documents and the performance by the Company and each of the Subsidiaries of its
obligations hereunder and/or thereunder are within the corporate powers of the
Company and each such Subsidiary and have been duly authorized by all necessary
corporate action properly taken, have received all necessary governmental
approvals, if any were required, do not and will not contravene, conflict with,
constitute a default under or violate (a) the Certificate of Incorporation or
Bylaws of the Company or any such Subsidiary, 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 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) any provision
of law or any applicable judgment, ordinance, regulation or order of any court
or governmental agency. The officer(s) of the Company and each of the
Subsidiaries executing this Agreement and any other Operative Document is duly
authorized to act on behalf of the Company or such Subsidiary.
Section 2.4 VALIDITY AND BINDING EFFECT.
Each of the Operative Documents to which it is a party is the legal,
valid and binding obligation of the Company and each of the Subsidiaries,
enforceable against the Company in accordance with its terms.
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Section 2.5 FINANCIAL STATEMENTS.
The audited consolidated financial statements of the Company and its
Subsidiaries for the fiscal years ended December 31, 1995, December 31, 1996,
and December 31, 1997, and the unaudited consolidated financial statements as of
and for the [three (3) months] ended [March 31, 1998], 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 "AQCR." Since the date of the filing by the Company of its initial
registration statement with the SEC, 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 March 31, 1998 (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
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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.
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
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 which
appropriate amounts have been reserved), and the Company does not know of any
proposed assessment for additional taxes with respect to the Company or any
Subsidiary or any basis therefor. No tax liens have been filed against the
Company, or its Subsidiaries or any of their properties that have not been
discharged or paid in full, and none of the federal tax returns of the Company
or any of the Subsidiaries have been audited. The Company's federal income tax
liability has been satisfied, or the applicable statute of limitations has run,
for all taxable years up to and including the taxable year ended December 31,
1997.
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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 to
any one such officer or director, 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 by any one such officer
or director. To the knowledge of the Company, no officer or director of the
Company or any Subsidiary or any member of their immediate families has 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 owns all personal property and has good
and marketable title to all real 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 that
might result in any Materially Adverse Effect. The Company and each Subsidiary
enjoy peaceful and undisturbed possession under all such leases.
Section 2.14 INTELLECTUAL PROPERTY.
Except as set forth in SCHEDULE 2.14(A), each of the Company and its
Subsidiaries 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. Each of the Company and its
Subsidiaries 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 used
by it which would individually or in the aggregate have a Materially Adverse
Effect. To the
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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 (other than evidences of indebtedness for purchase
money financing obligations incurred by the Company or a Subsidiary in the
ordinary course of business, in each case in the aggregate principal amount of
less than $25,000); (ii) a correct statement of the maximum principal or face
amounts of the credit in question that is or may 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.
Except as set forth on SCHEDULE 2.15(II), 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 evidence of
indebtedness, Guaranty, capital lease or other instrument, agreement or
arrangement set forth on SCHEDULE 2.15(I).
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) 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(I) individually being an "APPLICABLE
CONTRACT" and collectively the "APPLICABLE CONTRACTS"). Except for defaults
described on SCHEDULE 2.16(II), none of which may result in a Materially Adverse
Effect, 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. Except as set
forth on SCHEDULE 2.16(II), 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).
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Section 2.17 ENVIRONMENTAL MATTERS.
The Company and each of its Subsidiaries have are in material
compliance with, and its business, operations, assets, equipment, property,
leaseholds or other facilities of each are in material 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 material violation of any federal, state or local environmental, health or
safety laws, codes or ordinances, or 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 during the period
of ownership thereof by the Company or such Subsidiary or, to the knowledge of
the Company, at any other time. 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).
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.
Except as set forth in SCHEDULE 2.19, the Company is not prohibited
from paying cash dividends to the holders of Common Stock. 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 does not require
any license, permit, approval, waiver or other authorization of any federal,
state or local governmental or regulatory body the absence of which could result
in any Materially Adverse Effect, 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
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 Warrants 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, the Warrants and the Additional Warrants 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, the Warrants or the Additional Warrants by the Company.
Section 2.28 EMPLOYEES.
SCHEDULE 2.28 sets forth the aggregate 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 affecting it or any of its Subsidiaries. None
of the employees of the Company or any Subsidiary belongs to any union or
collective bargaining unit.
12
The Company and each of its Subsidiaries 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 or any Subsidiary 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 such Subsidiary, or any other party, because of the nature
of the business conducted or presently proposed to be conducted by the Company
or such Subsidiary or relating to the use by the employee of his or her best
efforts with respect to such business. Except as disclosed in SCHEDULE 2.28,
neither the Company nor any Subsidiary 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.
The Company is not aware that any officer or key employee, or that any group of
key employees, in each of the Company or any Subsidiary, intends to terminate
their employment with the Company or any Subsidiary, nor does the Company or, to
the knowledge of the Company, any Subsidiary 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 and each Subsidiary is terminable at the will of the
Company or such Subsidiary.
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, 00 Xxxx. 000, 00 X.X.X.X.
/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 OFFICE LOCATION; LOCATION OF COLLATERAL.
The executive offices and principal place of business of the Company
and each of the Guarantors are set forth opposite each such entity's name on
SCHEDULE 2.30. All records or documents with respect to intangible personal
property comprising the Collateral and all tangible personal property comprising
the Collateral, in each case owned by the Company or a Guarantor, is located at
the address set forth opposite each such entity's name on SCHEDULE 2.30.
13
Section 2.31 FEES/COMMISSIONS.
Except as set forth on SCHEDULE 2.31, 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 2.32 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 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; RESIDENCE.
Purchaser is a corporation or partnership duly organized and validly
existing under the laws 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. Purchaser
is resident in the State of Tennessee.
Section 3.2 AUTHORIZATION.
Purchaser has full legal right, power and authority to enter into and
perform its obligations under this Agreement and any other Operative 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 Operative
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, does not and will
not contravene, conflict with, violate or cause a default under (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 result
in the creation or imposition of any
14
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) 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 Operative Document executed and delivered by
Purchaser is duly authorized to act on behalf of Purchaser.
Section 3.3 VALIDITY AND BINDING EFFECT.
Each of the Operative Documents to which it is a party is the legal,
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms.
Section 3.4 ACCREDITED INVESTOR STATUS; PURCHASE FOR INVESTMENT.
Purchaser is and at the Closing Date will be an "ACCREDITED INVESTOR"
under Rule 501(a) under the Securities Act. Purchaser is, and at the Closing
Date will be, an investment company registered under the Investment Company Act
of 1940, as amended and has, and at the Closing Date will have, a net worth in
excess of One Million Dollars ($1,000,000). Purchaser is acquiring the
Debentures, the Warrants and the Additional Warrants 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, the Warrants or the Additional
Warrants, it being understood that Purchaser may transfer and assign, without
consideration, the Debentures, the Warrants, the Additional Warrants and all of
Tandem's rights and obligations under this Agreement and the Operative Documents
(or part of the foregoing) to one or more Wholly-owned subsidiaries of
Purchaser, which Wholly-owned subsidiaries are also "accredited investors" under
Rule 501(a); provided that in no event will the Company be required to issue
Debentures of less than $250,000 principal face amount be required to be issued
in connection with any such transfer.
Section 3.5 LEGENDS ON CERTIFICATES.
Purchaser understands that the certificates representing the
Debentures, the Warrants and the Additional Warrants (or the Common Stock issued
upon exercise of the Warrants) shall bear the following or similar legend and
that appropriate stock transfer instructions will be entered in the stock
records of the Company:
THE SECURITIES 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 SECURITIES 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.
15
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 obligations 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 and the Guarantors
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 and the Guarantors
shall have duly performed all of the covenants and agreements to be performed by
each of them hereunder on or prior to the Closing Date.
Section 4.2 OFFICER'S CERTIFICATE.
The Company and each of the Guarantors shall have delivered to
Purchaser a certificate, dated the Closing Date, signed by the Chairman of the
Board, President and Chief Executive Officer of such entity in form and
substance reasonably satisfactory to Purchaser.
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 reasonably satisfactory in form and substance to Purchaser and
Purchaser's counsel, and the Company and each of the Guarantors shall have
delivered to Purchaser a certificate, dated the Closing Date, signed by the
Secretary of such entity in form and substance reasonably satisfactory to
Purchaser.
Section 4.4 LEGAL OPINION.
Purchaser shall have received the opinion of Wallace, Bauman, Legon,
Fodman and Xxxxxxx PA, counsel for the Company, dated the Closing Date,
addressed to Purchaser, in form and substance reasonably satisfactory to
Purchaser.
16
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 form and substance
satisfactory to Purchaser.
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 Debentures;
(b) the Warrants;
(c) the Registration Rights Agreement; and
(d) the Subsidiary Guaranty.
Section 4.8 FINANCING STATEMENTS.
The Company and each Subsidiary shall have delivered to Purchaser
financing statements, in form appropriate for filing in each jurisdiction where
filing a financing statement is required to perfect a security interest in any
of the Collateral, in form and substance reasonably satisfactory to Purchaser.
Section 4.9 [Reserved.]
17
Section 4.10 LOCK-UP AGREEMENTS.
The Company shall have delivered to Purchaser a Lock-up Agreement,
executed by Xxxxxxx X. Xxxxxx, in form and substance satisfactory to Purchaser.
Section 4.11 SUBORDINATION AGREEMENT; CONSENT.
The Company shall have delivered to Purchaser, and Purchaser shall have
executed and delivered, a Subordination Agreement (the "FIDELITY SUBORDINATION
AGREEMENT"), dated as of the Closing, by and among the Purchaser, Fidelity
Funding of California, Inc., Fidelity Funding, Inc., the Company and ACS
Acquisition Corp., consenting to the transactions contemplated by this
Agreement, in form and substance satisfactory to Purchaser in its sole
discretion. The Company shall have delivered to Purchaser a Consent, dated as of
the Closing, by Flowserve Corporation, as successor in interest to Durco
International Inc., consenting to the transactions contemplated by this
Agreement, in form and substance satisfactory to Purchaser in its sole
discretion.
Section 4.12 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.
Section 4.13 EXPENSES.
The Company shall have reimbursed Purchaser for all fees and expenses
as provided in Section 11.1 herein.
Section 4.14 WAIVER OF CONDITIONS.
If on the Closing Date the Company fails to tender to Purchaser the
Debentures and the other Operative Documents 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 Purchaser, in its 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 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:
18
Section 5.1 USE OF PROCEEDS.
The Company shall use the proceeds of the sale of the Debentures only
for working capital purposes, as determined in the good faith business judgment
of the Company.
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,
Section 8.3 [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 (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, in each case in a
commercially reasonable manner.
Section 5.6 NATURE OF BUSINESS.
The Company will not, and will not permit any Subsidiary to, engage in
any business if, as a result, the general nature of the business, taken on a
consolidated basis, which would then be engaged in by the Company and its
Subsidiaries would be substantially changed from the general
19
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 will, and will cause each Subsidiary to, maintain
the 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 or any Subsidiary is a party or by which the
Company, any Subsidiary or any of their properties are bound. Without limiting
the foregoing, each of the Company and its Subsidiaries shall pay all of its
indebtedness promptly and substantially in accordance with the terms thereof.
Section 5.10 ERISA MATTERS.
If the Company or any Subsidiary has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
ERISA (a "PLAN"), then the Company covenants as to itself and each such
Subsidiary that: (i) throughout the existence of the Plan, the Company's or such
Subsidiary's contributions under the Plan will meet the minimum funding
standards required by ERISA and neither the Company nor any such Subsidiary will
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
20
defined in ERISA) required by ERISA to be filed with the Labor Department or the
PBGC by the Company or any such Subsidiary, at the time that such notice is so
filed.
Section 5.11 BOOKS AND RECORDS; RIGHTS OF INSPECTION.
The Company will, 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 representatives 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 representatives 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 with the month of June 1998, monthly internal financial
reports which at a minimum shall consist of a consolidated balance sheet of the
Company as of the close of such month and related consolidated 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 forty-five (45) days after the end of each quarterly fiscal period
(except the last) of each fiscal year, copies of:
(i) consolidated and consolidating balance sheets of
the Company and Subsidiaries as of the close of the
three-month period then ended, setting forth in comparative
form the consolidated figures 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; provided that delivery to Purchaser within the
above-described time period of the Company's Form 10-QSB with respect to such
fiscal quarter shall satisfy the requirements of this
21
Section 5.12(b) as to the
delivery of a consolidated balance sheet, a consolidated statement of income and
retained earnings and a consolidated statement of cash flows;
(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; provided that delivery to Purchaser within the
above-described time period of the Company's Form 10-KSB with respect to such
fiscal year shall satisfy the requirements of this Section 5.12(c) as to the
delivery of a consolidated balance sheet, a consolidated statement of income and
retained earnings and a consolidated statement of cash flows;
(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.
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Section 5.13 LIMITATIONS ON DEBT AND OBLIGATIONS.
(a) The Company shall not, and shall not permit any Subsidiary to,
issue, assume, guarantee or otherwise become liable or permit to exist any
Indebtedness except: (i) Indebtedness constituting Permitted AR Financing (as
such term is defined in Section 5.13 below); provided the incurrence of the
principal amount of such Indebtedness or related accrued interest in connection
therewith shall not decrease Purchaser's Tangible Asset Coverage (as such term
is defined in Section 5.13 below) to less than 1.50; (ii) Indebtedness existing
on the date hereof and reflected on SCHEDULE 5.13 hereto; (iii) Indebtedness
incurred pursuant to the Debentures; (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 in an amount not to exceed $100,000 per fiscal year; and (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.
(b) The term "Permitted AR Financing" shall mean Indebtedness incurred
for working capital purposes and secured solely by a first lien on the accounts
receivable of the Company or any of its Subsidiaries. The term "Tangible Asset
Coverage" shall equal, at any time, the result obtained by dividing (i) (A)
total assets of the Company as reflected on the latest quarterly consolidated
balance sheet of the Company delivered to Purchaser pursuant to Section 5.12(b)
(excluding the assets and the debt of ACS Acquisition Corp. a/k/a Filtration
Systems Division ("FSD") that would otherwise appear on such consolidated
balance sheet) less (B) the outstanding amount of all principal and related
accrued interest Indebtedness of the Company secured in part or in whole by some
or all of the assets of the Company (excluding any such Indebtedness owed solely
by FSD and not guaranteed by the Company or any Subsidiary and excluding the
Indebtedness evidenced by the Debentures) by (ii) the outstanding amount of all
principal and related accrued interest Indebtedness of the Company under the
Debentures.
Section 5.14 GUARANTIES.
Without the prior written consent of Purchaser, the Company will not,
and will not permit any Subsidiary to, be or become liable in respect of any
Guaranty except Guaranties by the Company or any Subsidiary 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 (including
real 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
23
title retention devices, except (i) those Liens which exist as of the date
hereof or (ii) Liens hereafter created on Indebtedness which is permitted under
Section 5.13(vi) or (viii).
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 dividends or other
distributions payable solely in shares of capital stock of Company;
(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 (other than the Warrants issued in connection with this Agreement); 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 Xxxxx'x 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, Xxxxx'x 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 the
Company or any Subsidiary;
24
(e) receivables arising from the sale of goods and services in
the ordinary course of business of the Company and its Subsidiaries; and
(f) Investments by the Company in one or more Subsidiary for
use in the ordinary course of such Subsidiary's business.
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 entity,
(2) acquire all or any part of the operating assets of any other corporation or
entity other than in the ordinary course of business (3) 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 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 any Wholly-owned 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 of the Company)
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;
(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;
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(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). Nothing contained in this Section 5.19
shall prohibit the Company or its Subsidiaries from entering into compensation
arrangements with officers and directors of the Company or such Subsidiary if
such arrangement is determined in the good faith judgment of the board of
directors thereof to be in the best interests of the Company or such Subsidiary.
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.
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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 thirty (30) days before 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 RIGHT.
At any time or from time to time after the Closing Date, the Company
shall invite one representative of Purchaser to attend, at the Company's
expense, all meetings of the Company's Board of Directors and all committees of
the Company's Board of Directors in a nonvoting capacity and, in this respect,
shall give such representative copies of all notices and meeting agenda in
advance of such meetings and shall permit such representative to review all
documents and other materials provided to directors at such meetings. The
Company shall also provide Purchaser, in advance, with copies of all actions
proposed to be taken by the Board of Directors in lieu of meeting.
Section 5.23 KEY EXECUTIVES.
Each of Xxxxxxx X. Xxxxxx, Xxxxx X. Xxxxx and Xxxxxxx XxXxxxx shall
continue to be employed or engaged by the Company in such position and with the
current duties and responsibilities for at least that position, unless (i) such
employment or engagement ceases because of death, or (ii) the Company replaces
such officer, employee or consultant within ninety (90) days of the person's
notice of resignation or termination with another executive who shall be
reasonably acceptable to Purchaser.
Section 5.24 WARRANT VALUATION LETTER.
Not later than July 2, 1998, the Company shall have delivered to
Purchaser a Warrant Valuation letter in form and substance satisfactory to
Purchaser.
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.
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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 and permitted under the terms
hereof), including, without limitation, any and all indebtedness now or
hereafter owing by the Company as described in Section 5.13(i), together with
all obligations issued in renewal, deferral, extension, refunding, amendment or
modification of any such indebtedness, in each case as permitted hereunder
(collectively, the "SENIOR INDEBTEDNESS").
Section 6.2 LIQUIDATION, ETC.
(a) Upon any distribution of assets of the Company in connection with
any dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency, or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise), the holders of all Senior
Indebtedness shall first be entitled to receive payment in full of the principal
thereof, premium, if any, and interest due thereon, and all costs and expenses
(including attorneys' fees) related thereto, before the holders of the
Debentures shall be entitled to receive any payment on account of the principal
of or interest on or any other amount owing with respect to the Debentures
(other than payment in shares of capital stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment, which stock and securities are
subordinated to the payment of all Senior Indebtedness and securities received
in lieu thereof which may at the time be outstanding). Under the circumstances
provided herein, the holders of the Senior Indebtedness shall have the right to
receive and collect any distributions made with respect to the Debentures until
such time as the Senior Indebtedness is paid in full, and shall have the further
right to take such actions as may be deemed necessary or required to so receive
and collect such distributions including making or filing any proofs of claim
relating thereto.
(b) Without in any way modifying the provisions of this Article VI or
affecting the subordination effected hereby if such notice is not given, the
Company shall give prompt written notice to 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).
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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, 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
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 Purchaser
the principal of and interest on the Debentures as and when the same shall
become due and payable in accordance with the terms of the Debentures, or is
intended to or shall affect the relative rights of 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 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
29
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,
the Debentures are no longer subject to the restrictions described herein.
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 which default is not cured within three (3)
business days; 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, 5.23
or 5.24 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
30
(g) Any representation or warranty made by the Company herein, or made
by the Company in any statement or certificate furnished by the Company in
connection with the consummation of the issuance and delivery of the Debentures
or furnished by the Company pursuant hereto, is untrue in any material respect
as of the date of the issuance or making thereof; or
(h) Final judgment or judgments for the payment of money aggregating in
excess of $100,000, is or are outstanding against the Company or any Subsidiary
or against any property or assets of either and any one of such judgments has
remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
period of thirty (30) days from the date of its entry; or
(i) The Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an assignment for the
benefit of creditors, or the Company or any Subsidiary applies for or consents
to the appointment of a custodian, trustee, liquidator, or receiver for the
Company or such Subsidiary or for the major part of the property of either; or
(j) A custodian, trustee, liquidator, or receiver is appointed for the
Company or any Subsidiary or for the major part of the property of either and is
not discharged within sixty (60) days after such appointment;
(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;
or
(l) Any event shall occur which, pursuant to the provisions of the
Fidelity Subordination Agreement, results or could result in the Purchaser's not
being entitled to promptly receive or to retain scheduled payments of interest
or principal under the Debentures.
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
31
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 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 consent or approval of Purchaser required to be obtained hereunder
shall mean the consent of the holders of at least fifty percent (50%) in
aggregate principal amount of outstanding Debentures. 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 fifty
percent (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.
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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:
"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.
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
33
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.
"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) obligations under any sale and
repurchase agreement, (e) 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.
"PERSON" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
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 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.
35
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 and the
consummation of the transactions contemplated hereby, including but not limited
to the reasonable fees, expenses and disbursements of Xxxxxxxx & Xxx, PLC,
Purchaser's counsel and (b) so long as either 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, the Debentures, the Warrants or the Additional Warrants. The Company
also agrees that it will pay and save each 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, the
Debentures the Warrants or the Additional Warrants, whether or not any
Debentures are then outstanding. The Company agrees to protect and indemnify
each 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:
If to Purchaser: Tandem Capital, Inc.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxxx
36
with a copy to: Xxxxxxxx & Xxx, PLC
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention:Xxxxxx I.N. XxXxxxxx, Esq.
If to the Company: Aqua Care Systems, Inc.
00000 X.X. 00 Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attention: President
with a copy to: Wallace, Bauman, Legon, Fodman and
Xxxxxxx PA
0000 Xxxxx xx Xxxx Xxxx., 0xx Xxxxx
Xxxxx Xxxxxx, Xxxxxxx 00000
Attention: Xxxxx Xxxxxx
Fax: (000) 000-0000
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 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 11.5 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 Debentures. 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.
37
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.
The corporations law of the State of Delaware shall govern all issues
concerning the relative rights of the Company and the holders of its securities.
In all other matters, this Agreement, the Debentures, the Warrants and the
Additional Warrants 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 ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement of the parties with
regard to the sale and issuance of the Debentures, the Warrants and the
Additional Warrants.
38
[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:
AQUA CARE SYSTEMS, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and Chief Executive Officer
--------------------------------------------
GUARANTORS:
ACS ACQUISITION CORPORATION (A/K/A FILTRATION
SYSTEM
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and Chief Executive Officer
--------------------------------------------
CAR WASH EQUIPMENT & SUPPLY,
RYKO OF SOUTH FLORIDA, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman
--------------------------------------------
DI-TECH SYSTEMS, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and Chief Executive Officer
--------------------------------------------
ENVIROSYSTEMS SUPPLY, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and Chief Executive Officer
--------------------------------------------
GRAVITY FLOW SYSTEMS, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and President
--------------------------------------------
KISS INTERNATIONAL, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and President
--------------------------------------------
MIDWEST WATER TECHNOLOGIES, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and President
--------------------------------------------
PURE FLOW WATER COMPANY, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and President
--------------------------------------------
SERNATECH, INC.
By:/s/ XXXXXXX X. XXXXXX
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
--------------------------------------------
Its: Chairman and President
--------------------------------------------
PURCHASER:
SIRROM CAPITAL CORPORATION
D/B/A TANDEM CAPITAL
By:/s/ XXXXXX X. XXXXXXXXXXX
----------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
----------------------------
Its: V.P. Tandem Capital
----------------------------
