Exhibit 10(aa)(i)
DEBENTURE PURCHASE AGREEMENT
OF
SIRROM CAPITAL CORPORATION
AND
COVER-ALL TECHNOLOGIES INC.
DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "Agreement") entered
into the 31st day of March 1997, by and between COVER-ALL
TECHNOLOGIES INC., a Delaware corporation (the "Company"), and
SIRROM CAPITAL CORPORATION, a Tennessee corporation (the
"Purchaser"). The terms which are capitalized herein shall have
the meanings set forth in Section 10.1 hereof unless the context
shall otherwise require.
W I T N E S S E T H:
WHEREAS, the Company desires to obtain additional capital
for use in connection with its business through the issue and
sale of certain obligations, and Purchaser is willing to purchase
such obligations of the Company, on the terms and conditions set
forth herein.
NOW, THEREFORE, in mutual consideration of the premises and
the respective representations, warranties, covenants and
agreements contained herein, the parties agree as follows:
ARTICLE I - SALE AND PURCHASE OF DEBENTURES
Section 1.1 Description of Debentures.
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The Company has authorized the issue and sale of
$3,000,000.00 aggregate principal amount of its 12.5% Convertible
Debentures due March 31, 2002 (the "Debentures"), to be dated the
date of issue, to bear interest from such date at the rate of
12.5% per annum, payable quarterly on the first day of each
January, April, July and October in each year (commencing July 1,
1997) and at maturity and to bear interest on overdue principal
(including any overdue required or optional prepayment of
principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest at the rate
of 15% per annum after maturity, whether by acceleration or
otherwise, until paid, to be expressed to mature on March 31,
2002, and to be substantially in the form attached hereto as
Exhibit A. Interest on the Debentures shall be computed on the
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basis of a 360-day year of twelve 30-day months. The Debentures
are not subject to prepayment or redemption at the option of the
Company prior to their expressed maturity dates except on the
terms and conditions and in the amounts and with the premium, if
any, set forth in Section 5.24 of this Agreement. The term
"Debentures" as used herein shall include each Debenture
delivered pursuant to this Agreement.
Section 1.2 Commitment; Closing Date.
--------------------------------------
Subject to the terms and conditions hereof and on the basis
of the representations and warranties hereinafter set forth, the
Company agrees to issue and sell to Purchaser, and Purchaser
agrees to purchase from the Company, Debentures in the
aggregated principal amount of $3,000,000.00 at a price of 100%
of the principal amount thereof.
Delivery of the Debentures will be made at the offices 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 written wire
instructions received at least twenty-four (24) hours previously,
at 10:00 A.M., Nashville time, on March 31, 1997, or such later
date (not later than _________________________, 1997) as the
Company and Purchaser shall agree (the "Closing Date"). The
Debentures delivered to Purchaser on the Closing Date will be
delivered to Purchaser in the form of a single registered
Debenture for the full amount of such purchase (unless different
denominations are specified by Purchaser), registered in
Purchaser's name or in the name of such nominee as Purchaser may
specify and, with appropriate insertions, in the form attached
hereto as Exhibit A, all as Purchaser may specify at least 24
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hours prior to the date fixed for delivery.
Section 1.3 Processing Fee.
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The Company agrees to pay to Purchaser on or before the
Closing Date a processing fee in an amount equal to Seventy-five
Thousand and No/100 Dollars ($75,000).
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as
follows:
Section 2.1 Corporate Status.
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(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has the corporate power to own and operate its
properties, to carry on its business as now conducted and to
enter into and to perform its obligations under this Agreement,
the Debentures and any other document executed or delivered by
the Company in connection herewith or therewith (collectively,
the "Operative Documents"). The Company is qualified to do
business and is in good standing in each state or other
jurisdiction in which such qualification is necessary under
applicable provisions of law, except where the failure to be so
qualified or in good standing would not have a Materially Adverse
Effect. The states or other jurisdictions in which the Company
is so qualified are set forth on Schedule 2.1(a) hereto.
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(b) Schedule 2.1(b) sets forth a complete list of each
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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
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authority and holds all material licenses, permits and other
required authorizations from government authorities necessary to
own its properties and assets and to conduct its business as it
is now being conducted, and is qualified to do business as a
foreign corporation (or business organization) and is in good
standing in every jurisdiction in which such qualification is
necessary under applicable provisions of law, except where the
failure to be so qualified or in good standing would not have a
Materially Adverse Effect. All of the outstanding shares of
capital stock, or other equity interest, of each Subsidiary
owned, directly or indirectly, by the Company have been validly
issued, are fully paid and nonassessable, and are owned by the
Company free and clear of all liens, charges, security interests
or encumbrances. A certified charter for each Subsidiary and
good standing certificates for each of the states in which each
Subsidiary is qualified to do business are attached to Schedule
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2.1(b).
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(c) Schedule 2.1(c) sets forth a complete list of
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"affiliates," as that term is defined in Rule 405 of Regulation C
adopted under the Securities Act of 1933, as amended (the
"Securities Act"), with a brief statement describing the basis of
each affiliation.
Section 2.2 Capitalization.
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(a) The authorized capital stock of the Company
consists of (i) 30,000,000 shares of common stock, par value $.01
per share (the "Common Stock"), of which as of March 28, 1997,
17,352,783 shares are issued and outstanding. All shares of
Common Stock outstanding have been validly issued and are fully
paid and nonassessable. There are sufficient shares of such
Common Stock reserved for issuance upon the conversion of the
Debentures as described herein or therein; provided, that the
number of shares so reserved shall be increased in accordance
with the terms of this Agreement or the Debentures. Such shares
of Common Stock issuable upon conversion of the Debentures have
been duly and validly authorized and, upon conversion of the
Debentures, will be validly issued, fully paid, nonassessable and
free of any liens or encumbrances created by the Company. Except
as provided on Schedule 2.2(a), there are no statutory or
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contractual pre-emptive rights, rights of first refusal,
antidilution rights or any similar rights held by any party with
respect to the issuance of the Debentures or the issuance of the
Common Stock upon conversion of the Debentures as described
herein and therein. The Company has not violated any federal or
state securities laws in connection with the issuance of any
securities, and the offer, sale and issuance of the Debentures
and the conversion of the Debentures as described therein do not
require registration under the Securities Act or any applicable
state securities laws.
(b) The Company has not granted, or agreed to grant or
issue, any options, warrants or rights to purchase or acquire
from the Company any shares of capital stock of the Company, and
there are no contracts, commitments, agreements, understandings,
arrangements or restrictions as to which the Company is a party,
or by which it is bound, relating to any shares of capital stock
or other securities of the Company, whether or not outstanding
except for (i) the Debentures to be issued pursuant to this
Agreement and (ii) such options, warrants and other rights to
acquire capital stock of the Company set forth on Schedule
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2.2(b).
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Section 2.3 Authorization.
---------------------------
The Company has full legal right, power and authority to
enter into and perform its obligations under this Agreement and
any of the other Operative Documents, without the consent or
approval of any other person, firm, governmental agency or other
legal entity. The execution and delivery of this Agreement, the
issuance of the Debentures hereunder, the execution and delivery
of each other document in connection herewith or therewith to
which the Company is a party, and the performance by the Company
of its obligations hereunder and/or thereunder are within the
corporate powers of the Company and have been duly authorized by
all necessary corporate action properly taken, have received all
necessary governmental approvals, if any were required. The
officer(s) executing this Agreement, the Debentures and any other
document executed and delivered by the Company in connection
herewith or therewith, is duly authorized to act on behalf of the
Company.
Section 2.4 Validity and Binding Effect.
-----------------------------------------
Each of the Operative Documents is the legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors rights generally and except that the
availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court
before which any proceeding may be brought.
Section 2.5 Other Transactions.
--------------------------------
The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not and will
not contravene or conflict with the certificate of incorporation
or bylaws of the Company or any material agreement to which the
Company or any of its Subsidiaries is now a party or by which any
of them or their properties is bound, or constitute a default
thereunder, or 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 violate any provision of law or any applicable
judgment, ordinance, regulation or order of any court or
governmental agency.
Section 2.6 Litigation.
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Except as set forth on Schedule 2.6, there is no litigation,
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arbitration, claim, proceeding or investigation pending or
threatened in which the Company or any Subsidiary is a party or
to which any of its respective properties or assets is the
subject which, if determined adversely to the Company or such
Subsidiary, would individually or in the aggregate have a
Materially Adverse Effect.
Section 2.7 Financial Statements.
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The consolidated financial statements of the Company and
its Subsidiaries for the fiscal years ended December 31, 1993,
1994 and 1995 and the unaudited consolidated financial statements
as of the nine months ended September 30, 1996, which the Company
previously has heretofore delivered to Purchaser, are true and
correct in all material respects and have been prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently followed throughout the periods involved. The
consolidated balance sheets and the related notes fairly present
the financial condition of the Company and its consolidated
Subsidiaries as of the respective dates thereof, and the
consolidated statements of operations, cash flows and changes in
stockholders' equity and the related notes fairly present the
results of operations of the Company and its consolidated
Subsidiaries for the respective periods indicated, provided that
the unaudited consolidated statements as of the nine months ended
September 30, 1996 are subject to normal recurring year-end
adjustments and accruals.
Section 2.8 SEC Reports.
-------------------------
The Company's Common Stock is listed on the Philadelphia
Stock Exchange and the Nasdaq SmallCap Market and has been duly
registered with the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended (the "Securities
Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Since December 31, 1993 the Company has timely
filed all reports, registrations, proxy or information statements
and all other documents, together with any amendments required to
be made thereto, required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively, the "SEC
Reports"). The Company previously has furnished to Purchaser
true copies of all the SEC Reports, together with all exhibits
thereto that Purchaser has requested. The financial statements
contained in the SEC Reports fairly presented (or will fairly
present, as the case may be) the financial position of the
Company as of the dates mentioned and the results of operations,
changes in stockholders' equity and changes in financial position
or cash flows for the periods then ended in conformity with GAAP
applied on a consistent basis throughout the periods involved
except to the extent set forth therein. As of their respective
dates, the SEC Reports complied (or will comply, as the case may
be) in all material respects with all rules and regulations
promulgated by the SEC and did not (or will not, as the case may
be) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 2.9 Absence of Changes.
--------------------------------
Except as set forth on Schedule 2.9, since September 30,
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1996, (i) neither the Company nor any of its Subsidiaries have
incurred any liabilities or obligations, direct or contingent, or
entered into any transactions, not in the ordinary course
business, that are material to the Company, (ii) neither the
Company nor any of its Subsidiaries have purchased any of its
outstanding capital stock or declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock, (iii)
there has not been any change in the capital stock, long-term
debt or short-term debt of the Company, and (iv) there has not
been any material adverse change, or any development involving a
prospective change that would have a Materially Adverse Effect,
other than the fact that the Company has continued to incur
operating losses since such date which have resulted in cash flow
shortages.
Section 2.10 No Defaults.
--------------------------
Except as set forth on Schedule 2.10 and except where a
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default or event of default does not and would not constitute a
Material Adverse Event, no default or event of default by the
Company or any Subsidiary exists under this Agreement or any of
the other Operative Documents, or under any other instrument or
agreement to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or its respective properties
may be bound or, to the knowledge of the Company, affected, and
no event has occurred and is continuing that with notice or the
passage of time or both would constitute a default or event of
default thereunder.
Section 2.11 Compliance With Law.
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Except where failure to do so does not and would not
constitute a Material Adverse Event, the Company has obtained all
licenses, permits and governmental approvals and authorizations
necessary or proper in order to conduct its business and affairs
as heretofore conducted and as hereafter intended to be
conducted. To the Company's knowledge, the Company is in
compliance with all laws, regulations, decrees and orders
applicable to it (including but not limited to laws, regulations,
decrees and orders relating to environmental, occupational and
health standards and controls, antitrust, monopoly, restraint of
trade or unfair competition) to the extent that noncompliance, in
the aggregate, cannot reasonably be expected to have a Materially
Adverse Effect.
Section 2.12 Taxes.
--------------------
Except as set forth on Schedule 2.12, the Company and its
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Subsidiaries have filed or caused to be filed all federal, state
and local income, excise and franchise tax returns required to be
filed (except for returns that have been appropriately extended),
and have paid, or provided for the payment of, all taxes shown to
be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on it by
any governmental authority, agency or instrumentality, prior to
any delinquency with respect thereto (other than taxes,
impositions, assessments, fees and charges currently being
contested in good faith by appropriate proceedings, for which
appropriate amounts have been reserved), and the Company does not
know of any proposed assessment for additional taxes or any basis
therefor. No tax liens have been filed against the Company or
its Subsidiaries or any of their properties. The Company's
federal income tax liability has been finally determined by the
Internal Revenue Service and satisfied for all taxable years up
to and including the taxable year ended December 31, 1995 or
closed by applicable statutes of limitation.
Section 2.13 Certain Transactions.
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Except as set forth on Schedule 2.13(i) and except as to
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indebtedness incurred in the ordinary course of business and
approved by the Board of Directors of the Company, the Company is
not 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 $5,000, and none of its officers or
directors or any members of their immediate families are indebted
to the Company in excess of an aggregate amount of $5,000 or have
any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which
the Company has a business relationship, or any firm or
corporation which competes with the Company, except that officers
and/or directors of the Company may own no more than 4.9% of the
outstanding stock of any publicly traded company which competes
directly with the Company. Except as set forth on Schedule
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2.13(ii), no officer or director or any member of their
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immediate families is, directly or indirectly, interested in any
material contract with the Company. Except as set forth on
Schedule 2.13(iii), the Company is not a guarantor or indemnitor
------------------
of any indebtedness of any other person, firm or corporation.
Section 2.14 Title to Property.
--------------------------------
The Company and each Subsidiary has good and marketable
title to all real and personal property owned by it, free and
clear of all liens, security interests, pledges, encumbrances,
equities claims and restrictions of every kind and nature
whatsoever, except as disclosed on Schedule 2.14 and except for
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such liens, security interests, pledges, encumbrances, equities
claims and restrictions which are not in the aggregate material
to the business, operations or financial condition of the Company
and its Subsidiaries taken as a whole. Any real property and
buildings held under lease by the Company or any Subsidiary are
held under valid existing and enforceable leases, except as
disclosed on Schedule 2.14 or which are not material and do not
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interfere with the use to be made of such buildings or property
by the Company.
Section 2.15 Intellectual Property.
------------------------------------
Except as set forth in Schedule 2.15, the Company and each
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Subsidiary is the lawful owner of its proprietary information
free and clear of any claim, right, trademark, patent or
copyright protection of any third party. As used herein,
"proprietary information" includes without limitation (i) any
computer software and related documentation, inventions,
technical and nontechnical data related thereto, and (ii) other
documentation, inventions and data related to patterns, plans,
methods, techniques, drawings, finances, customer lists,
suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or
used by the Company or any Subsidiary or marketing studies
conducted by the Company or any Subsidiary, all of which the
Company considers to be commercially important and competitively
sensitive and which generally has not been disclosed to third
parties other than customers in the ordinary course of business.
Except as set forth in Schedule 2.15, the Company and each
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Subsidiary has good and marketable title to all patents,
trademarks, trade names, service marks, copyrights or other
intangible property rights, and registrations or applications for
registration thereof, owned by the Company or any Subsidiary or
used or required by the Company or any Subsidiary in the
operation of its business as presently being conducted. The
Company has no knowledge of any infringements or conflict with
asserted rights of others with respect to copyrights, patents,
trademarks, service marks, trade names, trade secrets or other
intangible property rights or know-how which could result in any
Materially Adverse Effect. To the Company's knowledge, no
products or processes of the Company or any Subsidiary infringe
or conflict with any rights of patent or copyright, or any
discovery, invention product or process, that is the subject of a
patent or copyright application or registration known to the
Company. The Company follows such procedures as the Board of
Directors of the Company deems necessary or appropriate to
provide reasonable protection of the Company's or any
Subsidiary'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 or any
Subsidiary 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 or any Subsidiary.
Section 2.16 Debt.
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Schedule 2.16 sets forth a complete and correct list of all
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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; and the maximum
principal or face amounts of the credit in question that are
outstanding and that can be outstanding are correctly stated; and
all liens, pledges or security interests of any nature given or
agreed to be given as security therefor or in connection
therewith are correctly described or indicated in such Schedule.
Section 2.17 Significant Contracts.
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Schedule 2.17 sets forth a complete and correct list of all
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contracts, agreements and other documents pursuant to which the
Company or any Subsidiary receives revenues in excess of $100,000
per fiscal year. Each such contract, agreement and other
document is in full force and effect as of the date hereof and
the Company knows of no reason why such contracts, agreements and
other documents would not remain in full force and effect
pursuant to the terms thereof.
Section 2.18 Environment.
--------------------------
The Company and each Subsidiary has duly complied with, and
its business, operations, assets, equipment, property, leaseholds
or other facilities are in compliance with, the provisions of all
federal, state and local environmental, health, and safety laws,
codes and ordinances, and all rules and regulations promulgated
thereunder. The Company and each Subsidiary has been issued and
will maintain all required federal, state and local permits,
licenses, certificates and approvals relating to (1) air
emissions; (2) discharges to surface water or groundwater;
(3) noise emissions; (4) solid or liquid waste disposal; (5) 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 (6) other environmental,
health or safety matters. Neither the Company nor any Subsidiary
has received notice of, or knows of any violations of any
federal, state or local environmental, health or safety laws,
codes or ordinances, and any rules or regulations promulgated
thereunder with respect to its businesses, operations, assets,
equipment, property, leaseholds, or other facilities. Except in
accordance with a valid governmental permit, license, certificate
or approval, there has been no emission, spill, release or
discharge into or upon (1) the air; (2) soils, or any
improvements located thereon; (3) surface water or groundwater;
or (4) the sewer, septic system or waste treatment, storage or
disposal system servicing the property, leaseholds or other
premises of the Company, of any toxic or hazardous substances or
wastes at or from the property, leaseholds or other premises of
the Company; and accordingly property, leaseholds and other
premises of the Company and each Subsidiary are free of all such
toxic or hazardous substances or wastes. There has been no
complaint, order, directive, claim, citation or notice by any
governmental authority or any person or entity with respect to
(1) air emissions; (2) 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; (3) noise emissions; (4) solid or
liquid waste disposal; (5) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or
waste; or (6) other environmental, health or safety matters
affecting the Company or any Subsidiary or any of their
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).
Section 2.19 ERISA.
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The Company and each Subsidiary is in compliance in all
material respects with all applicable provisions of Title IV of
the Employee Retirement Income Security Act of 1974, Pub. L. No.
93-406, September 2, 1974, 88 Stat. 829, 29 U.S.C.A. Section 1001
et seq. (1975), as amended from time to time ("ERISA"). 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 2.20 Employees.
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Schedule 2.20 sets forth the number of full-time employees
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and full-time equivalent employees of the Company and each
Subsidiary as of the most recent payroll date, which date is set
forth therein. Neither the Company nor any Subsidiary has
current labor problems or disputes which have resulted in, or
which the Company reasonably believes could be expected to have,
a Materially Adverse Effect.
Section 2.21 Accounting Matters.
---------------------------------
The Company and each Subsidiary maintains a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for the assets of the
Company and each Subsidiary; (iii) access to the assets of the
Company and each Subsidiary is permitted only in accordance with
management's general or specific authorization; and (iv) the
recorded accountability for assets of the Company and each
Subsidiary are compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
Section 2.22 Distributions to Company.
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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 2.23 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 to
purchase or carry any equity security of a class which is
registered pursuant to Section 12 of the Exchange Act.
Section 2.24 Limited Offering of Note and Option.
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Neither the Company nor anyone acting on its behalf has
offered the Debentures or any similar securities for sale to, or
solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof, with, any person
other than Purchaser and not more than 35 other institutional
investors. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action which would subject the
issuance or sale of the Debentures to Section 5 of the Securities
Act or the registration or qualification provisions of the blue
sky laws of any state.
Section 2.25 Registration Rights.
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Except as described in Schedule 2.25, the Company is not
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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 Fees/Commissions.
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The Company has not agreed to pay any finder's fee,
commission, origination fee (except for the processing due to
Purchaser pursuant to Section 1.3 hereof) or other fee or charge
to any person or entity with respect to the investment or other
transactions contemplated hereunder.
Section 2.27 Regulatory Compliance.
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Except as set forth on Schedule 2.27, the conduct of the
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business of the Company and each Subsidiary is not dependent on
any license, permit or other authorization of any federal, state
or local regulatory body, and except as set forth on Schedule
--------
2.27, such business is not subject to the regulation of any
----
federal, state or local government regulatory body by reason of
the nature of the business being conducted. All material
licenses, permits and authorizations set forth on Schedule 2.27
-------------
are in full force and effect.
Section 2.28 1940 Act Compliance.
----------------------------------
The Company is an "eligible portfolio company" as such term
is defined in Section 2(a)(46) of the Investment Company Act of
1940, as amended, and the issuance and sale by the Company of the
Debentures does not constitute a "public offering" as such term
is used in Section 55(a)(1) thereof.
Section 2.29 Disclosure.
-------------------------
No representation or warranty given as of the date hereof by
the Company contained in this Agreement or any schedule attached
hereto or any statement in any document, certificate or other
instrument furnished or to be furnished to the Purchaser pursuant
hereto, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or
omits or will (as of the time so furnished) omit to state any
material fact which is necessary in order to make the statements
contained herein or therein not misleading in any material
respect.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents to the Company as follows:
Section 3.1 Corporate Status.
------------------------------
Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Tennessee and
has the corporate power to own and operate its properties, to
carry on its business as now conducted and to enter into and to
perform its obligations under this Agreement and any other
document executed or delivered by Purchaser in connection
herewith.
Section 3.2 Other Transactions.
--------------------------------
The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not and will
not contravene or conflict with the certificate of incorporation
or bylaws of Purchaser or any material agreement to which
Purchaser is now a party or by which it or any of its properties
is bound, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge, security interest or
encumbrance of any nature upon any of the property or assets of
Purchaser pursuant to the terms of any such agreement or
instrument, or violate any provision of law or any applicable
judgment, ordinance, regulation or order of any court or
governmental agency.
Section 3.3 Authorization.
---------------------------
Purchaser has full legal right, power and authority to enter
into and perform its obligations under this Agreement and any
other document executed and delivered by Purchaser in connection
herewith, without the consent or approval of any other person,
firm, governmental agency or other legal entity. The execution
and delivery of this Agreement and any other document executed
and delivered by Purchaser in connection herewith, and the
performance by Purchaser of its obligations hereunder and/or
thereunder are within the corporate powers of Purchaser, have
received all necessary governmental approvals, if any were
required, and do not and will not contravene or conflict with the
charter or bylaws of Purchaser. The officer(s) executing this
Agreement and any other document executed and delivered by
Purchaser in connection herewith, is duly authorized to act on
behalf of Purchaser.
Section 3.4 Validity and Binding Effect.
-----------------------------------------
This Agreement and any other document executed and delivered
by Purchaser in connection herewith are the legal, valid and
binding obligations of the Purchaser, enforceable against it in
accordance with their respective terms.
Section 3.5 Purchaser Investment Representations.
--------------------------------------------------
Purchaser is acquiring the Debentures 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; it being understood that Purchaser intends to
transfer and assign the Debentures and all Purchaser's rights and
obligations under this Agreement to one or more wholly-owned
subsidiaries of Purchaser. Purchaser is an "accredited investor"
as defined in Rule 501(a) under the Securities Act.
ARTICLE IV - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to purchase and pay for the
Debentures on the Closing Date shall be subject to the
fulfillment on or before the Closing Date of each of the
following conditions:
Section 4.1 Representations and Warranties.
--------------------------------------------
The representations and warranties of the Company contained
in this Agreement and in any Schedule hereto or any document or
instrument delivered to Purchaser or its representatives
hereunder, shall have been true and correct when made and shall
be true and correct as of the Closing Date as if made on such
date, except to the extent such representations and warranties
expressly relate to a specific date. The Company shall have duly
performed all of the covenants and agreements to be performed by
it hereunder on or prior to the Closing Date.
Section 4.2 Officer's Certificate.
-----------------------------------
The Company shall have delivered to Purchaser a certificate,
dated the Closing Date, signed by the Chairman of the Board of
the Company, substantially in the form of Exhibit B attached
---------
hereto and incorporated herein by this reference, regarding the
accuracy of the representations and warranties and the
performance of the obligations of the Company.
Section 4.3 Secretary's Certificate.
-------------------------------------
The Company shall have delivered to Purchaser a certificate,
dated the Closing Date, signed by the Secretary of the Company,
substantially in the form of Exhibit C attached hereto and
---------
incorporated herein by this reference, regarding the satisfaction
of the conditions in Section 4.1 hereof and certain other
matters.
Section 4.4 Legal Opinion.
---------------------------
Purchaser shall have received the opinion of Xxxx & Priest
LLP, counsel for the Company, dated the Closing Date, addressed
to Purchaser, in form and substance satisfactory to Purchaser's
counsel, and covering the matters set forth in Exhibit D hereto.
---------
Section 4.5 Authorization Agreement.
-------------------------------------
The Company shall have delivered to Purchaser an
Authorization Agreement for Pre-Authorized Payments (Debit),
dated the Closing Date, executed by a duly authorized officer(s)
of the Company, substantially in the form of Exhibit E attached
hereto and incorporated herein by this reference.
Section 4.6 Existence and Authority.
-------------------------------------
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:
(i) 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;
(ii) 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;
(iii) 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 Required Consents.
-------------------------------
Any consents or approvals required to be obtained from any
third party, including any holder of indebtedness or any
outstanding security of the Company, and any amendments of
agreements which shall be necessary to permit the consummation of
the transactions contemplated hereby on the Closing Date, shall
have been obtained and all such consents or amendments shall be
satisfactory in form and substance to Purchaser and Purchaser's
counsel.
Section 4.8 Waiver of Conditions.
----------------------------------
If on the Closing Date the Company fails to tender to
Purchaser the Debentures to be issued to Purchaser on such date
or if the conditions specified in this Article IV have not been
----------
fulfilled, Purchaser may thereupon elect to be relieved of all
further obligations under this Agreement. Without limiting the
foregoing, if the conditions specified in this Article IV have
----------
not been fulfilled, Purchaser may waive compliance by the Company
with any such condition to such extent as Purchaser, in
Purchaser's sole discretion, may determine. Nothing in this
Section 4.8 shall operate to relieve the Company of any of its
obligations hereunder or to waive any of Purchaser's rights
against the Company.
ARTICLE V - COVENANTS OF COMPANY
From and after the Closing Date and continuing so long as
any amount remains unpaid on any of the Debentures:
Section 5.1 Use of Proceeds.
-----------------------------
The Company shall use the proceeds of the Debentures only
for the purposes set forth on Schedule 5.1 attached hereto. No
------------
later than ninety (90) days after the sale of the Debentures, the
Company shall furnish Purchaser a certificate, executed by the
Chief Executive Officer of the Company, itemizing the use of
proceeds from the Debentures.
Section 5.2 Payment of Debentures.
-----------------------------------
The Company shall pay the indebtedness evidenced by the
Debentures according to the terms thereof and shall timely pay or
perform all of the other obligations of the Company under this
Agreement.
Section 5.3 Repurchase of Debenture.
-------------------------------------
Neither the Company nor any Subsidiary or Affiliate,
directly or indirectly, may repurchase or make any offer to
repurchase any Debentures unless the offer has been made to
repurchase Debentures, pro rata, from all holders of the
Debentures at the same time and upon the same terms and in
accordance with the provisions of Section 5.24. In case the
Company repurchases or otherwise acquires any Debentures, such
Debentures shall immediately thereafter be canceled, and no
Debentures shall be issued in substitution therefor. Without
limiting the foregoing, upon the purchase or other acquisition of
any Debentures by the Company or any Subsidiary or Affiliate,
such Debentures shall no longer be outstanding for purposes of
any Section of this Agreement relating to the taking by the
holders of the Debentures of any actions with respect hereto,
including, without limitation, Sections 9.3 and 10.1.
Section 5.4 Corporate Existence, Etc.
--------------------------------------
Except as provided in Section 5.18(a)(i), the Company will
preserve and keep in force and effect, and will cause each
Subsidiary to preserve and keep in force and effect, its
corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a
foreign corporation in each jurisdiction where such qualification
is required by applicable law and all licenses and permits
necessary to the proper conduct of its business.
Section 5.5 Maintenance, Etc.
------------------------------
The Company will maintain, preserve and keep, and will cause
each Subsidiary to maintain, preserve and keep, its properties
and assets which are used or useful in the conduct of its
business (whether owned in fee or pursuant to a leasehold
interest) in good repair and working order and from time to time
will make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be
maintained.
Section 5.6 Nature of Business.
--------------------------------
Neither the Company nor any Subsidiary will engage in any
business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries would be substantially changed
from the general nature of the business engaged in by the Company
and its Subsidiaries on the date of this Agreement.
Section 5.7 Insurance.
-----------------------
The Company will maintain, and will cause each Subsidiary to
maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business
in such forms and amounts and against such risks, casualties and
contingencies as are customary for corporations engaged in the
same or a similar business and owning and operating similar
properties.
Section 5.8 Taxes, Claims for Labor and Materials.
---------------------------------------------------
The Company will promptly pay and discharge, and will cause
each Subsidiary promptly to pay and discharge, (i) all lawful
taxes, assessments and governmental charges or levies imposed
upon the property or business of the Company or such Subsidiary,
respectively, (ii) all trade accounts payable in accordance with
usual and customary business terms, and (iii) all claims for
work, labor or materials, which if unpaid might become a lien or
charge upon any property of the Company or such Subsidiary;
provided the Company or such Subsidiary shall not be required to
pay any such tax, assessment, charge, levy, account payable or
claim if (i) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or
proceedings which will prevent the forfeiture or sale of any
property of the Company or such Subsidiary or any material
interference with the use thereof by the Company or such
Subsidiary, and (ii) the Company or such Subsidiary shall set
aside on its books, reserves deemed by it to be adequate with
respect thereto.
Section 5.9 Compliance with Laws, Agreements, etc.
---------------------------------------------------
Except where failure to do so does not and would not
constitute a Material Adverse Event, the Company shall maintain
its business operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state
and local laws, regulations and ordinances, and such laws,
regulations and ordinances of foreign jurisdictions, governing
such business operations and the use and ownership of such
property, and (ii) all agreements, licenses, franchises,
indentures and mortgages to which the Company is a party or by
which the Company or any of its properties is bound.
Section 5.10 ERISA Matters.
----------------------------
If the Company has in effect, or hereafter institutes, a
pension plan that is subject to the requirements of ERISA, then
the following Plan covenants shall be applicable during such
period as any Plan shall be in effect: (i) the Company hereby
covenants that throughout the existence of the Plan, the
Company's contributions under the Plan will meet the minimum
funding standards required by ERISA and the Company will not
institute a distress termination of the Plan; and (ii) the
Company covenants that it will send to Purchaser a copy of any
notice of a reportable event (as defined in ERISA) required by
ERISA to be filed with the Labor Department or the PBGC, at the
time that such notice is so filed.
Section 5.11 Books and Records; Rights of Inspection.
------------------------------------------------------
The Company will keep, and will cause each Subsidiary to
keep, proper books of record and account in which full and
correct entries will be made of all dealings or transactions of
or in relation to the business and affairs of the Company or such
Subsidiary, in accordance with GAAP consistently maintained. The
Company will furnish to Purchaser such financial data and other
information relating to the business of the Company as Purchaser
may from time to time reasonably request. The Company shall
permit a representative of Purchaser to visit any of its
properties and inspect its corporate books and financial records,
and will discuss its accounts, affairs and finances with a
representative of Purchaser, during reasonable business hours, at
all such times as Purchaser may reasonably request.
Section 5.12 Reports.
----------------------
The Company will furnish to Purchaser the following:
(a) Monthly statements. Within 30 days of the end of
each month, monthly internal financial reports which at a minimum
shall consist of a balance sheet of the Company as of the close
of such month and related statements of income and cash flows for
the one-month period then 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 45 days after the end of each quarterly fiscal
period (except the last) of each fiscal year, copies of:
(i) consolidated balance sheets of the Company
and Subsidiaries as of the close of the
three-month period then ended, setting forth
in comparative form the consolidated figures
for the corresponding period of the preceding
fiscal year,
(ii) consolidated statements of operations 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 statements of cash flows of the
Company and Subsidiaries for the portion of
the fiscal year ending with such three-month
period, setting forth in comparative form
the consolidated figures for the
corresponding period of the preceding fiscal
year,
all in reasonable detail and certified as complete and
correct, by an authorized financial officer of Company;
(c) Annual Statements. As soon as available and in
any event within 90 days after the close of each fiscal year of
the Company, copies of:
(i) consolidated balance sheets of the Company
and Subsidiaries as of the close of such
fiscal year, and
(ii) consolidated statements of operations and
cash flows of the Company and Subsidiaries
for such fiscal year,
in each case setting forth in comparative form the consolidated
figures for the preceding fiscal year, all in reasonable detail
and accompanied by an unqualified report thereon of a firm of
independent public accountants of recognized national standing;
(d) Audit Reports. Promptly upon receipt thereof, one
copy of each interim or special audit made by independent
accountants of the books of the Company or any Subsidiary;
(e) SEC and Other Reports. Promptly upon their
becoming available, one copy of each financial statement, report,
notice or proxy statement sent by the Company to stockholders
generally and of each periodic or current report, and any
registration statement or prospectus filed by the Company or any
Subsidiary with any securities exchange or the SEC or any
successor agency, and copies of any orders in any proceedings to
which the Company or any of its Subsidiaries is a party, issued
by any governmental agency, federal or state, having jurisdiction
over the Company or any of its Subsidiaries. The Company
specifically covenants to timely file each such item required to
be filed with the SEC and each state requiring securities laws
filings; and
(f) Requested Information. With reasonable
promptness, such other data and information as Purchaser or any
such institutional holder may reasonably request.
(g) Delivery of SEC Reports. The parties agree that
the Company shall be deemed to have complied with its obligations
under Section 5.12(b) or (c), as the case may be, by delivering
to Purchaser, in accordance with Section 5.12(e) hereof, the
reports filed by the Company with the SEC pursuant to Section
13(a) of the Securities Act in respect of the applicable
reporting period, provided that the financial statements in each
such SEC report that is an Annual Report on Form 10-K shall be
accompanied by an unqualified report thereon of the Company's
accountants. In the event the Company is permitted, pursuant to
Rule 12b-25 under the Exchange Act, to delay the filing with the
SEC of any periodic report of the Company, the Company shall be
deemed to have complied with its obligations under Section
5.12(b) or (c), as the case may be, by delivering such report to
Purchaser within the time period permitted therein.
Section 5.13 Limitations on Debt and Obligations.
--------------------------------------------------
Except as to (i) the indebtedness incurred pursuant to the
Debentures, (ii) accounts payable and other trade payables
incurred in the ordinary course of business, including certain
due and unpaid legal and administrative expenses ("ALE") incurred
by the Company in connection with its performance of insurance
services and for which the Company has assumed responsibility
pursuant to the terms of a Restructuring Agreement, dated March
1, 1996, such expenses not to exceed an aggregate of $394,258 at
any time outstanding and (iii) purchase money indebtedness
incurred by the Company in the purchase of office equipment and
other property used by the Company in the ordinary course of
business, such purchase money indebtedness not to exceed an
aggregate amount of principal and interest thereon of $250,000 at
any time outstanding, the Company, for itself together with each
Subsidiary, shall not incur, without the prior written consent of
Purchaser, additional indebtedness in excess of an aggregate
amount of principal and interest thereon of $250,000 at any time
outstanding.
Section 5.14 Guaranties.
-------------------------
Without the prior written consent of Purchaser, the Company
will not, and will not permit any Subsidiary to, become or be
liable in respect of any Guaranty except Guaranties by Company
which are limited in amount to a stated maximum dollar exposure
and are incurred in compliance with the provisions of this
Agreement.
Section 5.15 Limitation on Liens.
----------------------------------
Without the prior written consent of Purchaser, the Company
will not, and will not permit any Subsidiary to, create or incur,
or suffer to be incurred or to exist, any mortgage, pledge,
security interest, encumbrance, lien or charge of any kind
(collectively, "Liens") on its or their property or assets,
whether now owned or hereafter acquired, or upon any income or
profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to
the payment of its or their general creditors, or acquire or
agree to acquire, or permit any Subsidiary to acquire, any
property or assets upon conditional sales agreement or other
title retention devices, except (i) Liens for taxes, assessments
and governmental charges or levies which the Company is
contesting in good faith by proper proceedings and as to which
appropriate reserves are being maintained in accordance with GAAP
on the books of the Company; (ii) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's
liens and other similar liens arising in the ordinary course of
business and securing obligations (other than indebtedness for
borrowed money) that (A) are not overdue for a period of more
than 60 days or (B) are being contested in good faith by proper
proceedings and as to which appropriate reserves are being
maintained in accordance with GAAP on the books of the Company;
(iii) pledges or deposits to secure obligations under worker's
compensation laws or other similar legislation or to secure
public or statutory obligations; (iv) Liens securing the
performance of, or payment in respect of, bids, tenders,
government contracts (other than for the repayment of borrowed
money) surety and appeal bonds and other obligations of a similar
nature incurred in the ordinary course of business; (v) Liens
existing on the date hereof; (vi) Liens created in connection
with purchase money financing permitted pursuant to Section 5.13
(iii) hereof; and (vii) Liens on computer source codes placed in
escrow for the benefit of the Company's customers as described on
Schedule 2.16 hereof or hereinafter created.
-------------
Section 5.16 Restricted Payments.
----------------------------------
The Company will not, without the prior written consent of
Purchaser:
(i) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of
any class (except dividends or other
distributions payable solely in shares of capital
stock of Company);
(ii) directly or indirectly, or through any
Subsidiary, purchase, redeem or retire any shares
of its capital stock of any class or any
warrants, rights or options to purchase or
acquire any shares of its capital stock (other
than in exchange for or out of the net proceeds
to the Company from the substantially concurrent
issue or sale of other shares of capital stock of
the Company or warrants, rights or options to
purchase or acquire any shares of its capital
stock); or
(iii) make any other payment or distribution, either
directly or indirectly or through any Subsidiary,
in respect of its capital stock.
Section 5.17 Investments.
--------------------------
The Company will not, and will not permit any Subsidiary to,
make any Investments outside the ordinary course of business for
the Company or any Subsidiary, without the prior written consent
of Purchaser, except:
(i) Investments in direct obligations of the
United States of America, or any agency or
instrumentality of the United States of
America, the payment or guaranty of which
constitutes a full faith and credit
obligation of the United States of America,
in either case maturing in twelve months or
less from the date of acquisition thereof;
(ii) Investments in certificates of deposit
maturing within one year from the date of
origin, issued by a bank or trust company
organized under the laws of the United
States of any state thereof, having capital,
surplus and undivided profits aggregating at
least $100,000,000 and whose long-term
certificates of deposit are, at the time of
acquisition thereof by Company or a
Restricted Subsidiary, rated AA or better by
Standard & Poor's Corporation or Aa or
better by Xxxxx'x Investors Service, Inc.;
and
(iii) receivables arising from the sale of goods
and services in the ordinary course of
business of Company and its Subsidiaries;
provided, that the provisions of this Section shall not apply to
the use of proceeds obtained by the Company from the sale of its
capital stock.
Section 5.18 Mergers, Consolidations and Sales of Assets.
----------------------------------------------------------
(a) Without the prior written consent of Purchaser,
the Company will not, and will not permit any Subsidiary to (1)
consolidate with or be a party to a merger or share exchange with
any other corporation or (2) sell, lease or otherwise dispose of
all or any substantial part (as defined in paragraph (d) of this
Section 5.18) of the assets of Company and its Subsidiaries;
provided, however, that:
(i) any Subsidiary may merge or consolidate with
or into the Company or any wholly-owned
Subsidiary so long as in any merger or
consolidation involving the Company, the
Company shall be the surviving or continuing
corporation; and
(ii) any Subsidiary may sell, lease or otherwise
dispose of all or any substantial part of its
assets to the Company or any wholly-owned
Subsidiary.
(b) Without the prior written consent of Purchaser,
the Company will not permit any Subsidiary to issue or sell any
shares of stock of any class (including as "stock" for the
purposes of this Section 5.18, any warrants, rights or options to
purchase or otherwise acquire stock or other Securities
exchangeable for or convertible into stock) of such Subsidiary to
any Person other than the Company or a wholly-owned Subsidiary,
except for the purpose of qualifying directors, or except in
satisfaction of the validly pre-existing preemptive rights of
minority shareholders in connection with the simultaneous
issuance of stock to the Company and/or a Subsidiary whereby the
Company and/or such Subsidiary maintain their same proportionate
interest in such Subsidiary.
(c) Without the prior written consent of Purchaser,
the Company will not sell, transfer or otherwise dispose of any
shares of stock in any Subsidiary (except to qualify directors)
or any indebtedness of any Subsidiary, and will not permit any
Subsidiary to sell, transfer or otherwise dispose of (except to
the Company or a wholly-owned Subsidiary) any shares of stock or
any indebtedness of any other Subsidiary, unless all of the
following conditions are met:
(i) simultaneously with such sale, transfer or
disposition, all shares of stock and all
indebtedness of such Subsidiary at the time
owned by the Company and by every other
Subsidiary shall be sold, transferred or
disposed of as an entirety;
(ii) the Board of Directors of the Company shall
have determined, as evidenced by a
resolution thereof, that the retention of
such stock and indebtedness is no longer in
the best interests of the Company;
(iii) such stock and Indebtedness is sold,
transferred or otherwise disposed of to a
Person, for a cash consideration and on
terms reasonably deemed by the Board of
Directors to be adequate and satisfactory;
(iv) the Subsidiary being disposed of shall not
have any continuing investment in the
Company or any other Subsidiary not being
simultaneously disposed of; and
(v) such sale or other disposition does not
involve a substantial part (as hereinafter
defined) of the assets of the Company and
its Subsidiaries.
(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 25% 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.
-------------------------------------------
Without the prior written consent of Purchaser, 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.
Section 5.20 Notice.
---------------------
The Company shall promptly upon the discovery thereof give
written notice to Purchaser of (i) the occurrence of any default
or Event of Default or event which, with the passage of time,
would constitute an Event of Default, under this Agreement, (ii)
the occurrence of any default or event of default under any other
agreement providing for indebtedness of the Company or any
Subsidiary or under a capitalized lease obligation, (iii) any
actions, suits or proceedings instituted by any Person against
the Company or a Subsidiary or materially affecting any of the
assets of the Company or any Subsidiary, and (iv) any dispute
between the Company or any Subsidiary, on the one hand, and any
governmental regulatory body, on the other hand, which dispute
might interfere with the normal operations of the Company or any
Subsidiary; provided, however, that Purchaser shall not disclose
any such information provided in (iii) or (iv) above to any third
party other than Purchaser's counsel and except to the extent
compelled by law or otherwise authorized by the Company.
Section 5.21 Board of Directors; Observer Rights.
--------------------------------------------------
(a) Effective on the Closing Date, the Purchaser shall
have the right to require that a nominee of Purchaser be elected
to the Company's Board of Directors (as a member of the class of
directors whose terms next expire in 1998), such election to be
effective within fifteen (15) days of notice from Purchaser to
the Company. For so long as the Purchaser or any Affiliate owns
Debentures representing at least 25% of the original principal
amount of the Debentures, the Company agrees to include a nominee
of the Purchaser in management's slate of nominees to be elected
to the Board of Directors (at such time as the class of directors
of which Purchaser's nominee is a member is elected) and to
recommend to the stockholders the election of such nominee.
(b) For so long as the Purchaser or any Affiliate owns
Debentures representing at least 25% of the original principal
amount of the Debentures, provided that no nominee of the
Purchaser is a director, the Company shall invite one
representative of Purchaser to attend, at the Company's expense,
all meetings of the Company's Board of Directors and all
committees of the Company's Board of Directors in a nonvoting
capacity and, in this respect, shall give such representative
copies of all notices and meeting agenda in advance of such
meetings and shall permit such representative to review all
documents and other materials provided to directors at such
meetings. The Company shall also provide Purchaser, in advance,
with copies of all actions proposed to be taken by the Board of
Directors in lieu of meeting.
Section 5.22 Annual Business Plan.
-----------------------------------
Prior to the close of each fiscal year of the Company,
management of the Company shall present to the Board of Directors
for its review a business plan with respect to the operations,
activities, prospects and strategies of the Company for the next
succeeding fiscal year. Such business plan shall be reviewed
and, if necessary, modified or supplemented by the Board of
Directors and, as so modified or supplemented, shall be approved
by the Board not later than the first Business Day of the fiscal
year to which such plan applies, for execution and implementation
by management.
Section 5.23 Further Assurances.
---------------------------------
The Company will take all actions reasonably requested by
Purchaser to effect the transactions contemplated by this
Agreement and the other Operative Documents.
Section 5.24 Optional Redemptions of Debentures.
-------------------------------------------------
The Debentures may not be redeemed, repaid or repurchased by
the Company at the option of the Company or any Subsidiary or
Affiliate at any time prior to the second anniversary of the date
of initial issuance of the Debentures. On and after the second
anniversary of the date of initial issuance but only in the event
that the average of the closing bid price for the twenty (20)
Business Days immediately preceding any Redemption Date (as
hereafter defined) exceeds $1.50 per share of Common Stock, the
Debentures may be redeemed, at the Company's option, in whole or
in part, provided that in case of each redemption at the
Company's option hereunder, the Company will give written notice
thereof to each holder of a Debenture to be redeemed not less
than forty-five (45) nor more than seventy-five (75) days prior
to the date fixed for such redemption (the "Redemption Date"), in
each case specifying the Redemption Date, the aggregate principal
amount of the Debentures to be redeemed on such date and the
principal amount of Debentures held by such holder to be redeemed
on such date. In the case of a redemption of part of the
Debentures, such redemption shall be effected pro rata among all
holders of Debentures.
ARTICLE VI - CONVERSION OF DEBENTURES
Section 6.1 Conversion Privilege.
----------------------------------
Subject to and upon compliance with the provisions of this
Article VI, the holder of the Debentures shall have the right, at
its option, at any time and from time to time, to convert the
principal amount of the Debenture, or any portion thereof, into
that number of fully paid and nonassessable shares of Common
Stock of the Company (the "Common Stock") (calculated as to each
conversion to the nearest 1/100th of a share) obtained by
dividing the principal amount of the Debenture or portion thereof
to be converted by the Conversion Price. The Conversion Price
shall be the lower of (i) $1.25 per share of Common Stock or (ii)
the bid price per share of Common Stock on the Closing Date, in
either case adjusted as set forth in Section 6.4 below.
Section 6.2 Manner of Exercise of Conversion Privilege.
--------------------------------------------------------
In order to exercise the conversion privilege, the Purchaser
shall surrender such Debenture to the Company, accompanied by
written notice (the "Conversion Notice") to the Company that the
Purchaser elects to convert such Debenture or the portion thereof
specified in said notice. The Conversion Notice shall also state
the name or names, together with address or addresses, in which
the certificate or certificates for shares of Common Stock which
shall be issuable on such conversion shall be issued, as well as
the information required under Section 7.2 below. Each Debenture
surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as that in which
such Debenture is registered, be accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by
the Purchaser or its duly authorized attorney. As promptly as
practicable after the surrender of such Debenture, as aforesaid,
the Company shall issue and shall deliver to the Purchaser a
certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such Debenture or
portion thereof in accordance with the provisions of this
Section, and any fractional interest in respect of a share of
Common Stock arising upon such conversion shall be settled as
provided in Section 6.3 below. In case the Debenture is
surrendered for partial conversion, the Company shall deliver to
Purchaser, at the expense of the Company, a new Debenture in an
aggregate principal amount equal to the unconverted portion of
the surrendered Debenture. Each conversion shall be deemed to
have been effected immediately prior to the close of business on
the date on which such Debenture shall have been surrendered and
the Conversion Notice received by the Company as aforesaid, and
the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time,
and such conversion shall be at the Conversion Price in effect at
such time, unless the stock transfer books of the Company shall
be closed on that date, in which event such person or persons
shall be deemed to have become such holder or holders of record
at the close of business on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at
the Conversion Price in effect on the date upon which such
Debenture shall have been surrendered and the Conversion Notice
received by the Company. No payment or adjustment shall be made
on conversion for interest accrued on the Debentures surrendered
for conversion or for dividends on Common Stock delivered on such
conversion.
Section 6.3 Payment in Lieu of Fractional Shares.
--------------------------------------------------
No fractional shares of Common Stock shall be issued upon
conversion of the Debentures. Instead of any fractional interest
in a share of Common Stock which would otherwise be deliverable
upon the conversion of the Debenture, the Company shall make an
adjustment to the nearest 1/100th of a share in cash at the
current market price thereof at the close of business on the
Business Day next preceding the day of conversion.
Section 6.4 Adjustment of Conversion Price.
--------------------------------------------
The Conversion Price shall be adjusted from time to time as
follows:
(a) In case the Company shall hereafter (i) pay a
dividend or make a distribution on its Common Stock in shares of
Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Conversion Price in
effect immediately prior to such action shall be adjusted so that
the holder of any Debenture thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock
or other capital stock of the Company which it would have owned
immediately following such action had such Debenture been
converted immediately prior thereto. An adjustment made pursuant
to this subsection (a) shall become effective immediately after
the record date in the case of dividend or distribution and shall
become effective immediately after the effective date in the case
of a subdivision, combination or reclassification. If, as a
result of an adjustment made pursuant to this subsection (a), the
holder of any Debenture thereafter surrendered for conversion
shall become entitled to receive shares of two or more classes of
capital stock or shares of Common Stock and other capital stock
of the Company, the Board of Directors of the Company (whose
determination shall be conclusive) shall determine the allocation
of the adjusted Conversion Price between or among shares of such
classes of capital stock or shares of Common Stock and other
capital stock.
(b) In case the Company shall hereafter issue rights
or warrants to holders of its outstanding shares of Common Stock
generally entitling them (for a period expiring within 45 days
after the record date mentioned below) to subscribe for or
purchase shares of Common Stock at a price per share less than
the current market price per share (as determined pursuant to
subsection (d) of this Section 6.4) of the Common Stock on the
record date mentioned below, the Conversion Price of the shares
of Common Stock shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance of such rights
or warrants by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares
so offered would purchase at such current market price, and of
which the denominator shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock
offered for subscription or purchase. Such adjustment shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or
warrants.
(c) In case the Company shall hereafter distribute to
holders of its outstanding Common Stock generally evidences of
its indebtedness or assets (excluding any cash dividend paid from
retained earnings of the Company and dividends or distributions
payable in stock from which adjustment is made pursuant to
subsection (a) of this Section 6.4) or rights or warrants to
subscribe to securities of the Company (excluding those referred
to in subsection (b) of this Section 6.4), then in each such case
the Conversion Price of the shares of Common Stock shall be
adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to
the date of such distribution by a fraction of which the
numerator shall be the current market price per share (determined
as provided in subsection (d) of this Section 6.4) of the Common
Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive) of the portion of the
evidences of indebtedness or assets so distributed to the holder
of one share of Common Stock or of such subscription rights or
warrants applicable to one share of Common Stock, and of which
the denominator shall be such current market price per share of
Common Stock. Such adjustment shall become effective immediately
after the record date for the determination of stockholders
entitled to receive such distribution.
(d) For the purpose of any computation under
subsections (b) and (c) of this Section 6.4, the current market
price per share of Common Stock on any date shall be deemed to be
the average of the daily market prices for the twenty (20)
consecutive Business Days before the day in question.
(e) In any case in which this Section 6.4 shall
require that an adjustment be made immediately following a record
date, the Company may elect to defer (but only until five
business days following the filing by the Company with the
Purchaser of the certificate of independent public accountants
described in subsection (g) of this Section 6.4) issuing to the
holder of any Debenture converted after such record date the
shares of Common Stock issuable upon such conversion over and
above the shares of Common Stock issuable upon such conversion on
the basis of the Conversion Price prior to adjustment.
(f) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% of such price; provided, however, that
any adjustments which by reason of this subsection (f) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment, and provided further, that
adjustment shall be required and made in accordance with the
provisions of this Section 6.4 (other than this subsection (f))
not later than such time as may be required in order to preserve
the tax-free nature of a distribution to the holders of
Debentures or Common Stock. All calculations under this Section
6.4 shall be made to the nearest cent or to the nearest 1/100th
of a share, as the case may be. Anything in this Section 6.4 to
the contrary notwithstanding, the Company shall be entitled to
make such reductions in the Conversion Price, in addition to
those required by this Section 6.4, as it in its discretion shall
determine to be advisable in order that any stock dividend,
subdivision of shares, distribution of rights to purchase stock
or securities, or distribution of securities convertible into or
exchangeable for stock hereafter made by the Company to its
stockholders shall not be taxable.
(g) Whenever the Conversion Price is adjusted as
herein provided, (i) the Company shall promptly deliver to the
Purchaser a certificate of a firm of independent public
accountants setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment and the manner of computing the same,
which certificate shall be conclusive evidence of the correctness
of such adjustment and (ii) a notice stating that the Conversion
Price has been adjusted and setting forth the adjusted Conversion
Price shall forthwith be given by the Company to the Purchaser.
(h) In the event that at any time as a result of an
adjustment made pursuant to subsection (a) of this Section 6.4,
the holder of any Debenture thereafter surrendered for conversion
shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the conversion price (if
any) of such other shares so receivable upon conversion of any
Debenture shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in this Section
6.4.
Section 6.5 Notice of Certain Corporate Action.
------------------------------------------------
In case:
(a) the Company shall take any action which would
require an adjustment in the Conversion Price pursuant to
subsection (a), (b) or (c) of Section 6.4; or
(b) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe
for or purchase any shares of stock of any class or of any other
rights; or
(c) there shall be any capital reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock), or any
consolidation or merger to which the Company is a part or any
statutory exchange of securities with another corporation and for
which approval of any stockholders of the Company is required, or
any sale or transfer of all or substantially all of the assets of
the Company; or
(d) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then the Company shall provide to Purchaser, at least ten (10)
days prior to the applicable date hereinafter specified, a notice
stating (i) the date on which a record is to be taken for the
purpose of such distribution or rights, or, if a record is not to
be taken, the date as of which the holders of Common Stock of
record to be entitled to such distribution or rights are to be
determined, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation
or winding-up. Failure to give such notice or any defect therein
shall not affect the legality or validity of the proceedings
described in subsection (a), (b), (c) or (d) of this Section 6.5.
Section 6.6 The Company to Provide Stock.
------------------------------------------
The Company covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its
issued shares of Common Stock held in its treasury, or both, for
the purpose of effecting conversions of the Debenture, the full
number of shares of Common Stock deliverable upon the conversion
of the Debentures.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any)
of the shares of Common Stock deliverable upon conversion of the
Debenture, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and non-
assessable shares of Common Stock at such adjusted Conversion
Price.
Prior to the delivery of any securities which the Company
shall be obligated to deliver upon conversion of the Debenture,
the Company shall comply with all federal and state laws and
regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery
thereof by, any governmental authority.
Section 6.7 Taxes on Conversions.
----------------------------------
The Company will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue
or delivery of shares of Common Stock upon conversion of the
Debenture pursuant hereto; provided, however, that the Company
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of Purchaser,
and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Company
the amount of any such tax or has established, to the
satisfaction of the Company, that such tax has been paid.
Section 6.8 Covenant as to Stock.
----------------------------------
The Company covenants that all shares of Common Stock which
may be delivered upon conversion of the Debenture will upon
delivery be duly and validly issued and fully paid and
nonassessable, free of all liens and charges and not subject to
any preemptive rights.
Section 6.9 Consolidation or Merger.
-------------------------------------
Notwithstanding any other provision herein to the contrary,
in case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company
is the continuing corporation, or in case of any sale or
conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety, or in the case of
any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no
adjustments under Section 6.4 but the Purchaser shall have the
right thereafter to convert such Debenture into the kind and
amount of securities, cash or other property which he would have
owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had
such Debenture been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale or
conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set
forth in this Article VI with respect to the rights and interests
thereafter of the holders of the Debentures, to the end that the
provisions set forth in this Article VI shall thereafter
correspondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of the
Debentures. Any such adjustment shall be approved by a firm of
independent public accountants, evidenced by a certificate to
that effect; and any adjustment so approved shall for all
purposes hereof conclusively be deemed to be an appropriate
adjustment.
The above provisions of this Section 6.9 shall similarly
apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
ARTICLE VII - RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS
Section 7.1 Legends; Restrictions on Conversion and
----------------------------------------------------
Transfer.
---------
Neither the Debenture nor the shares of Common Stock
issuable upon conversion of the Debenture have been registered
under the Securities Act or any state securities laws. Each
Debenture issued pursuant to this Agreement and each stock
certificate issued upon the conversion of any Debenture (except
as permitted by this Article VII) shall bear a legend in
substantially the following form:
NEITHER THIS DEBENTURE NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON THE CONVERSION HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND
MAY NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS, OR (ii) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION
UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
The outstanding Common Stock of the Company evidenced by a
certificate bearing such a legend is sometimes referred to herein
as "Legend Stock." Any certificate issued at any time in
exchange or substitution for any certificate bearing such a
legend (except a new certificate issued upon completion of a
public distribution under a registration statement under the
Securities Act of the securities represented thereby) shall also
bear such a legend unless in the opinion of counsel to such
holder, specified in subsection 7.2 below, the securities
represented thereby are no longer subject to the restrictions
described herein. The provisions of this Article VII shall be
binding upon all subsequent holders of Legend Stock, shall also
be applicable to and inure to the benefit of all subsequent
holders of the Debentures.
Section 7.2 Notice of Intention to Convert or Transfer;
--------------------------------------------------------
Opinions of Counsel.
--------------------
The Debentures and the Legend Stock to be issued upon such
conversion thereof shall not be transferable except upon the
conditions specified in this Article VII. Each holder of any
Debenture or Legend Stock, by acceptance thereof, agrees, prior
to any transfer of such Debenture or Legend Stock or in the
Conversion Notice delivered pursuant to Section 6.2 above, in
connection with any conversion of such Debenture, to give written
notice to the Company of such holder's intention to effect such
transfer or conversion and briefly describe the manner of the
proposed transfer or, in the case of conversion, whether such
holder intends to retain or dispose of the Common Stock issuable
upon the proposed conversion and, if applicable, the intended
method of disposition, such notice of intended transfer or
Conversion Notice shall be accompanied by, if applicable, a copy
of the opinion of counsel to such holder reasonably satisfactory
to the Company, to the effect that registration under the
Securities Act of such Debenture or Legend Stock or Common Stock,
as the case may be, in connection with such proposed transfer,
disposition or retention upon such proposed conversion is not
required. If in the opinion of such counsel, the proposed
transfer of such Debenture or Legend Stock, or the proposed
disposition or retention of Common Stock to be issued upon such
conversion, may be effected without registration of such
Debenture, Legend Stock or Common Stock, as the case may be,
under the Securities Act, such holder shall be entitled to
transfer such Debenture or Legend Stock or to dispose or retain
such Common Stock to be issued upon conversion, in accordance
with the terms of the notice delivered by such holder to the
Company. The Company will promptly upon such conversion or
transfer deliver new Debentures or certificates for Common Stock
not bearing a legend of the character set forth in Section 7.1,
unless in the opinion of such counsel subsequent disposition by
such holder or by others of the Common Stock to be issued upon
conversion or of the Legend Stock to be so transferred may
require registration under the Securities Act. If the proposed
transfer of such Debenture or Legend Stock, or the proposed
disposition or retention of the Common Stock to be issued upon
such conversion, may not be affected without registration of such
Debenture, Legend Stock or Common Stock under the Securities Act,
the holder thereof shall not be entitled to transfer such
Debenture, such Legend Stock or Common Stock in the absence of an
effective registration statement.
Section 7.3 Requested Registration.
-------------------------------------
(a) General. If the Company shall receive from
Initiating Holders at any time or times a written request that
the Company effect any registration with respect to Registrable
Securities, in an offering to be firmly underwritten by
underwriters selected by the Initiating Holders (subject to the
consent of the Company, which consent will not be unreasonably
withheld), the Company will:
(i) promptly give written notice of the proposed
registration to all other holders of
Registrable Securities; and
(ii) as soon as practicable, use its best efforts
to effect such registration (including,
without limitation, filing post-effective
amendments, appropriate qualifications under
applicable blue sky or other state securities
laws, and appropriate compliance with the
Securities Act) as would permit or facilitate
the sale and distribution of all or such
portion of such Registrable Securities as are
specified in such request, together with all
or such portion of the Registrable Securities
of any holders of Registrable Securities
joining in such request as are specified in a
written request received by the Company
within twenty (20) days after such written
notice from the Company is mailed or
delivered.
The Company shall only be required to effect, pursuant
to this Section 7.3, one (1) registration of Registrable
Securities in any calendar year.
(b) Proviso. The Company shall not be obligated to
effect, or to take any action to effect, any such registration
pursuant to this Section 7.3:
(i) In any particular jurisdiction in which the
Company would be required, solely as a
result of effecting registration,
qualification or compliance and except as
may otherwise be required by the Securities
Act, to (A) execute a general consent to
service of process (other than a uniform
consent to service of process in connection
with the offer and sale of securities),
unless the Company is already subject to
service in such jurisdiction or (B) qualify
to do business as a foreign corporation;
(ii) During the period starting with the date
fifteen (15) days prior to the Company's
good faith estimate of the date of filing
of, and ending on a date ninety (90) days
after the effective date of, a Company-
initiated registration, provided that the
Company is actively employing in good faith
all reasonable efforts to cause such
registration statement to become effective;
or
(iii) If the Initiating Holders propose to dispose
of shares of Registrable Securities which
may be immediately registered on Form S-3
pursuant to a request made under Section 7.5
hereof.
(c) Deferral of Registration. The Company shall file
a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt
of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of
Directors of the Company, such registration would be materially
detrimental to the Company because there exist bona fide
financing, acquisition or other activities of the Company and the
Board of Directors of the Company concludes, as a result, that it
is essential to defer the filing of such registration statement
at such time, and (ii) the Company shall furnish to the
Initiating Holders a certificate signed by the Chief Executive
Officer of the Company stating that in the good faith judgment of
the Board of Directors of the Company, it would be materially
detrimental to the Company for such registration statement to be
filed in the near future and that it is, therefore, essential to
defer the filing of such registration statement, then the Company
shall have the right to defer such filing (except as provided in
subsection (b)(ii) above) for a period of not more than ninety
(90) days after receipt of the request of the Initiating Holders,
and, provided further, that the Company shall not defer its
obligation in this manner more than once in any twelve-month
period.
The registration statement filed pursuant to the
request of the Initiating Holders may, subject to the provisions
of Sections 7.3(b) hereof, include other securities of the
Company, with respect to which registration rights have been
granted, and may include securities of the Company being sold for
the account of the Company, provided that all the Registrable
Shares for which the Initiating Holders have requested
registration shall be covered by such registration statement
before any other securities are included.
(d) Underwriting. The right of any other holders of
Registrable Securities joining in a request for registration as
provided in Subsection (a)(i) above to registration pursuant to
this Section 7.3 shall be conditioned upon such holder's
participation in such underwriting and the inclusion of such
holder's Registrable Securities in the underwriting on the same
terms as those of the Initiating Holders (unless otherwise
mutually agreed by a majority in interest of the Initiating
Holders and such holder with respect to such participation and
inclusion).
(e) Procedures. In any registration pursuant to this
Section 7.3, if the Company shall request inclusion of securities
to be sold for its own account, or if other persons entitled to
incidental registrations shall request inclusion in such
registration pursuant to this Section 7.3, subsection (a)(i)
above, the Initiating Holders shall, on behalf of all holders of
Registrable Securities, offer to include such securities in the
underwriting and may condition such offer on the acceptance by
the Company or such other persons of the further applicable
provisions of this Article VII. The Company shall (together with
all such other persons proposing to distribute their securities
through such underwriting) enter into an underwriting agreement
in customary form with the representative of the underwriter or
underwriters selected for such underwriting by the Company, which
underwriters are reasonably acceptable to a majority of the
Initiating Holders. Notwithstanding any other provision of this
Section, if the representative of the underwriters advises the
Initiating Holders of the need for an Underwriter's Cutback, the
number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 7.10
hereof. If a person who has requested inclusion in such
registration as provided in this Subsection (e) does not agree to
the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or
the Initiating Holders, and the securities owned by such
person(s) shall be withdrawn from registration (the "Withdrawn
Securities"). If there are any Withdrawn Securities and if there
was an Underwriter's Cutback, then the Company shall offer to all
holders who have retained rights to include securities in the
registration the right to include additional securities in the
registration in an aggregate amount equal to the number of
Withdrawn Securities that would have been included in the
registration after giving effect to the Underwriter's Cutback had
such securities not been withdrawn, with such shares to be
allocated among such Holders requesting additional inclusion in
accordance with Section 7.10.
Section 7.4 The Company Registration
-------------------------------------
(a) Notice and Procedures. If the Company shall
determine to register any of its Common Stock either for its own
account or the account of a security holder or holders exercising
their respective demand registration rights (other than pursuant
to Sections 7.3 or 7.5 hereof), other than a registration
relating solely to employee benefit plans (as defined under Rule
405 of the Securities Act), or a registration relating solely to
a Rule 145 transaction, or a registration on any registration
form that does not permit secondary sales, the Company will:
(i) promptly give written notice thereof to each
holder of Debentures or Registrable
Securities; and
(ii) use its best efforts to include in such
registration (and any related qualification
under blue sky laws or other compliance),
except as set forth in Section 7.4(b) below,
and in any underwriting involved therein, all
the Registrable Securities specified in a
written request or requests, made by any
holder of Registrable Securities and
received by the Company within ten (10) days
after the written notice from the Company
described in clause (i) above is mailed or
delivered by the Company, which written
request may specify the inclusion of all or a
part of such holder's Registrable Securities.
Notwithstanding the foregoing, the Company shall not be
required to register stock of the holders of Debentures more than
one (1) time in any calendar year.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering
involving an underwriting, the Company shall so advise the
holders of Registrable Securities as a part of the written notice
given pursuant to Section 7.4(a)(i). In such event, the right of
any holders to registration pursuant to this Section shall be
conditioned upon such holder's participation in such underwriting
and the inclusion of such holder's Registrable Securities in the
underwriting to the extent provided herein. All holders of
Registrable Securities proposing to distribute their securities
through such underwriting shall (together with the Company and
the other holders of securities of the Company with registration
rights to participate therein distributing their securities
through such underwriting) enter into an underwriting agreement
in customary form with the representative of the underwriter or
underwriters selected by the Company.
Notwithstanding any other provision of this Section, if the
representative of the underwriters advises the Company of the
need for an Underwriter's Cutback, the representative may
(subject to the limitations set forth below) limit the number of
Registrable Securities to be included in the registration and
underwriting; provided, however, that, unless the underwriters
shall otherwise require, Registrable Securities shall be included
in any over-allotment option granted to the underwriters before
inclusion of any shares from the Company. The Company shall
advise all holders of securities requesting registration of the
Underwriter's Cutback, and the number of shares of securities
that are entitled to be included in the registration and
underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set
forth in Section 7.10. If any person does not agree to the terms
of any such underwriting, it shall be excluded therefrom by
written notice from the Company or the underwriter and any
securities so excluded or withdrawn shall be Withdrawn
Securities.
If there are Withdrawn Securities and if there was an
Underwriter's Cutback, the Company shall then offer to all
persons who have retained the right to include securities in the
registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares
of Withdrawn Securities that would have been included in the
registration after giving effect to the Underwriter's Cutback had
such securities not been withdrawn, with such shares to be
allocated among the persons requesting additional inclusion in
accordance with Section 7.10 hereof.
Section 7.5 Registration on Form S-3.
--------------------------------------
(a) If the Company has qualified for the use of Form
S-3, in addition to the rights contained in the foregoing
provisions of this Article VII, the holders of Registrable
Securities shall have the right to request registrations on Form
S-3 or any comparable or successor form (such requests shall be
in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of
disposition of such shares by such holder or holders (including
whether such resales are to be made on a continuous basis
pursuant to Rule 415)), provided, however, that the Company shall
not be obligated to effect any such registration if (i) the
holder of Registrable Securities, together with the holders of
any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such
other shares of Common Stock (if any) on Form S-3 at an aggregate
price to the public of less than $500,000, or (ii) in the event
that the Company shall furnish the certification described in
paragraph 7.3(b)(ii) or 7.3(c) (but subject to the limitations
set forth therein), or (iii) the Company will be required to
obtain an audit (other than for its normal year-end audit) for
such registration to become effective. The Company shall only be
required to effect one (1) registration of Registrable Securities
pursuant to this Section 7.5 in each calendar year.
(b) If a request complying with the requirements of
Section 7.5 hereof is delivered to the Company, the provisions of
Sections 7.3(a)(i) and (ii) and Section 7.3(b) hereof shall apply
to such registration. If the registration is for an underwritten
offering, the provisions of Sections 7.3(c) and 7.3(d) hereof
shall also apply to such registration.
Section 7.6 Expenses of Registration.
--------------------------------------
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Sections
7.3, 7.4 and 7.5 hereof, shall be borne by the Company; provided,
however, that a holder shall bear the Registration Expenses for
any registration proceeding begun pursuant to Section 7.3 and
subsequently withdrawn by that holder registering shares therein,
unless such withdrawal is based upon (a) material adverse
information relating to the Company that is different from the
information known or available (upon request from the Company or
otherwise) to the Initiating Holders at the time of their request
for registration under Section 7.3, or (b) material adverse
changes in the financial markets which result in a significant
decline in the public market price for the Company's Common Stock
of at least twenty percent (20%) from the date such registration
proceeding is begun to the date of such withdrawal. All Selling
Expenses relating to securities so registered shall be borne by
the holders of such securities pro rata on the basis of the
number of shares of securities so registered on their behalf.
Section 7.7 Registration Procedures.
-------------------------------------
In the case of each registration effected by the Company
pursuant to this Agreement, the Company will use its best efforts
to:
(a) Prepare and file with the SEC a registration
statement with respect to the securities to be registered on such
form as the Company deems appropriate and is permitted or
qualified to use, and shall use all reasonable efforts to cause
such registration statement to become and remain effective for a
period of ninety (90) days or until the holders have completed
the distribution described in the registration statement relating
thereto, whichever first occurs or, in the case of any
registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, for such
period as shall be necessary to keep the registration statement
effective until all such Registrable Securities are sold;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to the holders of Registrable Securities
to be included in a registration statement, at a reasonable time
prior to the filing thereof with the SEC, a copy of the
registration statement (and each amendment thereto) in the form
the Company proposes to file same; and furnish such number of
prospectuses and other documents incident thereto, including any
amendment of or supplement to the prospectus, as such holder of
Registrable Securities from time to time may reasonably request;
(d) Notify each seller of Registrable Securities
covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which
the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing, and
prepare and furnish to such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of
such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or incomplete in the light of the
circumstances then existing;
(e) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on
which similar securities issued by the Company are then listed;
and provide a transfer agent and registrar for all the securities
registered pursuant to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not
later than the effective date of such registration;
(f) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
but not more than eighteen (18) months, beginning with the first
month after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act; and
(g) In connection with any underwritten offering
pursuant to a registration statement filed pursuant to Section
7.3 or 7.5 hereof, the Company will enter into an underwriting
agreement containing customary underwriting provisions so as to
effect the offer and sale of the Common Stock.
Section 7.8 Indemnification.
-----------------------------
(a) The Company will indemnify each holder of
Registrable Securities, each of its officers, directors and
partners, and each person controlling such holder within the
meaning of Section 15 of the Securities Act, with respect to
which registration has been effected pursuant to this Article
VII, and each underwriter, if any, and each person who controls
within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and
liabilities (or actions, proceedings, or settlements in respect
thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus (including any related registration statement,
notification, or the like) incident to any registration under
this Article VII, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any
such registration, and will reimburse each such holder, each of
its officers, directors, partners, and each person controlling
such holder, each such underwriter, and each person who controls
any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or
action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability
or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company
by such holder or underwriter and stated to be specifically for
use therein. It is agreed that the indemnity agreement contained
in this Section shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld).
(b) In connection with the registration or sale of
shares of Registrable Securities pursuant to this Article VII,
each holder whose Registrable Securities are included in such
registration being effected under this Article VII, will
indemnify the Company, each of its directors, officers, partners,
and each underwriter, if any, of the Company's securities covered
by such a registration statement, each person who controls the
Company or such underwriter within the meaning of Section 15 of
the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement or
prospectus, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse the Company and such directors, officers, partners,
underwriters, or control person for any legal or any other
expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, in
each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement or prospectus,
in reliance upon and in conformity with written information
furnished to the Company by such holder of the Registrable
Securities, and stated to be specifically for use therein;
provided, however, that the obligations of such holder hereunder
shall not apply to amounts paid in settlement of any such claims,
losses, damages, or liabilities (or actions in respect thereof
(if such settlement is effected without the consent of such
holder, which consent shall not be unreasonably withheld); and
provided that in no event shall any indemnity under this Section
exceed the gross proceeds from the offering received by such
holder.
(c) Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the party
or parties required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of such
claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be
approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations under this Section, to the extent such failure is not
prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to
such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall
be reasonably required in connection with defense of such claim
and litigation resulting therefrom.
(d) If the indemnification provided for in this
Section is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any loss,
liability, claim, damage, or expense referred to therein, then
the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with
the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other
relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied
by the Indemnifying Party or by the Indemnified Party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in
the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall
control.
Section 7.9 Information by Holder.
-----------------------------------
Each holder of Registrable Securities shall furnish to the
Company in writing such information regarding such holder and the
distribution proposed by such holder as the Company or
underwriters may reasonably request in writing and as shall be
reasonably required in connection with any registration,
qualification, or compliance referred to in this Section.
Section 7.10 Allocation of Registration Opportunities.
-------------------------------------------------------
Except with regard to any registration of Registrable
Securities commenced pursuant to the provisions of Section 7.3
hereof, in any circumstance in which all of the Registrable
Securities and other shares of Common Stock of the Company with
registration rights (the "Other Shares") requested to be included
in a registration on behalf of the holders of Registrable
Securities or other selling stockholders cannot be so included as
a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included,
the number of shares of Registrable Securities and Other Shares
that may be so included shall be allocated among the holders of
Registrable Securities and other selling stockholders requesting
inclusion of shares pro rata on the basis of the number of shares
of Registrable Securities and Other Shares that would be held by
such holders and other selling stockholders. If any holder of
Registrable Securities or other selling stockholder does not
request inclusion of the maximum number of shares of Registrable
Securities and Other Shares allocated to him pursuant to this
procedure, the remaining portion of his allocation shall be
reallocated among those requesting holders of Registrable
Securities and other selling stockholders whose allocations did
not satisfy their requests pro rata on the basis of the number of
shares of Registrable Securities and Other Shares which would be
held by such holders and other selling stockholders, and this
procedure shall be repeated until all of the shares of
Registrable Securities and Other Shares which may be included in
the registration on behalf of the holders of Registrable
Securities and other selling stockholders have been so allocated.
The Company shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in
order to include shares held by stockholders with no registration
rights or to include in that registration shares of stock issued
to employees, officers, directors, or consultants pursuant to the
Company's stock option plan, or in order to include in such
registration securities registered for the Company's own account.
Section 7.11 Survival of Rights.
---------------------------------
The provisions of Section 7.3 through 7.10 hereof shall
survive the payment in full and/or the conversion of the
Debentures.
ARTICLE VIII - EVENTS OF DEFAULT; REMEDIES
Section 8.1 Events of Default.
-------------------------------
The occurrence of any one of the following shall constitute
an "Event of Default" under this Agreement:
(a) Default shall occur in the payment of interest on
any Debenture when the same shall have become due; or
(b) Default shall occur in the making of any payment
of the principal of any Debenture or the premium, if any, by the
Company thereon at the expressed or any accelerated maturity date
or at any date fixed by the Company for prepayment; or
(c) Default continuing beyond the period of grace, if
any, allowed with respect thereto shall be made in the payment of
the principal of or interest on any Indebtedness of the Company
or any Subsidiary (other than the Debentures) for (i) money
borrowed evidenced by notes payable, drafts accepted, bonds,
debentures, or similar instruments or (ii) obligations arising
under any lease; or
(d) Default continuing beyond the period of grace, if
any, allowed with respect thereto shall be made in the payment of
the principal of or interest on any Indebtedness of the Company
or any Subsidiary (other than the Debentures and other than
Indebtedness described in Section 8.3(c)), and the aggregate of
such overdue principal and interest for all such defaulted
Indebtedness shall exceed $50,000 at any one time; or
(e) 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
(f) Default shall occur in the observance or
performance of the covenant contained in Section 5.13 hereof; or
(g) 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
(h) 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
(i) 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
(j) 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
(k) A custodian, trustee, liquidator, or receiver is
appointed for the Company or any Subsidiary or for the major part
of the property of either and is not discharged within thirty
(30) days after such appointment; or
(l) Bankruptcy, reorganization, arrangement or
insolvency proceedings, or other proceedings for relief under any
bankruptcy or similar law or laws for the relief of debtors, are
instituted by or against the Company or any Subsidiary and, if
instituted against the company or any Subsidiary, are consented
to or are not dismissed within thirty (30) days after such
institution.
Section 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 Acceleration of Maturities.
----------------------------------------
When any Event of Default described 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 term, covenant, agreement or condition of this Agreement
may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the
Company shall have obtained the consent in writing of the holders
of at least 50% in aggregate principal amount of outstanding
Debentures; provided that without the written consent of the
holders of all of the Debentures then outstanding, no such
waiver, modification, alteration or amendment shall be effective
(a) which will change the time of payment of the principal of or
the interest on any Debenture or reduce the principal amount
thereof or change the rate of interest thereon, or (b) which will
change any of the provisions with respect to optional
prepayments, or (c) which will change the percentage of holders
of the Debentures required to consent to any such amendment,
modification or waiver of any of the provisions of this Article
IX or Article VIII.
Section 9.2 Solicitation of Debenture Holders.
-----------------------------------------------
The Company will not solicit, request or negotiate for or
with respect to any proposed amendment, modification or waiver
of any of the provisions of this Agreement or the Debentures
unless each holder of the Debentures (irrespective of the amount
of Debentures then owned by it) shall be informed thereof by the
Company and shall be afforded the opportunity of considering the
same and shall be supplied by the Company with sufficient
information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any
waiver effected pursuant to the provisions of this Section 9.2
shall be delivered by the Company to each holder of outstanding
Debentures forthwith following the date on which the same shall
have been executed and delivered by the holder or holders of the
requisite percentage of outstanding Debentures. The Company
will not, directly or indirectly, pay or cause to be paid by
remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any holder of the Debentures as
consideration for or as an inducement to the entering into by any
holder of the Debentures of any waiver or amendment of any of the
terms and provisions of this Agreement unless such remuneration
is concurrently paid, on the same terms, ratably to the holders
of all of the Debentures then outstanding.
Section 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 (other than a Restricted
Subsidiary) (a) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Company, (b) which beneficially owns or 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.
The term "control" means take possession, directly or indirectly,
of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of Voting
Stock, by contract or otherwise.
"Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which banks in Tennessee are authorized
to close.
"Default" shall mean any event or condition, the occurrence
of which would, with the lapse of time or the giving of notice,
or both, constitute an Event of Default as defined in Section
8.1.
"Event of Default" shall have the meaning set forth in
Section 8.1 hereof.
"Guaranties" by any Person shall mean all obligations (other
than endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person
guaranteeing, or in effect guaranteeing, any Indebtedness,
dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (a) to
purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness or
obligation, (ii) to maintain working capital or other balance
sheet condition or (iii) otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or
obligation, or (c) to lease property or to purchase Securities or
other property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of
the primary obligor to make payment of the Indebtedness or
obligation, or (d) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in
respect thereof. For the purposes of all computations made under
this Agreement, a Guaranty in respect of any Indebtedness for
borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which
has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such
obligation, liability or dividend.
"Indebtedness" of any Person shall mean and include all
obligations of such Person which in accordance with generally
accepted accounting principles shall be classified upon a balance
sheet of such Person as liabilities of such Person, and in any
event shall include all (a) obligations of such Person for
borrowed money or which have been incurred in connection with the
acquisition of property or assets, (b) obligations secured by any
lien or other charge upon property or assets owned by such
Person, even though such Person has not assumed or become liable
for the payment of such obligations, (c) obligations created or
arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person,
notwithstanding the fact that the rights and remedies of the
seller, Purchaser or lessor under such agreement in the Event of
Default are limited to repossession or sale or property, (d)
capitalized rentals, and (e) Guaranties of obligations of others
of the character referred to in this definition.
"Initiating Holders" shall mean holders of Debentures and
Legend Stock who in the aggregate hold not less than twenty five
percent (25%) of the shares of Common Stock received or
receivable upon conversion of the aggregate principal amount of
the Debenture initially issued, and who exercise rights to
request registration under Section 7.3.
"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.
"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.
"Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the declaration or ordering
of the effectiveness of such registration statement and such
other action as might be required with respect to registration,
qualification or compliance under applicable state securities
laws.
"Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including,
without limitation, all registration, qualification, and filing
fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, expenses of
any regular or special audits incident to or required by any such
registration and fees and reasonable disbursements of one counsel
for the holders as selling stockholders, but shall not include
Selling Expenses.
"Registrable Securities" shall mean shares of Common Stock
issued or issuable pursuant to the conversion of the Debentures;
provided, however, that Registrable Securities shall not include
any shares of Common Stock which have previously been registered
under the Securities Act.
"Rule 144" shall mean Rule 144 as promulgated by the SEC
under the Securities Act, as such Rule may be amended from time
to time, or any similar successor rule that may be promulgated by
the SEC.
"Rule 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended
from time to time, or any similar successor rule that may be
promulgated by the SEC.
"Security" shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the
sale of Registrable Securities and fees and disbursements of
counsel for any stockholder (other than the fees and
disbursements of counsel for the selling stockholders included in
Registration Expenses).
The term "Subsidiary" shall mean, as to any particular
parent corporation, any corporation of which more than 50% (by
number of votes) of the Voting Stock shall be owned by such
parent corporation and/or one or more corporations which are
themselves Restricted Subsidiaries of such parent corporation.
The term "Subsidiary" shall mean a subsidiary of the Company.
"Underwriter's Cutback" shall mean a reduction in the number
of shares to be included in any underwritten offering as the
result of receipt of written notice from the representative of
the underwriters to the effect that adverse marketing factors
require a limitation on the number of shares to be underwritten.
"Voting Stock" shall mean Securities of any class or classes
the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
Section 11.2 Accounting Principles.
------------------------------------
Where the character or amount of any asset or liability or
item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be
made for the purposes of this Agreement, the same shall be done
in accordance with GAAP, to the extent applicable, except where
such principles are inconsistent with the requirements of this
Agreement.
Section 11.3 Directly or Indirectly.
-------------------------------------
Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited from
taking such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.
SECTION XII - MISCELLANEOUS
Section 12.1 Expenses, Stamp Tax Indemnity.
--------------------------------------------
Whether or not the transactions herein contemplated shall be
consummated, the Company agrees to pay directly all of
Purchaser's out-of-pocket expenses in connection with the
entering into of this Agreement and the consummation of the
transactions contemplated hereby, including but not limited to
the reasonable fees, expenses and disbursements of Xxxxxxxx &
Xxx, PLC, Purchaser's counsel. The Company also agrees that it
will pay and save Purchaser harmless against any and all
liability with respect to stamp and other taxes, if any, which
may be payable in connection with the execution and delivery of
this Agreement or the Debentures, whether or not any Debentures
are then outstanding. The Company agrees to protect and
indemnify Purchaser against any liability for any and all
brokerage fees and commissions payable or claimed to be payable
to any Person in connection with the transactions contemplated by
this Agreement.
Section 12.2 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 IX hereof, shall extend to or affect any
obligation or right not expressly waived or consented to.
Section 12.3 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
with a copy to: Xxxxxxxx & Xxx, PLC
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
If to the Company: Cover-All Technologies Inc.
00-00 Xxxxxxx Xxxxx
Xxxx Xxxx, Xxx Xxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxxxx,
Chairman of the Board
with a copy to: Xxxx & Priest LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Fax: (000) 000-0000
Attention: Xxxxxxx Xxxxx, Esq.
or such other address as Purchaser or the subsequent holder of
any Debenture initially issued to Purchaser may designate to the
Company in writing, or such other address as the Company may in
writing designate to Purchaser or to a subsequent holder of the
Debenture initially issued to Purchaser, provided, however, that
a notice sent by overnight air courier shall only be effective if
delivered at a street address designated for such purpose by such
person and a notice sent by facsimile communication shall only be
effective if made by confirmed transmission at a telephone number
designated for such purpose by such person or, in either case, as
Purchaser or a subsequent holder of any Debentures initially
issued to Purchaser may designate to the Company in writing or at
a telephone number herein set forth in the case of the Company.
Section 12.4 Assignment.
-------------------------
This Agreement, the Debentures and the other Operative
Documents may be endorsed, assigned and/or transferred in whole
or in part by Purchaser, and any such holder and/or assignee of
the same shall succeed to and be possessed of the rights and
powers of Lender under all of the same to the extent transferred
and assigned. The Company shall not assign any of its rights nor
delegate any of its duties under this Agreement or any of the
other Operative Documents by operation of law or otherwise
without the prior express written consent of Lender, and in the
event the Company obtains such consent, this Agreement and the
other Operative Documents shall be binding upon such assignee.
Section 12.5 Survival of Covenants and Representations.
--------------------------------------------------------
All covenants, representations and warranties made by the
Company and the Purchaser 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.
Section 12.6 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 12.7 Governing Law.
----------------------------
This Agreement and the Debentures issued and sold hereunder
shall be governed by and construed in accordance with Tennessee
law, without regard to its conflict of law rules.
Section 12.8 Captions.
-----------------------
The descriptive headings of the various Sections or parts of
this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this
Debenture Purchase Agreement to be executed and delivered by
their duly authorized officers as of the date first written
above.
COMPANY:
COVER-ALL TECHNOLOGIES INC.
By: /s/ Xxxxx Xxxxxxx
---------------------------------
Name: Xxxxx Xxxxxxx
---------------------------------
Title: Chairman & Chief Executive Officer
---------------------------------
PURCHASER:
SIRROM CAPITAL CORPORATION
By: /s/ Xxxxx Xxxxxx
--------------------------------
Name: Xxxxx Xxxxxx
--------------------------------
Title: V.P.
--------------------------------