SECURITIES PURCHASE AGREEMENT
BETWEEN
EUREKA I, L.P.
AND
MEDICAL TECHNOLOGY SYSTEMS, INC.
Dated June 26, 2002
i
TABLE OF CONTENTS
1. DEFINITIONS...........................................................1
2. SALE AND PURCHASE OF SECURITIES.......................................9
2.1 Sale and Purchase............................................9
2.2 Original Issue Discount......................................9
3. Closing Date and Location.............................................9
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................9
4.1 Organization.................................................9
4.2 Equity Investments..........................................10
4.3 Authorized Capital Stock....................................10
4.4 Financial Information.......................................10
4.5 Absence of Undisclosed Liabilities..........................11
4.6 Absence of Changes..........................................11
4.7 Tax Matters.................................................12
4.8 Assets......................................................13
4.9 Intellectual Property Rights................................13
4.10 Litigation..................................................13
4.11 No Defaults.................................................14
4.12 Employees...................................................14
4.13 Compliance..................................................15
4.14 Insurance...................................................15
4.15 Authorization of Transaction Documents......................15
4.16 Validity of Transaction Documents, etc......................15
4.17 Warrant Shares..............................................16
4.18 Preferred Shares and Conversion Shares......................16
4.19 Related Transactions........................................16
4.20 Securities Law Compliance...................................16
4.21 No Governmental Consent or Approval Required................16
4.22 Material Agreements.........................................17
4.23 Registration Rights.........................................17
4.24 Compliance with ERISA.......................................17
4.25 Environmental Protection. ..................................17
ii
TABLE OF CONTENTS
(continued)
4.26 Brokers, etc................................................18
4.27 Disclosure..................................................18
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................18
6. CONDITIONS TO CLOSING................................................20
6.1 Closing....................................................20
7. COVENANTS OF THE COMPANY.............................................23
7.1 Access to Records..........................................23
7.2 Financial Reports and Other Information....................23
7.3 Use of Proceeds............................................25
7.4 Affirmative Covenants......................................25
7.5 Negative Covenants.........................................26
7.6 Insurance..................................................29
7.7 Certain Financial Covenants................................29
7.8 Board Observer.............................................31
7.9 Key Person Life Insurance..................................32
8. THE NOTES............................................................32
8.1 Exchange or Transfer of Notes..............................32
8.2 Register of Noteholders....................................33
8.3 Transfer Taxes.............................................33
8.4 Payment....................................................33
8.5 Event of Default...........................................34
9. COLLATERAL AGENT.....................................................35
9.1 Appointment of Collateral Agent............................35
9.2 Collateral Agent Authorized to Enter into Transaction
Documents.............................................36
9.3 Amendment to Transaction Documents.........................36
9.4 Duties of Collateral Agent.................................36
9.5 Indemnification of Collateral Agent........................39
10. FEES.................................................................39
11. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, ETC..........40
iii
TABLE OF CONTENTS
(continued)
12. INDEMNIFICATION......................................................40
13. REMEDIES.............................................................40
14. PARTIES IN INTEREST..................................................41
15. ENTIRE AGREEMENT.....................................................41
16. NOTICES..............................................................41
17. CHANGES..............................................................42
18. COUNTERPARTS.........................................................42
19. HEADINGS.............................................................42
20. GOVERNING LAW........................................................42
21. SEVERABILITY.........................................................42
22. JURISDICTION.........................................................42
23. WAIVER OF JURY TRIAL.................................................43
- iv -
SCHEDULE LIST
SCHEDULE 4.2 EQUITY INVESTMENTS
SCHEDULE 4.3 CAPITALIZATION
SCHEDULE 4.4 FIVE-YEAR COMPANY PROJECTIONS
SCHEDULE 4.5 LIABILITIES
SCHEDULE 4.6 ABSENCE OF CHANGES
SCHEDULE 4.7 TAX MATTERS
SCHEDULE 4.8 EXCEPTIONS TO ASSET OWNERSHIP
SCHEDULE 4.9 INTELLECTUAL PROPERTY RIGHTS
SCHEDULE 4.10 LITIGATION
SCHEDULE 4.11 DEFAULTS
SCHEDULE 4.12 DESIGNATED PERSONS
SCHEDULE 4.13 EXCEPTIONS TO COMPLIANCE
SCHEDULE 4.14 INSURANCE
SCHEDULE 4.19 RELATED TRANSACTIONS
SCHEDULE 4.22 MATERIAL AGREEMENTS
SCHEDULE 4.23 REGISTRATION RIGHTS
SCHEDULE 4.24 ERISA PLANS
SCHEDULE 4.25 ENVIRONMENTAL PROTECTION
SCHEDULE 7.2(a) CAPITAL BUDGET
EXHIBIT LIST
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT C FORM OF TAG-ALONG AGREEMENT
EXHIBIT 6.1(c) MATTERS TO BE COVERED BY OPINION OF COUNSEL
EXHIBIT D PREFERRED STOCK TERMS
EXHIBIT E FORM OF JOINDER
1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated June 26,
2002, between Medical Technology Systems, Inc., a Delaware corporation having
offices at 00000 Xxxxxxxxxx Xxxxxxxxx, Xxxxxxxxxx, Xxxxxxx (the "Company"),
Eureka I, L.P., a Delaware limited partnership having offices at 000 Xxxxxxxx
Xxxx, Xxxxx 000, Xxxxxxx, Xxxxxxxxxxxx 00000 (the "Purchaser"), and Eureka I,
L.P. as collateral agent (in such capacity, the "Collateral Agent").
PRELIMINARY STATEMENTS
A. The Company is engaged in the business of manufacturing medical
packaging and dispensing systems and supplies.
B. The Company desires to raise funds from senior and subordinated lenders
to repay certain senior debt, fund capital expenditures and for working capital
and other purposes permitted by this Agreement.
C. The Purchaser desires to purchase up to $4,000,000 of senior
subordinated debt with warrants and 2,000 shares of the authorized Series A
Convertible Participating Preferred Stock of the Company, subject to the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained in this Agreement, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used in this Agreement shall have the
meanings assigned to them elsewhere in this Agreement or as specified below:
"Action" has the meaning set forth in Section 4.10 hereof.
"Affiliate" of any Person means any other Person that controls, is
controlled by or is under common control with such Person. The term "Affiliate"
as it relates to the Company and its Subsidiaries shall not include the Company
or any of its Subsidiaries.
"Capital Expenditures" means for any Person, with respect to any period of
determination, the aggregate of all expenditures (whether paid in cash or
accrued as liabilities and including expenditures for capitalized lease
obligations) by such Person during such period that are required by GAAP,
consistently applied, to be included in or reflected by the property, plant and
equipment or similar fixed asset accounts (or intangible accounts subject to
amortization) on the balance sheet of such Person, including, to the extent not
already accounted for, capitalized development costs for such period.
A "Change of Control" occurs when (a) the Company fails to cause its
business to be managed by its present senior management team, or, in the event
any member shall cease to serve for any reason, a replacement who is reasonable
acceptable to the Required Noteholders; or (b) as the result of the issuance of
securities by the Company or the disposition of outstanding securities of the
Company by the holders thereof, by merger, or by any other transaction, (1)
2
members of the Xxxxxx Family collectively own less than 22.5% of the combined
voting power of all classes of Voting Securities, or (2) any "person" or group
of persons (within the meaning of section 13(d) of the Securities Exchange Act
of 1934 or Rule 13d-5 thereunder) (other than one or more members of the Xxxxxx
Family or holders of the Series A Preferred Stock, Warrants or shares of Common
Stock issued as a result of conversion of the Series A Preferred Stock or
exercise of the Warrants) becomes the "beneficial owner" (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, except that a person shall
be deemed to be the beneficial owner of all securities that such person has the
right to acquire before or after the expiration of any period of time specified
in such rule) of Voting Securities with combined voting power equal to or
greater than the combined voting power of all Voting Securities held at the time
in the aggregate by the members of the Xxxxxx Family. In determining the
percentage of voting power of all Voting Securities held by any Person (or
"person"), all Voting Securities issuable upon the exercise, conversion or
exchange of outstanding options, warrants, convertible securities or other
rights to purchase or subscribe for Voting Securities shall be deemed to be
outstanding.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $0.01 par value per share, of the
Company.
"Conversion Shares" has the meaning set forth in Section 4.1 hereof.
"Convertible Securities" means securities or obligations that are
exercisable for, convertible into or exchangeable for shares of Common Stock.
The term includes options, warrants or other rights to subscribe for or purchase
Common Stock or to subscribe for or purchase other Convertible Securities.
"Debt Service Coverage Ratio" means, for any Person, with respect to any
period of determination, the ratio of (i) such Person's net income after taxes
for such period (excluding any after-tax gains or losses on the sale of assets
(other than the sale of inventory in the ordinary course of business) and
excluding other after-tax extraordinary gains or losses), plus depreciation and
amortization deducted in determining net income for such period, plus tax
benefits which offset any income tax expense provisions deducted in determining
net income for such period, minus Unfinanced Capital Expenditures for such
period plus the after-tax increase in LIFO reserves, or minus the after tax
decrease in LIFO reserves, to (ii) such Person's current principal maturities of
long-term debt and capitalized leases paid or scheduled to be paid during such
period, plus any prepayments on indebtedness owed to any other Person (exclusive
of payments of Excess Cash Flow made in accordance with Section 2(e)(v)(B) of
the Senior Loan Agreement, trade payables and revolving loans under the Senior
Loan Agreement) and paid during such period plus, if the period of determination
ends on and is for such Person's Fiscal Year, any dividends paid during such
Fiscal Year on the Series A Preferred Stock and permitted to be paid by the
Intercreditor Agreement.
3
"Designated Persons" means the present directors and officers of the
Company or any of its Subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect from time to time.
"Existing Credit Facility" means the extensions of credit provided to the
Company under that certain Second Amended and Restated Loan and Security
Agreement dated as of September 5, 1996, among the Company, South Trust Bank of
Alabama, National Association, and various other parties, as amended.
"Excess Cash Flow" has the meaning specified in Section 2(e)(v)(B) of the
Senior Loan Agreement.
"Financial Statements" has the meaning set forth in Section 4.4(a) hereof.
"Fiscal Quarter" means each fiscal quarter of the Company ending March 31,
June 30, September 30 and December 31 in each calendar year.
"Fiscal Year" means the fiscal year of the Company ending March 31 in each
calendar year. Changes of the fiscal year of the Company subsequent to the date
of this Agreement will not change the definition of "Fiscal Year" for purposes
of this Agreement.
"GAAP" means accounting principles generally accepted in the United States
of America as from time to time in effect as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by any
successor entity as may be in general use by significant segments of the
accounting profession that are applicable to the circumstances as of the date of
determination.
"Guarantor" or "Guarantors" shall mean any Person who executes, enters or
joins in the Guaranty.
"Guaranty" means the Guaranty Agreement of even date herewith among the
Purchaser and the Subsidiaries of the Company as the same may be amended,
supplemented, modified or restated from time to time pursuant to the terms
thereof.
"Intellectual Property Rights" means all intellectual property rights,
including without limitation, Proprietary Information, patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service xxxx applications, copyrights, copyright applications,
know-how, franchises, licenses, trade secrets, proprietary processes and
formulae.
4
"Intercreditor Agreement" means the Subordination Agreement of even date
herewith among the Purchaser, LaSalle Business Credit, Inc., the Company and MTS
Packaging Systems, Inc., as the same may be amended, supplemented, modified or
restated from time to time.
"Interest Coverage Ratio" means, for any Person, with respect to any period
of determination, the ratio of (i) such Person's net income after taxes for such
period (excluding any after-tax gains or losses on the sale of assets (other
than the sale of inventory in the ordinary course of business) and excluding
other after-tax extraordinary gains or losses), plus depreciation and
amortization deducted in determining net income for such period, plus interest
expense deducted in determining net income for such period, plus tax benefits
which offset income tax expense provisions deducted in determining net income
for such period minus Unfinanced Capital Expenditures for such period, and plus
the after-tax increase in LIFO reserves, or minus the after tax decrease in LIFO
reserves, to (ii) interest expense deducted in determining net income for such
period.
The Company has "knowledge" of a matter if a Responsible Officer (1) has
actual knowledge of the matter or (2) would have actual knowledge of the matter
upon such inquiry or investigation by such Responsible Officer as is reasonable
under the circumstances. "Know," "known" and similar terms have correlative
meanings.
"Lien" means any lien, mortgage, pledge, security interest or other charge
or encumbrance of any kind, including, without limitation, the lien or retained
security title of a conditional vendor and any easement, right of way or other
encumbrance on title to real property.
"Liquidity Event" means (A) the sale, lease, abandonment, transfer or other
disposition of all or substantially all the stock or assets of the Company
(other than to a direct or indirect Wholly-Owned Subsidiary of the Company),
including by merger, consolidation or otherwise (B) the liquidation, dissolution
or winding up of the Company, (C) the occurrence of a Change of Control, or (D)
a Qualified Public Offering.
"Material Adverse Effect" means a material adverse effect on the financial
condition, results of operation, assets, operations or business prospects of the
Company and its Subsidiaries taken as a whole, or on the ability of the Company
and its Subsidiaries to perform their obligations under the Transaction
Documents.
"Material Agreement" means with respect to any Person, each contract,
whether written or oral, to which such Person is a party involving aggregate
consideration payable to or by such Person of $100,000 or more in one year or
involving extensions of credit by or to such Person of $100,000 or more, but
excluding the agreements documenting the Existing Credit Facility, which is
being repaid on the Closing Date.
"Noteholder" means any of the holders from time to time of the Notes.
"Notes" means the 14% Senior Subordinated Notes, in the form attached
hereto as Exhibit A, issued by the Company pursuant to this Agreement in the
aggregate principal amount of up to $4,000,000, including all Notes issued upon
transfer or exchange of other Notes as provided herein.
5
"Officer's Certificate" means a certificate signed by any Responsible
Officer, stating that (a) the officer signing such certificate has made or has
caused to be made such investigations as he or she has deemed necessary in order
to permit him or her to reasonably verify the accuracy in all material respects
of the information set forth in such certificate and (b) to the best of such
officer's knowledge, such certificate does not misstate any material fact and
does not omit to state any fact necessary to make the certificate not
misleading.
"Packaging" means MTS Packaging Systems, Inc., a Florida corporation wholly
owned by the Company.
"Patent Security Agreement" means each of the patent and trademark security
agreements of even date herewith among the Collateral Agent and (1) the Company,
(2) the Company's Subsidiaries, and (3) the Xxxxxx Family Trust, as the same may
be amended, supplemented, modified or restated from time to time pursuant to the
terms thereof.
"Permitted Liens" means (i) liens for taxes, assessments, fees and other
governmental charges, and for claims the payment of which is not yet overdue or
is being contested in good faith (and for which adequate reserves have been
established by the Company on its books in conformity with GAAP), (ii) statutory
liens of landlords, carriers, warehousemen, processors, mechanics, materialmen
or suppliers incurred in the ordinary course of business and securing amounts
not yet due or declared to be due by the claimant thereunder; (iii) liens or
security interests in favor of Collateral Agent; (iv) zoning restrictions and
easements, licenses, covenants and other restrictions affecting the use of real
property that do not individually or in the aggregate have a material adverse
effect on the ability of the Company and its Subsidiaries to use such real
property for its intended purpose in connection with its business; (v) liens in
connection with purchase money indebtedness and capitalized leases otherwise
permitted pursuant to this Agreement; provided, that such liens attach only to
the assets the purchase of which was financed by such purchase money
indebtedness or which is the subject of such capitalized leases; (vi) liens in
favor of customs and revenue authorities which secure payment of customs duties
in connection with the importation of goods; provided that all such customs
duties are promptly paid; (vii) liens securing Senior Indebtedness; (viii) liens
described on Schedule 4.8 hereto; (ix) liens (other than any lien created by
ERISA) incurred or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance and other types of
social security; and (x) judgment liens not constituting an Event of Default.
"Person" means and includes an individual, a company, a partnership, a
trust, an unincorporated organization, a limited liability company, a joint
stock company, a joint venture and a government or any department, agency or
political subdivision thereof.
"Pledge Agreement" means the Pledge Agreement of even date herewith among
the Company, its Subsidiaries and the Collateral Agent, as the same may be
amended, supplemented, modified or restated from time to time pursuant to the
terms thereof.
"Preferred Shares" means the 2,000 shares of Series A Preferred Stock to be
purchased at the Closing and, as the context may require, any additional shares
of Series A Preferred Stock issued in payment of dividends on the Series A
Preferred Stock.
6
"Preferred Stock" means, as applied to any corporation, shares of such
corporation which are entitled to preference or priority over any other shares
of such corporation in respect of either the payment of dividends or the
distribution of assets upon liquidation.
"Proprietary Information" means all customer lists, source and object
codes, algorithms, architecture, structures, display screens, layouts,
processes, inventions, trade secrets, know-how, development tools and other
proprietary rights owned by the Company or any of its Subsidiaries pertaining to
any product or service manufactured, marketed or sold, or proposed to be
manufactured, marketed or sold (as the case may be), by the Company or any of
its Subsidiaries or used, employed or exploited in the development, license,
sale, marketing or distribution or maintenance thereof, and all documentation
and media constituting, describing or relating to the above, including without
limitation, manuals, memoranda, know-how, notebooks, records and disclosures.
"Qualified Public Offering" means any issuance and sale after the date of
this Agreement by the Company, pursuant to a registration statement that becomes
effective under the Securities Act, of securities (other than senior debt
securities that are neither Convertible Securities nor issued as part of an
offering that includes equity securities or Convertible Securities) for net
proceeds to the Company of $15,000,000 or more.
"Related Transaction" has the meaning set forth in Section 4.19 hereof.
"Registration Rights Agreement" means the registration rights agreement
between Purchaser and the Company in the form attached hereto as Exhibit B.
"Required Noteholders" means the holders of a majority in principal amount
of the Notes.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Operating Officer (or principal operating officer), the
Chief Financial Officer (or principal financial officer), and the Treasurer of
the Company.
"Restricted Payment" means (i) the declaration or payment by the Company or
any of its Subsidiaries (other than Wholly-Owned Subsidiaries) of any dividend
on, or the distribution to the holders of, or other payment by the Company or
any of its Subsidiaries (other than Wholly-Owned Subsidiaries) relating to, any
shares of capital stock of the Company or any of its Subsidiaries (other than
Wholly-Owned Subsidiaries) of any class, now or hereafter outstanding (except in
shares of capital stock or options, warrants or other rights to acquire capital
stock); (ii) the purchase, redemption, or other acquisition for any
consideration by the Company or any of its Subsidiaries of any shares of capital
stock of any class of the Company, or any option, warrant (including, without
limitation, any warrants under this Agreement) or other right to acquire any
such capital stock; (iii) the prepayment by the Company or any of its
Subsidiaries of any principal or interest on any indebtedness that is
subordinated to the Notes; (iv) any payment by the Company or any of its
Subsidiaries of any amount to any Affiliate as management, consulting,
investment banking or other fees (except as disclosed on Schedule 4.19); or (v)
the payment by the Company or any of its Subsidiaries of any principal due under
any loan made to the Company or any of its Subsidiaries by any Affiliate.
7
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, all as the same
shall be in effect from time to time.
"Security Agreement" means each of the security agreements of even date
herewith among the Collateral Agent and (1) the Company, and (2) the Company's
Subsidiaries, as the same may be amended, supplemented, modified or restated
from time to time pursuant to the terms thereof.
"Security Documents" means the Security Agreement, UCC Financing
Statements, the Pledge Agreement, the Patent Security Agreement, the Trademark
Security Agreement any real estate security document, and any other agreement
that creates, perfects, or purports to create or perfect a Lien in favor of the
Collateral Agent for the benefit of the holders of the Notes.
"Senior Lender" means LaSalle Business Credit, Inc., Standard Federal Bank
National Association, their respective successors and assigns, and any other
holder of Senior Indebtedness.
"Senior Loan Agreement" means the Loan and Security Agreement dated as of
the date hereof among LaSalle Business Credit, Inc., as agent, Standard Federal
Bank National Association, as lender, the Company and MTS Packaging Systems,
Inc., as borrowers, and the guarantors listed therein, and any agreement
evidencing Senior Indebtedness that replaces such agreement.
"Senior Indebtedness" has the meaning specified in the Intercreditor
Agreement, and any refinancing thereof in an amount not greater than the maximum
amount specified in the Intercreditor Agreement (whether the refinancing is
provided by the same or a different Senior Lender).
"Series A Preferred Stock" means the Company's Series A Convertible
Participating Preferred Stock, par value $0.0001 per share.
"Xxxxxx Family" means (1) Xxxx X. Xxxxxx, his siblings, the descendants of
Xxxx X. Xxxxxx and his siblings, and the spouses of any of the foregoing
persons; and (2) any general or limited partnership (including Jade Partners),
trust (including the Xxxxxx Family Trust) or other entity all of whose partners,
beneficiaries or other owners are Persons described in clause (1).
"Subsidiary" means (1) any partnership in which the Company or any
Subsidiary of the Company is a general partner, (2) any Person in which the
Company and its Subsidiaries collectively own a majority of the equity
interests, and (3) any Person of which securities having a majority of the
ordinary voting power in electing the Board of Directors or comparable body are,
at the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
8
"Tag-along Agreement" means each of the tag-along agreements among the
Company, the Purchaser, and (1) Xxxx X. Xxxxxx, and (2) Jade Partners, each in
the form attached hereto as Exhibit C.
"Tangible Net Worth" means, with respect to a Person, such Person's
shareholders' equity defined in accordance with GAAP, less the book value (to
the extent included in such shareholders' equity) of all assets reflected as
goodwill (which shall in no event include trademarks, patents or other
intellectual property or capitalized development costs), plus the amount of any
LIFO reserve, all as determined under GAAP, consistently applied.
"Trademark Security Agreement" means each of the trademark security
agreements among the Collateral Agent and (1) the Company and, (2) the Company's
Subsidiaries.
"2004 Tangible Net Worth Requirement" has the meaning specified in Section
7.7(a) hereof.
"2005 Tangible Net Worth Requirement" has the meaning specified in Section
7.7(a) hereof.
"Transaction Documents" means this Agreement, the Notes, the Warrant
Agreement, the Warrant Certificates, the Security Documents, the Guaranty, the
Registration Rights Agreement, the Tag-along Agreements, the Intercreditor
Agreement, and all other agreements and instruments executed in connection with
the transactions contemplated by this Agreement.
"Voting Securities" means securities entitled in ordinary circumstances to
vote generally in the election of directors of the Company.
"Unfinanced Capital Expenditures" means those Capital Expenditures which
have not been financed, funded or paid for with the proceeds of loans (other
than revolving loans) under the Senior Loan Agreement, purchase money
indebtedness, capital leases or any other form of indebtedness.
"Warrant Agreement" means the Warrant Agreement of even date herewith
between the Company and the Purchaser, as the same may be amended, supplemented,
modified or restated from time to time pursuant to the terms thereof.
"Warrant Certificate" means each Warrant Certificate issued pursuant to the
Warrant Agreement.
"Warrants" means the Warrants issued and issuable pursuant to the Warrant
Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrants.
"Wholly-Owned Subsidiary" means any Subsidiary, all of the equity
securities of which are owned by the Company or another Wholly-Owned Subsidiary.
9
2. SALE AND PURCHASE OF SECURITIES.
2.1 Sale and Purchase. Subject to the terms and conditions hereof, the
Company will issue and sell to the Purchaser, and the Purchaser will purchase
from the Company on the Closing Date (hereinafter defined), (a) $4,000,000
aggregate principal amount of the Notes and Warrants to purchase 566,517 shares
of Common Stock, for a purchase price of $4,000,000, and (b) 2,000 Preferred
Shares at a purchase price of $1,000 per share.
2.2 Original Issue Discount. The Notes together with the Warrants
constitute "investment units" for the purposes of Section 1273(c)(2)(A) of the
Code. In accordance with Sections 1273(c)(2)(A) and 1273(b)(2) of the Code, the
issue price of the investment unit of the Purchaser is the principal amount of
the Notes. Allocating that issue price between the Notes and the Warrants in
proportion to their fair market value, as required by Section 1273(c)(2)(B) of
the Code and Treasury Regulation 1.1273-2(h)(1), results in the Warrants having
an aggregate issue price of $935,000 and the Notes having an aggregate issue
price of $3,065,000. Accordingly, the original issue discount that will accrue
on the Notes is $935,000. None of the parties will take any position in its tax
returns that is inconsistent with the foregoing. The Company will provide the
Noteholders with any information necessary for them to report their income from
this transaction properly.
3. Closing Date and Location. The closing of the issuance, sale and
purchase of the Notes and Warrants and of the Preferred Shares shall take place
at the offices of Wolf, Block, Xxxxxx & Xxxxx-Xxxxx LLP, counsel to the Senior
Lender, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, at 10:00 a.m., Eastern time, on
June 26, 2002, or at such other location, date and time as may be agreed upon
between the Purchaser and the Company (such closing being called the "Closing"
and such date and time being called the "Closing Date").
At the Closing, the Company shall issue and deliver to the Purchaser (i) a
stock certificate or certificates in definitive form, registered in the name of
the Purchaser, representing the Preferred Shares, (ii) the Notes in the
principal amount of $4,000,000, (iii) the Warrant Agreement, and (iv) one or
more Warrant Certificates evidencing Warrants to purchase 566,517 shares of
Common Stock, and the Purchaser will pay to the Company by wire transfer of
immediately available funds (to such account as the Company may designate in
writing to the Purchaser at least one (1) business day prior to the Closing)
$6,000,000 less the amount of the closing fees and expenses owed by the Company
pursuant to Article 6 hereof.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to the Purchaser as follows:
4.1 Organization. The Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, (b) has
all requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as now conducted and to execute, deliver
and perform this Agreement and the other Transaction Documents to which it is a
party, to issue and deliver the Notes and the Warrants, to issue and deliver the
Warrant Shares upon exercise of the Warrants, to issue, sell and deliver the
Preferred Shares, and to issue and deliver the shares of Common Stock issuable
10
upon conversion of the Preferred Shares (the "Conversion Shares"), (c) is duly
qualified as a foreign corporation and in good standing to do business in all
such jurisdictions, if any, in which the conduct of its business or its
ownership, leasing or operation of property requires such qualification, except
for those jurisdictions in which failure to so qualify would not reasonably be
expected to have a Material Adverse Effect, and (d) has not in the last five
years conducted business under any name other than that set forth in this
Agreement or the schedules hereto. Each Subsidiary (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Florida, (b) has all requisite corporate power and authority to own, lease and
operate its properties, to carry on its business as now conducted and to
execute, deliver and perform this the Transaction Documents to which it is a
party, (c) is duly qualified as a foreign corporation and in good standing to do
business in all such jurisdictions, if any, in which the conduct of its business
or its ownership, leasing or operation of property requires such qualification,
except for those jurisdictions in which failure to so qualify would not
reasonably be expected to have a Material Adverse Effect, and (d) has not in the
last five years conducted business under any name other than as set forth in
this Agreement or on Schedule 4.1 hereto.
4.2 Equity Investments. Except as set forth on Schedule 4.2 attached
hereto, neither the Company nor any of its Subsidiaries, nor does any of them
now own any capital stock or other proprietary interest, directly or indirectly,
in any corporation, association, trust, partnership, joint venture or other
entity.
4.3 Authorized Capital Stock. The authorized and outstanding capital stock
of the Company and each of its Subsidiaries, both before and after giving effect
to the Closing, is as disclosed on Schedule 4.3. All outstanding capital stock
so shown will be validly issued and outstanding, fully paid and nonassessable.
No shares of Series A Convertible Preferred Stock will have been issued before
the Closing. Except as disclosed in Schedule 4.3, (i) no subscription, warrant,
option, convertible security, or other right (contingent or otherwise) to
purchase or otherwise acquire equity securities of the Company or any of its
Subsidiaries is authorized or outstanding and (ii) there is no commitment by the
Company or any of its Subsidiaries to issue shares, subscriptions, warrants,
options, convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of indebtedness or asset.
Except as disclosed in Schedule 4.3, neither the Company nor any of its
Subsidiaries has any obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of the equity securities of the Company or any of its
Subsidiaries or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Except as disclosed in Schedule 4.3 and except
for Permitted Liens, to the Company's knowledge, there are no voting trusts or
agreements, stockholders' agreements, stock pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company or any of its Subsidiaries (whether or not the
Company or any of its Subsidiaries is a party thereto). All of the outstanding
securities of the Company were issued in compliance with all applicable federal
and state securities laws.
4.4 Financial Information.
(a) The Company has previously delivered to the Purchaser its annual
audited financial statements for its Fiscal Year ended March 31, 2001, its
annual unaudited financial statements for its Fiscal Year ended March 31,
2002 and its monthly financial statements as at and for the period ended
April 30, 2002 (the "Interim Date")(collectively, the "Financial
Statements").
11
(b) The Financial Statements (together with any notes thereto) (i) are
in accordance with the books and records of the Company, (ii) fairly
present in all material respects the consolidated financial condition of
the Company and its Subsidiaries as of the dates indicated and the
consolidated results of operations and cash flows of the Company and its
Subsidiaries for the periods indicated and (iii) have been prepared in
accordance with GAAP (except, in the case of the interim financial
statements, for the absence of footnotes, and subject to changes resulting
from audits and normal year-end adjustments, none of which would reasonably
be expected to have a Material Adverse Effect).
(c) The Company's five-year projections attached hereto as Schedule
4.4 have been prepared on the basis of assumptions that the Company's
management believes to be reasonable. This does not constitute a
representation or warranty that the projected results will actually be
achieved.
4.5 Absence of Undisclosed Liabilities. Except as disclosed in the
Financial Statements or listed on Schedule 4.5 hereof, as of the date of this
Agreement, to the Company's knowledge, (a) neither the Company nor any of its
Subsidiaries had any material liability of any nature (matured or unmatured,
fixed or contingent) which was not provided for or disclosed on the Financial
Statements except current liabilities incurred in the ordinary course of
business since the Interim Date, and (b) all liability reserves established by
the Company and its Subsidiaries are adequate in all material respects. There
are no material loss contingencies (as such term is used in Statement of
Financial Accounting Standards No. 5) known to the Company which are not
adequately provided for on the Financial Statements.
4.6 Absence of Changes. Except as listed on Schedule 4.6 attached hereto,
since March 31, 2002, there has not been:
(a) the occurrence of any event that would reasonably be expected to
result in a Material Adverse Effect;
(b) any borrowing or agreement to borrow any funds or any material
liability or material obligation of any nature whatsoever (contingent or
otherwise) incurred by the Company or any of its Subsidiaries, other than
current liabilities or obligations incurred in the ordinary course of
business (and other than borrowings under the Existing Credit Facility);
(c) any asset or property of the Company or any of its Subsidiaries
made subject to a Lien of any kind, other than Permitted Liens (and Liens
securing the Existing Credit Facility, all of which will be discharged at
the Closing);
(d) any waiver of any material right of the Company or any of its
Subsidiaries or the cancellation of any material debt or claim held by the
Company or any of its Subsidiaries;
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(e) any declaration or payment of dividends on, or other distributions
with respect to, or any direct or indirect redemption or acquisition of,
any shares of the capital stock of the Company or any of its Subsidiaries,
or any agreement or commitment therefor;
(f) any mortgage, pledge, sale, assignment or transfer of any tangible
or intangible assets of the Company or any of its Subsidiaries, except
sales of inventory in the ordinary course of business and disposals of
assets not material in value and no longer useful in the conduct of the
Company's business;
(g) any loan or advance to or guarantee of indebtedness of any Person
(other than the Company or any of its Subsidiaries) by the Company or any
of its Subsidiaries in excess of $100,000, or any agreement or commitment
therefor;
(h) any damage, destruction or loss (whether or not covered by
insurance), other than ordinary wear and tear, that would reasonably be
expected to result in a Material Adverse Effect;
(i) any increase, direct or indirect, in the compensation paid or
payable to a Designated Person other than salary adjustments made in the
ordinary course of business;
(j) any material change in the accounting methods or practices
followed by the Company or any of its Subsidiaries; or
(k) any change in any Material Agreement by which the Company or any
of its Subsidiaries or any of their respective assets is bound, which
change would reasonably be expected to result in a Material Adverse Effect.
4.7 Tax Matters. Except as provided on Schedule 4.7 attached hereto, all
federal, state and local tax returns and tax reports required to be filed by the
Company or any of its Subsidiaries have been filed (except for extensions duly
obtained) with the appropriate governmental agencies in all jurisdictions in
which such returns and reports are required to be filed, and as to which its
failure to file would reasonably be expected to result in a Material Adverse
Effect, and all of the foregoing are true, correct and complete in all material
respects. All federal, state, local and foreign income, profits, franchise,
sales, use, occupation, property, excise, payroll, withholding and other taxes
(including interest and penalties) required to have been paid or accrued by the
Company or any of its Subsidiaries, as calculated on such returns, have been
fully paid or are adequately provided for on the books of the Company, other
than those being contested in good faith by appropriate proceedings and for
which reserves, if any, required by generally accepted accounting principles,
have been established on the books of the Company. To the Company's knowledge,
the Company has not received any written inquiries (which are currently pending)
by the Internal Revenue Service or any other taxing authority in connection with
any of the returns and reports referred to above, and no waivers of statutes of
limitations have been given or requested with respect to the Company or any of
its Subsidiaries. All deficiencies asserted or assessments (including interest
and penalties) made as a result of any examination by the Internal Revenue
Service or by appropriate state or departmental tax authorities of the federal,
state or local income tax, sales tax or franchise tax returns of or with respect
13
to the Company or any of its Subsidiaries have been fully paid or are adequately
provided for on the books of the Company and, to the Company's knowledge, no
proposed (but unassessed) additional taxes, interest or penalties have been
asserted. Except as set forth on Schedule 4.7 attached hereto, neither the
Company nor any of its Subsidiaries has made any elections pursuant to the Code
(other than elections which relate solely to matters of accounting, depreciation
or amortization) which would reasonably be expected to result in a Material
Adverse Effect.
4.8 Assets. Except as set forth on Schedule 4.8 attached hereto, the
Company and its Subsidiaries own outright all of their material property and
assets, real, personal or fixed, tangible or intangible, reflected as assets on
the Financial Statements or not so reflected because not required to be
reflected, but which are used or useful in the business of the Company and its
Subsidiaries, or acquired by the Company since the Interim Date (other than
assets disposed of in the ordinary course of business since the date of the
relevant Financial Statements), subject to no mortgages, liens, security
interests, pledges, charges or other encumbrances of any kind, except for
Permitted Liens. Neither the Company nor any of its Subsidiaries is obligated
under any contract or agreement remaining in effect after the Closing Date or
subject to any charter or other corporate restriction which would reasonably be
expected to result in a Material Adverse Effect. Except as described on Schedule
4.8 and except for ordinary wear and tear, the leased premises, equipment and
other tangible assets of the Company and its Subsidiaries are in good operating
condition in all material respects and are fit for use in the ordinary course of
business.
4.9 Intellectual Property Rights. A complete list of the patents, patent
applications, trademarks and trademark registrations of the Company and its
Subsidiaries is set forth on Schedule 4.9. Except as set forth on Schedule 4.9
attached hereto: there are no Intellectual Property Rights necessary or required
to enable the Company and its Subsidiaries to carry on their respective
businesses as now conducted that the Company or its Subsidiaries do not possess;
to the Company's knowledge, no third party has any ownership right, title,
interest, claim in or lien on any of the Intellectual Property Rights of the
Company and its Subsidiaries; and to the Company's knowledge, neither the
Company nor its Subsidiaries has violated or infringed, and is not currently
violating or infringing, and neither the Company nor any of its Subsidiaries has
received any communications alleging that the Company or any of its Subsidiaries
(or any of their employees or consultants) has violated or infringed or, by
conducting its business as presently proposed to be conducted, would violate or
infringe, the Intellectual Property Rights of any other person or entity, except
in each case for such matters that would not reasonably be expected to result in
a Material Adverse Effect.
4.10 Litigation. Except as set forth on Schedule 4.10 attached hereto,
there is no action, suit, proceeding, claim, arbitration or investigation
("Action") pending and served (or, to the Company's knowledge, currently
threatened or pending and unserved) against the Company or any of its
Subsidiaries, or their respective activities, properties or assets or, to the
Company's knowledge, against any Designated Person in connection with such
Designated Person's relationship with, or actions taken on behalf of, the
Company or any of its Subsidiaries, which if adversely determined would
reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries is a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
14
instrumentality that has been served on the Company or any of its Subsidiaries
or that is known to the Company, and there is no Action by the Company or any of
its Subsidiaries currently pending or which the Company or any of its
Subsidiaries intends to initiate, which in either such case would reasonably be
expected to have a Material Adverse Effect.
4.11 No Defaults. Except as set forth on Schedule 4.11 attached hereto,
neither the Company nor any of its Subsidiaries is in default in any material
respect (a) under its certificate of incorporation or bylaws, or under any
material provision of any Material Agreement to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their property is
bound or affected or (b) with respect to any order, writ, injunction, judgment
or decree of any court or any federal, state, municipal or other domestic or
foreign governmental department, commission, board, bureau, agency or
instrumentality that has been served on the Company or any of its Subsidiaries
or that is known to the Company. To the Company's knowledge, there exists no
condition, event or act which constitutes, or which after notice, lapse of time
or both, would constitute, a default in any material respect under any of the
foregoing.
4.12 Employees. (a) Schedule 4.12 attached hereto contains a list of all of
the officers and directors of the Company and each of its Subsidiaries, and
other Designated Persons. Schedule 4.12 also contains a list of all written
employment agreements and noncompetition agreements to which the Company or any
of its Subsidiaries is a party, and all noncompetition agreements of which the
Company has knowledge to which any director, officer or employee of the Company
in a party.
(b) Neither the Company nor any of its Subsidiaries is bound by or
subject to any contract, commitment or arrangement with any labor union,
and to the Company's knowledge, no labor union has requested, sought or
attempted to represent any employees, representatives or agents of the
Company or any of its Subsidiaries. There is no strike or other labor
dispute involving the Company or any of its Subsidiaries pending or, to the
Company's knowledge, threatened, nor is the Company aware of any labor
organization activity involving its employees or those of any of its
Subsidiaries. The Company is not aware that any Designated Person intends
to terminate his or her employment or engagement with the Company, nor does
the Company have any present intention to terminate the employment or
engagement of any Designated Person.
(c) No Designated Person is obligated under any agreement (including
licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any
other restriction that would interfere with the use of his or her best
efforts to carry out his or her duties for the Company or any of its
Subsidiaries or to promote the interests of the Company or any of its
Subsidiaries or that would conflict in any material respect with the
business or any of its Subsidiaries as now conducted or proposed to be
conducted. The carrying on of the business of the Company or any of its
Subsidiaries by the Designated Persons and the conduct of the Company's
business as presently conducted or proposed, will not, to the Company's
knowledge, conflict with or result in a breach of any of the material
terms, conditions or provisions of, or constitute a default under, any
material contract, covenant or instrument under which any such Designated
Person is now obligated.
15
4.13 Compliance. Except as set forth on Schedule 4.13 attached hereto, (a)
the Company and each of its Subsidiaries have complied in all material respects
with all federal, state, local and foreign laws, ordinances, regulations and
orders applicable to their respective businesses or the ownership of their
respective assets and have received no notice of non-compliance therewith and
(b) the Company and each of its Subsidiaries have or have applied for all
federal, state, local and foreign governmental licenses and permits necessary or
required to enable them to carry on their respective businesses as now conducted
and as now proposed to be conducted. Such licenses and permits, if issued, are
in full force and effect, no material violations have been recorded in respect
of any such licenses or permits, and no proceeding is pending or, to the best of
the Company's knowledge, threatened to revoke or limit any thereof, which if
adversely determined would reasonably be expected to have a Material Adverse
Effect. None of the aforesaid licenses and permits shall be affected in any
material adverse respect by this Agreement.
4.14 Insurance. Schedule 4.14 attached hereto sets forth all insurance
policies of the Company and its Subsidiaries currently in effect with respect to
its properties, assets and businesses. Each insurance policy maintained by the
Company and its Subsidiaries with respect to their properties, assets and
businesses is valid and enforceable and duly in force and all premiums with
respect thereto are paid to date. The Company believes that the amounts of
coverage under such policies of insurance are commercially reasonable for the
nature of the businesses of the Company and its Subsidiaries as conducted as of
the date hereof.
4.15 Authorization of Transaction Documents. The execution, delivery and
performance by the Company and its Subsidiaries of the Transaction Documents to
which each is a party have been duly authorized by all requisite corporate
action by the Company and its Subsidiaries. The execution and delivery of the
Transaction Documents by the Company and its Subsidiaries, the consummation of
the transactions contemplated thereby and compliance with the provisions thereof
by the Company and its Subsidiaries will not (a) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to the Company or any of its Subsidiaries, in each case as in effect on the date
hereof and on each Closing Date, or (b) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute (with due notice or
lapse of time, or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, the certificate of incorporation or bylaws
of the Company or any of its Subsidiaries, or under any Material Agreement to
which the Company or any of its Subsidiaries is a party or by which any of them
or any of their property is bound or affected, or (c) result in the creation of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company, except for those contemplated under the Transaction
Documents.
4.16 Validity of Transaction Documents, etc. Each Transaction Document has
been duly executed and delivered by the Company and its Subsidiaries, as
applicable, and constitutes the valid and legally binding obligation of the
Company and its Subsidiaries, as applicable, enforceable against it in
accordance with its terms, except to the extent enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws generally affecting creditors' rights and
by equitable principles.
16
4.17 Warrant Shares. The reservation, issuance, sale and delivery of the
Warrant Shares have been duly authorized by all requisite corporate action of
the Company. When issued, sold and delivered as contemplated by the Warrant
Agreement, the Warrant Shares will be validly issued and outstanding, fully paid
and nonassessable, and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company, except
as set forth in this Agreement, the Registration Rights Agreement and the
Tag-along Agreements or under applicable securities laws.
4.18 Preferred Shares and Conversion Shares. The Preferred Shares have been
duly authorized and, when issued in accordance with this Agreement, will be
validly issued, fully paid and nonassessable, and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in this Agreement, the Registration Rights Agreement
and the Tag-along Agreements or under applicable securities laws. The Conversion
Shares have been duly reserved for issuance upon conversion of the Preferred
Shares and, when so issued, will be duly authorized, validly issued, fully paid
and nonassessable, and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company except
as set forth in this Agreement, the Registration Rights Agreement and the
Tag-along Agreements or under applicable securities laws. Neither the issuance,
sale or delivery of the Preferred Shares nor the issuance or delivery of the
Conversion Shares is subject to any preemptive right of stockholders of the
Company or to any right of first refusal or other right in favor of any person.
4.19 Related Transactions. Except as set forth on Schedule 4.19 attached
hereto, no Designated Person and no "affiliate" or "associate" (each as defined
in the rules and regulations promulgated under the Exchange Act) of any such
Person is presently, directly or indirectly through his or its affiliation with
any other person or entity, a party to any transaction with the Company or any
of its Subsidiaries providing for the furnishing of services (other than
employment of such individuals by the Company or any of its Subsidiaries) by or
to, or the sale of products by or to, or rental of real or personal property
from or to, or otherwise requiring cash payments to or by, any such Person. For
purposes of this Agreement, a transaction of the type described in this Section
4.19 is sometimes herein referred to as a "Related Transaction."
4.20 Securities Law Compliance. Neither the Company nor any of its
Subsidiaries has violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any of its capital stock or debt
securities. Based in part upon the Purchaser's representations contained in
Section 5, the offering and sale of the Preferred Shares, the Warrants and the
Notes are each exempt from registration under the Securities Act. The aforesaid
offering and sale are also exempt from registration under applicable state
securities laws or will be exempt upon the timely filing of notices with the
appropriate states.
4.21 No Governmental Consent or Approval Required. Except for the filing of
any notice subsequent to the Closing that may be required under applicable
federal and/or state securities laws (which, if required, shall be filed on a
timely basis as may be so required), and except for Uniform Commercial Code
filings and other filings or recordings necessary to perfect any and all
security interests granted by the Company or any of its Subsidiaries in favor of
the Collateral Agent or the Senior Indebtedness, no consent, approval or
authorization of, or declaration to, or filing with, any Person (governmental or
private) is required for the valid authorization, execution, delivery and
performance by the Company or any of its Subsidiaries of the Transaction
Documents or for the valid authorization, issuance and delivery of the Preferred
Shares, the Warrants, the Notes, the Conversion Shares or the Warrant Shares,
other than such consents, approvals, authorizations, declarations or filings as
have been obtained or made, as applicable.
17
4.22 Material Agreements. Schedule 4.22 attached hereto is a list of all
Material Agreements to which the Company or any of its Subsidiaries is a party.
Except as listed on Schedule 4.22 or as otherwise contemplated hereby, neither
the Company nor any of its Subsidiaries is a party to any written or oral (a)
material contract for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of normal operating
requirements, (b) material contract for the employment of any officer,
individual employee or other person on a full-time basis or any contract with
any person on a consulting basis, (c) bonus, pension, profit-sharing,
retirement, stock purchase, stock option, hospitalization, medical insurance or
similar plan, contract or understanding in effect with respect to employees or
any of them or the employees of others, (d) agreement or indenture relating to
the borrowing of money or to the mortgaging, pledging or otherwise placing of a
lien on any assets of the Company or any of its Subsidiaries, other than
agreements documenting the Existing Credit Facility, which is being repaid on
the Closing Date, (e) loan or guaranty of any obligation for borrowed money or
otherwise (other than among the Company and its Subsidiaries and other than
agreements documenting the Existing Credit Facility, which is being repaid on
the Closing Date), (f) material lease or agreement under which the Company or
any of its Subsidiaries is lessee of or holds or operates any property, real or
personal, owned by any other party, (g) material lease or agreement under which
the Company or any of its Subsidiaries is lessor of or permits any third party
to hold or operate any property, real or personal, owned or controlled by the
Company or any of its Subsidiaries, (h) contract, agreement or commitment under
which the Company or any of its Subsidiaries is obligated to pay any broker's
fees, finder's fees or any such similar fees, to any third party, or (i)
contract or agreement prohibiting it from freely engaging in any business or
competing anywhere in the world. Upon request, the Company will make available
to the Purchaser true and correct copies of all such written agreements and
other documents. To the knowledge of the Company, none of the contracts or
agreements listed on Schedule 4.22 is in default in any material respect.
4.23 Registration Rights. Except as contemplated by this Agreement and as
set forth on Schedule 4.23, no Person has any right to cause the Company to
effect the registration under the Securities Act of any shares of Common Stock
or any other securities (including without limitation, debt securities) of the
Company.
4.24 Compliance with ERISA. Except as disclosed in Schedule 4.24, neither
the Company nor any of its Subsidiaries (a) maintains, or has ever maintained,
any employee benefit plan subject to ERISA or (b) contributes to, or has ever
contributed to, any such employee benefit plan maintained by any other person or
entity.
18
4.25 Environmental Protection. Except as set forth on Schedule 4.25 or
except as used solely in routine office operations and for heating purposes,
neither the Company nor any of its Subsidiaries has (except in compliance with
all Environmental Laws) (as defined below) caused or allowed, or contracted with
any party for, the generation, use, transportation, treatment, storage or
disposal of any Hazardous Substances (as defined below) in connection with the
operation of its business or otherwise, except to the extent that
non-compliance, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect. To the Company's knowledge, the
Company, each of its Subsidiaries, the operation of their respective businesses,
and any real property that any of them owns, leases or otherwise occupies or
uses (the "Premises") are in compliance, during the period of their operation,
ownership or lease, with all applicable Environmental Laws and orders or
directives of any governmental authorities having jurisdiction under such
Environmental Laws, including, without limitation, any Environmental Laws or
orders or directives with respect to any cleanup or remediation of any release
or threat of release of Hazardous Substances, except to the extent that
non-compliance, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any of
its Subsidiaries has caused or allowed a release, or a threat of release, of any
Hazardous Substance unto, at or near the Premises, except for instances that,
individually or in the aggregate would not reasonably be expected to result in a
Material Adverse Effect. To the Company's knowledge, neither the Premises nor
any property at or adjacent to the Premises has ever been subject to a release,
or a threat of release, of any Hazardous Substance, except to the extent that
non-compliance, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect. For the purposes of this
Agreement, the term "Environmental Laws" shall mean any Federal, state or local
law or ordinance or regulation pertaining to the protection of human health or
the environment. For purposes of this Agreement, the term "Hazardous Substances"
shall include oil and petroleum products, asbestos, polychlorinated biphenyls,
urea formaldehyde and any other materials classified as hazardous or toxic under
any Environmental Laws.
4.26 Brokers, etc.. The Company has not dealt or negotiated with any person
who has or will have, as a result of the transaction contemplated by this
Agreement, any right, interest or claim against the Purchaser or any of its
Affiliates for any commission, fee or other compensation as a finder or broker.
All compensation payable to Westminster Securities Corporation will be payable
solely by the Company, and neither the Purchaser nor any of its Affiliates shall
have any liability therefor.
4.27 Disclosure. Neither this Agreement nor any other written document,
certificate, instrument or statement furnished or made available to the
Purchaser by or on behalf of the Company or any of its Subsidiaries pursuant to
the terms of the Transaction Documents contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading. Other than general
business and economic conditions, there is no fact known to the Company which
materially adversely affects the business, properties, prospects or financial
condition of the Company which has not been set forth in this Agreement or in
the other documents, certificates, instruments or statements furnished to the
Purchaser by or on behalf of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Company that:
19
(a) It is a limited partnership duly formed and in good standing under
the laws of the State of Delaware. It has, and as of the Closing will have,
all requisite power and authority to execute, deliver and perform the
Transaction Documents to which it is a party and to consummate the
transactions contemplated thereby. The execution, delivery and performance
of the Transaction Documents to which it is a party, and the consummation
of the transactions contemplated thereby, have been duly and validly
authorized by all necessary action on the part of the Purchaser.
(b) Each Transaction Document has been duly executed and delivered by
the Purchaser and constitutes the valid and legally binding obligation of
the Purchaser, enforceable against it in accordance with its terms, except
to the extent enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws generally affecting
creditors' rights and by equitable principles.
(c) It has been advised and understands that the Notes, the Warrants,
the Warrant Shares, the Preferred Shares and the Conversion Shares have not
been registered under the Securities Act, and that in this connection, the
Company is relying in part on the representations of the Purchaser set
forth in this Section 5.
(d) It understands that each certificate representing Preferred
Shares, each Note, each Warrant Certificate and each certificate
representing Warrant Shares or Conversion Shares will bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF
ANY STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
SUCH OFFER, SALE, PLEDGE OR TRANSFER IS REGISTERED UNDER THE 1933 ACT OR
APPLICABLE STATE SECURITIES LAWS OR IS EXEMPT FROM SUCH REGISTRATION. TRANSFER
OF THESE SECURITIES IS ALSO SUBJECT TO CERTAIN RESTRICTIONS UNDER THE SECURITIES
PURCHASE AGREEMENT DATED JUNE 26, 2002, BETWEEN THE COMPANY AND EUREKA I, L.P.
At such time that a Note, Warrant, Preferred Shares, Warrant Shares or
Conversion Shares may be sold pursuant to Rule 144(k) under the Securities Act
(or any successor rule), the Company agrees to provide the holder thereof with a
replacement non-legended Note, Warrant Certificate and certificates evidencing
such Warrant Shares, Preferred Shares and Conversion Shares within five (5)
business days of a written request by such holder.
(e) It has been further advised and understands that there is no
public market for the Notes, the Warrants or the Preferred Shares. The
Purchaser recognizes that the investment in the Notes, Warrants and the
Preferred Shares involves a number of significant risks.
(f) It has not dealt or negotiated with any person who has or will
have, as a result of the transaction contemplated by this Agreement, any
right, interest or claim against or upon the Company or any of its
Subsidiaries for any commission, fee or other compensation as a finder or
broker.
20
(g) It (i) is an accredited investor within the meaning of Rule 501(a)
promulgated under the Securities Act, (ii) is aware of the limits on resale
imposed by virtue of the nature of the transactions contemplated by this
Agreement and (iii) is acquiring the Preferred Shares, the Notes and
Warrants hereunder, and in the event that it should acquire the Warrant
Shares upon exercise of the Warrants or the Conversion Shares upon
conversion of the Preferred Shares, the Warrant Shares or the Conversion
Shares without registration under the Securities Act in reliance on the
exemption from registration contained in Section 4(2) of the Securities
Act, for investment for its own account, and not with a view toward, or for
sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling such shares except for such
distribution or sale as is registered or exempt from registration under the
Securities Act.
(h) It has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof, including a total loss of its investment.
(i) It has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management and has
obtained all requested documents pertaining to the Company or otherwise.
6. CONDITIONS TO CLOSING.
6.1 Closing. The obligation of the Purchaser to purchase and pay for the
Preferred Shares, Warrants and Notes being purchased by it on the Closing Date
is, at its option, subject to the satisfaction, on or before the Closing Date,
of the following conditions:
(a) Opinion of Company's Counsel. The Purchaser shall have received
from Xxxxxxxxxx Xxxxxxxx LLP and Holland & Knight LLP, counsel for the
Company, and Xxxx Xxxxxx Xxxxxxxx Xxxxxxxxxxx Xxxxxxx, counsel to the
Xxxxxx Family Trust and Jade Partners, opinions dated the Closing Date in
form satisfactory to the Purchaser and collectively covering the matters
set forth in Exhibit 6.1(c).
(b) Filing of Preferred Stock Terms. A Certificate of Designation in
the form of Exhibit D hereto, shall have been filed with the Secretary of
the State of Delaware.
(c) Representations and Warranties to be True and Correct. The
representations and warranties contained in Section 4 hereof shall be true,
complete and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been
made on and as of such date, and a Responsible Officer of the Company shall
have certified to such effect to the Purchaser in writing.
(d) Performance. The Company shall have performed and complied in all
material respects with all agreements contained herein required to be
performed or complied with by it prior to or at the Closing Date, and a
21
Responsible Officer of the Company shall have certified to the Purchaser in
writing to such effect and to the further effect that all of the conditions
set forth in this Section have been satisfied.
(e) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to the Purchaser and its counsel, and
the Purchaser and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as they reasonably
may request.
(f) Supporting Documents. The Purchaser and its counsel shall have
received copies of the following documents:
(i) (A) the Company's certificate of incorporation, certified as
of a recent date by the Secretary of the State of Delaware and (B) a
certificate of said Secretary dated as of a recent date as to the
valid subsistence of the Company and listing all documents of the
Company on file with said Secretary;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated the Closing Date and certifying: (A) that attached
thereto is a true and complete copy of the by-laws of the Company as
in effect on the date of such certification; (B) that attached thereto
is a true and complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing the
execution, delivery and performance of the Transaction Documents, the
issuance, sale and delivery of the Notes, the Warrants and the
Preferred Shares and the reservation, issuance and delivery of the
Warrant Shares and the Conversion Shares, and that all such
resolutions are in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by the
Transaction Documents; (C) that the Company's certificate of
incorporation has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to clause
(i)(B) above (other than as required by subsection (b)); and (D) to
the incumbency and specimen signature of each officer of the Company
executing any of the Transaction Documents, the stock certificates
representing the Preferred Shares and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of
the Company as to the incumbency and signature of the officer signing
the certificate referred to in this paragraph; and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the
Purchaser or its counsel reasonably may request.
(g) Other Transaction Documents.
(i) the Security Agreement, together with the documents required
by the Security Agreement, including financing statements and
confirmation of insurance and real estate security documents;
(ii) the Patent Security Agreement;
22
(iii) the Trademark Security Agreement;
(iv) the Registration Rights Agreement;
(v) the Tag-Along Agreements;
(vi) the Pledge Agreement;
(vii) the Intercreditor Agreement;
(viii) the Guaranty; and
(ix) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Sections 6.1(a) through
6.1(k), inclusive, have been fully satisfied.
(h) Preemptive Rights. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of
the Preferred Shares, the Conversion Shares and the Warrant Shares shall
have irrevocably waived the same in writing.
(i) Sources and Uses Statement. The Company shall have delivered a
statement, reasonably satisfactory to the Purchaser, of the sources and
uses of the funds being provided on the Closing Date by the Senior Lender
and by the Purchaser.
(j) Evidence of Insurance. The Company shall have furnished to the
Purchaser evidence of the insurance required by this Agreement.
(k) Counsel Fees and Other Expenses. The Company shall have paid in
accordance with Section 6.1 the fees and disbursements of Drinker Xxxxxx &
Xxxxx LLP, special counsel to the Purchaser, invoiced at the Closing, and
shall have reimbursed the Purchaser for its out-of-pocket expenses,
invoiced at the Closing.
(l) Closing Fee. The Company shall have paid to the Purchaser a
closing fee of $80,000 on account of its purchase of the Notes and Warrants
and $40,000 on account of its purchase of the Preferred Shares. The
Purchaser agrees to refund to the Company, promptly after the closing, the
deposit previously paid to the Purchaser upon issuance of its term sheet or
commitment letter, less the Purchaser's out-of-pocket expenses for which it
is entitled to reimbursement pursuant to its term sheet or commitment
letter.
(m) Senior Indebtedness; Discharge of Existing Credit Facility. The
Company shall have simultaneously completed the closing with LaSalle
Business Credit, Inc. under senior term loans and revolving credit
commitments of not less than $6,000,000, and shall have not less than
$500,000 in unused revolving credit commitments thereunder; the Company
shall have terminated the Existing Credit Facility and repaid all amounts
owing thereunder; and all Liens securing the Existing Credit Facility shall
have been discharged.
(n) Board Committees. The Company's Board of Directors shall have
appointed (1) an audit committee, whose composition shall be in conformity
with the requirements of law and the Nasdaq Stock Market, and (2) a
compensation committee, a majority of the members of which shall not be
officers or employees of the Company or any of its Subsidiaries, or
relatives of any such officers or employees.
23
(o) Transaction Costs. Fees and expenses paid or owing to brokers and
investment bankers on account of the transactions contemplated by this
Agreement and the closing under the Senior Indebtedness shall not exceed
$548,000.
All such documents shall be satisfactory in form and substance to the Purchaser
and its counsel.
7. COVENANTS OF THE COMPANY
7.1 Access to Records. For so long as the Notes have not been paid in full,
the Company will permit any representatives designated by the Required
Noteholders, during normal business hours and upon reasonable notice to (a)
visit and inspect any of the properties of the Company and its Subsidiaries, (b)
examine the corporate and financial records of the Company and its Subsidiaries
and make copies thereof or extracts therefrom and (c) discuss the affairs,
finances and accounts of any such companies with the directors, officers, key
employees and independent accountants of the Company and its Subsidiaries;
provided, that in no event shall such inspection impede or interrupt the normal
business operations of the Company. The Company will reimburse the Noteholders
for their reasonable expenses (including travel) incurred under the preceding
sentence, except that if no Event of Default shall have occurred and be
continuing, the Company shall be required to reimburse such expenses relating to
only one examination per year. The presentation of an executed copy of this
Agreement by the Required Noteholders to the Company's independent accountants
will constitute the Company's permission to its independent accountants to
participate in discussions with such persons. The Required Noteholders and their
designated representative shall maintain the confidentiality of any confidential
or Proprietary Information so obtained by them which is not otherwise available
from other sources that are free from similar restrictions; provided, however,
that the foregoing shall in no way limit or otherwise restrict the ability of
the Required Noteholders or such authorized representatives to disclose any such
information concerning the Company which they may be required to disclose (i) to
the Required Noteholders' partners to the extent required to satisfy their
fiduciary obligations to such persons (so long as such partners agree in writing
to be bound by those confidentiality provisions), or (ii) otherwise as required
by law.
7.2 Financial Reports and Other Information.
(a) For so long as the Notes have not been paid in full, the Company
will furnish each Noteholder with the following:
(i) As soon as practicable, and in any case within thirty (30)
days after the end of each calendar month, monthly unaudited financial
statements (all prepared in accordance with GAAP, except for
footnotes, and subject to changes resulting from audits and normal
year-end adjustments none of which will be materially adverse to the
financial condition or result of operation of the Company), including
(A) an unaudited balance sheet as of the last day of such month, (B)
an unaudited statement of income for such month, together with a
24
cumulative statement of income from the first day of the then current
fiscal year to the last day of such month, (C) an aging schedule (or
summary thereof) of all accounts receivable and accounts payable, (D)
a statement of cash flows for such month and (E) a report comparing
capital expenditures for such month against the capital budget
schedule attached hereto as Schedule 7.2(a) or delivered pursuant to
Section 7.2(a)(iii), and identifying all expected changes in the
timing or amount of capital expenditures, and a comparison between the
actual figures for such month, the comparable figures (with respect to
clauses (A) and (B) only) for the prior year period and the comparable
figures in the current year's budget, along with management
commentary. The foregoing financial statements shall be accompanied by
an Officer's Certificate to the effect that such statements fairly
present in all material respects the financial position and financial
results of the Company for the fiscal period covered, qualified by the
fact that the Company may need to make adjustments to the foregoing
figures as determined by the Company's auditors in accordance with
generally accepted accounting procedures.
(ii) As soon as practicable and in any event within 90 days after
the end of each Fiscal Year commencing with the Fiscal Year ending
March 31, 2002, an annual independent certified audit prepared by
nationally recognized certified public accountants.
(iii) Not later than the beginning of each Fiscal Year, an annual
operating plan with budget for the Company, including the Company's
capital budget, for the coming Fiscal Year.
(iv) Promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning
significant aspects of the Company's operations and financial affairs
given to the Company by its independent accountants (and not otherwise
contained in other materials provided pursuant to this Section 7.2).
(v) Promptly (but in any event within five business days) after
the discovery or receipt of notice of any material default under any
Material Agreement to which it or any of its Subsidiaries is a party
or any other event or circumstance materially and adversely affecting
the Company and its Subsidiaries taken as a whole (including the
filing of any material litigation against the Company or any
Subsidiary or the existence of any dispute with any Person which
involves a reasonable likelihood of such material litigation being
commenced), an Officer's Certificate specifying the nature and period
of existence thereof and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto.
(vi) Within fifteen days after transmission thereof, copies of
all financial statements, proxy statements, reports and any other
general written communications which the Company sends to its
shareholders and/or lenders and copies of all registration statements
and all regular, special or periodic reports which it files, with the
Commission or with any securities exchange on which any of its
securities are then listed, and copies of all press releases and other
statements made available generally by the Company to the public
concerning material developments in the Company's business.
(vii) From time to time such other information concerning the
Company's businesses as any Noteholder shall reasonably request.
25
(b) If for any period the Company shall have any Subsidiary or
Subsidiaries, then in respect of such period the financial statements
delivered pursuant to subsections (i) and (ii) of Section 7.2(a) shall
include consolidating (unaudited) and consolidated financial statements of
the Company and its Subsidiaries.
(c) With the financial statements referred to in subsections (i) and
(ii) of Section 7.2(a), the Company shall deliver to each Noteholder an
Officer's Certificate to the effect that such officer has no knowledge of
any material violation or default by the Company in the performance of its
agreements or covenants contained herein or in any other Material Agreement
to which the Company is a party or of the occurrence of any condition,
event or act which, with or without notice or lapse of time, or both, would
constitute such a material violation or a default, or, if such officer
shall have obtained knowledge of any such violation, condition, event or
act, he or she (as the case may be) shall specify in such certificate all
such violations, conditions, events and acts and the nature and status
thereof.
7.3 Use of Proceeds. The net proceeds received by the Company from LaSalle
Business Credit, Inc. and the Purchaser shall be used by the Company as
described in the statement of sources and uses of funds furnished by the Company
pursuant to Section 6.1(i).
7.4 Affirmative Covenants. For so long as the Notes have not been paid in
full, the Company will, and will cause each Subsidiary to:
(a) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses,
provided that nothing in this Section 7.4(a) shall prohibit the Company
from discontinuing the existence of any Subsidiary if such discontinuance
is determined by the Board of Directors of the Company to be in the best
interest of the Company or such Subsidiary;
(b) maintain and keep its material assets in good repair, working
order and condition, ordinary wear and tear and obsolete equipment and
damage by casualty excepted, and from time to time make all necessary
repairs, renewals and replacements, so that its businesses may be properly
and advantageously conducted at all times in all material respects;
(c) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all claims for labor, materials or
supplies which if unpaid might by law become a lien upon any of its
property (other than as permitted in this Agreement), to the extent to
which the failure to pay or discharge such obligations would reasonably be
expected to result in a Material Adverse Effect, unless and to the extent
that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with GAAP)
have been established on its books (when required under GAAP) with respect
thereto;
26
(d) comply with all other material obligations which it incurs
pursuant to any Material Agreement, whether oral or written, express or
implied, as such obligations become due to the extent to which the failure
to so comply would reasonably be expected to result in a Material Adverse
Effect, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and adequate reserves (as determined
in accordance with GAAP) have been established on its books (when required
by GAAP) with respect thereto;
(e) comply in all material respects with the requirements of all
applicable laws, rules, regulations, orders and ordinances of any
governmental authority having jurisdiction (including Environmental Laws),
the violation of which would reasonably be expected to result in a Material
Adverse Effect;
(f) maintain, in all material respects, proper books of record and
account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company as the case may be,
in accordance with GAAP, and in each case in sufficient detail to enable
the separate financial statements of each such entity to be readily
prepared;
(g) file all reports (if any) required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted
by the Commission thereunder;
(h) possess and maintain all material Intellectual Property Rights
necessary to the conduct of their respective businesses and own all right,
title and interest in and to, or have a valid license for, all material
Intellectual Property Rights used by the Company and each Subsidiary in the
conduct of their respective businesses. Neither the Company nor any
Subsidiary will take any action, or fail to take any action, which would to
its knowledge result in the invalidity, abuse, misuse or unenforceability
of such Intellectual Property Rights or which would to its knowledge
infringe in any material respect upon any rights of other Persons;
(i) when and if applicable, take all steps necessary for the Company
to maintain its eligibility to use Form S-3 for the registration of its
securities once the Company has attained such eligibility;
(j) if the Company or any Subsidiary acquires or organizes any
additional Subsidiary, cause such additional Subsidiary to execute and
deliver a joinder in the form attached hereto as Exhibit E, cause all
filings to be made that are necessary to perfect in favor of the Collateral
Agent a security interest in all property of such additional Subsidiary,
which are junior and subordinate to those in favor of the Senior Lender and
cause all the capital stock of such subsidiary to be pledged to the
Collateral Agent; provided, however, that no Subsidiary organized under the
laws of a jurisdiction outside the United States shall be required to
execute a joinder if it would result in adverse tax consequences to the
Company or its Subsidiaries; and
(k) cause to be elected to the Company's Board of Directors, not later
than the Company's 2002 annual meeting of stockholders, one additional
director who is an "independent director" within the meaning of the listing
rules of the Nasdaq Stock Market.
7.5 Negative Covenants. For so long as the Notes have not been paid in
full, the Company will not, and will not permit any Subsidiary to, do any of the
following without the written consent of the Required Noteholders:
27
(a) subject to the terms of the Intercreditor Agreement, make any
Restricted Payment except that the Company may pay dividends on the Series
A Preferred Stock if, at the time of such payment and after giving effect
thereto, no Event of Default shall have occurred and be continuing;
(b) voluntarily liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (except with respect to any
Subsidiary as permitted by Section 7.4(a));
(c) become subject to any agreement or instrument (other than the
Intercreditor Agreement), which by its terms would (under any
circumstances) restrict the Company's right to perform any of its
obligations pursuant to the terms of any of the Transaction Documents;
(d) without limiting the generality of subsection (h), incur, create,
issue, assume, guarantee or otherwise become liable for any indebtedness
that is subordinate or junior in right of payment to any Senior
Indebtedness unless such debt is junior and subordinate in all respects in
right of payment to the Notes;
(e) enter into any Related Transaction except for (i) normal
employment arrangements and benefit programs on reasonable terms, and (ii)
any transaction on terms no less favorable to the Company than could be
obtained in a transaction with a Person not related to the Company;
(f) permit any material asset or property of the Company or any
Subsidiary to become subject to a Lien of any kind, except for Permitted
Liens;
(g) assume, guarantee or endorse, or otherwise become liable in
connection with, the obligations of any Person, except by endorsement of
instruments for deposit or collection or similar transactions in the
ordinary course of business, and except in favor of the Senior Lender;
(h) create, incur, assume or become obligated (directly or
indirectly), for any loans or other indebtedness of borrowed money other
than the Senior Indebtedness, except that the Company or any of its
Subsidiaries may (i) borrow money from a Person other than the Purchaser on
an unsecured and subordinated basis if the rate of interest thereon does
not exceed 12% per year, no principal is payable thereon until at least
three months after the scheduled maturity of the Notes, and a subordination
agreement in favor of the Collateral Agent and in form and substance
satisfactory to the Collateral Agent is executed and delivered to Agent
relative thereto; (ii) maintain its present indebtedness listed on Schedule
4.5 hereto; (iii) incur unsecured indebtedness to trade creditors in the
ordinary course of its business; (iv) incur purchase money indebtedness or
capitalized lease obligations not in excess of $100,000 in the aggregate
each Fiscal Year in connection with Capital Expenditures permitted pursuant
to Section 7.7(d) hereof; and (v) incur indebtedness under agreements
pursuant to which any Borrower is hedging against increases in interest
rates on such Borrower's outstanding floating rate indebtedness; provided
that the aggregate amount so hedged at any time shall not exceed the amount
of such Borrower's floating rate indebtedness outstanding at such time;
28
(i) create, incur, assume or suffer to exist any mortgage, pledge,
lien, security interest or other encumbrance of any kind on any real or
personal property except for Permitted Liens;
(j) enter into a material line of business other than the business of
manufacturing medical packaging and dispensing systems and supplies;
(k) (i) merge or consolidate with, or sell, assign, lease or otherwise
dispose of all or substantially all or any substantial part of its assets
to, any other Person except to the Company or one of its Wholly-Owned
Subsidiaries; (ii) purchase or otherwise acquire any operating business or
division (whether by stock or asset purchase) from any other Person or all
or any substantial part of the assets of any other Person except for
investment permitted by Section 7.5(l), (iii) directly or indirectly sell,
assign, pledge or otherwise dispose of any Indebtedness of, or claim
against, or any shares of stock or similar interests or other securities of
(or warrants, rights or options to acquire stock or similar interests or
other securities of), any Subsidiary, except pledges to Collateral Agent
pursuant to any of the Security Documents, which pledge shall be junior and
subordinate to that made in favor of the Senior Lender and to the holders
of Senior Indebtedness; (iv) permit any Subsidiary directly or indirectly
to sell, assign, pledge or otherwise dispose of any Indebtedness of, or
claim against, or any shares of stock or similar interests or other
securities of (or warrants, rights or options to acquire stock or similar
interests or other securities of), any other Subsidiary, which pledge shall
be junior and subordinate to that made in favor of the Senior Lender,
except pledges thereof to the Collateral Agent pursuant to any of the
Security Documents and to the holders of Senior Indebtedness; (v) permit
any Subsidiary to have outstanding any shares of Preferred Stock; (vi) form
or acquire any Subsidiary organized under any law other than that of the
United States, a state thereof, or the District of Columbia; or (vii)
permit any Subsidiary directly or indirectly to issue or sell any shares of
its stock or similar interests or other securities (or warrants, rights or
options to acquire stock or similar interests or other securities) except
to the Company or a Wholly-Owned Subsidiary of the Company and pledged to
the Collateral Agent (provided, however, that no more than 65% of the stock
of any Subsidiary organized under the laws of any jurisdiction outside of
the United States will be pledged and none of the capital stock of any such
Person's direct or indirect Subsidiaries will be pledged) pursuant to the
Pledge Agreement and pledged and delivered to the holders of Senior
Indebtedness;
(l) make or suffer to exist any loan or advance to any Person or
purchase or otherwise acquire any stock, obligation or securities of, or
any other interest in, or make any capital contribution to, any Person,
except that (1) the Company may make Investments in Packaging, and (2) the
Company and Packaging may make investments in any Subsidiary of the Company
that shall have delivered or joined in a Guaranty at such time, so long as
(i) no Event of Default, or event or condition that, with notice or lapse
of time, or both, would, if unremedied, be an Event of Default, has
occurred, or would occur as a result of such investment and, (ii) the
Company shall deliver written notice to the Collateral Agent at least
thirty (30) days prior to the making of any such investment;
29
(m) sell, lease or otherwise dispose of any material asset or property
of the Company, other than sales, leases and disposals of inventory or
equipment in the ordinary course of business;
(n) (i) fail to make contributions to pension plans required by
Section 412 of the Code, (ii) fail to make payments required by Title IV of
ERISA as the result of the termination of a single employer pension plan or
withdrawal or partial withdrawal from a multiemployer pension plan, or
(iii) fail to correct a prohibited transaction with an employee benefit
plan with respect to which it is liable for the tax imposed by Section 4975
of the Code; and
(o) amend or modify this license agreement dated October 14, 1986,
between the Company (successor to DRG Consultants, Inc.) and the Xxxxxx
Family Revocable Trust, as modified by agreement dated September 2, 1990
(the "License Agreement"), in any way unfavorable to the Company, fail to
comply in any material respect with the Company's obligations under the
License Agreement, or waive any right of the Company under the License
Agreement, unless the Company acquires from the Xxxxxx Family Revocable
Trust all its rights in the subjects of the license, in a transaction
complying with Section 7.5(e), in which case the Company may terminate the
License Agreement.
7.6 Insurance. For so long as the Notes shall not have been paid in full,
the Company will apply for and continue in force insurance with responsible and
reputable companies in such amounts and against such risks as are set forth in
the Company's insurance policies in effect on the Closing Date. After the
Closing Date, the Company shall obtain additional or different insurance if the
insurance risk profile of the Company materially changes, to the extent
reasonably requested by the Collateral Agent or the Required Noteholders (with
such deductibles and levels of self-insurance as are usually maintained by
owners of similar businesses and properties), but in any event, the Company will
(1) increase the coverage of its business interruption insurance to $3,000,000
(provided the incremental premium is not more than $7,500), and (2) obtain
separate coverage limits for its directors and officers liability and employment
practices liability insurance of $2,000,000 each (provided the total premium for
such coverage is not more than $55,000), effective in both cases at the end of
the current policy year(s). The insurers under all such policies shall have a
rating of "A" or better as established by Best's Rating Guide (or an equivalent
rating with such other publication of a similar nature as shall be in current
use). All such insurance policies shall provide that they may not be cancelled
unless the insurance carrier gives at least thirty (30) days prior written
notice of such cancellation to the Collateral Agent.
7.7 Certain Financial Covenants.
(a) Tangible Net Worth. The Company and its Subsidiaries on a
consolidated basis shall maintain at all times during each time period set
forth below a Tangible Net Worth of not less than the amount set forth
below opposite each such time period:
30
Period Tangible Net Worth
------ ------------------
As of March 31, 2002 and at all $350,000
times until June 29, 2002
As of June 30, 2002 and at all $3,500,000
times until December 30, 2002
As of December 31, 2002 and at all $3,600,000
times until March 30, 2003
As of March 31, 2003 $3,750,000
As of April 1, 2003 and at all The greater of (i)$3,750,000
times until March 30, 2004 and (ii) 90% of Tangible Net
Worth at March 31, 2003
As of March 31, 2004 $800,000 plus the greater of
(i) $3,750,000 and (ii) 90% of
Tangible Net Worth at
March 31, 2003 (the "2004
Tangible Net Worth Requirement")
As of April 1, 2004 and at all The greater of (i) the 2004
Net times until March 30, 2005 Tangible Worth Requirement and
(ii) 90% of Tangible Net Worth
at March 31, 2004
As of March 31, 2005 $800,000 plus the greater of
(i) the 2004 Tangible Net Worth
Requirement and (ii) 90% of
Tangible Net Worth at
March 31, 2004 the "2005
Tangible Net Worth Requirement")
As of April 1, 2005 and at all The greater of (i) the 2005
time thereafter Tangible Net Worth Requirement
and (ii) 90% of Tangible Net
Worth at March 31, 2005
31
(b) Debt Service Coverage Ratio. The Company and its Subsidiaries on a
consolidated basis will maintain a Debt Service Coverage Ratio for each
time period set forth below of not less than the ratio set forth below
opposite each such time period:
Measuring Period Debt Service Coverage Ratio
---------------- ---------------------------
Fiscal quarter ending September 30, 2002 1.00:1.00
Two fiscal quarters ending December 31, 2002 1.00:1.00
Twelve months ending March 31, 2003, 1.20:1.00
March 31, 2004 and March 31, 2005
Fiscal quarter ending June 30, 2003, 1.00:1.00
September 30 and December 31 of each
year, in each case together with the
three preceding fiscal quarters
(c) Interest Coverage Ratio. The Company and its Subsidiaries on a
consolidated basis will maintain an Interest Coverage Ratio for each time
period set forth below of not less than the ratio set forth below opposite
each such time period:
Measuring Period Interest Coverage Ratio
Fiscal quarter ending September 30, 2003 2.00:1.00
Two fiscal quarters ending December 31, 2002 2.00:1.00
Fiscal quarter ending March 31, 2003, and 2.00:1.00
each fiscal quarter thereafter, in each
case with the preceding three fiscal quarters
(d) Capital Expenditure Limitations. The Company and its Subsidiaries
on a consolidated basis shall not make Capital Expenditures in excess of
One Million Eight Hundred Thousand Dollars ($1,800,000.00) during any one
Fiscal Year, commencing with the Fiscal Year ending March 31, 2003.
7.8 Board Observer. For so long as the Notes have not been paid in full,
the Company's Board of Directors will consist of two management members and
three outside members, for a total of five members, and such board shall meet at
least four times annually. The Purchaser shall have the right (until the Notes
have been paid in full) to appoint one observer who shall have the right to
attend all meetings of the Board of Directors of the Company and all committees
thereof; provided, however, that so long as the holders of Series A Preferred
Stock or of the Warrants or Warrant Shares shall have the right to appoint such
an observer, all shall appoint the same observer, the identity of which will be
determined by the Purchaser until the Notes have been paid in full.
Notwithstanding anything to the contrary in any Transaction Document, the
Company shall be entitled to exclude any such observer from any board
32
discussions (and withhold any related materials) materially affecting the
relationship of the Company or any Subsidiary to the Collateral Agent, any
Noteholder, or any holder of any Warrant, Warrant Shares or Series A Preferred
Stock. The Company shall reimburse Purchaser for all reasonable expenses
associated with the observer's attendance at board and committee meetings.
7.9 Key Person Life Insurance. The Company will obtain, within 60 days
after the date of the Closing, and thereafter continuously maintain in effect
until the Notes have been paid in full, key person life insurance on the lives
of Xxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx, Xxxxxxx Xxxxxxxxx and such other persons
as may be selected by the Purchaser, in the amount of $4,000,000, $1,500,000 and
$1,500,000, respectively.
8. THE NOTES
8.1 Exchange or Transfer of Notes.
(a) Exchange. At any time upon the request of any Noteholder and upon
surrender of such Note for such purpose at the principal offices of the
Company, the Company will execute and register in the Noteholder's name in
exchange therefor new notes, in such denomination or denominations (in
minimum amounts of $100,000 and in multiples of $10,000) as may be
requested, an aggregate principal amount equal to the unpaid principal
amount of the Note so surrendered and substantially in the form thereof,
with appropriate insertions and variations, and dated, and bearing interest
from, the date to which interest has been paid on the Note so surrendered
unless no interest has been paid on the Note so surrendered, in which case
the new notes shall be dated the date of the Note so surrendered.
(b) Replacement. Upon receipt by the Company of evidence reasonably
satisfactory to it that the Note has been mutilated, destroyed, lost or
stolen, and, in the case of any destroyed, lost or stolen Note, a letter of
indemnity reasonably satisfactory to the Company, or in the case of a
mutilated Note, upon surrender and cancellation thereof, the Company shall
execute and register in the holder's name a new Note in exchange and
substitution for the Note so mutilated, destroyed, lost or stolen in an
aggregate principal amount equal to the unpaid principal amount of the Note
so mutilated, destroyed, lost or stolen and substantially in the form
thereof, with appropriate insertions and variations, and dated and bearing
interest from the date to which interest has been paid on the Note so
mutilated, destroyed, lost or stolen unless no interest has been paid on
the Note so mutilated, destroyed, lost or stolen, in which case the new
Note shall be dated the date of the Note so mutilated, destroyed, lost or
stolen.
(c) Transfer. Subject to the provisions of this Agreement, any Note
may be transferred at the principal office of the Company by surrender
thereof for cancellation, endorsed or accompanied by a written instrument
of transfer, duly executed by the registered holder thereof or its attorney
duly authorized in writing, and thereupon the Company shall issue and
deliver, in the name of the transferee or transferees, a new Note, for a
like aggregate principal amount, dated as of the date to which interest has
been paid on the Note so transferred.
33
(d) Instrument of Transfer. All Notes presented or surrendered for
exchange as provided in this Section 8.1 shall, if required by the Company,
be accompanied by a written instrument or instruments of transfer, duly
executed by the registered holder thereof or its attorney duly authorized
in writing. No charge shall be made by the Company in respect of any
transfer or exchange of Notes, but the holder shall bear any applicable
transfer tax.
(e) Legends. All Notes issued pursuant to this Section 8.1 shall
contain the restrictive legends on the Note surrendered for transfer or
exchange or which has been mutilated, lost, destroyed or stolen, and shall
contain any legend required by the Intercreditor Agreement as in effect
from time to time. All certificates representing Warrants and Series A
Preferred Stock, whether originally issued or issued on transfer or
exchange, shall also contain any legend required by the Intercreditor
Agreement as in effect from time to time.
(f) Approval of Transfers. Notwithstanding anything to the contrary in
any Transaction Document, no Noteholder may transfer all or any part of any
Note without the written consent of the Company (such consent not to be
unreasonably withheld, it being understood that the Company may withhold
consent if the proposed transferee is a competitor of the Company), except
that no such consent shall be required (1) if an Event of Default shall
have occurred and be continuing, or (2) for a transfer to (A) an Affiliate
of the transferor Noteholder or (B) a partner or other equity holder of
such Noteholder in connection with a distribution of assets by such
Noteholder. If a Noteholder makes a written request to the Company to
consent to a transfer of all or a portion of any Note to a transferee
identified in the request, the Company shall be deemed to have consented to
such transfer unless it gives written notice of objection to the transferor
Noteholder within five business days after the request is made.
8.2 Register of Noteholders. The Company will at all times keep or cause to
be kept, at the principal office of the Company, appropriate records for the
registration and transfer of the Notes, identifying the Noteholders, and shall
cause to be recorded therein the names and addresses of the holders of record of
the Notes from time to time, and any and all transfers thereof; provided,
however, that the Company shall be required to record the transfer of a Note
only if and when a subsequent holder shall have (a) presented such Note to the
Company for inspection, properly endorsed or assigned and in order for transfer,
(b) delivered to the Company a written notice of its acquisition of such Note,
and (c) designated in writing an address to which payments on and notices in
respect of such Notes shall be transmitted.
8.3 Transfer Taxes. The Company will pay, and hold the Purchaser harmless
against, liability for the payment of any transfer or similar taxes payable in
connection with the initial issuance and sale of the Notes pursuant hereto.
8.4 Payment.
(a) Required Payment. The Notes will be paid in accordance with their
terms and as set forth in this Agreement.
34
(b) Mandatory Prepayment. In the event of a Liquidity Event, all
amounts due hereunder shall be prepaid in full with accrued interest and,
if applicable, the prepayment fee provided for in Section 8.4(c).
(c) Optional Prepayment. The Company has the right, at its option, at
any time to prepay the principal amount in full or in part from time to
time, together with accrued interest on the amount prepaid, and together
with a prepayment fee calculated as follows:
Date of prepayment Prepayment fee (as a percent
(dates inclusive) of principal amount prepaid)
----------------- ----------------------------
On or before June 26, 2003 5%
June 27, 2003, through June 26, 2004 4%
June 27, 2004, through June 26, 2005 3%
June 27, 2005, through the day before the final maturity 2%
(d) Intercreditor Agreement. All payments made under this Section 8.4
shall be made in a manner which is in accordance with the terms of the
Intercreditor Agreement.
8.5 Event of Default.
(a) The occurrence of any of the following events shall constitute an
Event of Default hereunder and under the Notes: (i) the failure to make any
payment of principal, interest or prepayment fee hereunder or under the
Notes when the same shall be due and such failure continues for three (3)
business days after due date; (ii) the Company's failure to make any other
payment hereunder within ten (10) days after the Company receives a written
notice specifying the amount of such payment; (iii) the failure by the
Company or any Guarantor to observe and perform in all material respects
any of the covenants or agreements on its part to be observed or performed
under this Agreement, the Notes or any of the Security Documents and such
failure continues for thirty (30) business days after notice thereof by the
Collateral Agent or any Noteholder to the Company; (iv) any representation
or warranty made by the Company or any Guarantor herein or in any of the
other Transaction Documents shall not be true in all material respects on
and as of the date so made; (v) the dissolution or permanent termination of
business for any reason by the Company and its Subsidiaries taken as a
whole; (vi) acceleration of the maturity of any indebtedness of the Company
or any of its Subsidiaries for borrowed money in excess of $250,000 as a
result of a default thereunder; (vii) the bankruptcy, insolvency,
reorganization, receivership, arrangement or commencement or filing of
other similar proceedings by the Company or any Guarantor or against the
Company or any Guarantor which, if such proceeding shall be filed against
the Company or any Guarantor, shall not be discharged within ninety (90)
days after the filing thereof under any state or federal law or if the
Company shall not be paying, or shall admit in writing its inability to
pay, its debts as they shall become due, make an assignment for the benefit
of creditors or apply for, consent to or suffer the appointment of a
35
custodian, receiver or trustee for any part of its property or assets
provided, that with respect to any Guarantor which has assets the value of
which is less than $50,000, as measured by the higher of book value and
market value thereof, at such time, and to which no assets have been
transferred by the Company or other Guarantor at any time subsequent to the
Closing Date, the remedies provided the Collateral Agent in Section 13
hereof shall be solely with respect to such Guarantor and such Guarantor's
assets, so long as the liability or obligation owing by such Guarantor
which caused such proceeding to be commenced arose prior to the Closing
Date and neither the Company nor any Guarantor at any time prior to the
Closing Date had any knowledge thereof or is also in any manner and to any
extent responsible for such liability or obligation; (viii) the sale,
lease, transfer or other disposition, whether voluntary or involuntary, of
all or substantially all of the property or assets of the Company and its
Subsidiaries taken as a whole without adequate provision for the payment of
all sums due hereunder; (ix) final judgments against the Company and its
Subsidiaries in excess of $250,000 not covered by insurance, if not
discharged, annulled or stayed for thirty (30) days; or (ix) the issuance
of a writ, warrant, distraint or order of attachment or garnishment against
a material portion of the property or assets of the Company and its
Subsidiaries taken as a whole, if either (A) there is an imminent risk of
forfeiture or (B) it remains undischarged or unstayed for thirty (30) days.
(b) Subject to the provisions of the Intercreditor Agreement, upon the
happening of an Event of Default, a Noteholder may declare the entire
unpaid principal balance under all Notes held by it immediately due and
payable, without any further notice, demand or presentment, and may
exercise, without any further notice, demand or presentment, any of its
rights hereunder. In the event that any Noteholder shall exercise or
endeavor to exercise any of its remedies hereunder, the Company shall pay
on demand all reasonable costs and expenses incurred in connection
therewith, including, without limitation, reasonable attorney's fees
actually incurred, and the Noteholder may take judgment for all such
amounts in addition to all other sums due hereunder. In addition to the
foregoing and any other rights and remedies provided at law or in equity,
in the event of an occurrence of an Event of Default, the Collateral Agent
and each Noteholder may, subject to the terms of the Intercreditor
Agreement, forthwith exercise singly, concurrently, successively or
otherwise any and all rights and remedies available to them by law, equity,
hereunder or otherwise.
(c) The Company shall promptly give notice to the Collateral Agent,
each Noteholder, and the Senior Lender of the occurrence of any default or
any event which would be or become a default if any requirement for the
giving of notice, the lapse of time, or both, or any other condition has
been satisfied, accompanied by a statement of a senior financial officer of
the Company setting forth the details of the occurrence referred to therein
and stating what action the Company proposes to take with respect thereto.
9. COLLATERAL AGENT.
9.1 Appointment of Collateral Agent. The Purchaser hereby appoints Eureka
I, L.P. to act as Collateral Agent and Eureka I, L.P. agrees to act as
Collateral Agent for the Purchaser and Noteholders, from time to time, as
contemplated herein and in the Transaction Documents. Acceptance of any Note by
a Person shall constitute such appointment and acceptance of the Collateral
Agent by such Person.
36
9.2 Collateral Agent Authorized to Enter into Transaction Documents. The
Purchaser authorizes the Collateral Agent to enter into the Transaction
Documents on its behalf.
9.3 Amendment to Transaction Documents. The Required Noteholders shall have
the right to direct the Collateral Agent, from time to time, to consent to any
amendment, modification or supplement to or waiver of any provision of any
Transaction Document and to release any Collateral from any lien or security
interest held by the Collateral Agent; provided, however, that (i) no such
direction shall require the Collateral Agent to consent to the modification of
any provision or portion thereof which (in the sole judgment of the Collateral
Agent) is intended to benefit the Collateral Agent, (ii) the Collateral Agent
shall have the right to decline to follow any such direction if the Collateral
Agent shall determine in good faith that the directed action is not permitted by
the terms of any Transaction Document or may not lawfully be taken and (iii) no
such direction shall waive or modify any provision of any Transaction Document
the waiver or modification of which requires the consent of the Purchaser. The
Collateral Agent may rely on any such direction given to it by the Required
Noteholders and shall be fully protected in relying thereon, and shall under no
circumstances be liable to any holder of the Notes or Warrants or any other
Person for taking or refraining from taking action in accordance with any
direction or otherwise in accordance with any of the Transaction Documents.
9.4 Duties of Collateral Agent.
(a) The Collateral Agent shall have and may exercise such powers under
the Transaction Documents as are specifically delegated to the Collateral
Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. The Collateral Agent shall not have any
implied duties or any obligations to take any action under the Transaction
Documents except any action specifically provided by the Transaction
Documents to be taken by the Collateral Agent.
(b) Reliance on Instructions of Required Noteholders. The Collateral
Agent shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the written
instructions of the Required Noteholders and such instructions shall be
binding upon all Noteholders; provided that the Collateral Agent shall not
be required to take any action which the Collateral Agent in good faith
believes (i) could reasonably be expected to expose it to personal
liability, (ii) is contrary to applicable law or (iii) is contrary to the
terms of the Transaction Documents.
(c) Action Without Instructions After Event of Default. Absent written
instructions from the Required Noteholders at a time when an Event of
Default shall have occurred and be continuing, the Collateral Agent may,
subject to the terms of the Intercreditor Agreement, take, but shall have
no obligation to take, any and all actions under the Transaction Documents
or any of them or otherwise as it shall deem to be in the best interests of
the Noteholders; provided, however, that in the absence of written
37
instructions from the Required Noteholders, the Collateral Agent shall not
exercise remedies available to it under any Transaction Document with
respect to the Collateral or any part thereof (other than preserving,
collecting and protecting the Collateral and the proceeds thereof).
(d) Independent Right of Noteholders to Instruct Collateral Agent. The
right of each Noteholder to instruct the Collateral Agent is the separate
and individual property of such Noteholder and may be exercised as such
Noteholder sees fit in its sole discretion and with no liability to any
other Noteholder for the exercise or non-exercise thereof. Without limiting
the foregoing, neither the Collateral Agent nor the Required Noteholders
shall be liable under any circumstances to any other Noteholder for any
action taken or omitted to be taken hereunder by the Collateral Agent upon
written instructions from the Required Noteholders.
(e) Relationship Between Collateral Agent and Noteholders. The
relationship between the Collateral Agent and the Noteholders is and shall
be only to the extent explicitly provided for herein that of agent and
principal and nothing herein contained shall be construed to constitute the
Collateral Agent a trustee for any Noteholder or to impose on the
Collateral Agent duties and obligations other than those expressly provided
for herein. Without limiting the generality of the foregoing, neither the
Collateral Agent, any of its direct or indirect owners, nor any of the
directors, officers, employees or agents of any of them shall:
(i) be responsible to any Noteholder for any recitals,
representations or warranties contained in, or for the execution,
validity, genuineness, perfection, effectiveness or enforceability of,
the Transaction Documents (it being expressly understood that any
determination of the foregoing is the responsibility of each
Noteholder),
(ii) be responsible to any Noteholder for the validity,
genuineness, perfection, effectiveness, enforceability, existence,
value or enforcement of any security interest in the Collateral,
(iii) be under any duty to inquire into or pass upon any of the
foregoing matters, or to make any inquiry concerning the performance
by any Person of its or their obligations under any Transaction
Document,
(iv) be deemed to have knowledge of the occurrence of a default
or an Event of Default, unless it shall have received written notice
thereof from either a Noteholder or the Company,
(v) be responsible or liable for any shortage, discrepancy,
damage, loss or destruction of any part of the Collateral wherever the
same may be located regardless of the cause thereof unless the same
shall happen solely through the gross negligence or willful misconduct
of the Collateral Agent as shall have been determined in a final
nonappealable judgment of a court of competent jurisdiction,
(vi) have any liability for any error or omission or action or
failure to act of any kind made in the settlement, collection or
payment in connection with any of the Transaction Documents or any of
the Collateral or any instrument received in payment therefor or for
any damage resulting therefrom other than as a sole result of its own
gross negligence or willful misconduct as shall have been determined
in a final nonappealable judgment of a court of competent
jurisdiction,
38
(vii) in any event, be liable as such for any action taken or
omitted by it, absent, in each case described in this paragraph, its
gross negligence or willful misconduct as shall have been determined
in a final nonappealable judgment of a court of competent
jurisdiction.
(f) Standard of Care. The Purchaser agrees, and each Noteholder, by
acceptance of any Note, agrees, with the Collateral Agent that nothing
contained in any of the Transaction Documents shall be construed to give
rise to, nor shall any Noteholder have, any claims whatsoever against the
Collateral Agent on account of any act or omission to act in connection
with the exercise of any right or remedy of the Collateral Agent with
respect to the Transaction Documents or the Collateral in the absence of
gross negligence or willful misconduct of the Collateral Agent as shall
have been determined in a final nonappealable judgment of a court of
competent jurisdiction.
(g) Collateral In Possession of Collateral Agent. Except as otherwise
provided in the Intercreditor Agreement, the Collateral is to be held by
the Collateral Agent at such office as the Collateral Agent shall
determine. The Collateral Agent's books and records shall at all times show
that the Collateral is held by the Collateral Agent subject to the
Intercreditor Agreement and other Transaction Documents.
(h) Agents, Officers and Employees of Collateral Agent. The Collateral
Agent may execute any of its duties under the Transaction Documents by or
through its agents, officers or employees. Neither the Collateral Agent nor
any of its agents, officers or employees shall be liable for any action
taken or omitted to be taken by it or them in good faith, be responsible
for the consequence of any oversight or error of judgment or answerable for
any loss unless any of the foregoing shall happen through its or their
gross negligence or willful misconduct as shall have been determined in a
final nonappealable judgment of a court of competent jurisdiction.
(i) Appointment of Co-Agent. Whenever the Collateral Agent shall deem
it necessary or prudent in order either to conform to any law of any
jurisdiction in which all or any part of the Collateral shall be situated
or to make any claim or bring any suit with respect to the Collateral or
the Transaction Documents, or in the event that the Collateral Agent shall
have been requested to do so by the Required Noteholders, the Collateral
Agent shall execute and deliver a supplemental agreement and all other
instruments and agreements necessary or proper to constitute one or more
Persons approved by the Collateral Agent, either to act as co-agent or
co-agents with respect to all or any part of the Collateral or with respect
to the Transaction Documents, jointly with the Collateral Agent or any
successor or successors, or to act as separate agent or agents of any such
property, in any such case with such powers as may be provided in such
supplemental agreement, and to vest in such Persons as such co-agent or
separate agent, as the case may be, any property, title, fight or power of
the Collateral Agent deemed necessary or advisable by the Required
Noteholders or the Collateral Agent.
39
(j) Reliance on Certain Documents. The Collateral Agent shall be
entitled to rely on any communication, instrument or document believed by
it to be genuine and correct and to have been signed or sent by the proper
Person or Persons, and with respect to all legal matters shall be entitled
to rely on the advice of legal advisors selected by it concerning all
matters relating to the Transaction Documents and its duties hereunder and
thereunder and otherwise shall rely on such experts as it deems necessary
or desirable, and shall not be liable to the Purchaser, the Noteholders or
any other Person for the consequences of such reliance.
(k) Collateral Agent May Have Separate Relationship with the Company.
The Collateral Agent (or any Affiliate of the Collateral Agent) may,
notwithstanding the fact that it is the Collateral Agent, act as a lender
to the Company and accept deposits from, lend money to, and generally
engage in any kind of business with any such party in the same manner and
to the same effect as though it were not the Collateral Agent; and such
business shall not constitute a breach of any obligation of the Collateral
Agent to the Noteholders.
9.5 Indemnification of Collateral Agent. The Company (and, to the extent
that the Company fails to do so, each of the Noteholders ratably on the basis of
the respective principal amounts of the Notes outstanding at the time of the
occurrence giving rise to the below liabilities, losses, etc.), agrees to
indemnify the Collateral Agent for any and all liabilities, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever that may be imposed on, incurred by or asserted
against the Collateral Agent in its capacity as the Collateral Agent, in any way
relating to or arising out of the Transaction Documents or the transactions
contemplated hereby or thereby or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided that neither the Company nor
any Noteholder shall be liable for any of the foregoing to the extent they arise
from gross negligence or willful misconduct on the part of the Collateral Agent
as shall have been determined in a final nonappealable judgment of a court of
competent jurisdiction. This Section 9.5 shall survive the termination of this
Agreement.
9.6 Release of Collateral. Without further approval of the Noteholders, the
Collateral Agent shall release its Liens (i) on any Collateral that is sold or
otherwise transferred or disposed of by the Company or any Subsidiary in a
transaction that is not prohibited by this Agreement, and (ii) on all Collateral
if at any time Senior Indebtedness is outstanding and wholly unsecured.
10. FEES. The Company will pay, and hold the Purchaser, the Noteholders and the
Collateral Agent harmless against all liability for the payment of, (a) all
reasonable out-of-pocket costs and expenses (including reasonable legal fees and
expenses) actually incurred in connection with the enforcement of the rights of
the Purchaser, the Noteholders or the Collateral Agent under this Agreement, the
Notes, the Warrants and the other Transaction Documents; (b) the reasonable and
actual fees and disbursements of Drinker Xxxxxx & Xxxxx LLP, special counsel to
the Purchaser, for its services in connection with the preparation of this
Agreement and the other Transaction Documents, which fees and disbursements will
be paid by the Company at the Closing; and (c) all reasonable out-of-pocket
costs and expenses (including reasonable legal fees and expenses) actually
incurred in connection with any amendment or waiver of any of the Transaction
Documents, or any provision of any thereof.
40
11. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS, ETC. All
representations and warranties hereunder shall survive the Closing. All
statements contained in any certificate or other instrument delivered by the
Company or by an officer on behalf of the Company through the date hereof
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement shall constitute representations and warranties by the Company
under this Agreement. All agreements and covenants contained herein shall
survive the Closing.
12. INDEMNIFICATION. The Company shall indemnify, defend and hold the Purchaser,
the Noteholders and the Collateral Agent harmless against all liability, loss or
damage, together with all reasonable, out-of-pocket costs and expenses related
thereto actually incurred (including legal and accounting fees and expenses),
arising out of, or in any way related to or by reason of, this Agreement or any
other Transaction Document, or any transaction actually or proposed to be
financed in whole or in part or directly or indirectly with the proceeds of the
Notes and Warrants.
Without limiting the generality of the foregoing, the Company hereby
indemnifies and agrees to defend and hold harmless each of the Purchaser, the
Noteholders and the Collateral Agent, from and against any and all claims,
actions, causes of action, liabilities, penalties, fines, damages, judgments,
losses, suits, expenses, legal or administrative proceedings, interest, costs
and expenses (including court costs and reasonable attorneys', consultants' and
experts' fees) arising out of or in any way relating to: (i) the use, handling,
management, production, treatment, processing, storage, transfer,
transportation, disposal, release or threat of release of any Hazardous
Substance by or on behalf of, the Company or any of its Subsidiaries; (ii) the
presence of Hazardous Substances on, about, beneath or arising from the
Premises; (iii) the failure of the Company or its Subsidiaries or any occupant
of any Premises to comply with the Environmental Laws; (iv) the Company's breach
of any of the representations, warranties and covenants contained herein or in
any Transaction Document; (v) actions, proceedings or investigations by any
governmental authority or other Person; or (vi) the imposition or recording of a
lien against any Premises in connection with any release at, on or from any
Premises or any activities undertaken on or occurring at any Premises, or
arising from such Premises or pursuant to any Environmental Law.
Notwithstanding anything to the contrary in any Transaction Document, the
indemnities made by the Company or any Subsidiary of the Company shall not apply
to matters arising resulting from the gross negligence of willful misconduct of
an indemnified party.
13. REMEDIES. In case any Event of Default shall occur and be continuing, the
Required Noteholders (directly or through the Collateral Agent) may, subject to
the provisions of the Intercreditor Agreement, protect and enforce the rights of
the Noteholders either by suit in equity and/or by action at law, including, but
not limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained in
this Agreement. The Collateral Agent and any Noteholder acting pursuant to this
Section shall be indemnified against all liability, loss or damage, together
with all reasonable costs and expenses related thereto actually incurred
(including without limitation, legal and accounting fees and expenses).
41
14. PARTIES IN INTEREST. This Agreement may not be transferred or assigned by
the Company without the consent of the Required Noteholders, and it shall bind
and inure to the benefit of the Company, the Noteholders and their respective
successors and permitted assigns, provided that such assignee or transferee
shall execute a counterpart of the Intercreditor Agreement or a joinder
agreement thereto, thereby agreeing to be bound thereby.
15. ENTIRE AGREEMENT. This Agreement and the other Transaction Documents contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
16. NOTICES. All notices, requests, consents and other communications hereunder
to any party shall be deemed to be sufficient if contained in a written
instrument delivered in person or duly sent by overnight courier, facsimile
transmission or registered or certified mail, return receipt requested, postage
prepaid, addressed to such party at the address set forth below or such other
address as may hereafter be designated in writing by the addressee to the other
parties:
(a) If to the Company, to:
Medical Technology Systems, Inc.
00000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx, President
and Chief Executive Officer
Facsimile: 000-000-0000
With a copy to:
Xxxxxxxxxx Xxxxxxxx LLP
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxx, Xx., Esq.
Facsimile: 000-000-0000
(b) If to the Purchaser or the Collateral Agent:
Eureka I, L.P.
000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxxxx X. Xxxxx
Facsimile: 000-000-0000
(c) If to any Noteholder, at its address shown in the
register maintained by the Company pursuant to
Section 8.4.
42
All such notices and communications shall be deemed to have been received in the
case of (a) facsimile transmission, on the date sent, (b) personal delivery, on
the date of such delivery, (c) overnight courier, on the first business day
following delivery to such courier and (d) mailing, on the fifth day after the
posting thereof.
17. CHANGES. Subject to the terms of the Intercreditor Agreement, the terms and
provisions of this Agreement may be modified or amended, or any of the
provisions hereof waived, temporarily or permanently, only with the written
consent of the Company and the Required Noteholders; provided that no such
amendment or waiver shall, unless signed by each Noteholder affected thereby,
(i) reduce the principal of or rate of interest on any Note held by such
Noteholder or (ii) postpone the maturity date fixed for the principal on any
Note held by such Noteholder; provided further no change in any provision
relating to the Collateral Agent shall be effective without the Collateral
Agent's written consent. No failure or delay on the part of any Noteholder to
insist on strict performance of the Company's obligations hereunder or to
exercise any remedy shall constitute a waiver of the Company's rights in that or
any other instance. Any waiver of any default or any instance of non-compliance
shall be limited to its express terms and shall not extend to any other default
or instance of non-compliance.
18. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
and each such counterpart hereof shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one agreement. A faxed
signature page shall be the functional equivalent of an original signed copy of
this Agreement for all purposes.
19. HEADINGS. The headings of the sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
conflict of laws.
21. SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
22. JURISDICTION. The parties hereto agree that any suit, action or proceeding
instituted against one or more of them with respect to this Agreement (including
any exhibits hereto) may be brought in any federal or state court located in the
Commonwealth of Pennsylvania. The parties hereto, by the execution and delivery
of this Agreement, irrevocably waive any objection or any right of immunity on
the ground of venue, the convenience of the forum or the jurisdiction of such
courts, or from the execution of judgments resulting therefrom, and the parties
hereto irrevocably accept and submit to the jurisdiction of the aforesaid courts
in any suit, action or proceeding and consent to the service of process by
certified mail at the address set forth in Section 16 hereof.
43
23. WAIVER OF JURY TRIAL. Each of the parties hereto hereby waives any and all
right to trial by jury in any legal proceeding arising out of or relating to the
Transaction Documents or the Transaction Documents contemplated thereby.
-S-1-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their behalf.
MEDICAL TECHNOLOGY SYSTEMS, INC.
By: Xxxx X. Xxxxxx
____________________________
Name: Xxxx X. Xxxxxx
Title: President, CEO
EUREKA I, L.P., individually and as Collateral Agent
By: EUREKA MANAGEMENT, L.P.,
its sole general partner
By: BERWIND CAPITAL PARTNERS, LLC,
its sole general partner
By: /s/ Xxxxxxxxx X. Xxxxx
_______________________
Xxxxxxxxx X. Xxxxx,
President
EXHIBIT A
FORM OF NOTE
THIS NOTE IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF JUNE
26, 2002 IN FAVOR OF LASALLE BUSINESS CREDIT, INC., WHICH SUBORDINATION
AGREEMENT IS INCORPORATED HEREIN BY REFERENCE. NOTWITHSTANDING ANY CONTRARY
STATEMENT CONTAINED HEREIN, NO PAYMENT ON ACCOUNT OF THE PRINCIPAL, INTEREST OR
OTHER OBLIGATIONS ARISING HEREUNDER, AND NO RIGHTS GRANTED HEREIN, SHALL BECOME
DUE OR BE PAID OR EXERCISED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH
SUBORDINATION AGREEMENT.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS SUCH
OFFER, SALE, PLEDGE OR TRANSFER IS REGISTERED UNDER THE 1933 ACT OR APPLICABLE
STATE SECURITIES LAWS OR IS EXEMPT FROM SUCH REGISTRATION. TRANSFER OF THESE
SECURITIES IS ALSO SUBJECT TO CERTAIN RESTRICTIONS UNDER THE SECURITIES PURCHASE
AGREEMENT DATED JUNE 26, 2002 BETWEEN THE COMPANY AND EUREKA I, L.P.
Medical Technology Systems, Inc.
14% SENIOR SUBORDINATED NOTE
Note No. _____ $__________
FOR VALUE RECEIVED, Medical Technology Systems, Inc., a Delaware
corporation (herein called the "Company"), hereby promises to pay to Eureka I,
L.P., or its registered assigns (the "Holder"), the principal sum of
____________ ($__________), and to pay interest on the unpaid principal amount
hereof at the rate of fourteen percent (14%) per annum, calculated on the basis
of a 360-day year and the actual number of days elapsed, until the principal
hereof is paid. The principal of and interest on this Note shall be paid at such
times as are specified herein. Upon surrender hereof, payment of the principal
of and interest on this Note, including any prepayment fee if applicable, will
be made by wire transfer of immediately available funds to the bank account
specified by the Holder.
This Note is issued pursuant to a Securities Purchase Agreement dated June
26, 2002 (the "Purchase Agreement") among the Company, Eureka I, L.P., a
Delaware limited partnership, and Eureka I, L.P., as Collateral Agent, and is
secured by the Security Documents, encumbering property identified therein as
more particularly described in the Security Documents. The term "Security
Documents" has the meaning specified in the Purchase Agreement. All of the
terms, conditions and provisions of the Purchase Agreement and the Security
2
Documents (including the definitions set forth therein) are incorporated herein
by reference and are hereby made a part hereof, and any breach or violation
thereof shall constitute a breach or violation of this Note. This Note is
subject to the terms of a Subordination Agreement referred to herein. This Note
is subject to the following additional provisions:
1. Repayment. The principal of this Note shall be paid on June 26, 2007.
2. Mandatory and Optional Prepayment. The rights and obligations of the
Company to prepay this Note are set forth in the Purchase Agreement.
3. Interest. Interest at the rate stated above shall be payable on the last
day of each calendar month, beginning with the first such date to occur after
the date of this Note.
4. Indemnification. The Company and its subsidiaries shall indemnify, to
the fullest extent permitted by law, the Holder against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees) caused
by, resulting from, arising out of or related to (a) any amendments, waivers or
consents pursuant to the provisions hereof, (b) the enforcement of this Note, or
the collection of amounts due hereunder or the proof or allowability of any
claim arising under this Note, whether in bankruptcy or receivership proceedings
or otherwise, and (c) in any workout, restructuring or in connection with the
protection, preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or in connection with any foreclosure, collection or
bankruptcy proceedings.
5. Subordination. The indebtedness evidenced by this Note is expressly
subordinated and junior in right of payment to the prior payment in full of all
Senior Debt (as defined below), to the extent and in the manner provided in a
Subordination Agreement dated as of June 26, 2002 (the "Subordination
Agreement"), among the Company, MTS Packaging Systems, Inc., Eureka I, L.P., and
LaSalle Business Credit, Inc., and the Holder, by accepting the same, agrees to
and shall be bound by such subordination and by the Subordination Agreement. The
term "Senior Debt" has the meaning specified in the Subordination Agreement.
6. Amendment and Waiver. The rights and obligations of the Company and the
rights of the Holder of the Note may be amended or modified as provided in the
Purchase Agreement. Defaults and their consequences may be waived as provided in
the Purchase Agreement. Any such consent or waiver shall be conclusive and
binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof, whether or not notation of such consent or waiver is made upon
this Note.
7. Transfer. Subject to certain limitations set forth in the Purchase
Agreement, the transfer of this Note may be transferred at the principal office
of the Company by surrender thereof for cancellation, endorsed or accompanied by
a written instrument of transfer, duly executed by the registered holder thereof
or its attorney duly authorized in writing, and thereupon the Company shall
issue and deliver, in the name of the transferee or transferees, a new note, for
a like aggregate principal amount, dated as of the date to which interest has
been paid on the Note so transferred.
3
8. Exchange. Subject to certain limitations set forth in the Purchase
Agreement, this Note is exchangeable at any time upon the request of the Holder
and upon surrender of this Note for such purpose at the principal offices of the
Company, the Company will execute and register in the Holder's name in exchange
therefor new notes, in such denomination or denominations (in minimum amounts of
$100,000 and in multiples of $10,000) as may be requested, an aggregate
principal amount equal to the unpaid principal amount of this Note and
substantially in the form thereof, with appropriate insertions and variations,
and dated, and bearing interest from, the date to which interest has been paid
on this Note unless no interest has been paid on this Note, in which case the
new notes shall be dated the date of this Note.
9. Default Rate. Upon the occurrence and during the continuance of an Event
of Default (as defined in Section 8.5 of the Purchase Agreement), including, but
not limited to, after maturity or after judgment, the Company hereby agrees to
pay to the Holder interest on the outstanding principal balance of the Note and,
to the extent permitted by law, overdue interest thereon at the rate of 16% per
annum.
10. Certain Waivers. The Company hereby waives presentment for payment,
protest and demand, and notice of protest, demand and/or dishonor and nonpayment
of this Note, notice of any default under this Note, except as specifically
provided herein, and all other notices or demands otherwise required by law that
the undersigned may lawfully waive. The Company expressly agrees that this Note,
or any payment hereunder, may be extended from time to time, without in any way
affecting the liability of the Company.
11. Governing Law; Jurisdiction; Waiver of Jury Trial. This Note shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to conflict of laws. The Company and the Holder
hereby agree that any action or proceeding arising out of this Note may be
commenced in state or federal court within the Commonwealth of Pennsylvania. The
Company and the Holder waive personal service of process and agree that a
summons and complaint commencing an action or proceeding in any such court shall
be properly served and shall confer personal jurisdiction if served by
registered or certified mail in accordance with the notice provisions set forth
herein. The Company and the Holder hereby waive any and all right to trial by
jury in any legal proceeding arising out of or relating to this Note.
12. Severability. In the event that for any reason one or more of the
provisions of this Note or their application to any person or circumstance shall
be held to be invalid, illegal or unenforceable in any respect or to any extent,
such provisions shall nevertheless remain valid, legal and enforceable in all
such other respects and to such extent as may be permissible. In addition, any
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Note, but this Note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Notice. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or duly sent by overnight courier,
facsimile transmission or registered or certified mail, return receipt
requested, postage prepaid, addressed to such party at the address set forth
below or such other address as may hereafter be designated in writing by the
addressee to the other parties:
4
Company: Medical Technology Systems, Inc.
00000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx, President
and Chief Executive Officer
Fax: 000-000-0000
5
With copies to: Xxxxxxxxxx Xxxxxxxx LLP
000 X. Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxx, Xx., Esq.
Fax: 000-000-0000
Holder: At the address specified in the Purchase Agreement,
or otherwise in writing by the Holder
All such notices and communications shall be deemed to have been received in the
case of (a) facsimile transmission, on the date sent, (b) personal delivery, on
the date of such delivery, (c) overnight courier, on the first business day
following delivery to such courier and (d) mailing, on the fifth day after the
posting thereof.
Prior to due presentment of this Note for registration of transfer, the
Company and any agent of the Company may treat the Person in whose name this
Note is registered as the owner hereof for all purposes, whether or not this
Note be overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
S-1
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed.
MEDICAL TECHNOLOGY SYSTEMS, INC.
By: __________________________________
Name:
Title:
Attest:_________________
Secretary
Dated:
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated June ____, 2002, between MEDICAL
TECHNOLOGY SYSTEMS, INC., a Delaware corporation (the "Company"), and EUREKA I,
L.P., a Delaware limited partnership ("Purchaser").
Pursuant to a Securities Purchase Agreement dated the date hereof (the
"Purchase Agreement"), Purchaser has agreed to purchase, subject to certain
conditions, the Notes, the Warrants and Preferred Shares (as hereinafter
defined). It is a condition to the Purchaser's obligation to complete the First
Closing (as defined in the Purchase Agreement) that the Company execute and
deliver this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and in the Purchase Agreement, and intending to be legally bound, the parties
agree as follows.
1. Certain Definitions. As used in this Agreement, the following terms have
the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $0.01 par value per share, of the
Company.
"Conversion Shares" mean shares of Common Stock issued upon conversion of
the Preferred Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect from time to time.
"Intercreditor Agreement" means the Subordination Agreement of even date
herewith among LaSalle Business Credit, Inc., the Purchaser, the Company and MTS
Packaging Systems, Inc., as in effect from time to time.
"Permitted Liens" has the meaning set forth in the Purchase Agreement.
"Preferred Shares" means the shares of Series A Preferred Stock issued
under the Series A Stock Purchase Agreement at the First Closing.
"Registration Expenses" means the expenses so described in Section 6.
2
"Restricted Stock" means the Warrant Shares, Conversion Shares, and any
additional shares of Common Stock issued or delivered pursuant to Section 11,
excluding Warrant Shares and Conversion Shares which shall have (a) been
registered under the Securities Act pursuant to an effective registration
statement filed thereunder and disposed of in accordance with the registration
statement covering them, or (b) been publicly sold pursuant to Rule 144 under
the Securities Act. When this Agreement refers to a number or percentage of the
Restricted Stock the number or percentage shall be calculated as a number or
percentage of Warrant Shares and Conversion Shares on the assumption that all
Warrants and Preferred Shares are exercised and all Warrant Shares and
Conversion Shares are issued.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, all as the same
shall be in effect from time to time.
"Selling Expenses" means the expenses so described in Section 6.
"Series A Preferred Stock" means the Series A Convertible Participating
Preferred Stock, par value $0.0001 per share, of the Company.
"Warrant Agreement" means the Warrant Agreement dated the date hereof among
the Purchaser and the Company, executed and delivered pursuant to the Purchase
Agreement, as the same may be amended, modified, supplemented or restated from
time to time pursuant to the terms thereof.
"Warrants" means the warrants to purchase 566,517 shares of Common Stock
issued pursuant to the Warrant Agreement, as adjusted from time to time pursuant
to the Warrant Agreement.
"Warrant Shares" means the shares of Common Stock issued upon exercise of
the Warrants.
2. Required Registration.
(a) At any time, one or more holders of Restricted Stock may request the
Company to register under the Securities Act all or any portion of the shares of
Restricted Stock held by such requesting holder or holders for sale in the
manner specified in such notice, but only if the request is made by the holders
of Restricted Stock constituting at least 50% of the number of shares of
Restricted Stock outstanding at the time the request is made.
Notwithstanding anything to the contrary contained herein, no request may
be made under this Section within 180 days after the effective date of a
registration statement filed by the Company covering a firm commitment
underwritten public offering in which the holders of Restricted Stock shall have
been entitled to join pursuant to Section 3 and in which all shares of
Restricted Stock as to which registration shall have been requested shall have
been effectively registered and sold.
3
(b) Following receipt of any notice under this Section, the Company shall
immediately notify all holders of Restricted Stock from whom notice has not been
received and shall use commercially reasonable efforts to register under the
Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within 15 days after the giving of such notice by the
Company). If such method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of Restricted Stock to be sold
in such offering may designate the managing underwriter of such offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld or delayed. The Company shall be obligated to register Restricted Stock
pursuant to this Section on two occasions only, but such obligation shall be
deemed satisfied only when a registration statement covering all shares of
Restricted Stock specified in notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting holders,
shall have become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall have been sold
pursuant thereto.
(c) No person other than the Company, its officers, directors, or other
stockholders entitled to registration rights under the circumstances shall be
entitled to include any securities in any registration statement requested under
this Section without the consent of the holders of a majority of the Restricted
Stock included in the registration statement, which consent shall not be
unreasonably withheld. The Company, its officers, directors, or other
stockholders entitled to registration rights under the circumstances shall be
entitled to include in any registration statement referred to in this Section,
for sale in accordance with the method of disposition specified by the
requesting holders, shares of Common Stock to be sold by the Company or by its
officers, directors, or other stockholders entitled to registration rights under
the circumstances for its or their own account, except to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), confirmed in writing to the Company and the
holders requesting inclusion of Restricted Stock in the registration and the
underwriting, such inclusion would adversely affect the marketing of the
Restricted Stock to be sold. In such event, the number of shares of Common Stock
to be registered on behalf of the Company or its officers, directors, and other
holders entitled to registration rights under the circumstances, if any, shall
be computed as set forth in subsection (d). Except for registration statements
on Form X-0, X-0 or any successor thereto, the Company will not file with the
Commission any other registration statement with respect to its Common Stock,
whether for its own account or that of other stockholders, from the date of
receipt of a notice from requesting holders pursuant to this Section 2 until the
completion of the period of distribution of the registration contemplated
thereby.
(d) Whenever a registration requested pursuant to this Section is for an
underwritten public offering, only shares of Common Stock which are to be
included in the underwriting may be included in the registration.
Notwithstanding the provisions of subsections (b) and (c), if the managing
underwriter determines that marketing factors require a limitation of the total
number of shares of Common Stock to be underwritten or a limitation of the total
number of shares of Common Stock to be sold by the Company or its officers or
directors or other stockholders entitled to registration rights under the
circumstances, then the number of shares to be included in the registration and
the underwriting shall first be allocated among all holders who indicated to the
4
Company their decision to distribute any of their Restricted Stock through
such underwriting, in proportion, as nearly as practicable, to the respective
number of shares of Restricted Stock requested to be included in the
registration and the underwriting by such holders, then the remainder, if any,
to the Company or its officers or directors or other stockholders entitled to
registration rights under the circumstances, in proportion, as nearly as
practicable, to the respective number of shares of Common Stock requested to be
included in the registration and the underwriting by the Company or its officers
or directors or other stockholders entitled to registration rights under the
circumstances. No stock excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such registration. If
the Company or its officers or directors or other stockholders entitled to
registration rights under the circumstances, as the case may be, determines not
to participate in any such underwriting, it, he or she may elect to withdraw
therefrom by written notice, within five (5) days of notice to the Company of
the managing underwriter's marketing limitation, to the holders of Restricted
Stock and the underwriter. The securities so withdrawn from such underwriting
shall also be withdrawn from such registration.
3. Incidental Registration.
(a) If the Company, at any time (other than pursuant to Section 2 or
Section 4) proposes to register any of its securities under the Securities Act
for sale to the public, whether for its own account or for the account of other
security holders or both (except with respect to registration statements on
Forms X-0, X-0 or their respective successors or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give written notice to all holders of outstanding Restricted Stock of its
intention so to do. Upon the written request of any such holder, received by the
Company within 15 days after the giving of any such notice by the Company, to
register any of its Restricted Stock (which request shall state the intended
method of disposition thereof), the Company will cause the Restricted Stock as
to which registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent requisite to permit the sale or other disposition
by the holder (in accordance with its written request) of such Restricted Stock
so registered.
(b) In the event that any registration pursuant to this Section shall be,
in whole or in part, an underwritten public offering of Common Stock for the
account of the Company and the managing underwriter shall be of the opinion,
confirmed in writing to the Company and the holders requesting inclusion of
Restricted Stock in the registration and the underwriting, that the inclusion in
such offering of all shares of Common Stock proposed to be included by the
Company, the holders of Restricted Stock and other holders of Common Stock
(whether or not pursuant to registration rights) would adversely affect the
marketing of the securities to be sold by the Company therein, then the number
of shares of Common Stock to be included in the registration and the offering
shall be reduced as follows:
(1) first, the number of shares proposed to be included by persons other
than the Company and the holders of Restricted Stock shall be reduced
in accordance with the agreements, if any, that entitle them to
include shares in the registration, and otherwise as determined by the
Company, and
5
(2) second, the number of shares requested to be included and the holders
of Restricted Stock shall be reduced pro rata among all such holders
in accordance with the number of shares requested to be included by
each.
No stock so excluded from the underwriting shall be included in the
registration.
(c) Notwithstanding the foregoing provisions, the Company shall have the
right to withdraw any registration statement referred to in this Section at any
time without thereby incurring any liability to the holders of Restricted Stock.
(d) The Company shall have the right to select the underwriters in the case
of any registration pursuant to this Section 3 in its sole discretion.
4. Registration on Form S-3. If at any time (i) a holder or holders of
Restricted Stock request that the Company file a registration statement on Form
S-3 or any successor thereto for a public offering of all or any portion of the
shares of Restricted Stock held by such requesting holder or holders, and (ii)
the Company is a registrant entitled to use Form S-3 or any successor thereto to
register such shares, then the Company shall use commercially reasonable efforts
to register under the Securities Act on Form S-3 or any successor thereto, for
public sale in accordance with the method of disposition specified in such
notice, the number of shares of Restricted Stock specified in such notice.
Whenever the Company is required by this Section to use commercially reasonable
efforts to effect the registration of Restricted Stock, each of the procedures
and requirements of Section 2 (including but not limited to the requirement that
the Company notify all holders of Restricted Stock from whom notice has not been
received and provide them with the opportunity to participate in the offering)
shall apply to such registration, except that there shall be no limitation on
the number of registrations on Form S-3 which may be requested and obtained
under this Section, and the percentage requirement contained in the first
sentence of Section 2(a) shall not apply to any registration on Form S-3 which
may be requested and obtained under this Section. Notwithstanding anything to
the contrary contained herein, no request may be made under this Section (a)
within 180 days after the effective date of a registration statement filed by
the Company covering a firm commitment underwritten public offering in which the
holders of Restricted Stock shall have been entitled to join pursuant to Section
3 and in which all shares of Restricted Stock as to which registration shall
have been requested shall have been registered and sold, or (b) for the
registration of less than all the then outstanding shares of Restricted Stock
unless the request covers shares of Restricted Stock having an aggregate market
value of $2,000,000 or more, based on the closing price of the Common Stock on
the trading day before the request is made.
5. Registration Procedures.
(a) If and whenever the Company is required by the provisions of Section 2,
3 or 4 to use commercially reasonable efforts to effect the registration of any
shares of Restricted Stock under the Securities Act, the Company will, as
expeditiously as possible:
(1) prepare and file with the Commission a registration statement (which,
in the case of an underwritten public offering pursuant to Section 2,
shall be on Form S-1 or other form of general applicability
6
satisfactory to the managing underwriter selected as therein provided)
with respect to such securities and use commercially reasonable
efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby
(determined as hereinafter provided);
(2) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (1) and comply with
the provisions of the Securities Act with respect to the disposition
of all Restricted Stock covered by such registration statement in
accordance with the sellers' intended method of disposition set forth
in such registration statement for such period;
(3) furnish to each seller of Restricted Stock and to each underwriter
such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale
or other disposition of the Restricted Stock covered by such
registration statement;
(4) use commercially reasonable efforts to register or qualify the
Restricted Stock covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Restricted Stock or, in the case of an underwritten public offering,
the managing underwriter reasonably shall request, but the Company
shall not for any such purpose be required (A) to qualify generally to
transact business as a foreign corporation in any jurisdiction where
it is not so qualified; (B) to consent to general service of process
in any such jurisdiction; or (C) to subject itself to any material tax
in any such jurisdiction where it is not then so subject.
(5) use commercially reasonable efforts to list the Restricted Stock
covered by such registration statement on any securities exchange or
inter-dealer quotation system on which the Common Stock of the Company
is then listed;
(6) immediately notify each seller of Restricted Stock and each
underwriter under 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 of which the Company has
knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(7) if the offering is underwritten and any seller of Restricted Stock or
any underwriter so requests, use commercially reasonable efforts to
furnish on the date that Restricted Stock is delivered to the
underwriters for sale pursuant to such registration: (i) an opinion
dated such date of counsel representing the Company for the purposes
of such registration, addressed to the underwriters and to such
seller, in form reasonably satisfactory to them, covering such matters
7
of the type customarily covered by opinions as the underwriters or
such seller may reasonably request; and (ii) a "comfort letter" dated
such date from the independent public accountants retained by the
Company, addressed to the underwriters and to such seller, in
customary form and covering such matters of the type customarily
covered by comfort letters as the underwriter or such seller may
reasonably request; and
(8) make available for inspection by each seller of Restricted Stock, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply
all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement.
As used in Section 5, the term "underwriter" does not include any seller of
Restricted Stock.
(b) For purposes of subsection (a)(1) and (2) and of Section 2(c), the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, but not to exceed 30 days,
and the period of distribution of Restricted Stock in any other registration
shall be deemed to extend until the earlier of the sale of all Restricted Stock
covered thereby or 90 days after the effective date thereof.
(c) Notwithstanding the foregoing provisions of subsection (a), the Company
shall not be obligated to effect the filing of a registration statement under
subsection (a), (1) during the period starting with the date 30 days prior to
the Company's good faith estimate of the date of filing of, and ending on the
date 90 days following the effective date of, a registration statement
pertaining to an underwritten public offering of securities for the account of
the Company, provided the Company is at all times during such period diligently
pursuing such registration, or (2) if the Company shall furnish to the Purchaser
requesting a registration statement pursuant to subsection (a) (or under any
other relevant section of this Agreement) a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would not be in the best interests of the Company and its
shareholders generally for such registration statement to be filed. Under clause
(2), the Company shall have the right to defer such filing for a period of not
more than 90 days after receipt of the request for a registration under
subsection (a); provided, however, that the Company may not utilize the right
set forth in clause (2) until 90 days after the termination of any earlier
period during which it shall have deferred filing a registration statement
pursuant to clause (2).
(d) In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as shall be
necessary in order to assure compliance with federal and applicable state
securities laws. Each holder of Restricted Stock as to which any registration is
being effected agrees to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by such holder to the
Company or of the happening of any event as a result of which any prospectus
relating to such registration contains an untrue statement of a material fact
8
regarding such holder or the distribution of such Restricted Stock or omits to
state any material fact regarding such holder or the distribution of such
Restricted Stock required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and to promptly furnish to the Company any additional
information required to correct and update any previously furnished information
or required so that such prospectus shall not, with respect to such holder or
the distribution of such Restricted Stock, contain 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, in light of the circumstances under
which they were made, not misleading.
(e) In connection with each registration pursuant to Sections 2, 3 or 4
covering an underwritten public offering, the Company and each seller agree to
enter into a written underwriting agreement with the underwriters selected in
the manner herein provided, in such form and containing such provisions as are
customary in the securities business for such an underwriting agreement between
such underwriters and companies of the Company's size and investment stature.
(f) If the Company provides notice pursuant to subsection (a)(6), each
seller of Restricted Stock agrees to stop all offers and sales of Restricted
Stock until the prospectus contained in any registration statement has been
supplemented or amended, as the case may be, so as to correct any untrue
statements or add information relating to any omissions. The Company will effect
such supplement or amendment as promptly as reasonably practicable.
6. Expenses. All expenses incurred by the Company in complying with
Sections 2, 3 and 4, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of insurance and fees and
disbursements of one counsel (up to maximum aggregate counsel fees and
disbursements per registration of $50,000) for the sellers of Restricted Stock,
but excluding any Selling Expenses, are called "Registration Expenses." All fees
and disbursements of counsel for the sellers of Restricted Stock in excess of
$50,000 (as adjusted herein) for one counsel and all underwriting discounts,
brokerage fees and selling commissions applicable to the sale of Restricted
Stock are called "Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 2, 3 or 4. All Selling Expenses in
connection with each registration statement under Sections 2, 3 or 4 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
7. Indemnification and Contribution.
(a) In the event of a registration of any of the Restricted Stock under the
Securities Act pursuant to Sections 2, 3 or 4, the Company will indemnify and
hold harmless each seller of such Restricted Stock thereunder, each underwriter
9
of such Restricted Stock thereunder and each other person, if any, who controls
such seller or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock is registered under the Securities Act
pursuant to Sections 2, 3 or 4, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the 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 each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, but the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing by
any such seller, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus, or (ii) any
failure by an underwriter, or a person controlling such underwriter, to give a
final prospectus to the person claiming an untrue statement or omission, if such
statement or omission appeared in or was omitted from a preliminary prospectus
and was corrected in the final prospectus.
(b) In the event of a registration of any of the Restricted Stock under the
Securities Act pursuant to Sections 2, 3 or 4, each seller of such Restricted
Stock thereunder, severally and not jointly, will indemnify and hold harmless
the Company, each person, if any, who controls the Company within the meaning of
the Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Restricted Stock is registered
under the Securities Act pursuant to Sections 2, 3 or 4, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the 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 arise out of the failure of such
holder of Restricted Stock to deliver a prospectus to any purchaser of
Restricted Stock from such holder, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, but only if and
only to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, or
10
from such holder's failure to deliver a prospectus. The liability of each seller
hereunder shall be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the public offering
price of the shares sold by such seller under such registration statement bears
to the total public offering price of all securities sold thereunder, but not in
any event to exceed the net proceeds received by such seller from the sale of
Restricted Stock covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section and shall relieve it from
any liability which it may have to such indemnified party under this Section
only if and to the extent the indemnifying party is prejudiced by such omission.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, but if the
interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the right
to select a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party. The indemnifying party shall not, in
connection with any proceeding or related proceeding, be liable for the fees and
expenses of more than one separate firm (plus one firm of local counsel in each
jurisdiction in which an action is brought). The indemnified party shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
indemnified party that relates to such action or claim. The indemnifying party
shall keep the indemnified party fully apprised at all times as to the status of
the defense or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. If the indemnifying party does not
assume such defense, the indemnified party shall keep the indemnifying party
apprised at all times as is reasonably practicable as to the status of the
defense; provided, however, that the failure to keep the indemnifying party so
informed shall not affect the obligations of the indemnifying party hereunder.
No indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its written consent; provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the consent of the indemnified
party (not to be unreasonably withheld), consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
11
the giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation or that requires the
indemnified party to take any future action (other than the payment of money
that the indemnifying party pays under this section) or refrain from taking any
future action.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this
Section; then, and in each such case, the Company and such holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that such
holder is responsible for the portion represented by the percentage that the
public offering price of its Restricted Stock offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; but in any such case, (A) no such holder will be required to contribute
any amount in excess of the public offering price of all such Restricted Stock
offered by it pursuant to such registration statement; and (B) no person or
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
8. Changes in Common Stock or Preferred Stock. If, and as often as, there
is any change in the Common Stock or the Series A Preferred Stock by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock as so changed.
9. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
when the Company is subject to the reporting requirements of the Exchange Act,
the Company agrees to furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 under the Securities Act and of the 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 Restricted Stock without
registration.
10. Representations and Warranties of the Company. The Company represents
and warrants to the Purchaser as follows:
12
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the certificate of incorporation or by-laws of the Company or any
provision of any material indenture, agreement or other instrument to which it
or any or its properties or assets is bound, conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms (subject to equitable principles and to applicable
bankruptcy, reorganization, insolvency, fraudulent conveyance and transfer,
moratorium and other similar laws affecting the enforceability of creditors'
rights generally and to applicable restrictions on the enforceability of
indemnification and contribution).
11. Make-Whole Provision.
(a) Subject to the terms of the Intercreditor Agreement, if a holder of
Preferred Shares converts them to Common Stock at any time, or a holder of
Warrants exercises them after the earlier of the prepayment in full or final
maturity of the Notes, and, in either case, such holder sells the Conversion
Shares or the Warrant Shares under a registration statement filed by the Company
pursuant to this Agreement at an average price per share (the "Average Sale
Price") less than the average of the closing price per share of the Company's
Common Stock for five trading days prior to the date of conversion of such
Preferred Shares or the exercise of such Warrants (the "Exercise Date Market
Price"), the Company will pay to such holder in cash an amount determined by
multiplying the number of shares of Common Stock so sold by the excess of the
Exercise Date Market Price over the Average Sale Price. In lieu of making such
payment in cash, the Company shall have the option of delivering to such holder
a number of shares of Common Stock determined by dividing the amount of cash
otherwise payable by the Average Sale Price.
(b) Subsection (a) will not apply to the Warrant Shares or Conversion
Shares if, following the sale of all of the Warrant Shares and Conversion Shares
at the actual sale prices therefor and the receipt of the proceeds thereof, the
Purchaser shall have achieved an Investment Multiple of 4.5. "Investment
Multiple" has the meaning given to that term in Section 11 of the Warrant
Agreement, except that proceeds not actually received shall not be deemed to
have been received.
(c) The number of shares of Common Stock that the Company shall be required
to issue pursuant to this Section shall not exceed 12,500,000 less the number of
Warrant Shares issuable on the exercise of Warrants issued pursuant to Section
11 of the Warrant Agreement.
13
(d) The Company will reserve sufficient shares of its Common Stock for
issuance pursuant to this Section. If for any reason the authorized but unissued
shares of Common Stock, together with shares of Common Stock held by the Company
in treasury or held by any subsidiary of the Company, are insufficient for the
Company to issue shares as required by this Section, the Company will use
commercially reasonable efforts to amend its certificate of incorporation to
increase its authorized Common Stock to an amount that is sufficient (it being
understood that failure to effect such amendment despite the Company's use of
commercially reasonable efforts will not constitute a violation of this
Agreement).
12. Miscellaneous.
(a) The rights of the Purchaser hereunder, including the right to have the
Company register for resale the shares of Restricted Stock in accordance with
the terms of this Agreement, shall be automatically assignable by the Purchaser
to any transferee of such Purchaser of all or a portion of the shares of the
Restricted Stock if: (i) the Purchaser agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (A) the name and address of such transferee or assignee, and
(B) the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the further
disposition of such securities by the transferee or assignees is restricted
under the Securities Act and applicable state securities laws, (iv) the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, (v) the transferee or assignee agrees to be
bound by all of the provisions of the Intercreditor Agreement and executes a
counterpart thereof or a joinder thereto, and (vi) such transfer shall have been
made in accordance with the applicable requirements of this Agreement and the
Purchase Agreement. The rights to assignment shall apply to the Purchaser and to
subsequent successors and permitted assigns. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and permitted assigns
of the parties hereto (but excluding any transferees of any Warrants, Preferred
Shares or Restricted Stock other than in compliance with the first sentence of
this subsection (a)), whether so expressed or not.
(b) All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person or duly sent by overnight courier, facsimile transmission or
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by the addressee to the other parties:
if to the Company or the Purchaser, at the address of such party set
forth in the Purchase Agreement;
if to any subsequent holder of Warrants, Preferred Shares or
Restricted Stock, to it at such address as may have been
furnished to the Company in writing by such holder.
14
All such notices and communications shall be deemed to have been received in the
case of (a) facsimile transmission, on the date sent, (b) personal delivery, on
the date of such delivery, (c) overnight courier, on the first business day
following delivery to such courier and (d) mailing, on the fifth day after the
posting thereof.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
(d) This Agreement, the Purchase Agreement and the other Transaction
Documents (as defined therein) constitute the entire agreement of the parties
with respect to the subject matter hereof and supersede and replace all prior
agreements and understanding concerning such subject matter. This Agreement may
be amended or modified, or any provision hereof may be waived, with the written
consent of the Company and the holders of a majority of the outstanding shares
of Restricted Stock, and not otherwise.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The obligations of the Company to register shares of Restricted Stock
under Sections 2, 3 or 4 shall terminate on the tenth anniversary of the date of
this Agreement.
(g) If requested in writing by the underwriters for an underwritten public
offering of securities of the Company, each holder of Restricted Stock who is a
party to this Agreement shall agree not to sell publicly any shares of
Restricted Stock or any other shares of Common Stock (other than shares of
Restricted Stock or other shares of Common Stock being registered in such
offering), without the consent of such underwriters, for a period of not more
than 180 days following the effective date of the registration statement
relating to such offering, but only if all persons entitled to registration
rights with respect to shares of Common Stock who are not parties to this
Agreement, all other persons selling shares of Common Stock in such offering,
and all executive officers and directors of the Company shall also have agreed
not to sell publicly their Common Stock under the circumstances and pursuant to
the terms set forth in this subsection.
(h) The Company shall not grant to any third party any registration rights
more favorable than or inconsistent with any of those contained herein, so long
as any of the registration rights under this Agreement remains in effect,
without the consent required by subsection (d).
(i) If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable, such illegality, invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render illegal,
invalid or unenforceable any other provision of this Agreement, and this
Agreement shall be carried out as if any such illegal, invalid or unenforceable
provision were not contained herein.
- S-1-
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
written above.
MEDICAL TECHNOLOGY SYSTEMS, INC.
By ___________________________________
Name:
Title:
EUREKA I, L.P.
By: EUREKA MANAGEMENT, L.P.,
its sole general partner
By: BERWIND CAPITAL PARTNERS, LLC,
its sole general partner
By:________________________________
EXHIBIT C
TERMS OF SERIES A PREFERRED STOCK
[to be included in amendment to certificate of incorporation or certificate
of designation]
1. Number of Shares. The series of Preferred Stock designated and known as
Series A Convertible Participating Preferred Stock (the "Series A Preferred
Stock") shall consist of 10,000 shares, plus any additional shares that may be
issued in payment of dividends on the Series A Preferred Stock in accordance
with Section 3.
2. Voting. Except as may be otherwise provided in these terms of the Series
A Preferred Stock or by law, the Series A Preferred Stock shall vote together
with all other classes and series of stock of the Corporation as a single class
on all actions to be taken by the stockholders of the Corporation, including,
but not limited to, actions amending the certificate of incorporation of the
Corporation to increase or decrease the number of authorized shares of Common
Stock. Each share of Series A Preferred Stock shall entitle the holder thereof
to such number of votes per share on each such action as shall equal the number
of shares of Common Stock (including fractions of a share) into which each share
of Preferred Stock is then convertible.
3. Dividends. Subject to the terms of the Intercreditor Agreement, the
holders of each outstanding share of the Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors, quarterly dividends, payable on the last day
of each March, June, September and December, beginning September 30, 2002, at
the rate per annum of $110.00 per share. Dividends shall accrue from day to day
from the date of issuance of each share of Series A Preferred Stock, whether or
not earned or declared, and shall be cumulative. Dividends shall be calculated
on the basis of a year of 360 days and the actual number of days elapsed. Each
dividend on the Series A Preferred Stock shall be paid in cash or, if the
Corporation shall so elect, in additional shares of Series A Preferred Stock
(including fractional shares to the third decimal place), with each share of
Series A Preferred Stock in which a dividend is being paid valued at $1,000 per
share.
4. Liquidation.
(a) Liquidation Preference. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
holders of shares of Series A Preferred Stock shall first be entitled to be
paid, before any distribution or payment is made upon the Common Stock or
any other class or series of capital stock ranking junior to the Series A
Preferred Stock as to participation in distributions on liquidation,
distribution or winding up ("Liquidation Junior Stock"), the greater of -
(1) $1,000 per share, plus all dividends accrued and unpaid at
the date of payment, whether or not declared, or
2
(2) the amount the holder of shares of Series A Preferred Stock
would have received had such holder converted such shares to Common
Stock immediately prior to such liquidation, distribution or winding
up of the Corporation.
If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series A Preferred Stock shall be insufficient to
permit payment in full to the holders of the Series A Preferred Stock of
the full amounts to which they are entitled, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the
holders of Series A Preferred Stock in proportion to the full amounts to
which they are entitled. Upon any such liquidation, dissolution or winding
up of the Corporation, after the holders of Series A Preferred Stock shall
have been paid in full the amounts to which they are entitled, the
remaining net assets of the Corporation available for distribution shall be
distributed among the holders of Liquidation Junior Stock (including the
Common Stock) according to the preferences and priorities applicable to
each.
(b) Notice. Written notice of such liquidation, dissolution or winding
up, stating a payment date, the amount of the payments to be made with
respect to each share of Series A Preferred Stock and the place where such
payments shall be payable, shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by
telecopier, not less than 20 days prior to the payment date stated therein,
to the holders of record of Series A Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the records of the
Corporation.
(c) Certain Transactions to Constitute Liquidation, etc. Unless
otherwise agreed to by the holders of a majority of the then outstanding
shares of Series A Preferred Stock, the following shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the
meaning of the provisions of this Section: (1) any consolidation or merger
of the Corporation into or with any other entity or entities (other than a
merger solely to reincorporate the Corporation in a different jurisdiction
or a merger with a Wholly-Owned Subsidiary of the Corporation); or (2) the
sale, lease, abandonment, transfer or other disposition by the Corporation
of all or substantially all of the assets of the Corporation and its
Subsidiaries (on a consolidated basis).
5. Restrictions. Except where the vote or written consent of the holders of
a greater number of shares of the Corporation is required by law or by the
Corporation's certificate of incorporation, and in addition to any other vote
required by law or the Corporation's certificate of incorporation, without the
approval of the holders of a majority of the then outstanding shares of Series A
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, the Corporation will not --
(a) Create or authorize the creation of any additional class or series
of shares of stock (other than stock that is Liquidation Junior Stock and
ranks junior to the Series A Preferred Stock as to the payment of dividends
("Dividend Junior Stock")) or increase the authorized amount of the Series
A Preferred Stock or increase the authorized amount of any additional class
or series of shares of stock (other than stock that is Liquidation Junior
Stock and Dividend Junior Stock, or create or authorize any obligation or
security convertible into shares of Series A Preferred Stock or into shares
of any other class or series of stock (other than stock that is Liquidation
Junior Stock and Dividend Junior Stock), whether any such creation,
authorization or increase shall be by means of amendment to the certificate
of incorporation or by merger, consolidation or otherwise.
3
(b) Create, incur or suffer to exist any indebtedness that (1) is
subordinated by its express terms to any other indebtedness of the
Corporation and (2) either (A) is a Convertible Security, or (B) is issued
with Options (whether or not detachable), or (C) has an equity feature. For
this purpose, indebtedness is not "subordinated" solely by reason of being
unsecured. This subsection (b) does not apply to the Corporation's 14%
Senior Subordinated Notes issued pursuant to the same Securities Purchase
Agreement pursuant to which the Series A Preferred Stock is issued.
(c) Consent to any liquidation, dissolution or winding up of the
Corporation, or consolidate or merge into or with any other entity or
entities or sell, lease, abandon, transfer or otherwise dispose of all or
substantially all its assets, or initiate any recapitalization,
reorganization or proceeding under any federal or state bankruptcy law or
similar law.
(d) Amend its certificate of incorporation or by-laws in any manner
that adversely affects the rights of the holders of Series A Preferred
Stock.
(e) Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock (other than the
Series A Preferred Stock), except for dividends or other distributions
payable on the Common Stock solely in the form of additional shares of
Common Stock, or permit any Subsidiary of the Corporation to do so.
(f) Redeem or otherwise acquire any shares of Series A Preferred
Stock, or permit any subsidiary of the Corporation to do so, except
pursuant to a purchase offer made pro rata to all holders of Series A
Preferred Stock on the basis of the aggregate number of outstanding shares
of Series A Preferred Stock then held by each such holder.
(g) Permit the Corporation's board of directors to have more or fewer
than five members; permit more than two of the Corporation's directors to
be officers or employees of the Corporation or any of its affiliates; or
permit the Corporation's board of directors not to have (1) an audit
committee, the composition of which complies with the rules of the Nasdaq
Stock Market, and (2) a compensation committee, a majority of the members
of which are not officers or employees of the Corporation or any of its
affiliates.
6. Reporting and Information Requirements.
(a) For so long as any of the Series A Preferred Stock is outstanding,
the Corporation will permit any representatives designated by the holders
of a majority of the outstanding shares of Series A Preferred Stock, during
normal business hours and upon reasonable notice to (1) visit and inspect
any of the properties of the Corporation and its Subsidiaries, (2) examine
the corporate and financial records of the Corporation and its Subsidiaries
and make copies thereof or extracts therefrom and (3) discuss the affairs,
4
finances and accounts of any such companies with the directors, officers,
key employees and independent accountants of the Corporation and its
Subsidiaries; provided, that in no event shall such inspection impede or
interrupt the normal business operations of the Corporation. The
Corporation will reimburse the holders of the Series A Preferred Stock for
their reasonable expenses (including travel) incurred under the preceding
sentence for not more than one such examination per year. The presentation
of an executed copy of these terms by the holders of a majority of the
outstanding shares of Series A Preferred Stock to the Corporation's
independent accountants will constitute the Corporation's permission to its
independent accountants to participate in discussions with such persons.
The holders of Series A Preferred Stock and their designated representative
shall maintain the confidentiality of any confidential and Proprietary
Information so obtained by them or obtained by any board observer which is
not otherwise available from other sources that are free from similar
restrictions; provided, however, that the foregoing shall in no way limit
or otherwise restrict the ability of the holders of Series A Preferred
Stock or such authorized representatives to disclose any such information
concerning the Corporation which they may be required to disclose (i) to
their partners to the extent required to satisfy their fiduciary
obligations to such persons (so long as the partners agree to be bound by
the confidentiality provisions hereof), or (ii) otherwise as required by
law. The holders of the Series A Preferred Stock (i) acknowledge that they
may, from time to time, be in possession of non-public information as a
result of the information regarding the Corporation granted to them
hereunder, and (ii) agree not to trade in the securities of the Corporation
while in possession of any material, non-public information in violation of
applicable law.
(b) For so long as any of the Series A Preferred Stock is outstanding,
the Corporation will furnish each Holder with the following:
(i) As soon as practicable, and in any case within thirty (30)
days after the end of each calendar month, the monthly management
reporting package in the form customarily prepared by the Corporation
from time to time, but minimally including (A) an unaudited balance
sheet as of the last day of such month, (B) an unaudited statement of
income for such month, together with a cumulative statement of income
from the first day of the then current fiscal year to the last day of
such month, and (C) a statement of cash flows for such month, and a
comparison between the actual figures for such month and the
comparable figures (with respect to clauses (A) and (B) only) for the
prior year period along with management commentary. The foregoing
financial statements shall be accompanied by an Officers' Certificate
to the effect that such statements fairly present in all material
respects the financial position and financial results of the
Corporation for the fiscal period covered, qualified by the fact that
the Corporation may need to make adjustments to the foregoing figures
as determined by the Corporation's auditors in accordance with
generally accepted accounting procedures.
(ii) As soon as practicable and in any event within 90 days after
the end of each fiscal year commencing with the fiscal year ending
March 31, 2002, an annual independent certified audit prepared by
nationally recognized certified public accountants.
5
(iii) Not later than the beginning of each fiscal year, an annual
operating plan with budget for the Corporation, including the
Corporation's capital budget, for the coming fiscal year.
(iv) Promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning
significant aspects of the Corporation's operations and financial
affairs given to the Corporation by its independent accountants (and
not otherwise contained in other materials provided pursuant to this
Section 7.2).
(v) Within fifteen days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Corporation sends to its shareholders
and/or lenders and copies of all registration statements and all
regular, special or periodic reports which it files, with the
Securities and Exchange Commission or with any securities exchange on
which any of its securities are then listed, and copies of all press
releases and other statements made available generally by the
Corporation to the public concerning material developments in the
Corporation's business.
(vi) From time to time upon request of any Holder, such other
information as the Corporation is required by law to furnish to any
stockholder on request.
(c) The holders of a majority of the outstanding Series A Preferred
Stock have the right (so long as the outstanding Series A Preferred Stock
represents at least one-half of the shares of Series A Preferred Stock
initially issued under the Purchase Agreement) to appoint one observer who
shall have the right to attend all meetings of the board of directors of
the Corporation and all committee meetings of such board; provided,
however, that, so long as the holders of the Series A Preferred Stock, the
Notes or the Warrants shall have the right to appoint such an observer, all
shall appoint the same observer, the identity of which will be determined
(i) by the requisite holders of the Notes until the principal and interest
of the Notes are repaid in full, (ii) thereafter, by the holders of a
majority of the outstanding Warrants, and (iii) thereafter, by the holders
of the majority of the issued and outstanding Series A Preferred Stock.
Notwithstanding anything to the contrary, the Corporation shall be entitled
to exclude such observer from any board discussions (and withhold any
related materials) materially affecting the relationship of the Corporation
or any of its Subsidiaries to any holder of Series A Preferred Stock, the
Warrants or the Notes.
(d) If for any period the Corporation shall have any Subsidiary or
Subsidiaries, then in respect of such period the financial statements
delivered pursuant to subsections (i) and (ii) of Section 6(b) shall
include consolidating (unaudited) and consolidated financial statements of
the Corporation and its Subsidiaries.
7. Conversion. The holders of shares of Series A Preferred Stock shall have
the following conversion rights:
6
(a) Right to Convert. Subject to the terms and conditions of this
Section, the holder of any share or shares of Series A Preferred Stock
shall have the right, at its option at any time, to convert any such shares
of Series A Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of
business on the business day fixed for payment of the amount distributable
on the Series A Preferred Stock) into the number of fully paid and
nonassessable shares of Common Stock equal to the quotient obtained by
dividing (i) the product obtained by multiplying the number of shares of
Series A Preferred Stock to be converted by $1,000 by (ii) $2.36 (such
amount, as adjusted from time to time pursuant to Section 8, being referred
to as the "Conversion Price"). Such right of conversion shall be exercised
by the holder thereof by giving written notice that the holder elects to
convert a stated number of shares of Series A Preferred Stock into Common
Stock and by surrender of a certificate or certificates for the shares so
to be converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Series A Preferred Stock) at any
time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with addresses) in which
the certificate or certificates for shares of Common Stock shall be issued.
(b) Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt of the written notice referred to in subsection (a) and
surrender of the certificate or certificates for the share or shares of
Series A Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in
such name or names as such holder may direct, a certificate or certificates
for the number of whole shares of Common Stock issuable upon the conversion
of such share or shares of Series A Preferred Stock. To the extent
permitted by law, such conversion shall be deemed to have been effected and
the Conversion Price shall be determined as of the close of business on the
date on which such written notice shall have been received by the
Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of
the holder of such share or shares of Series A Preferred Stock shall cease,
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.
(c) Fractional Shares; Dividends; Partial Conversion. The Corporation
shall not be required to issue fractional shares of Common Stock on
conversion of the Series A Preferred Stock, but it may elect to do so, and
if fractional shares are so issued, the Corporation need not carry the
fraction to more than three decimal places. In lieu of issuing fractions,
or smaller fractions, of a share, the Corporation may (subject to the
Intercreditor Agreement) pay the holder cash equal to the product of (1)
any fraction of a share of Common Stock otherwise issuable and (2) the
Market Price of a share of Common Stock. No payment or adjustment shall be
made upon any conversion on account of any cash dividends on the Common
Stock issued upon such conversion. In case the number of shares of Series A
Preferred Stock represented by the certificate or certificates surrendered
pursuant to subsection (a) exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or certificates for
the number of shares of such Series A Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted.
7
(d) Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series A Preferred Stock as
herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series A
Preferred Stock. The Corporation covenants that all shares of Common Stock
which shall be so issued shall be duly and validly issued and fully paid
and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value per share
of the Common Stock is at all times equal to or less than the Series A
Conversion Price in effect at the time. The Corporation will take all such
action as may be necessary to assure that all such shares of Common Stock
may be so issued without violation of any applicable law or regulation, or
of any requirement of any national securities exchange upon which the
Common Stock may be listed. The Corporation will not take any action which
results in any adjustment of the applicable Conversion Price if the total
number of shares of Common Stock issued and issuable after such action upon
conversion of the Series A Preferred Stock would exceed the total number of
shares of Common Stock then authorized by the certificate of incorporation,
as amended.
(e) No Reissuance of Preferred Stock. Shares of Series A Preferred
Stock which are converted into shares of Common Stock as provided herein
shall not be reissued.
(f) Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Series A Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that
the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A
Preferred Stock which is being converted.
(g) Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any
shares of Preferred Stock in any manner which interferes with the timely
conversion of such Series A Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.
(h) Mandatory Conversion. If at any time the Corporation shall effect
a firm commitment underwritten public offering of shares of Common Stock
for the account of the Corporation pursuant to an effective registration
statement under the Securities Act of 1933 in which (1) the proceeds to the
Corporation (net of underwriting discounts and commissions and offering
expenses) shall be at least $35,000,000 and (2) the price per share paid by
the public for such shares shall be at least $8.00 per share, then
effective immediately before the closing of the sale of such shares by the
Corporation pursuant to such public offering, all outstanding shares of
Series A Preferred Stock shall automatically convert to shares of Common
Stock on the basis set forth in this Section. Holders of shares of Series A
Preferred Stock so converted may deliver to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to such holders) during its
usual business hours, the certificate or certificates for the shares so
converted. As promptly as practicable thereafter, the Corporation shall
issue and deliver to such holder a certificate or certificates for the
number of whole shares of Common Stock to which such holder is entitled,
together with any cash dividends and payment in lieu of fractional shares
to which such holder may be entitled pursuant to subsection (c). Until such
time as a holder of shares of Series A Preferred Stock shall surrender its
certificates therefor as provided above, such certificates shall be deemed
to solely represent the shares of Common Stock to which such holder shall
be entitled upon the surrender thereof.
8
8. Dilution Adjustments to and Related Provisions.
The number of shares of Common Stock into which the Series A Preferred
Stock shall be convertible and the Conversion Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as provided
in this Section. For purposes of this Section, "Common Stock" means the Common
Stock (as defined in Section 11) and any other stock of the Corporation, however
designated, that has the right to participate in any distribution of the assets
or earnings of the Corporation without limit as to per share amount.
(a) Adjustment for Change in Capital Stock. If at any time after the
date hereof, the Corporation:
(1) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares of
its capital stock;
then the number of shares of Common Stock issuable upon conversion of the Series
A Preferred Stock and the Conversion Price, as in effect immediately prior to
such action, shall be adjusted so that the holders may receive upon conversion
of the Series A Preferred Stock the number of shares of capital stock of the
Corporation which the holders would have owned immediately following such action
if the holders had converted the Series A Preferred Stock immediately prior to
such action. The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification. If
after an adjustment a holder of Series A Preferred Stock upon conversion may
receive shares of two or more classes or series of capital stock of the
Corporation, the Corporation shall determine the allocation of the adjusted
Conversion Price between the classes or series of capital stock. After such
allocation, the exercise privilege and the Conversion Price of each class or
series of capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Stock in this Section. Such adjustment
shall be made successively whenever any event listed above shall occur.
9
(b) Adjustment for Common Stock Issuances. If at any time after the
date of this Agreement the Corporation issues (other than in an Exempt
Issuance or in a transaction described in subsection (a) or (e)) shares of
Common Stock for a consideration per share less than the Market Price,
determined as of the date of issuance of such shares, the Conversion Price
shall be reduced in accordance with the following formula:
P
O + -------
M
CP9 = CP x ------------------------
O9
where: CP9 = the adjusted Conversion Price;
CP = the then current Conversion Price;
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares;
P = the aggregate consideration received for the issuance of
such additional shares;
M = the Market Price, determined as of the date of issuance
of such shares; and
O9 = the number of shares of Common Stock outstanding
immediately after the issuance of such additional
shares.
The adjustment shall be made successively whenever any such issuance
occurs, and shall become effective immediately after such issuance.
(c) Adjustment for Convertible Securities Issuance. If at any time
after the date hereof the Corporation issues (other than in an Exempt
Issuance or in a transaction described in subsection (a)) any Convertible
Securities for an aggregate consideration which, when added to the
aggregate consideration payable for the number of shares of Common Stock
initially deliverable upon conversion, exchange or exercise of such
Convertible Securities, is less than the product of such number of shares
of Common Stock and the Market Price, determined as of the date of issuance
of such Convertible Securities, the Conversion Price shall be reduced in
accordance with the following formula:
10
P
O + -------
M
CP9 = CP x ------------------------
O + C
where: CP = the adjusted Conversion Price.
CP = the then current Conversion Price;
O = the number of shares of Common Stock outstanding
immediately prior to the issuance of such
Convertible Securities;
P = the sum of the aggregate consideration received for
the issuance of such Convertible Securities plus the
additional consideration, if any, payable upon
conversion, exchange or exercise of such Convertible
Securities at the initial conversion, exchange or
exercise rate;
M = the Market Price, determined as of the date of issuance
of such Convertible Securities; and
C = the maximum number of shares deliverable upon
conversion, exchange or exercise of such Convertible
Securities at the initial conversion, exchange or
exercise rate.
The adjustment shall be made successively whenever any such issuance
occurs, and shall become effective immediately after such issuance. If all
of the Common Stock deliverable upon conversion, exchange or exercise of
such Convertible Securities has not been issued when such Convertible
Securities are no longer outstanding, then the Conversion Price shall
promptly be readjusted to the Conversion Price which would then be in
effect had the adjustment upon the issuance of such securities been made on
the basis of the actual number of shares of Common Stock issued upon
conversion, exchange or exercise of such Convertible Securities.
(d) Adjustment for Rights Issue. If at any time after the date hereof
the Corporation distributes any rights, options or warrants to all holders
of its Common Stock entitling them for a period expiring within 60 days
after the record date mentioned below to purchase shares of Common Stock or
Convertible Securities at a price per share (or with an initial conversion,
exchange or exercise price per share) less than the Market Price per share
on that record date, the Conversion Price shall be reduced in accordance
with the following formula:
N x P
O + ---------
M
CP9 = CP x ------------------
O + N
11
where: CP9 = the adjusted Conversion Price;
CP = the then current Conversion Price;
O = the number of shares of Common Stock outstanding on the
record date;
N = the number of additional shares of Common Stock covered
by the rights, options, warrants or Convertible Securities;
P = the offering price per share (including the initial
conversion, exchange or exercise price, in the case of
Convertible Securities) of the additional shares; and
M = the Market Price determined as of the record date.
The adjustment pursuant to this subsection shall be made successively
whenever any such rights, options or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive the rights, options or warrants. If at the
end of the period during which such rights, options or warrants are
exercisable, not all rights, options or warrants shall have been exercised,
the Conversion Price shall be immediately readjusted to what it would have
been if "N" in the above formula had been the number of shares actually
issued.
(e) Adjustment for Distribution on or Purchase or Redemption of Common
Stock. If at any time after the date hereof the Corporation or any
Subsidiary of the Corporation (1) distributes to the holders of Common
Stock any of the assets (including cash), debt securities, preferred stock,
or rights to purchase debt securities, preferred stock or common stock of
the Corporation or any of its Subsidiaries, or (2) redeems, purchases or
otherwise acquires for value any shares of Common Stock, the Conversion
Price shall be reduced in accordance with the following formula:
(M x O) - F
CP9 = CP x --------------------
M x (O - N)
where: CP9 = the adjusted Conversion Price;
CP = the then current Conversion Price;
M = the Market Price determined as of the date on which
the distribution, redemption, purchase or acquisition
occurs;
O = the number of shares of Common Stock outstanding
immediately before the distribution, redemption,
purchase or acquisition;
12
F = the aggregate amount of cash plus the Fair Market
Value of the aggregate non-cash consideration or
securities distributed to holders of Common Stock or
paid for all shares of Common Stock so redeemed,
purchased or acquired; and
N = the number of shares of Common Stock so redeemed,
purchased or acquired.
No adjustment shall be required under this subsection on account of the
first $50,000 paid by the Corporation after the date hereof to acquire odd
lots (less than 100 shares) of Common Stock.
(f) No Increase in Conversion Price. In no event shall any adjustment
made pursuant to subsection (b), (c), (d) or (e) increase the Conversion
Price.
(g) Adjustment in Number of Conversion Shares. Upon each adjustment in
the Conversion Price pursuant to any provision of this Section, the number
of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the number of shares into
which the Series A Preferred Stock is convertible immediately prior to such
adjustment in the Conversion Price by a fraction, the numerator of which
shall be the Conversion Price immediately prior to such adjustment and the
denominator of which shall be the Conversion Price in effect immediately
thereafter, determined without reference to subsection (k). All
calculations under this Section shall be made to the nearest ten-thousandth
of a cent and to the nearest hundredth of a share.
(h) Deferral of De Minimis Adjustments. No adjustment in the
Conversion Price need be made unless the adjustment would require an
increase or decrease of at least one percent in the Conversion Price. Any
adjustments that are not made shall be carried forward and taken into
account in any later adjustment.
(i) Consideration Received. In any calculation of consideration
received for purposes of this Section, the following shall apply:
(1) in the case of the issuance of shares of Common Stock or
Convertible Securities for cash, the consideration shall be the amount
of such cash, before deduction for commissions, discounts and other
expenses of the issuance; and
(2) in the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in part other
than cash, the consideration other than cash shall be deemed to be the
Fair Market Value thereof.
(j) When No Adjustment Required. No adjustment need be made for a
change in the par value, or from par value to no par value, or from no
par value to par value, of the Common Stock. To the extent the holders
become entitled to receive cash upon exercise of the Warrants, no
adjustment need be made thereafter as to the cash. Interest will not
accrue on the cash.
13
(k) Par Value. Notwithstanding any other provision of this Section, no
adjustment to the Conversion Price shall reduce the Conversion Price below
the then par value per share of the Common Stock, and any such purported
adjustment shall instead reduce the Conversion Price to such par value.
However, in applying subsection (g), the "Conversion Price in effect
immediately thereafter" shall be determined without regard to this
subsection.
(l) Notice of Certain Transactions. If:
(1) the Corporation takes any action that would require an
adjustment in the Conversion Price pursuant to this Section,
(2) there is a liquidation or dissolution of the Corporation, or
(3) a Liquidity Event occurs,
the Corporation shall mail to holders of Series A Preferred Stock a notice
describing the event and stating applicable record date or, if there is no
record date, the effective date. The Corporation shall mail the notice at
least 30 days before such date if practicable, but in any event not less
than ten days before the time the holders of Series A Preferred Stock would
be required to convert their Series A Preferred Stock in order to
participate in the transaction on the same basis as holders of Common
Stock. Failure to mail the notice or any defect in it shall not affect the
validity of the transaction.
Whenever the Conversion Price or the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock shall be adjusted
pursuant to this Section, the Corporation shall as soon as practicable
prepare a certificate signed by its President or a Vice President setting
forth in reasonable detail the event requiring the adjustment, the amount
of the adjustment, the method by which the adjustment was calculated, the
Market Price (if applicable), and the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock after giving
effect to such adjustment, and shall as soon as practicable cause copies of
such certificate to be mailed (by first class, postage prepaid) to the
registered holders of the Series A Preferred Stock.
(m) Reorganization of the Corporation.
If the Corporation consolidates or merges with or into, or transfers
or leases all or substantially all its assets to, any person (other than
one of its Wholly-Owned Subsidiaries), upon consummation of such
transaction the Series A Preferred Stock shall automatically become
convertible into the kind and amount of securities, cash or other assets
which the holder of Series A Preferred Stock would have owned immediately
after the consolidation, merger, transfer or lease if the holder had
converted the Series A Preferred Stock immediately before the record date
(or, if none, the effective date) of the transaction.
14
Notwithstanding the preceding paragraph, in the case of any merger,
reverse stock split, or other transaction in which the Common Stock shall
be converted into the right to receive a consideration consisting solely of
cash, then each holder of Series A Preferred Stock, without having to take
any action other than the surrendering of such Series A Preferred Stock to
the Corporation, shall receive the amount by such holder if it had
converted its Series A Preferred Stock immediately before the record date,
or, if none, the effective date of such transaction.
If this subsection applies, subsections (a), (b), (c), (d) and (e) do
not apply.
(n) Violation of Other Provisions. Nothing in this Section shall be
deemed to waive any restriction on the Corporation set forth elsewhere
herein.
9. No Impairment. The Corporation will not, by amendment of its certificate
of incorporation or through any consolidation, merger, reorganization, transfer
of assets, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Series A Preferred Stock, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holders of the
Series A Preferred Stock against dilution or other impairment. Without limiting
the generality of the foregoing, the Corporation (1) will take all such action
as may be necessary or appropriate in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock on the
conversion of the Series A Preferred Stock from time to time outstanding and (2)
will not take any action which results in any adjustment of the Conversion Price
if the total number of Series A Preferred Stock shares of Common Stock issuable
after the action upon the conversion of all of the Series A Preferred Stock
would exceed the total number of shares of Common Stock then authorized by the
Corporation's certificate of incorporation and available for the purposes of
issue upon such exercise.
10. Pre-emptive Rights.
(a) Except as provided in subsection (b), the Holders shall have
pre-emptive rights with respect to the issuance by the Corporation of any
of its securities, and the Corporation shall, prior to any proposed
issuance by the Corporation of any of its securities, offer to each Holder
by written notice the right, for a period of 15 Business Days, to purchase,
for cash at an amount equal to the price or other consideration for which
such securities are proposed to be issued, the portion of the securities
proposed to be issued determined by dividing the number of shares of Common
Stock into which the Series A Preferred Stock is then convertible by the
number of shares of Common Stock then outstanding (treating as outstanding
for this purpose all shares of Common Stock issuable on exercise,
conversion or exchange of outstanding Convertible Securities).
(b) Subsection (a) shall not apply (1) to debt securities that are
neither Convertible Securities nor issued as part of a transaction that
includes equity securities or Convertible Securities; or (2) to securities
issued (A) pursuant to an Exempt Issuance, (B) as consideration for the
acquisition from an unaffiliated third party of all or part of another
business (whether by purchase of stock or assets or otherwise), or (C) in a
transaction described in Section 8(a).
15
(c) The Corporation's written notice to the Holders shall describe the
securities proposed to be issued by the Corporation and specify the number,
price and payment terms. Each Holder may accept the Corporation's offer as
to the full number of securities covered by subsection (a) or any lesser
number, by written notice thereof given by it to the Corporation and to the
other Holders prior to the expiration of the aforesaid 15 Business Day
period, in which event the Corporation shall promptly sell and each Holder
shall buy, upon the terms specified, the number of securities agreed to be
purchased by such Holder. The Corporation shall be free at any time prior
to 120 days after the date of its notice of offer to the Holders, to offer
and sell to any third party or parties the securities not agreed by the
Holders to be purchased by them, at a price and on payment terms no less
favorable to the Corporation than those specified in such notice of offer
to the Holders. However, if such third party sale or sales are not
consummated within such 90-day period, the Corporation shall not sell such
securities as shall not have been purchased within such period without
again complying with this Section.
(d) If the Holders in the aggregate elect to purchase more securities
than they are entitled to purchase under subsection (a), each Holder shall
purchase such securities (1) in the proportion that all electing Holders
shall agree among themselves in writing, notice of which shall be given in
writing to the Corporation not later than one business day before the
issuance, sale and purchase is scheduled to be completed, or (2) failing
such agreement in the proportion that the amount of securities that such
Holder elects to purchase bears to the amount of securities elected to be
purchased by all Holders.
11. Definitions. As used herein, the following terms shall have the
following meanings.
"Affiliate" of any Person means any other Person that controls, is
controlled by or is under common control with such Person.
"Business Day" means any day on which the New York Stock Exchange is open
for trading.
"Common Stock" means the Common Stock, par value $0.01 per share, of the
Corporation as constituted on the date hereof, except as otherwise provided in
Section 8 and in the definition of "Convertible Securities."
"Conversion Shares" means shares of Common Stock received on conversion of
the Series A Preferred Stock.
"Conversion Price" is defined in Section 7(a).
"Convertible Securities" means securities or obligations that are
exercisable for, convertible into or exchangeable for shares of Common Stock (as
defined in Section 8). The term includes options, warrants or other rights to
subscribe for or purchase Common Stock or to subscribe for or purchase other
Convertible Securities.
"Dividend Junior Stock" is defined in Section 5(a).
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"Exempt Issuance" means (a) the issuance of Common Stock upon the exercise,
conversion or exchange of Convertible Securities, (b) the issuance of Common
Stock or Convertible Securities in a bona fide underwritten public offering,
registered under the Securities Act, (c) the issuance of Common Stock pursuant
to any plan of the Corporation for the reinvestment of dividends on the same
class of capital stock, (d) the issuance after the date hereof for compensation
purposes of options to purchase up to 155,000 shares of Common Stock to
officers, employees or directors of, or bona fide consultants to, the
Corporation, (e) the issuance of Common Stock pursuant to Section 2.C of the
Executive Stock Appreciation Rights and Non Qualified Stock Option Agreement,
dated as of February 6, 1995, between the Corporation and Xxxx X. Xxxxxx, as
amended October 28, 2000, and (f) the issuance of Common Stock pursuant to
Section 3.c of, and Exhibit A to, the Employment Agreement, effective as of
March 2, 2001, between the Corporation and Xxxxxxx X. Xxxxxx.
"Fair Market Value" of property other than cash means (1) in the case of
any security traded in the Nasdaq Stock Market, listed on a securities exchange
or reported on the NASD OTC bulletin board, its Market Price, and (2) in all
other cases, the fair market value of the property as determined in good faith
by the Board of Directors of the Corporation, subject to the appraisal procedure
described below. In connection with any transaction described herein that
requires the determination of the Fair Market Value of property, the Corporation
will notify the holders of the Series A Preferred Stock in writing of the terms
of the transaction and of the amount determined by the Board of Directors to be
the Fair Market Value of the property, including a description of the valuation
method. If the holders of a majority of the Series A Preferred Stock believe
that the Corporation's notice incorrectly states the Fair Market Value of the
property, the holders of a majority of the Series A Preferred Stock may engage
an independent appraisal firm selected by them (the "First Appraiser") to
determine the Fair Market Value of the property. The report of the First
Appraiser shall be conclusive on the question of the Fair Market Value of the
property unless, within 15 Business Days after its receipt of the report of the
First Appraiser, the Corporation appoints an independent appraisal firm (the
"Second Appraiser") and notifies the holders of Series A Preferred Stock of the
identity of the Second Appraiser. If the reports of the First Appraiser and the
Second Appraiser are within 10 percent of the lower of the two, report of the
First Appraiser shall conclusively establish the Fair Market Value of the
property. Otherwise, the First Appraiser and the Second Appraiser will jointly
appoint a third appraiser reasonably satisfactory to the Corporation and the
holders of a majority of the Series A Preferred Stock (the "Third Appraiser").
The report of the Third Appraiser shall be averaged with the report of the First
Appraiser or the Second Appraiser, whichever shall be closer to that of the
Third Appraiser, and the average shall conclusively establish the Fair Market
Value of the property. Each appraiser will be instructed to complete its
appraisal within 30 days after its appointment. The Corporation will permit all
appraisers appointed hereunder to have reasonable access to its books and
records, to its officers and employees, and to its accountants. The Corporation
will pay the cost of the First Appraiser. If the adjustment based on the Fair
Market Value as finally determined exceeds the adjustment based on the Fair
Market Value stated in the Corporation's notice by more than 10 percent, the
Corporation will pay the cost of the Second Appraiser; otherwise, the holders of
Series A Preferred Stock will pay the cost of the Second Appraiser (in
proportion to the number of shares held by each). The cost of the Third
Appraiser will be paid half by the Corporation and half by the holders of Series
A Preferred Stock (in proportion to the number of Warrants held by each).
17
"Holder" or "holder" means a registered holder of Series A Preferred Stock.
"Intercreditor Agreement" means the Subordination Agreement dated the date
of the Purchase Agreement among LaSalle Business Credit, Inc., Eureka I, L.P.,
the Corporation, and MTS Packaging Systems, Inc., as in effect from time to
time.
"Liquidation Junior Stock" is defined in Section 4(a).
"Liquidity Event" means (A) the sale, lease, abandonment, transfer or other
disposition of all or substantially all the stock or assets of the Corporation,
including by merger, consolidation or otherwise, (B) the dissolution,
liquidation or winding up of the Corporation, (C) the occurrence of a Change of
Control, or (D) a Qualified Public Offering.
"Market Price" of a security on (or determined as of) any day means the
average of the last reported sale prices of such security as reported by the
Nasdaq Stock Market or, if such security is listed on a securities exchange, the
average of the last reported sale prices of such security on such exchange,
which shall be for consolidated trading if applicable to such exchange, or, if
not so reported, or if no sale shall have occurred on a particular trading day,
the last reported bid price of such security, in each case for the five trading
days immediately before such day. If a security is publicly traded, but not in
the Nasdaq Stock Market or on a securities exchange, its Market Price is the
average of the last reported bid prices of such security on the NASD OTC
bulletin board for the five trading days immediately before such day. If a
security is not reported on the NASD OTC bulletin board, its Market Price is its
Fair Market Value.
"Notes" means the Corporation's 14% Senior Subordinated Notes issued
pursuant to the Purchase Agreement.
"Person" means an individual, corporation, partnership, limited liability
company, trust or any other entity.
"Purchase Agreement" means the Securities Purchase Agreement, dated the
date of the first issuance of Series A Preferred Stock, between Eureka I, L.P.
and the Corporation.
"Qualified Public Offering" means the first issuance and sale after the
date hereof by the Corporation, pursuant to a registration statement that
becomes effective under the Securities Act, of securities (other than senior
debt securities that are neither Convertible Securities nor issued as part of an
offering that includes equity securities or Convertible Securities) for net
proceeds to the Corporation of $15,000,000 or more.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, all as the same
shall be in effect from time to time.
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"Series A Preferred Stock" is defined in Section 1.
"Xxxxxx Family" means (1) Xxxx X. Xxxxxx, his siblings, the descendants of
Xxxx X. Xxxxxx and his siblings, and the spouses of any of the foregoing
persons; and (2) any general or limited partnership (including Jade Partners),
trust (including the Xxxxxx Family Trust) or other entity, all of whose
partners, beneficiaries or other owners are Persons described in clause (1).
"Subsidiary" means (1) any partnership in which the Corporation or any
Subsidiary is a general partner, (2) any Person in which the Corporation and its
Subsidiaries collectively own a majority of the equity interests, and (3) any
Person of which securities having a majority of the ordinary voting power in
electing the board of directors or comparable body are, at the time as of which
any determination is being made, owned by the Corporation either directly or
through one or more Subsidiaries.
"Voting Securities" means securities entitled in ordinary circumstances to
vote generally in the election of directors of the Corporation.
"Warrants" means the warrants to purchase common stock of the Corporation
issued pursuant to the Purchase Agreement.
"Wholly-Owned Subsidiary" means any Subsidiary, all of the equity
securities of which are owned by the Corporation or another Wholly-Owned
Subsidiary.
EXHIBIT D
FORM OF
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement") is dated as of __________ , among
the undersigned new parties (each a "New Party" and collectively the "New
Parties") and EUREKA I, L.P., as collateral agent (the "Collateral Agent").
RECITALS
WHEREAS, certain subsidiaries of Medical Technology Systems, Inc. ("MTS")
(the "Subsidiaries") have entered into a Guaranty Agreement, dated as of June
___, 2002, with Collateral Agent (the "Guaranty Agreement"), whereby the
Subsidiaries have agreed to become guarantors of the Guaranteed Obligations (as
such term is defined in the Guaranty Agreement);
WHEREAS, the Subsidiaries have entered into a Guarantor Security Agreement
dated as of June ___, 2002, with Collateral Agent ("the Security Agreement");
WHEREAS, MTS has agreed to cause any newly formed subsidiaries to join the
Guaranty Agreement and Guarantor Security Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, the
parties agree as follows:
1. Joinder. Each New Party hereby agrees to be bound by all of the
liabilities and obligations which bind the Subsidiaries under (i) the Guaranty
Agreement, including without limitation the Guaranteed Obligations (as defined
in the Guaranty Agreement), and (ii) the Guarantor Security Agreement.
Therefore, each New Party hereby joins in the execution of and agrees to be
bound by, and is hereby deemed a party to, the Guaranty Agreement, as one of the
"Guarantors" thereunder, for all purposes thereof, and in furtherance of and not
in limitation of the foregoing hereby jointly and severally with the other
"Guarantors" thereunder and unconditionally and irrevocably guarantees the due
and punctual payment and performance by MTS of all of its indebtedness,
liabilities and obligations to Collateral Agent under the agreements,
instruments and obligations referenced in Section 1 of the Guaranty Agreement,
all in accordance with the terms and conditions set forth therein. In addition,
each New Party hereby joins in the execution of and agrees to be bound by, and
is hereby deemed a party to, the Guarantor Security Agreement, as one of the
"Debtors" thereunder, for all purposes thereof. Each New Party hereby further
certifies that all warranties and representations set forth in the Guaranty
Agreement and the Guarantor Security Agreement, as they pertain to Subsidiaries,
are true and correct in all material respects on the date hereof.
2. Grant of Security Interest. In order to secure the performance of the
Guaranteed Obligations, each New Party hereby grants to Collateral Agent a
continuing security interest in, and a collateral assignment and pledge of, all
of such New Parties' now owned or hereafter acquired properties, assets and
rights of every name and nature, including without limitation all now owned or
hereafter acquired Collateral (as defined in the Guarantor Security Agreement).
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3. No Further Amendments. Except for the amendments set forth herein or
otherwise set forth in any agreement signed by the Secured Parties and dated the
date hereof, the Intercreditor Agreement shall remain unchanged and in full
force and effect.
4. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania applicable to contracts made and
performed in said state. It is intended that this Agreement shall take effect as
a sealed instrument.
(b) This Agreement may be executed by the parties hereto in several
counterparts hereof and by the different parties hereto on separate counterparts
hereof, each of which shall be an original and all of which shall together
constitute one and the same agreement. Delivery of an executed signature page of
this Agreement by facsimile transmission shall be effective as an in hand
delivery of an original executed counterpart hereof.
3
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as a sealed instrument by their duly authorized representatives, all as
of the day and year first above written.
NEW PARTIES:
[NAME]
By:______________________________________
Name:
Title:
EUREKA I, L.P., as Collateral Agent
By:_____________________________________
Name:
Title:
EXHIBIT E
FORM OF
TAG-ALONG AGREEMENT
This TAG-ALONG AGREEMENT (this "Agreement") is entered into as of June __,
2002, by and among Medical Technology Systems, Inc., a Delaware corporation (the
"Company"), Eureka I, L.P. (the "Purchaser") and [_____________________] (the
"Stockholder").
RECITALS
WHEREAS, on this date the Company is issuing 2,000 shares of its Series A
Convertible Participating Preferred Stock to the Purchaser and Warrants to
purchase 566,517 Shares of Common Stock of the Company pursuant to a Securities
Purchase Agreement of even date herewith (the "Purchase Agreement");
WHEREAS, one of the conditions to the investment by the Purchaser is the
execution of this Agreement providing for certain restrictions and obligations
with respect to capital stock of the Company held by the Stockholder.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises set forth in this Agreement and in the Purchase Agreement, the parties
hereto, intending to be legally bound, agree as follows:
SECTION 1. STOCK RESTRICTION PROVISIONS.
1.1 Right of Participation in Sales.
(a) Co-Sale Right. If at any time the Stockholder desires to sell or
otherwise dispose of all or any of the capital stock of the Company
beneficially owned by it to any person or entity (the "Proposed
Transferee"), the Purchaser shall have the right to participate in such
disposition, to the extent of its Pro Rata Portion at the same price and
upon the same terms and conditions as involved in such disposition by the
Stockholder, and the Stockholder shall make effective arrangements for such
participation (which shall be a condition to any sale by the Stockholder).
The Stockholder shall provide at least twenty (20) days prior written
notice of such sale (the "Co-Sale Notice") to the Company and the
Purchaser.
(b) Pro Rata Portion. For purposes of subsection (a), the Purchaser's
"Pro Rata Portion" means the result obtained by multiplying the number of
shares of Common Stock held by the Purchaser by a fraction of which the
numerator is the number of shares of Common Stock disposed of by the
Stockholder to the Proposed Transferee, and of which the denominator is the
number of shares of Common Stock held by the Stockholder immediately before
such disposition. For this purpose, (1) "Common Stock" means all capital
stock of the Company, however designated, that participates in any
liquidation or dissolution of the Company without limit as to per-share
amount; (2) any sale of securities or other rights that are convertible
2
into, exercisable for or exchangeable for Common Stock ("Convertible
Securities") shall be treated as a sale of the underlying Common Stock; and
(3) the Pro Rata Portion shall be calculated on the assumption that all
Convertible Securities held by the Stockholder or the Purchaser shall have
been converted, exercised or exchanged.
(c) Notice of Intent to Participate. If the Purchaser wishes to so
participate in any sale under this Section 1.1, it shall notify the
Stockholder of such intention within fifteen (15) days after the date the
Co-Sale Notice is received.
(d) Exception. This Section shall not apply to any disposition by the
Stockholder of shares of Common Stock which, when aggregated with all
shares of Common Stock disposed of by the Stockholder and all Other
Stockholders during the calendar month in which the disposition in question
occurs and the preceding eleven calendar months, does not exceed 70,000
shares of Common Stock. "Other Stockholder" means each stockholder of the
Company who is, at the time of the disposition in question, party to an
agreement with the Purchaser similar to this Agreement.
(e) Family Transfers. This Section shall not apply to any disposition
without consideration to any member of the Xxxxxx Family (as defined in the
Purchase Agreement), but the Stockholder will not make any such disposition
unless the transferee and the Company execute and deliver an agreement with
the Purchaser identical to this Agreement. Any disposition made pursuant to
this subsection will be disregarded for purposes of subsection (d).
1.2 Put Right. In the event of any sale, transfer, assignment or
disposition of any capital stock by the Stockholder in violation of any
provision of Section 1.1 of this Agreement, the Purchaser shall have the right,
in addition to all other rights for breach of this Agreement, to elect to cause
such Stockholder to purchase, and such Stockholder shall be obligated to
purchase, from the Purchaser and at the same price per share and on the same
terms and conditions as involved in such disposition by such Stockholder, the
number of shares of Common Stock that the Purchaser was entitled to sell under
Section 1.1.
SECTION 2. MISCELLANEOUS.
2.1 Duration of Agreement. Except as otherwise provided herein, the rights
and obligations of the Company, the Purchaser and the Stockholder under this
Agreement shall terminate June __, 2012.
2.2 Legend. Each certificate representing shares of capital stock
beneficially owned by the Stockholder shall bear a legend in substantially the
following form, until such time as the shares of capital stock, represented
thereby are no longer subject to the provisions hereof:
"The sale, transfer or assignment of the securities represented
by this certificate are subject to the terms and conditions of a
certain Tag-along Agreement dated as of June __, 2002, as amended
from time to time, among the Company and certain holders of its
outstanding capital stock. Copies of such Tag-along Agreement may
be obtained at no cost by written request made by the holder of
record of this certificate to the Secretary of the Company."
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2.3 Governing Law. This Agreement shall be governed in all respects by the
laws of Delaware.
2.4 Injunctive Relief. It is acknowledged that it will be impossible to
measure the damages that would be suffered by a party if any other party fails
to comply with the provisions of this Agreement and that in the event of any
such failure, the non-defaulting parties will not have an adequate remedy at
law. The non-defaulting parties shall, therefore, be entitled to obtain specific
performance of the defaulting party's obligations hereunder and to obtain
immediate injunctive relief. The defaulting party shall not argue, as a defense
to any proceeding for such specific performance or injunctive relief, that the
non-defaulting parties have an adequate remedy at law.
2.5 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
2.6 Entire Agreement. This Agreement, the Purchase Agreement and the other
documents delivered pursuant thereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.
2.7 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
2.8 Amendment and Waiver. Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the mutual written consent of all
the parties hereto.
2.9 Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power or remedy accruing to any party upon any breach, default or
noncompliance of any other party under this Agreement shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of or in any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach, default or noncompliance under this
Agreement or any waiver on the part of any party of any provisions or conditions
of this Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing.
2.10 Notices and Consents. All notices and consents required or permitted
hereunder shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified; (b) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day; (c) five (5) days after having been sent by registered
4
or certified mail, return receipt requested, postage prepaid; or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to each party at the address set forth on the signature pages hereof or at
such other address as any party may designate by ten (10) days advance written
notice to the other parties hereto.
2.11 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants actually incurred, which shall include, without
limitation, all fees, costs and expenses of appeals.
2.12 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.13 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.
2.14 Pronouns. All pronouns contained herein, and any variations thereof,
shall be deemed to refer to the masculine, feminine or neutral, singular or
plural, as to the identity of the parties hereto may require.
2.15 Further Assurances. From and after the date of this Agreement, upon
the request of the Purchaser or the Company, the Company, the Stockholder and
the Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
Address: MEDICAL TECHNOLOGY SYSTEMS, INC.
00000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxxxx, XX 00000
By: ________________________________
Name:
Title:
Address: EUREKA I, L.P.
000 Xxxxxxxx Xxxx, Xxxxx 000 By: EUREKA MANAGEMENT, L.P.,
Xxxxxxx, Xxxxxxxxxxxx 00000 its sole general partner
By: BERWIND CAPITAL PARTNERS, LLC,
its sole general partner
By:________________________________
Xxxxxxxxx X. Xxxxx,
President
[SIGNATURES CONTINUED ON NEXT PAGE]
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Address: [Stockholder]
