EXHIBIT 4(q)
September 12, 1997
Xx. Xxxxxxx X. Xxxxx, Xx.
Chief Executive Officer
Pico Products, Inc.
00000 Xxxxxxxx Xxxxxxxxx
Xxxxxxxx Xxxxxxx, XX 00000
RE: THE XXXXXXX CORPORATION - PICO PRODUCTS, INC.
Dear Xxxxxxx:
The purpose of this letter is to confirm our agreement with respect to
the issuance and sale by Pico Products, Inc., a New York corporation
(hereinafter "Pico"), of 165 shares of Series B Redeemable Preferred Shares (the
"Stock") to The Xxxxxxx Corporation, a Delaware Corporation ("Xxxxxxx"), and I
am writing you as Vice-President of Xxxxxxx pursuant to the authority of its
Board of Directors, evidence of which will be delivered at or prior to Closing
(as hereinafter defined). A substantial reason for the willingness of Xxxxxxx
to make this investment in the Stock of Pico is the willingness of Allied
Capital to make an equity/debt investment in Pico (the "Allied Transaction") on
substantially the terms and in the amounts set forth in a certain letter dated
July 15, 1997 (the "Allied Letter") from Allied to you, and, therefore, the
affirmative covenants and undertakings that Xxxxxxx will require of Pico are
intended to be equivalent to those provided to Allied by Pico, thereby reducing
the administrative burden of the transaction to Pico.
Subject to the foregoing and the mutual covenants herein contained and
for and in consideration of their mutual obligations herein set forth, Xxxxxxx
and Pico, intending to be legally bound, agree as follows:
1. THE PURCHASE. Xxxxxxx agrees at Closing to deliver to Xxxx the sum of
One Hundred Sixty Five Thousand ($165,000) Dollars in the form of a cashier's
check made payable to Pico's order or wire transfer to an account designated by
Pico. Xxxx at Closing will deliver to Xxxxxxx one or more certificates
representing in the aggregate one hundred sixty-five (165) shares of the Stock
issued in the name of Xxxxxxx. Xxxxxxx further agrees to deliver to Xxxx at
Closing the sum of ten dollars ($10.00) in the form of a check payable to Pico's
order or wire transfer to an account designated by Pico as consideration for the
purchase by Xxxxxxx of warrants (the "Warrants") to purchase 144,200 Pico common
shares from Pico together with certain contingent warrants to purchase Pico
common shares under certain circumstances. The designations, powers,
preferences and rights, and the qualifications, limitations and restrictions of
the Stock are set forth in the Designation Statement attached to this letter as
Exhibit "A" and are generally described below in this letter. It is understood
that in the event there shall be any inconsistency between the Designation
Statement and this letter, the provisions of the Designation Statement shall be
controlling.
A. The Stock will impose on Pico the obligation to declare
quarterly dividends, payable at a rate of ten percent (10%) per annum, with
the option of Xxxxxxx to receive Pico common shares (the "Dividend Shares")
in lieu of the payment of any cash dividend otherwise payable, upon written
notification by Xxxxxxx to Pico thirty days prior to the scheduled dividend
payment date. If Xxxxxxx exercises the option to take Dividend Shares, the
number of such Dividend Shares shall be determined in the manner set forth in
the Designation Statement. All unpaid cash dividends shall be cumulative.
In the event that Pico exercises its option to delay payment of a quarterly
dividend (as provided in the Designation Statement), Pico will pay Xxxxxxx
interest on the amount of the delayed dividend payment at an annual rate
equal to First Union Bank's prime rate as in effect from time to time during
the delay in payment. The Stock will be redeemable according to the
following schedule:
All outstanding shares on or before September 28, 2000.
Notwithstanding the foregoing, Pico may call all or any portion of the Stock for
redemption at any time without penalty. The Stock will have preference in
liquidation or in any bankruptcy or reorganization proceeding ahead of the
common stock. Xxxxxxx acknowledges that Pico will not make any payment of any
dividend or any amount on account of a redemption of the Stock during any period
of time when there shall exist an event of default under the Allied Agreement.
B. The Warrants will be separate and detachable, and
exercisable for a period of six (6) years after Closing or 36 months from the
final payment on the subordinated debentures issued by Pico pursuant to the
Allied Transaction, whichever is later. The exercise price will be equal to the
average closing price for the 90 calendar days preceding the date which is 120
calendar days following the date of filing with the SEC of the Company's Form
10-K for the fiscal year ended July 31, 1997 (the "Pricing Date"). In the event
that any or a portion of the Warrants are exercised prior to the Pricing Date,
the per share exercise price will be equal to the average trading price for the
90 calendar days preceding the actual date of exercise (the "Preliminary
Exercise Price"), subject to adjustment based on the actual Exercise Price on
the Pricing Date, provided that at the time of such determination, the Common
Stock is traded in the over-the-counter market or on a national or regional
securities exchange. In the event there is no closing price on any day during
such 90 day period, then the average of the most recent bid and asked price
shall be used as the price for such day for purposes of calculating the Exercise
Price. The Warrants will give Xxxxxxx the same registration rights, rights to
obtain additional warrants and anti-dilution protection as given to Allied under
the Allied Transaction, provided that Xxxxxxx shall only exercise its demand
registration rights in conjunction with Allied.
2. CONDITION PRECEDENT TO XXXXXXX'X OBLIGATIONS. Xxxxxxx'x obligations
under this Agreement shall depend and be conditioned upon (i) Xxxx's completion
of the Allied Transaction on substantially the terms and conditions set forth in
the Allied Letter and (ii) the
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sale to Xxxxxxx by Allied of 35,000 shares of the Common Stock of Pico at a
price of $.286 per share.
3. WAIVER OF ANTI-DILUTION RIGHTS. Xxxxxxx hereby waives its rights to
"Anti-Dilution Adjustments" under Section 4 of the Stock Purchase Warrant dated
November 21, 1996 (the "Prior Warrant") with respect to the issuance by Xxxx of
the Stock, Warrants and the common shares to be received upon exercise of the
Warrants, hereinafter referred to as the "Warrant Shares." Except for the
specific waiver contained in this Section 3, Xxxxxxx'x rights to anti-dilution
protection under the Prior Warrant remain in full force and effect and Xxxxxxx
is under no obligation to grant any further waivers thereof.
4. CALL PROVISION. Within 90 days after all of the Obligations have been
fully paid, the Parent may purchase from the Holders up to 30,000 shares of the
Warrant Shares, at a price per share equal to $3.00, or, if the Warrants have
not been exercised, may have the right to purchase up to 30,000 shares of
Warrants, at a price per share equal to $3.00 less the exercise price per share.
5. REPRESENTATIONS AND WARRANTIES.
X. Xxxx hereby makes the same representations and warranties to
and for the benefit of Xxxxxxx as are contained in Article III of the Investment
Agreement, dated today, between Allied Capital International Corporation and
certain affiliates, as the investors, and Pico and certain affiliates (the
"Allied Agreement"). In addition Pico represents and warrants to Xxxxxxx that
(i) this agreement and the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Pico; and (ii) this
Agreement and the Warrants constitute the valid and binding obligations of Pico,
enforceable in accordance with their respective terms.
X. Xxxxxxx hereby represents and warrants to Pico that
it (i) is acquiring the Stock and the Warrants (and will acquire the Warrant
Shares) for its own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof; (ii) understands that
the Stock, the Warrants, and the Warrant Shares have not been registered under
the Securities Act of 1933 (the "Act"), as amended, by reason of their issuance
in a transaction exempt from the registration requirements of the Act pursuant
to Section 4(2) thereof and may not be offered or sold except pursuant to an
effective registration statement or an available exemption from the registration
requirements under the Act; and (iii) is an "accredited investor" as defined in
Regulation D as promulgated under the Act. Xxxxxxx agrees that certificates
representing the Stock, the Warrants, and the Warrant Shares will bear
restrictive legends to the effect of clause (ii) of the preceding sentence and
that Pico may require an opinion of counsel, in form and substance reasonably
satisfactory to Pico, to the effect that any proposed transfer will not result
in any violation of the Act and the rules and regulations thereunder.
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6. AFFIRMATIVE COVENANTS. As long as the Stock has not been
redeemed, Pico will make the following covenants:
A. PROJECTIONS. Xxxx agrees to supply the same
projections to Xxxxxxx it has agreed to supply under section 4.05 of the
Allied Agreement.
B. MATERIAL FILINGS; MATERIAL LITIGATIONS; DEFAULT
NOTICES. Xxxx agrees to supply Xxxxxxx with the same information it has
agreed to supply under Sections 4.06, 4.07 and 4.08 of the Allied Agreement.
7. NEGATIVE COVENANTS.
A. As long as any of the Stock remains unredeemed, Xxxx
agrees to the same negative covenants for the benefit of Xxxxxxx that it has
provided under sections 5.01, 5.02 and 5.05 of the Allied Agreement.
B. As long as any of the Stock remains unredeemed and Xxxxxxx
has any unexercised Warrants, Xxxx agrees not to make any redemptions of
common shares or dividend payments on the common shares unless Xxxxxxx is
given an opportunity to exercise its Warrants.
C. As long as any of the Stock remains unredeemed, Xxxx
agrees not to issue any preferred shares senior to, or of equal parity with,
the Stock, or to make any cash payment of dividends on any preferred shares
which are junior to the Stock if the amount of such cash dividends paid in
any fiscal year is greater than the Equivalent Rate multiplied by the
purchase price of such junior preferred shares. The term "Equivalent Rate"
shall mean the prime rate of First Union Bank on the date of issuance of any
such junior preferred shares plus 3.5%.
8. DEFAULT.
A. The following shall constitute events of default:
(i) Failure to declare or pay any dividend on the Stock as
required by this Agreement or the provisions of the Designation Statement.
(ii) Breach of any affirmative or negative covenant; Pico will have
10 days to cure any violation of a financial covenant after notice of default
from Xxxxxxx and will have 30 days to cure any violation of a non-financial
covenant after notice of default from Xxxxxxx. Xxxx agrees to provide
Xxxxxxx with any notice of default which it provides under the Allied
Agreement.
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(iii) Any representation or warranty made by Pico pursuant to
Section 4A hereof shall prove to have been untrue when made in any material
respect.
(iv) The occurrence of an event described in Section 7.04, 7.05,
7.06, or 7.07 of the Allied Agreement.
In addition to all other remedies it may have at law or in equity in the
event of a Default as set forth above, which is not cured as herein provided,
Xxxxxxx shall have the unqualified right to demand the immediate redemption
of the Stock, with which demand Xxxx agrees to immediately comply.
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9. LEGAL OPINIONS.
X. Xxxx agrees to supply Xxxxxxx with an opinion of the counsel,
Messrs. Xxxx, Xxxxx, Xxxxxx and Xxxx, to the effect that:
(i) Pico is a corporation duly incorporated and validly existing
under the laws of the State of New York.
(ii) The transaction set forth in this letter agreement and the
execution of this Agreement have been duly authorized by the Board of
Directors of Pico and do not violate any law or statute, by-law, agreement,
covenant or understanding by which Xxxx is bound.
X. Xxxxxxx agrees to supply Xxxx with the opinion of its
counsel, Messrs. Xxxxxxxxxx, XxXxxxxxx, Xxxxxx & Xxxxxx, to the effect that:
(i) The transaction set forth in this letter agreement and the
execution of this letter agreement have been duly authorized by the Board of
Directors of Xxxxxxx; and the borrowing necessary to fund this transaction
has likewise been duly authorized by the Board of Directors of Xxxxxxx.
10. CLOSING. Closing hereunder will take place simultaneously with
Xxxx's closing of the Allied Transaction and simultaneously with the
execution and delivery of this Agreement, at the offices of Messrs. Xxxx,
Ewing, Xxxxxx & Xxxx, 0000 Xxxxxx Xxxxxx Xxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx.
Sincerely,
By:
-----------------------
Vice President
Accepted and Agreed to:
PICO PRODUCTS, INC.
By:
-----------------------
Xxxxxxx X. Xxxxx, Xx., Chairman
and Chief Executive Officer
Date: ____________, 1997
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EXHIBIT A
PICO PRODUCTS, INC.
RESOLUTION OF THE BOARD OF DIRECTORS
APPROVING
THE DESIGNATION STATEMENT
RELATING TO SERIES B REDEEMABLE PREFERRED SHARES
WHEREAS, the Certificate of Incorporation of the Corporation authorizes
the Corporation to issue a total of 500,000 series preferred shares, par
value $.01 per share ("Preferred Shares"), which may be divided into one or
more series as the Board of Directors may determine;
WHEREAS, the Certificate of Incorporation of the Corporation expressly
vests in the Board of Directors the authority to fix and determine the
designations, powers, preferences, and rights, and the qualifications,
limitations and restrictions thereof, of the Preferred Shares;
WHEREAS, the Board of Directors has designated a series of the
Corporation's Preferred Shares consisting of one thousand (1,000) shares
designated as Series A Redeemable Preferred Stock (the "Series A Shares"),
and one thousand (1,000) shares of such Series A Redeemable Preferred Shares
have been issued by the Corporation;
WHEREAS, it is deemed advisable to designate a second series of
Preferred Shares consisting of 165 shares designated as Series B Redeemable
Preferred Shares;
NOW, THEREFORE, IT IS HEREBY RESOLVED, that pursuant to Paragraph THIRD
of the Certificate of Incorporation of the Corporation, there be and hereby
is authorized and created a series of Preferred Shares hereby designated as
Series B Redeemable Preferred Shares, to consist of 165 shares having a par
value of $0.01 per share, which series shall have the voting rights,
designations, powers, preferences, relative and other special rights, and
qualifications, limitations and restrictions set forth below:
1. DESIGNATION. The designation of the series of Preferred Shares
created hereby is Series B Redeemable Preferred Shares and the number of
shares constituting such series is 165 (the "Series B Shares").
2. RANK. The Series B Shares shall, with respect to dividend rights,
rights on redemption and rights on liquidation, winding up and dissolution
(collectively, the "Rights"), rank prior to all classes of common shares of
the Corporation and to each other class of capital shares or series of
Preferred Shares of the Corporation hereafter created which does not
expressly provide that it ranks senior to or on a parity with the Series B
Shares. The Series B Shares shall, with respect to all such Rights, be on
parity with the Series A Shares.
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3. VOTING RIGHTS. Except as otherwise provided by law, the holder of
the Series B Shares shall not be entitled to vote on any matters with the
holders of other voting capital shares.
4. DIVIDENDS. Except as otherwise provided in this Paragraph 4, the
holder of the Series B Shares shall not be entitled to receive dividends.
A. GENERAL DIVIDEND OBLIGATIONS. When and as declared by the
Board of Directors of the Corporation, the Corporation shall pay to the
holders of the Series B Shares, out of the assets of the Corporation
available for such payment of dividends under the New York Business
Corporation Law, payable in preference and priority to any payment of any
dividend on common shares of the Corporation, dividends at the times and in
the amounts provided in this Paragraph 4. The Board of Directors of the
Corporation shall declare and pay to the holder of Series B Shares dividends
at the Dividend Rate described in Paragraph 4.C. below on a quarterly basis;
provided that the Board of Directors may in its discretion postpone the
declaration and payment of one or more quarterly dividends so long as
dividends are declared and paid on at least an annual basis.
B. CALCULATION OF DIVIDENDS. Dividends for each Series B Share
will be calculated cumulatively on a quarterly basis at the rate and in the
manner prescribed herein from and including the "Commencement Date" with
respect to such Series B Shares to, but excluding, the date on which the
Series B Shares are redeemed or the Liquidation Price has been received with
respect to the Series B Shares, whether or not such dividends have been
declared and whether or not there are (at the time such dividends are
calculated or become payable or at any other time) profits, surplus or other
funds of the Corporation legally available for the payment of dividends.
For the purposes of this Subparagraph 4.B., the "Commencement Date" with
respect to any Series B Share shall be deemed to be the date of issuance
regardless of the number of times transfer of such Series B Share is made on
the share records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Series B Share
(whether by reason of transfer of such Series B Share or for any other
reason.)
C. DIVIDEND RATE. Dividends payable on the Series B Shares shall
be calculated cumulatively with respect to each quarter in which dividends
are due on each Series B Share at a rate of 10% of the Liquidation Value per
annum ("Dividend Rate"). To the extent not paid on the first day of each
January, April, July, and October (each a "Dividend Reference Date"), an
amount equal to all dividends which have been calculated on Series B Shares
then outstanding during the quarterly period (pro rated for a shorter period
as appropriate) ending on the day immediately preceding such Dividend
Reference Date shall be added to the Redemption Price (as described in
Paragraph 7 hereof) of such Series B Share and will remain a part thereof
until (but only until) such dividends are paid. Any subsequent dividends
which are paid to the holder of the Series B Shares in respect thereof shall,
in all instances, be applied first to the
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payment of amounts of dividends which have been added on previous Dividend
Reference Dates to the Redemption Price until the Redemption Price of all
Series B Shares shall be equal to the original Redemption Price, as adjusted,
herein stated.
D. FORM OF PAYMENT. The Dividend Rate shall be payable quarterly
in cash or in common shares of the Corporation, as determined by the holders
of a majority of the outstanding Series B Shares, by notice to the
Corporation at least thirty (30) days prior to the applicable Dividend
Reference Date. In the absence of such notice, it shall be presumed that the
dividend for the applicable quarter shall be payable in cash. In the event
that payment in the form of common shares is elected by the holders of the
Series B Shares, the number of common shares issuable shall be determined by
dividing the amount of the dividend by the average Market Value (as
hereinafter defined) of the Corporation's common shares over the ten
consecutive trading days ending on the trading day immediately prior to the
Dividend Reference Date. "Market Value" shall mean the average of the high
and low prices of the common shares, as reported in The Wall Street Journal,
on the American Stock Exchange (or a similar consolidated transactions report
for the exchange or other market on which the common shares is then trading,
if not the American Stock Exchange) for the relevant date, or if no sales of
common shares were made on such exchange on such date, the average of the
high and low prices of such shares as reported in such composite transaction
report for the preceding day on which sales of shares were made on such
exchange. If the common shares are not listed on a national securities
exchange at the time Market Value is to be determined, then Market Value
shall be determined by the Board of Directors of the Corporation in good
faith pursuant to such method as the Board of Directors deems appropriate and
equitable. Under no circumstances shall the Market Value of a common share
be less than its par value. All fractional shares shall be paid in cash.
All unpaid cash dividends shall be cumulative.
E. PRIORITY. So long as any Series B Shares shall be
outstanding, without the consent of the holders of a majority of the
outstanding Series B Shares, the Corporation shall not declare or pay on the
common shares of the Corporation any dividend whatsoever, whether in cash,
property or otherwise, nor shall the Corporation make any distribution on the
common shares, nor shall any common shares be purchased or redeemed by the
Corporation or any subsidiary thereof, unless (i) all dividends to which the
holders of Series B Shares have been entitled for all previous dividend
periods shall have been paid or declared and a sum of money sufficient for
the payment thereof set apart, and (ii) all Series B Shares which the
Corporation was theretofore obligated to redeem in accordance with Paragraph
7 hereof shall have been redeemed.
5. LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Series B Shares then outstanding shall be entitled to be paid out
of the assets of the Corporation available for distribution to its
shareholders an amount equal to one thousand dollars ($1,000.00) for each
Series B Share outstanding (such amount, as it may be adjusted from time to
time to give effect to any share splits or combinations, recapitalizations or
other similar events, the "Liquidation Value") plus an
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amount equal to all accumulated but unpaid dividends thereon to the date
fixed for the liquidation, dissolution or winding up, before any payment
shall be made or any assets distributed to the holders of common shares.
Except as provided in the preceding sentence, holders of Series B Shares
shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation. If the assets
of the Corporation are not sufficient to pay in full the liquidation payments
payable to the holders of the Series B Shares, then the holders of all such
shares shall share ratably in accordance with the respective amounts to which
the holders of outstanding Series B Shares would be entitled if all amounts
payable thereon were paid in full. The liquidation payment with respect to
each outstanding fractional Series B Share (if any) shall be equal to a
ratably proportionate amount of the liquidation payment with respect to each
outstanding Series B Share.
6. CONVERSION. The Series B Shares shall not be convertible into or
exchangeable for shares of any other series or class of shares of the
Corporation.
7. REDEMPTION. The Series B Shares shall be redeemable as follows:
A. OPTIONAL REDEMPTION. The Series B Shares shall be redeemable,
at the option of the Corporation, in whole or in part, at any time without
penalty, at a redemption price equal to one thousand dollars ($1,000.00) per
share (the "Redemption Price") plus an amount equal to all accumulated but
unpaid dividends thereon to the date fixed for redemption.
B. MANDATORY REDEMPTION. The Series B Shares shall be redeemed,
out of funds legally available therefor, at the Redemption Price plus an
amount equal to all accumulated but unpaid dividends thereon to the date
fixed for redemption on the following dates and in the following amounts:
All outstanding shares on or before September 28, 2000.
C. REDEMPTION PROCEDURES. When the Corporation redeems the Series
B Shares, the following procedures shall apply:
(i) When less than all of the outstanding Series B Shares are
being redeemed, the shares subject to redemption shall be determined in the
sole discretion of the Corporation.
(ii) Notice of redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days prior to
the date on which Series B Shares are to be redeemed (any such date, a
"redemption date"), to the holder of record of the shares to be redeemed at
such holder's address as the same appears on the share register of the
Corporation. Such notice shall state: (a) the redemption date; (b) the
redemption price; (c) the number of shares subject to redemption; and (d) the
place or places where certificates for such shares are to be surrendered for
payment of the redemption price.
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(iii) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in providing
money for the payment of the redemption price of the shares called for
redemption) said shares shall no longer be deemed to be outstanding and shall
have the status of authorized but unissued Series B Shares, and shall not be
reissued as Series B Shares, and all rights of the holder thereof as a
shareholder of the Corporation (except the right to receive from the
Corporation the redemption price) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation at the redemption price aforesaid.
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