1
SUBORDINATED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of the __________TH day of
____________________, 1995, by and between TRANSCEND SERVICES, INC., a Delaware
corporation (the "Company"), and _______________________________ (the
"Purchaser").
W I T N E S S E T H:
WHEREAS, the Company now desires to sell, and Purchaser has agreed to
purchase, a debenture of the Company, all on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. THE DEBENTURE
1.1 Sale of the Debenture. Subject to the terms and conditions
hereof, at the Closing (defined in Section 2.1 below) the Company shall issue
and sell to Purchaser, and Purchaser shall purchase from the Company, a
Subordinated Convertible Debenture in substantially the form attached hereto as
Exhibit 1.1 in the original principal amount of ______________________n0/100
DOLLARS ($ ), which (i) shall accrue interest at the rate of eight
percent (8%) per annum, payable semi-annually, (ii) shall be unsecured and
subordinated to all other debt of the Company, and (iii) shall be convertible
into shares of common stock, $.01 par value per share (the "Common Stock"), of
the Company, all under the terms and conditions set forth more fully on Exhibit
1.1, (together with any replacement thereof or substitute therefor being
referred to hereinafter as the "Debenture").
1.2 Reservation of Common Stock. The Company shall reserve and
keep available for issuance such number of its authorized but unissued shares
of Common Stock as will be sufficient to permit the conversion in full of the
Debenture into Common Stock (the "Reserved Shares"). All shares of Common
Stock that shall be so issuable shall, when issued upon conversion, be duly and
validly issued and fully paid and non-assessable. If any shares of Common
2
Stock required to be reserved for issuance upon conversion of the Debenture
require registration with any governmental authority under any federal or state
law before such shares may be so issued, the Company shall in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to
be duly registered.
1.3 Use of Cash Proceeds. The Company, as determined by the
Board of Directors thereof, shall use the cash proceeds from the sale of the
Debenture to provide general working capital to the Company and to pay all
costs and expenses incurred by the Company in connection with the transactions
provided for herein.
2. CLOSING; DELIVERIES
2.1 Closing. The closing of the purchase and sale of the
Debenture (the "Closing") shall be held at the offices of the Company on August
15, 1995, or on such other date or at such other place as the parties may agree
(the date of the Closing is hereinafter referred to as the "Closing Date").
2.2 Deliveries at Closing. At the Closing, the Company shall
deliver to Purchaser the Debenture executed by a duly authorized officer of the
Company against payment by Purchaser of the purchase price therefor in
immediately available funds.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser as follows:
3.1 Organization and Standing. The Company and each of its
wholly-owned subsidiaries (the "Subsidiaries") is a corporation duly organized
and validly existing under, and by virtue of, the laws of the state of each
such corporation's state of incorporation and is in good standing under such
laws. The Company and each of its Subsidiaries is qualified to do business as
a foreign corporation in every jurisdiction in which the failure to so qualify
would have a material adverse effect on the business of the Company and the
Subsidiaries, taken as a whole. The Company and each of its Subsidiaries has
the requisite power and authority to own and operate its properties and assets
and to carry on its business as presently conducted.
2
3
3.2 Power and Authority; Capacity. The Company has all
requisite legal and corporate power and authority to enter into this Agreement
and to carry out and perform its other obligations under the terms of this
Agreement.
3.3 Capitalization. The entire authorized capital stock of the
Company consists of fifty-one million (51,000,000) shares of stock, of which
thirty million (30,000,000) shares are designated Common Stock, par value $.01
per share, and twenty-one million (21,000,000) shares are designated Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Of the total
authorized Common Stock as of July 31, 1995, approximately seventeen million
six hundred seventy-eight thousand (17,678,000) shares were issued, of which
approximately seventeen million six hundred seventy-eight thousand (17,678,000)
shares were outstanding and none were held in the Company's treasury. Of the
total authorized Preferred Stock, none were outstanding. All of the
outstanding shares of Common Stock (including any shares issued pursuant to
existing Company stock option, purchase or benefit plans, if exercised and
purchased at the applicable exercise price) were duly authorized (or will be
when issued and the option or purchase price is paid), validly issued, fully
paid and nonassessable. None of the capital stock of the Company is entitled
or subject to preemptive rights.
3.4 Agreement Does Not Violate Other Instruments. The execution
and delivery of this Agreement by the Company does not, and the consummation of
the transactions contemplated hereby will not, violate any provisions of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of the
Company, and violate or constitute an occurrence of default under any provision
of, or conflict with, result in acceleration of any obligation under, or give
rise to a right by any party to terminate its obligations under, any mortgage,
deed of trust, conveyance to secure debt, note, loan, lien, lease, agreement,
instrument, or any order, judgment, decree or other arrangement to which the
Company is a party or is bound or by which any of its assets are affected. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental entity is required to be obtained or made by or
with respect to the Company or any assets, properties or operations of the
Company in connection with the execution and delivery by the Company of this
Agreement or the consummation of the transactions contemplated hereby.
3
4
3.5 Validity of the Reserved Shares. The Reserved Shares, when
issued and delivered to Purchaser upon the conversion of the Debenture in
compliance with the provisions thereof, shall be duly authorized, validly
issued, fully paid and nonassessable.
3.6 Information. The Company has delivered to Purchaser its
Annual Report on Form 10-K for the transition period ended December 31, 1994
and its Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
(collectively, the "Company Reports"). As of the date of this Agreement, the
Company Reports, taken together with information previously furnished by the
Company to Purchaser, did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. As used in this Section, "material" means material
to the financial condition, results of operations, business, assets or
properties of the Company together with its Subsidiaries, taken as a whole.
3.7 Absence of Certain Changes or Events. Since March 31, 1995,
the Company has operated in the ordinary course of business and there has not
been any transaction, commitment, dispute or other event or condition that
would result in any material adverse effect on the businesses, assets
(including intellectual property rights) or operations of the Company and its
Subsidiaries, taken as a whole.
4. Purchaser' REPRESENTATIONS. Purchaser represents and warrants to the
Company as follows:
4.1 Authorization. All action on the part of Purchaser
necessary for the authorization, execution, delivery and performance of all
obligations of Purchaser under this Agreement shall have been taken prior to
the Closing. This Agreement, when executed and delivered by Purchaser, shall
constitute the valid and binding obligation of Purchaser and shall be
enforceable against Purchaser, in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the enforcement of creditors' rights generally, and except that the
availability of the remedy of specific performance or other equitable relief
shall be subject to the discretion of the court before which any proceeding
therefor may be brought.
4
5
4.2 Purchase Entirely for Own Account. This Agreement is made
with Purchaser in reliance upon Purchaser's representation to the Company,
which by execution of this Agreement Purchaser hereby confirms, that the
Debenture will be acquired for investment for Purchaser's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Purchaser further represents that Purchaser does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to the Debenture.
4.3 Reliance Upon Purchaser's Representations. Purchaser
understands that the Debenture has not been, and that, upon conversion of the
Debenture, none of the Reserved Shares may be, registered under the Securities
Act of 1933, as amended (the "Securities Act") or any state securities laws, by
reason of specific exemptions from the registration provisions of the
Securities Act and such laws, and that the Company's reliance on such
exemptions is predicated on Purchaser's representations set forth herein.
Purchaser realizes that the basis for the exemptions may not be present if,
notwithstanding such representations, Purchaser has in mind merely acquiring
the Debenture for a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. Purchaser has no such
intention.
4.4 Receipt of Information. Purchaser believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Debenture. Purchaser further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Debenture and the business,
properties, prospects, and financial condition of the Company and its
Subsidiaries and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expenses) necessary to verify the accuracy of any information furnished to
Purchaser or to which Purchaser has access. The foregoing, however, does not
limit or modify the representations or warranties of the Company in Section 3
of this Agreement or the right of Purchaser to rely thereon.
5
6
4.5 Investment Experience. Purchaser represents that it is
experienced in evaluating and investing in securities of companies such as the
Company and acknowledges that it is able to fend for itself, can bear the
economic risk of its investment, and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investment in the Debenture. Purchaser also represents it has not
been organized solely for the purpose of acquiring the Debenture.
4.6 Accredited Investor. Purchaser is an "accredited investor"
within the meaning of Regulation D promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act.
4.7 Restricted Securities. Purchaser understands that the
Debenture (and that, upon conversion of the Debenture, the Reserved Shares) may
not be sold, transferred, or otherwise disposed of without registration under
the Securities Act and any applicable state securities laws, or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Debenture (or the Reserved Shares in the event of conversion of
the Debenture), may not be sold pursuant to Rule 144 promulgated by the
Commission under the Securities Act unless all of the conditions of that Rule
are met.
4.8 Legends. The Debenture and each certificate or other
document evidencing any of the Reserved Shares issued upon conversion of the
Debenture shall be endorsed with the legend set forth below:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR THE SECURITIES ACT OF 1933, AS
AMENDED (THE "FEDERAL ACT"). THIS SECURITY HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
HYPOTHECATED, SOLD, OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR
TRANSFEREE HEREOF BE RECOGNIZED BY THE MAKER HEREOF AS
HAVING ANY INTEREST IN THIS SECURITY, IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THIS
SECURITY UNDER APPLICABLE STATE LAWS AND THE FEDERAL ACT OR
ANY OPINION OF COUNSEL SATISFACTORY TO THE MAKER HEREOF THAT
SUCH REGISTRATION IS NOT REQUIRED."
6
7
5. CONDITIONS TO CLOSING OF PURCHASER. The obligation of Purchaser to
purchase and pay for the Debenture at the Closing is subject to the fulfillment
to its satisfaction on or prior to the Closing Date of the following
conditions:
5.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Section 3 hereof shall be true and
correct in all material respects when made and shall be true and correct on the
Closing Date with the same force and effect as if they had been made on and as
of said date.
5.2 Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company on
or prior to the Closing Date shall have been performed or complied with in all
material respects.
5.3 Agreements With Other Purchasers. The Company shall have
entered into agreements with other purchasers on substantially the same terms
and conditions as this Agreement for the issuance and sale of additional
debentures, which shall aggregate at least two million dollars ($2,000,000) in
original principal amount, inclusive of the principal amount of the Debenture
attached hereto as Exhibit 1.1.
5.4 Compliance Certificate. Purchaser shall have received a
certificate executed by an officer of the Company dated the Closing Date,
certifying that the conditions specified in Sections 5.1 through 5.3 hereof
have been fulfilled.
6. CONDITIONS TO CLOSING OF THE COMPANY. The obligation of the Company
to sell the Debenture at the Closing is subject to the fulfillment on or prior
to the Closing Date of the following conditions:
6.1 Representations. The representations made by Purchaser in
Section 4 hereof shall be true and correct in all material respects when made
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date.
6.2 Performance. All covenants, agreements and conditions
contained in this Agreement to be performed by or complied with by
7
8
Purchaser on or prior to the Closing Date shall have been performed or complied
with in all material respects.
6.3 Agreements With Other Purchasers. The Company shall have
entered into the agreements addressed in Subsection 5.3 hereof.
7. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees
with Purchaser as follows:
7.1 Public Reports. After the Closing Date, the Company shall
furnish to Purchaser each Annual Report on Form 10-K and each Quarterly Report
on Form 10-Q of the Company that is provided to the stockholders of the
Company.
7.2 Additional Covenants. In addition, the Company shall, or
shall cause each of its Subsidiaries, as applicable, to:
7.2.1 Promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company or any subsidiary; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto; and provided, further, that the Company shall pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings
to foreclose any lien that may have attached as security therefor. The
Company shall promptly pay or cause to be paid when due, or in conformance with
customary trade terms, all other indebtedness incident to the operations of the
Company and its Subsidiaries.
7.2.2 Keep its properties and those of its Subsidiaries in
good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company and its
Subsidiaries shall at all times comply with the provisions of all leases to
which any of them is a party or under which any of them occupies property.
8
9
7.2.3 Keep its assets and those of its Subsidiaries that
are of an insurable character insured by reputable insurers against loss or
damage by fire and explosion in amounts customary for companies in similar
businesses similarly situated; and maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated.
7.2.4 Keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.
7.2.5 Duly observe and conform to, and cause its
Subsidiaries to so observe and conform to, in all material respects, all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their property or assets.
7.2.6 Maintain in full force and effect its corporate
existence, rights and franchises and use its best efforts to maintain in full
force and effect all licenses and other rights to use patents, processes,
licenses, trademarks, service marks, trade names or copyrights owned or
possessed by it or any subsidiary and necessary to the conduct of its business.
8. REGISTRATION RIGHTS.
8.1 Certain Definitions. As used in this Agreement, in addition
to the terms defined above, the following terms shall have the following
respective meanings:
"Holder(s)" shall mean Purchaser and any other person(s) holding
Registrable Securities to whom these registration rights have been transferred
pursuant to Subsection 8.8 hereof.
"Other Stockholders" shall mean persons other than Holders who, by
virtue of agreements with the Company, are entitled to include their securities
in a registration effected pursuant to this Agreement.
9
10
The terms " register," "registered" and "registration" refer to the
effectiveness of a registration statement prepared and filed in compliance with
the Securities Act; provided, however, that Registrable Securities shall not
include any shares of Common Stock that have previously been registered or that
have been sold to the public, or that have been sold in a private transaction in
which the transferor's rights under this Agreement are not assigned.
"Registrable Securities" as of any particular time shall mean (i) the
Debenture, (ii) all then issued and outstanding Reserved Shares, and (iii) all
Reserved Shares issuable, yet not actually issued, upon conversion of the then
outstanding Debenture.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Subsection 8.2 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and expenses of a single counsel for
the selling Holders, state "blue sky" fees and expenses, and accountants'
expenses, including without limitation any special audits incident to or
required by any such registration, but excluding Selling Expenses, the
compensation of regular employees of the Company, which shall be paid in any
event by the Company, and excluding also any additional disbursements of
counsel for the selling Holders, which shall be paid by such selling Holders.
"Securities Exchange Act" shall mean the federal Securities Exchange
Act of 1934, as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any particular time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and any other
securities of the Company being sold in the same registration as the
Registrable Securities by Other Stockholders.
8.2 Piggyback Registration.
(a) If the Company shall determine to register any of its
securities in connection with the public offering of such securities solely for
cash on a form that would permit the registration of the Registrable
Securities, the Company shall
10
11
promptly give to each Holder written notice of such registration (a "Piggyback
Registration") (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws), and use its best efforts to include in
such registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by any Holder or
Holders within fifteen (15) days after such written notice from the Company,
except as set forth in Subsection 8.2(b) hereof. Upon the written request of
each Holder given within twenty (20) days following the date of such notice,
the Company shall cause to be included in such registration statement and use
its best efforts to cause to be registered under the Securities Act all the
Registrable Securities that each Holder shall have requested to be registered.
The Company shall have the right to withdraw or cease to prepare or file any
registration statement for any offering referred to in this Subsection 8.2(a)
without any obligation or liability to any Holder.
(b) Number of Piggyback Registrations. Subject to Subsection
(d) below, each Holder shall be entitled to have its Registrable Securities
included in no more than two (2) Piggyback Registrations pursuant to this
Subsection 8.2.
(c) Holdback by the Company. If the Company has previously
filed a registration statement with respect to Registerable Securities pursuant
to this Subsection 8.2, and if such previous registration has not been
withdrawn or abandoned, the Company will not file or cause to be effected any
other registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of one
hundred eighty (180) days has elapsed from the effective date of such a
previous registration.
(d) 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 as a part of the written notice given
pursuant to Subsection 8.2(a) hereof. In such event the right of any Holder to
registration pursuant to Subsection 8.2(b) (i) shall be conditioned upon such
Holder's
11
12
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein and
(ii) shall terminate as to each Holder upon the availability of Rule 144(k) to
such Holder and such Holder holding not more than two percent (2%) of the
outstanding Registrable Securities. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company and Other
Stockholders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company. Notwithstanding any
other provision of this Subsection 8.2, if the managing underwriter advises the
Company in writing that in its opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable
Securities and other securities requested to be included in such registration
by the Holders and the Other Stockholders, respectively, provided, that if the
managing underwriter in good faith determines that a lower number of
Registrable Securities and other securities should be included, then the
Company shall be required to include in the underwriting only that lower number
of Registrable Securities and other securities and the Holders of Registrable
Securities and the Other Stockholders who have requested registration shall
participate in the underwriting such that such number so included shall be pro
rata among the respective Holders and Other Stockholders on the basis of the
amount of Registrable Securities and other securities requested to be offered
thereby. The Company shall advise all holders of securities requesting
registration as to the number of shares or securities that may be included in
the registration and underwriting as allocated in the foregoing manner. If any
Holder or Other Stockholder disapproves of the terms of any such underwriting,
such person may elect to withdraw therefrom by written notice to the Company
and the managing underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall also be withdrawn from such
registration.
8.3 Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders and
12
13
the Other Stockholders of the securities so registered pro rata on the basis of
the number of their shares so registered. If any jurisdiction in which the
securities shall be qualified shall require that expenses incurred in
connection with the qualification of the securities in that jurisdiction be
borne by the selling stockholders, then such expenses shall be payable by the
selling stockholders pro rata to the extent required by such jurisdiction.
8.4 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Agreement, the Company shall keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense the Company shall use its best efforts
to:
(a) keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; and
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
8.5 Indemnification.
(a) With respect to each Holder whose securities have complied
or been registered or qualified pursuant to this Agreement, the Company shall
indemnify such Holder, each of such Holder's officers, directors and partners,
and each person controlling (as defined in Subsection 8.5(d) below) such Holder
and each of such controlling person's officers, directors and partners, and
shall also indemnify each underwriter, if any, and each person who controls any
underwriter, 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 prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, 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 any rule or
regulation promulgated under the Securities Act applicable to the Company and
13
14
relating to action or inaction required of the Company in connection with any
such registration, qualification or compliance, and shall reimburse each such
Holder and each person controlling such Holder, and each of such controlling
person's officers, directors and partners, each of its officers, directors and
partners, each such underwriter, and each person who controls such underwriter,
for any legal and other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the Company shall 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 upon written information furnished to the Company in an instrument
duly executed by the Holder or underwriter seeking to be indemnified, where
such information is stated to be specifically for use in such prospectus,
offering circular or related document. It is agreed that the indemnity
agreement contained in this Subsection 8.5(a) shall not apply to amounts paid
in settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld).
(b) Each Holder and Other Stockholder shall, if securities held
by him or it are included among the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
(as defined in Subsection 8.5(d) below) the Company or such underwriter, and
each other such Holder and Other Stockholder and each of such controlling
person's officers, directors and partners, and each person controlling such
Holder or Other Stockholder and each of such controlling person's officers,
directors and partners, 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, prospectus, offering circular or other document, 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 shall
reimburse the Company and such Holders, Other Stockholders, directors,
officers, partners, persons, underwriters and control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability
14
15
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, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder or Other Stockholder specifically for use
therein; provided, however, that the obligations of such Holder or Other
Stockholder hereunder shall be limited to an amount equal to the proceeds to
such Holder or Other Stockholder of securities sold as contemplated herein. It
is agreed that the indemnity agreement contained in this Section 8.5(b) shall
not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if such settlement is effected without the consent of such
Holder or Other Stockholder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section
8.5 (the "Indemnified Party") shall give notice to the party 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 any
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 withheld unreasonably), and the Indemnified Party
may participate in such defense at such Indemnified Party's expense. The
failure of any Indemnified Party to give notice as provided herein shall
relieve the Indemnifying Party of its obligations under this Section 8.5 only
if such failure is prejudicial to the ability of the Indemnifying Party to
defend such action, and such failure shall in no event relieve the Indemnifying
Party of any liability that he or it may have to any Indemnified Party
otherwise than under this Section 8.5. 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 with respect to such claim or litigation.
15
16
(d) For purposes of this Section 8.5, the term "control" shall
have the meaning assigned thereto under the Securities Act.
8.6 Information by Holders and Other Stockholders. Each Holder
or Other Stockholder of securities included in any registration shall furnish
to the Company such information regarding such Holder or Other Stockholder and
the distribution proposed by such Holder or Other Stockholder as the Company
may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
8.7 Rule 144.
(a) Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Registrable Securities to the public without registration, the Company shall:
(i) make and keep public information available as those
terms are understood and defined in Rule 144 promulgated by the Commission
under the Securities Act ("Rule 144");
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act; and
(iii) so long as any Holder owns any securities
constituting or representing Registrable Securities, furnish to such Holder
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of Rule 144, and of the Securities Act and the
Securities Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the Company as
such Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing such Holder to sell any such securities without
registration.
(b) Sale of the Registrable Securities. Conditioned on the
Company's compliance with Rule 144, after August 15, 1997, the Registrable
Securities may be sold to the public without registration.
16
17
8.8 Transfer of Registration Rights. The rights to cause the
Company to register securities of the Company under Subsection 8.2 hereof may
be assigned by any Holder only (a) to an assignee of Registrable Securities
consisting of or derived from conversion of not less than twenty percent (20%)
of any combination of the Debenture and Reserved Shares of such assigning
Holder (as presently constituted and subject to subsequent adjustments for
stock splits, stock dividends, reverse stock splits and the like), or (b) upon
distribution by Purchaser or an assignee described in (a) that is an entity of
any of the securities described in (a) to the direct or indirect beneficial
owners of the securities of such entity (including direct or indirect general
or limited partners thereof), together with the securities being transferred,
provided that in each case the Company is given written notice, at the time or
within a reasonable time after said transfer, stating the name and address of
said transferee and identifying the securities with respect to which such
registration rights are being assigned. No such assignment shall be effective
unless the transferee shall be required, as a condition to such transfer, to
agree in writing that he or it will receive and hold such securities subject to
the provisions of this Section 8 and unless the Company is given written notice
at the time of the assignment or within a reasonable time after such
assignment, stating the name and address of said transferee and identifying the
securities that are being assigned.
8.9 "Market Stand-Off" Agreement. If requested by the Company
upon the recommendation of the Board of Directors of the Company and an
underwriter of Common Stock (or other securities) of the Company, the Holders
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by them during the one hundred and eighty
(180)-day period following the effective date of a registration statement of
the Company filed under the Securities Act, provided that:
(a) such agreement shall apply only with respect to an
underwritten public offering; and
(b) Other Stockholders selling securities pursuant to such
registration statement and all officers and directors of the Company enter into
similar agreements.
Such agreement shall be in writing in form satisfactory to the Company
and such underwriter. The Company may impose stop-transfer
17
18
instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said one hundred and eighty (180)-day
period.
9. MISCELLANEOUS.
9.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Georgia.
9.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Company or
Purchaser and the closing of the transactions contemplated hereby.
9.3 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Company and Purchaser and their respective
successors and assigns, except that, unless otherwise expressly provided for in
this Agreement, neither the Company nor Purchaser shall have the right to
assign any of its rights hereunder or delegate any of its obligations hereunder
without the prior written consent of the remaining party.
9.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and thereof. Neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated orally, but only by a written instrument
signed by the parties hereto.
9.5 Notices, etc. All notices and other communications required
or permitted hereunder shall be given in writing and shall be deemed
effectively given upon personal delivery or upon the second business day
following deposit with the United States Postal Service, by certified mail,
return receipt requested, postage prepaid, or otherwise delivered by hand or by
messenger, addressed (a) if to Purchaser, at the address provided beneath
Purchaser's signature below, or at such other address as Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of the
Debenture or Reserved Shares issued upon a conversion of the Debenture, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an
18
19
address to the Company, then to and at the address of the last holder of such
securities who has so furnished an address to the Company, or (c) if to the
Company, at 0000 Xxxxxxxxx Xxxx, X.X., Xxxxx 0000, Xxxxxxx, Xxxxxxx 00000,
Attention: Xxxxx X. Xxxxxx, Chief Financial Officer, or at such other address
as the Company shall have furnished to Purchaser and each such other holder in
writing.
9.6 Delays or Omissions; Remedies Cumulative. No delay or
omission to exercise any right, power or remedy accruing to the Company or
Purchaser, upon any breach or default under this Agreement, shall impair any
such right, power or remedy of the Company or Purchaser, nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. All of the
Company's or Purchaser's remedies, either under this Agreement or by law or
otherwise afforded to the Company or Purchaser, shall be cumulative and not
alternative.
9.7 Agent's Fees. The Company (i) represents and warrants that
it has retained no finder or broker in connection with the transactions
contemplated by this Agreement (except as disclosed to the other parties hereto
as of the date hereof) and (ii) hereby agrees to indemnify and to hold
Purchaser harmless of and from any liability for commissions or compensation in
the nature of an agent's fee to any broker or other person or firm (and the
cost and expenses of defending against such liability or asserted liability)
for which said party is responsible.
9.8 Expenses. The Company shall bear its own expenses and legal
fees incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby and all expenses and disbursements of its legal counsel
reasonably incurred.
9.9 Titles and Subtitles. The titles of the sections,
paragraphs and subparagraphs of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement.
19
20
9.10 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.11 Timely Performance. Time is of the essence as to the
performance of the obligations required of the respective parties under this
Agreement.
20
21
IN WITNESS WHEREOF, the Company and Purchaser have executed and
delivered this Agreement as of the day and year first above written.
THE COMPANY:
-----------
TRANSCEND SERVICES, INC.
By:
--------------------------------
Name:
--------------------------
Title:
-------------------------
PURCHASER:
---------
By:
-------------------------------
ADDRESS:
-------
21
22
EXHIBIT 1.1
THIS SECURITY HAS NOT BEEN REGISTERED UNDER ANY APPLICABLE STATE SECURITIES
LAWS OR THE SECURITIES ACT OF 1933, AS AMENDED (THE "FEDERAL ACT"). THIS
SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
HYPOTHECATED, SOLD, OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE HEREOF
BE RECOGNIZED BY THE MAKER HEREOF AS HAVING ANY INTEREST IN THIS SECURITY, IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THIS
SECURITY UNDER APPLICABLE STATE LAWS AND THE FEDERAL ACT OR ANY OPINION OF
COUNSEL SATISFACTORY TO THE MAKER HEREOF THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS SUBORDINATED CONVERTIBLE DEBENTURE IS SUBJECT TO THE TERMS AND CONDITIONS
OF THAT CERTAIN SUBORDINATED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT DATED
AUGUST 15, 1995 BY AND BETWEEN TRANSCEND SERVICES, INC., AND (THE "PURCHASE
AGREEMENT"), AND HOLDER AGREES AND UNDERSTANDS THAT IT SHALL BE BOUND BY THE
OBLIGATIONS AND ENTITLED TO THE RIGHTS UNDER SUCH PURCHASE AGREEMENT.
TRANSCEND SERVICES, INC.
SUBORDINATED CONVERTIBLE DEBENTURE
$100,000.00 August 15, 1995
1. PROMISE TO PAY
FOR VALUE RECEIVED, the undersigned TRANSCEND SERVICES, INC., a
Delaware corporation (the "Company"), HEREBY PROMISES TO PAY TO THE ORDER OF
("Payee"; Payee together with any subsequent holder of this Subordinated
Convertible Debenture hereinafter collectively referred to as "Holder"), on or
before, as provided hereinbelow, August 15, 2000 (the "Maturity Date"), the
principal amount of $________________ dollars ($ ), together with
interest on such principal amount at the rate per annum provided below, which
payments of interest and principal shall be made as provided below. Both
principal and interest
23
hereunder are payable in lawful money of the United States of America to Holder
at its office at 0000 Xxxxxxxxx Xxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxx 00000.
Interest on any unpaid principal amounts under this Subordinated
Convertible Debenture (the "Debenture") shall accrue at the rate of eight
percent (8%) per annum, calculated for the actual number of days elapsed on the
basis of a 365-day year which interest shall be payable in arrears in
semi-annual installments, with the first installment payable on February 28,
1996 and subsequent installments payable August 31 and February 28 of each year
thereafter or, if any of such dates is a legal or religious holiday, then on
the next succeeding day that is not a legal or religious holiday. The
principal amount hereof shall be payable on the Maturity Date. The Company may
prepay the Debenture in accordance with the terms of Section 3 hereof.
2. CONVERSION OF DEBENTURE
2.1 Holder's Right to Convert. Subject to and upon
compliance with the provisions of this Section 2, at any time and from time to
time prior to the Maturity Date, the Holder may, at its option, convert all or
any portion of the principal amount of this Debenture then outstanding
("Holder's Conversion Right") into fully paid and non-assessable shares of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company at
the rate of 286 shares of Common Stock for each $1,000 in principal amount (the
"Conversion Rate"); provided, however, that the Conversion Rate shall be
subject to the adjustments described below. At the time of such conversion,
payment of all accrued but unpaid interest with respect to the principal amount
converted shall be made as provided in Subsection 2.4 below. Notwithstanding
the foregoing, if the Company gives the Holder written notice of prepayment as
provided in Section 3, the Holder's right to convert the principal amount of
this Debenture being so prepaid shall terminate on the close of business on the
fifth (5th) business day prior to the date fixed for prepayment.
2.2 Company's Right to Convert. Subject to and upon
compliance with the provisions of this Section 2, at any time and from time to
time during which the Common Stock trades (measured by Closing Price) for
thirty (30) consecutive trading days at or greater than a per share price of
$10.50 (such number being
2
24
adjusted for stock splits, stock dividends, reclassifications, mergers or
similar events), the Company may, at its option, convert all or any portion of
the principal amount of this Debenture then outstanding ("Company's Conversion
Right") into fully paid and non-assessable shares of Common Stock at the
Conversion Rate. At the time of such conversion, payment of all accrued but
unpaid interest with respect to the principal amount converted shall be made as
provided in Subsection 2.4 below. The term "Closing Price" shall mean the
average of the high and low sales prices (highest bid and lowest ask prices) of
the Common Stock as reported on the Nasdaq National Market.
2.3 Mechanics of Conversion. Before this Debenture can
be converted into shares of Common Stock, the Debenture must be surrendered by
Holder to the Company at its offices at the address following its signature
below (or at such other address of which the Company shall have notified the
Holder in writing). In the event Holder elects to convert the Debenture
pursuant to Holder's Conversion Right, Holder shall give written notice to the
Company at such offices, that Holder elects to convert the Debenture, or, if
less than the entire principal amount of the Debenture is to be converted, the
portion thereof to be converted. Such notice shall also state the name or
names (with address or addresses) in which the certificate or certificates for
shares of Common Stock issuable upon such conversion shall be issued and shall
contain such representations as may reasonably be required by the Company to
the effect that the shares to be received upon conversion are not being
acquired and will not be transferred in any way that might violate the then
applicable laws. In the event the Company elects to convert the Debenture
pursuant to the Company's Conversion Right, the Company shall notify the Holder
in writing of such election at Holder's address provided in Section 1 hereof.
Within ten (10) days of receipt of such notification from the Company, Holder
shall surrender the Debenture and provide the Company with written notice that
Holder elects to convert the Debenture in the principal amount as identified in
the Company's notice, and such Holder's notice shall also set forth the
issuance instructions and representations as if Holder had elected to exercise
Holder's Conversion Right. Noncompliance by Holder shall subject Holder to the
remedy addressed in Subsection 5.6 hereof. As promptly as practicable after
the receipt of notice of conversion from Holder and the surrender of the
Debenture as aforesaid, the Company
3
25
shall issue and shall deliver to Holder at the address specified by Holder in
the written notice of conversion a certificate or certificates for the number
of full shares issuable upon the conversion of the Debenture (or portion
thereof) in accordance with the provisions of this Section 2 and cash as
provided in Subsection 2.4 hereof. Such conversion shall be deemed to have
been effected at the close of business on the date on which such notice shall
have been received at the office of the Company and the Debenture shall have
been surrendered as aforesaid (the "Conversion Date"). At such time, the
rights of Holder as obligee shall cease as to the portion of the Debenture that
has been converted, 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 of Common Stock represented thereby. All certificates issued
upon the exercise of the conversion shall contain a legend governing
restrictions upon such shares imposed by law and the Purchase Agreement
referred to in the legends at the beginning of this Debenture. Upon conversion
of the Debenture in part only, the Company shall execute and deliver to or on
the order of Holder, at the expense of the Company, a new debenture in
principal amount equal to the unconverted portion of the Debenture so
converted, which shall be dated as of the original Debenture and shall reaffirm
the Company's obligation to pay all accrued and unpaid interest on such
principal amount from such date in accordance with Subsection 8.7 hereof, but
shall not give credit for any accrued but unpaid interest with respect to any
principal under this Debenture that has been converted, the latter such
interest being payable pursuant to Subsection 2.4 below.
2.4 Fractional Shares and Accrued Interest. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of the Debenture. Instead of any fractional shares
that would otherwise be issuable upon conversion of the Debenture or specified
portions thereof, the Company shall pay to Holder a cash adjustment in respect
of such fraction in an amount equal to such fraction multiplied by the
applicable Closing Price per share of the Common Stock as of the Conversion
Date. The Holder of the Debenture surrendered for conversion shall also be
entitled to receive in cash, upon any conversion, the amount of any interest
4
26
accrued and unpaid to the date of such conversion on the principal amount of
such Debenture being converted.
2.5 Adjustment for Certain Events. In the event the
Company at any time or from time to time after the date hereof effects a
reorganization, reclassification, stock dividend, stock split, consolidation,
merger or sale, the Conversion Rate, if appropriate, shall be proportionately
adjusted to reflect the value of the Common Stock reflected by the terms of
such reorganization, reclassification, stock dividend, stock split,
consolidation, merger or sale.
2.6 No Impairment. The Company shall not, by amendment
of its Certificate of Incorporation or Bylaws or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 2 and in the taking of all such action as may be
necessary or appropriate in order to protect the Holder's Conversion Right
against impairment.
2.7 Certificate as to Adjustments. Upon the occurrence
of each adjustment of the Conversion Rate pursuant to this Section 2, the
Company shall compute such adjustment in accordance with the terms hereof and
prepare and furnish to Holder a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based. The Company
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to Holder a like certificate setting forth (a) such adjustments, (b)
the Conversion Rate at that time in effect, and (c) the number of shares of
Common Stock and the amount, if any, of other property that at that time would
be received upon the conversion of the Debenture.
2.8 Notices of Record Date. In the event of any taking
by the Company of a record of the holders of any class of securities other than
this Debenture for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or
5
27
any other securities or property, or to receive any other right, other than a
right to vote at a meeting of stockholders, the Company shall mail to Holder at
least twenty (20) days prior to the date specified therein a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or rights, and the amount and character of such
dividend, distribution or rights.
2.9 Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of this Debenture such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of this Debenture; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect such conversion, the Company shall take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
3. PREPAYMENT
3.1 Right to Prepay. The Company may, at its option,
prepay any outstanding principal amount under this Debenture, either in whole
or in part, from time to time prior to the maturity of this Debenture, without
any prepayment penalty or charge, provided that it shall also pay all accrued
interest on the portion of principal so prepaid.
3.2 Manner of Prepayment. The Company shall provide
Holder with written notice of prepayment under this Section 3 at least thirty
(30) days but no more than sixty (60) days before the prepayment date set forth
in such notice. Such notice and any prepayment permitted hereunder shall take
place at the address of Holder provided in Section 1. Concurrently with such
prepayment, the Company shall deliver to Holder a new debenture representing
the principal amount of this Debenture that is not so prepaid on otherwise
identical terms and conditions as this Debenture and reflecting all interest on
the principal amount remaining outstanding that has accrued from the issue date
of this Debenture.
6
28
4. SUBORDINATION
4.1 Nature of Subordination. This Debenture and the
indebtedness evidenced hereby, including the principal and interest and any
renewals or extensions thereof, shall at all times be subordinate and junior in
right to all Senior Indebtedness, all in the manner and with the force and
effect hereinafter set forth. For purposes hereof, "Senior Indebtedness" shall
mean the principal of (and premium, if any) and interest (if any) on (a) all
indebtedness and obligations created, incurred, assumed or guaranteed, by the
Company (including indebtedness of others guaranteed by the Company), other
than this Debenture, whether outstanding on the date hereof or thereafter
created, incurred, assumed or guaranteed, and whether such indebtedness
(including, but not limited to, interest on such indebtedness) arises or
accrues before or after the commencement of any bankruptcy, insolvency,
receivership or similar proceedings, which is (i) for money borrowed, inclusive
without limitation, borrowings under any lines of credit, revolving credit
agreements or promissory notes from a bank or other financial institution
(including any letters of credit, performance bonds and other credit facilities
under such or other borrowing arrangements) or (ii) created, incurred, assumed
or guaranteed in connection with the acquisition of any other businesses,
properties or other assets; and (b) amendments, renewals, extensions,
modifications, refinancings and refundings of any such indebtedness or
obligation, unless in any case in the instrument creating or evidencing any
such indebtedness or obligation or pursuant to which the same is outstanding it
is provided that such indebtedness or obligation is not superior in right of
payment to this Debenture.
As used in this Debenture, the term, "subordinate and junior in right"
shall mean that:
(a) No part of this Debenture shall have any claim to the
assets of the Company on a parity with or prior to the claim of the
Senior Indebtedness. Unless and until the Senior Indebtedness shall
have been paid in full, Holder will not take, demand, or receive, and
the Company will not make, give, or permit, directly or indirectly, by
setoff, redemption, purchase, or in any other manner, any payment or
security for the whole or any part of the principal of or
7
29
interest on this Debenture; provided, however, that so long as no
default or event of default in the payment of or otherwise relative to
any of the Senior Indebtedness shall have occurred and be continuing,
or would be in existence immediately after giving effect thereto (any
of the foregoing being a "Senior Indebtedness Default"), the Company
may pay the principal amount hereof and interest accruing hereunder
when and as, and only when and as, the same becomes due and payable in
accordance with the terms and conditions hereof in effect on the date
hereof.
(b) In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part of the property,
assets, or business of the Company, or the proceeds thereof, to any
creditor or creditors of the Company or upon any indebtedness of the
Company, by reason of any liquidation, dissolution, or other winding
up of the Company or its business or by reason of any sale,
receivership, insolvency, or bankruptcy proceedings or assignment for
the benefit of creditors or any proceeding by or against the Company
for any relief under any bankruptcy, reorganization, or insolvency law
or laws, federal or state, or any law, federal or state, relating to
the relief of debtors, readjustment of indebtedness, reorganization,
composition or extension, or in the event of the occurrence and during
the continuation of any Senior Indebtedness Default described, then
and in any such event, any payment or distribution of any kind or
character, whether in cash, property, or securities which, but for the
subordination provisions of this Debenture, would otherwise be payable
or deliverable upon or in respect of this Debenture, shall instead be
paid over or delivered to the holders of the Senior Indebtedness (pro
rata, giving effect to the relative rating thereof), for application
on account of the Senior Indebtedness, to the extent necessary to make
payment in full in cash or cash equivalents of all Senior Indebtedness
and Holder shall not receive any such payment or distribution or any
benefit therefrom until all Senior Indebtedness has been paid in full.
4.2 Senior Indebtedness Default. The Company shall give
Holder prompt notice of any Senior Indebtedness Default.
8
30
Holder shall not, without the prior written consent of the holders of the
Senior Indebtedness, at such time as a Senior Indebtedness Default shall have
occurred and be continuing, or would be in existence immediately after giving
effect thereto, accelerate the maturity of, or institute any proceedings to
enforce, any indebtedness or obligations evidenced by this Debenture except
strictly in accordance with the requests of the holders of the Senior
Indebtedness pursuant to the immediately preceding paragraph, provided, that
the holders of the Senior Indebtedness have not accelerated the Company's
indebtedness thereunder.
4.3 Premature Collection. Should any payment or distribution
or security, or the proceeds of any thereof, be collected or received by Holder
in respect of this Debenture, and such collection or receipt is not expressly
permitted hereunder prior to the payment in full of the Senior Indebtedness,
Holder will forthwith deliver the same in precisely the form received (except
for the endorsement or the assignment of Holder where necessary) (i) to, and,
until so delivered, the same shall be held in trust by Holder as the property
of, the holders of Senior Indebtedness (pro rata, giving effect to the relative
ranking thereof), and until so delivered the same shall be held in trust by
Holder as the property of the holders of the Senior Indebtedness.
4.4 Acknowledgment. Holder acknowledges and agrees that the
holders of Senior Indebtedness will rely upon the subordination provided for
herein in making loans to the Company and in otherwise extending credit to the
Company. Holder waives notice of or proof of reliance hereon and protest,
demand for payment and notice of default. No holder of Senior Indebtedness
shall be prejudiced in its right to enforce the subordination contained herein
in accordance with the terms hereof by any act or failure to act on the part of
the Company.
4.5 Subordination Amendments. The subordination provisions
contained hereinabove are for the benefit of the holders of the Senior
Indebtedness and may not be rescinded, cancelled, amended, or modified in any
way without the prior written consent thereto of such holders.
9
31
4.6 No Impairment of Company's Obligations or Holder's
Conversion Right. The foregoing provisions concerning subordination are for
the benefit of holders of Senior Indebtedness and are solely for the purpose of
defining the relative rights of the holders of Superior Indebtedness and
Holder, and nothing herein shall impair, as between the Company and Holder, the
obligation of the Company to pay Holder the principal and interest on this
Debenture, in accordance with the terms of this Debenture; nor shall this
Section 4 prevent Holder from exercising all remedies otherwise permitted by
applicable law or under the Debenture, subject to the rights set forth above in
this Section 4 of the holders of Superior Indebtedness. No provision of this
Section 4 shall diminish or impair the Holder's right to convert the Debenture
pursuant to Section 2 hereof.
5. EVENTS OF DEFAULT AND REMEDIES
5.1 Events of Default. The following shall constitute
Events of Default:
(a) default in the due and punctual payment of the
principal of this Debenture, or any interest accrued thereon, when and
as such payment shall become due and payable, whether at maturity or
by acceleration or otherwise if such payment is not made within five
(5) days of written notice given to the Company by the Holder
specifying such default;
(b) any representation or warranty of the Company in this
Debenture or in the Purchase Agreement that is untrue in any material
respect as of the date made;
(c) default in the performance or observance of any
covenant or agreement of the Company in this Debenture or in the
Purchase Agreement and the continuance of such default for a period of
thirty (30) days after there has been given to the Company by Holder
written notice specifying such default and requiring that it be
remedied; provided that no such default shall be deemed to occur if
such default may not be cured within thirty (30) days, but within said
period the Company has commenced and thereafter diligently and
continuously pursues to cure such default, and the default is cured,
in any event, within 120 days;
10
32
(d) actual acceleration of the maturity of indebtedness
upon the occurrence of a default under any bond, note, debenture,
lease or other evidence of indebtedness of the Company (other than
this Debenture) or under any indenture or other instrument under which
any such evidence of indebtedness has been issued or by which it is
governed; provided, however, that, (i) if such acceleration is
rescinded, then the Event of Default hereunder by reason of such
default shall be deemed likewise to have been thereupon cured or
waived, or (ii) if such accelerated indebtedness in the aggregate does
not exceed $100,000 or if such acceleration is being contested by the
Company in good faith, then such acceleration shall not be deemed to
be an Event of Default;
(e) insolvency (as defined in the Uniform Commercial Code
as in effect from time to time) of the Company; the making of an
assignment for the benefit of creditors; the filing or acquiescence in
the filing of a petition instituting any state or federal insolvency,
bankruptcy, reorganization, arrangement, composition, or other debtor
relief proceeding; the petition of or application to any tribunal for
a receiver or trustee for itself or for any substantial part of any of
its property; the commencement of any proceeding under any
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any federal or state jurisdiction,
whether now or hereafter in effect, or the commencement against the
Company of any such proceeding or the appointment of a receiver or any
trustee for the Company or any part of the Company's property;
(f) the entry of any judgment against the Company or the
attachment, seizure of, or levy against the Company with respect to a
claim for any amount in excess of $100,000 that remains unpaid,
unstayed, undischarged, unbonded, or undismissed for a period of
thirty (30) days; or
(g) the filing of record of any notice of lien, levy or
assessment with respect to any or all of the Company's assets by the
United States Government, or any department, agency or instrumentality
thereof, or by any state, county, municipal or other governmental
authority, or the automatic
11
33
imposition of a lien, whether xxxxxx or otherwise, because of failure
to pay any taxes or debt owing at any time hereafter to any one or
more of such entities, upon any or all of the Company's assets, which
lien is not paid on the payment date thereof, unless such lien, levy
or assessment with respect to a claim not in excess of $100,000 is
contested in good faith and adequate reserves for which have been
maintained.
5.2 Acceleration of Maturity, Rescission and Annulment.
(a) If an Event of Default occurs and is continuing, then
and in any such case Holder may declare the outstanding principal
amount of this Debenture to be due and payable immediately, without
advance notice to the Company, and, upon any such declaration, the
outstanding principal amount of the Debenture, and the interest
accrued thereon, together with all costs of collection, including
reasonable attorney's fees if collected by law or through an attorney
at law, shall immediately become due and payable.
(b) At any time after any declaration of acceleration has
been made as provided in this Subsection 5.2, Holder may, by written
notice to the Company, rescind and annul such declaration and its
consequences. No such rescission shall affect any subsequent default
or impair any right consequent thereon.
5.3 Suits for Enforcement. In case any one or more
Events of Default shall have occurred and be continuing, Holder may proceed to
protect and enforce Holder's rights either by suit in equity or by action at
law, or both, whether for the specific performance of any covenant or agreement
contained herein or in aid of the exercise of any power granted herein or
proceed to enforce the payment of the Debenture or to enforce any other legal
or equitable right of the Holder.
5.4 Remedies Cumulative. No remedy herein conferred upon
Holder is intended to be exclusive of any other remedy, and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or
12
34
hereafter existing at law or in equity or by statute or otherwise.
5.5 Remedies Not Waived. No course of dealing between
the Company and Holder or any delay in exercising any rights hereunder shall
operate as a waiver by Holder.
5.6 Company's Conversion Right. Holder's failure to
comply with Subsection 2.3 hereof in connection with the Company's exercise of
the Company's Conversion Right shall entitle the Company to extinguish all
indebtedness owed to Holder.
6. REGISTRATION RIGHTS. The Holder shall have the registration
rights specified in the Purchase Agreement.
7. AMENDMENT AND WAIVER
7.1 Procedure for Amendment and Waiver. Any term,
covenant, agreement or condition hereof may be amended or compliance herewith
may be waived, provided that any such amendment or waiver shall be effective
only if made by the written consent of both the Company and the holders of a
majority of the outstanding principal amount of the debentures issued pursuant
to the Purchase Agreement and the other purchase agreements entered into
pursuant to Subsections 5.3 and 6.3 thereof, having an aggregate initial
principal amount of at least $2,000,000. Notwithstanding the foregoing,
without the consent of each of the holders of this Debenture who would be
affected, an amendment, supplement or waiver may not reduce the principal
amount of this Debenture, reduce the rate of interest on this Debenture or
extend the fixed maturity of this Debenture.
After an amendment under this Section 7 becomes effective, the
Company shall mail to each of the holders of all such debentures a notice
briefly describing the amendment.
8. MISCELLANEOUS
8.1 Successors and Assigns Bound by Covenants. All
covenants, stipulations, promises and agreements herein contained shall bind
and inure to the benefit of the Company and Holder and their respective
permitted successors and assigns.
13
35
8.2 Severability. If any one or more of the provisions
of this Debenture shall be determined to be invalid, illegal or unenforceable
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and the remaining provisions hereof shall
not in any way be impaired.
8.3 Headings. The headings of the sections of this
Debenture are inserted for convenience only and do not constitute a part of
this Debenture.
8.4 Governing Law. This Debenture shall be construed in
accordance with and governed by the laws of the State of Georgia.
8.5 Loss, Theft, Destruction or Mutilation of Debenture.
Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Debenture and, in the case of any such
loss, theft or destruction, upon receipt of any indemnity bond in such
reasonable amount as the Company may determine or, in the case of any such
mutilation, upon surrender and cancellation of this Debenture, the Company
shall make and deliver, in lieu of such lost, stolen, destroyed or mutilated
Debenture, a new Debenture of like tenor and unpaid principal amount and dated
as of the date to which interest has been paid on the Debenture so lost,
stolen, destroyed or mutilated.
8.6 Survival of Covenants, Representations and
Warranties. All representations, warranties, covenants and agreements of the
Company and Holder contained in this Debenture shall survive the execution and
delivery of this Debenture and shall continue in full force and effect
thereafter.
8.7 Interest Rights Preserved. A Debenture delivered
upon transfer of or in exchange for or in lieu of this Debenture or any other
Debenture shall carry all the rights to interest accrued and unpaid, and to
accrue, that were carried by such other Debentures, and each such Debenture
shall be so dated that neither gain nor loss in interest shall result from such
transfer, exchange or substitution.
14
36
IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed in its name by its duly authorized representative, all as of the day
and year set forth above.
TRANSCEND SERVICES, INC.
By:
--------------------------------
Name: Xxxxx X. Xxxxxx
Title: Chief Financial Officer
Address:
-------
0000 Xxxxxxxxx Xxxx, X.X.
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
15
