EXHIBIT 10(e)(1)
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this "AGREEMENT"), dated as of June 21, 2002, by and
among TII NETWORK TECHNOLOGIES, INC. (formerly named TII Industries, Inc.), a
Delaware corporation, with headquarters located at 1385 Akron Street, Copiague,
NY, 11726 (the "COMPANY"), and LEONARDO, L.P., a Cayman Islands limited
partnership (the "INVESTOR").
WHEREAS:
A. Effective as of January 26, 1998, the Company, the Investor and certain
other investors (collectively, the "OTHER INVESTORS") entered into a Securities
Purchase Agreement (the "PURCHASE AGREEMENT");
B. Pursuant to the Purchase Agreement, the Investor and the Other Investors
purchased from the Company an aggregate of 5,000 shares of its Series C
Convertible Preferred Stock, par value $0.01 per share (the "PREFERRED SHARES"),
and warrants (the "OLD WARRANTS") to purchase an aggregate of 200,000 shares of
the Company's Common Stock, par value $0.01 per share ("COMMON STOCK"); and
C. The Old Warrants have expired, the Other Investors have converted all of
their Preferred Shares and the Investor wishes to exchange with the Company,
upon the terms and conditions stated in this Agreement, all of its remaining
Preferred Shares for cash and a warrant (a "NEW WARRANT") being delivered
contemporaneously herewith to purchase New Warrant Shares (as defined in Section
1(a) below).
D. The Company desires to grant certain rights to the holders of the New
Warrants Shares to effect the registration of such shares pursuant to a
registration statement filed with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 ACT"); such
rights shall be as set forth in the Registration Rights Agreement being entered
into contemporaneously herewith (the "REGISTRATION RIGHTS AGREEMENT").
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. EXCHANGE OF PREFERRED SHARES.
(a) Exchange of Preferred Shares. Concurrently herewith, the Investor is
exchanging with, and delivering to, the Company, free and clear of any and all
liens, claims, restrictions, security interests or any other encumbrances
whatsoever (collectively, "LIENS"), an aggregate of 1,626 Preferred Shares for
an aggregate payment by the Company of $1,200,000 (the "CASH PURCHASE PRICE")
and the issuance by the Company of New Warrants to purchase an aggregate of
750,000 shares (the "NEW WARRANT SHARES" and, together with the New Warrants,
the "SECURITIES") of Common Stock.
(b) Form of Payment. Concurrently herewith, (i) the Company is (A) paying
the Cash Purchase Price to the Investor by wire transfer of immediately
available funds in accordance with the Investor's written wire instructions set
forth on Schedule A attached hereto
and (B) issuing to the Investor New Warrants to purchase the New Warrant Shares
and (ii) the Investor is delivering to the Company one or more stock
certificates representing an aggregate of 1,026 Preferred Shares, along with
stock powers therefor duly endorsed in blank.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor represents and warrants to the Company that:
(a) Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
(b) Title to Preferred Shares; Only Preferred Shares Owned by Investor. The
Investor is the sole, true, lawful record and beneficial owner of the Preferred
Shares exchanged with the Company hereunder, and there are no restrictions on
voting rights or rights of disposition pertaining to such Preferred Shares. The
Investor has good and marketable title to such Preferred Shares, free and clear
of any and all Liens. The Investor does not own (of record or beneficially) any
Preferred Shares other than the Preferred Shares exchanged with the Company
hereunder.
(c) Investor Status. The Investor is an "accredited investor," as that term
is defined in Rule 501(a)(3) of Regulation D promulgated under the 1933 Act.
(d) Investment Purpose. The Investor is acquiring the New Warrant (and
intends to acquire the New Warrant Shares) for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, all within the meaning of the 1933 Act.
(e) Reliance on Exemptions. The Investor understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Investor's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of such
Investor to acquire such securities.
(f) Information. The Investor and its advisors, if any, have been afforded
the opportunity to review all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Investor, including all SEC
Documents (as defined in Section 3(d) below). The Investor and its advisors, if
any, have been afforded the opportunity to review the Company's Annual Report on
Form 10-K for the year ended June 29, 2001, Quarterly Reports on Form 10-Q for
the quarters ended September 28, 2001, December 28, 2001 and March 29, 2002,
Proxy Statement used in connection with the Company's Annual Meeting of
Stockholders held on December 5, 2001 and Current Reports on Form 8-K dated
(date of earliest event reported) December 5, 2001, February 15, 2002 and April
9, 2002, each of which have been filed with the SEC, and has been
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afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by the Investor or its
advisors, if any, or its representatives shall modify, amend or affect the
Investor's right to rely on the Company 's representations and warranties
contained in Section 3 below. The Investor understands that its investment in
the Securities involves a high degree of risk. The Investor has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
(g) No Governmental Review. The Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(h) Transfer or Resale. The Investor understands that: (i) the Securities
have not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) such Investor shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Investor provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("RULE 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
except pursuant to the Registration Rights Agreement, neither the Company nor
any other person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.
(i) Legends. The Investor understands that the certificates or other
instruments representing the New Warrants and the stock certificates
representing the New Warrant Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
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(j) The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale and sold under the 1933 Act, (ii) in
connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that a public sale, assignment or transfer of such Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurances that such Securities can be sold pursuant to
paragraph (k) of Rule 144. The Investor acknowledges, covenants and agrees to
sell the Securities represented by a certificate(s) from which the legend has
been removed, only pursuant to (i) a registration statement that is effective
and current under the 1933 Act, or (ii) advice of counsel that such sale is
exempt from registration required by Section 5 of the 1933 Act.
(k) Residency. The Investor is a resident of the jurisdiction specified in
the Schedule of Investors.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Investor that:
(a) Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of (i) 30,000,000 shares of Common Stock, of which, as of
the close of business on June 17, 2002, 11,682,284 shares were issued and
outstanding, and (in addition to the Conversion Shares and the New Warrant
Shares) 7,166,800 shares were reserved and available for issuance pursuant to
outstanding options, warrants and other securities convertible into or
exchangeable for Common Stock and (ii) 1,000,000 shares of Preferred Stock, par
value $1.00 per share, of which, as of the date hereof, 5,000 shares were
designated as Preferred Shares and 1,626 of such Preferred Shares were issued
and outstanding. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as set forth on
Schedule 3(a), there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments, understandings or
arrangements, by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries.
(b) Organization and Qualification. The Company is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have any material adverse effect on the business,
properties, assets, operations, results of operations, financial condition or
prospects of the Company and its
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subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith.
(c) Authorization; Enforcement. (i) The Company has the requisite corporate
power and authority to enter into, and perform its obligations under, this
Agreement and the New Warrants (collectively, the "TRANSACTION DOCUMENTS"), and
to issue the Securities in accordance with the terms hereof and thereof, (ii)
the execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby, including without
limitation the issuance of the Warrants and the reservation for issuance and the
issuance of the New Warrant Shares upon exercise of the New Warrants, have been
duly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, and (iv) the Transaction Documents constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or other laws relating to, or affecting
generally, the enforcement of creditors' rights and remedies.
(d) Issuance of New Warrant Shares. The New Warrant Shares have been duly
authorized and reserved for issuance upon exercise of the New Warrants. Upon
exercise in accordance with the New Warrants, the New Warrant Shares, will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. Based, in part, upon the
representations, warranties and covenants of the Investors contained herein, the
issuance by the Company of the New Warrants, is exempt from registration under
the 1933 Act.
(e) SEC Documents; Financial Statements. Since June 30, 2001, the Company
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). The
Company has made available to each Investor or its respective representatives
true and complete copies of the SEC Documents. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly
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present in all material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). Except to the extent information contained in any of the SEC
Documents has been revised, corrected or superseded by a later filing of any
such SEC Document, none of the SEC Documents currently contains an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) No Changes. Since March 29, 2002, there has not been, occurred or
arisen any:
(i) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(ii) destruction of, damage to or loss of any material assets,
material business or material customer of the Company (whether or not
covered by insurance);
(iii) labor trouble or aim of wrongful discharge or other unlawful
labor practice or action by employees of the Company or any of its
Subsidiaries;
(iv) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company other
than required by GAAP;
(v) revaluation by the Company of any of its assets other than as
required by GAAP;
(vi) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any Company
capital stock; or any split, combination or reclassification in respect of
any shares of Company capital stock, or any issuance or authorization of
any issuance of any other securities in respect of, in lieu of or in
substitution for shares of Company capital stock, or any direct or indirect
repurchase, redemption, or other acquisition by the Company of any shares
of Company capital stock (or options, warrants or other rights convertible
into, exercisable or exchangeable therefor);
(vii) commencement, notice or threat of any lawsuit, proceeding or
other investigation against the Company or its affairs is reasonably likely
to have material adverse affect on the Company's consolidated financial
position;
(viii) issuance or sale, or contract to issue or sell, by the Company
of any shares of Company capital stock or securities convertible into, or
exercisable or exchangeable for, shares of Company capital stock, or any
securities, warrants, options or rights to purchase any of the foregoing,
other than pursuant to stock option plans, warrant and convertible security
of the company, which plans, warrants and convertible securities are
reflected in the Company's Annual Report of Form 10-K for the year ended
June 29, 2001 and as contemplated by this Agreement;
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(ix) any event or condition of any character that has had or is
reasonably likely to have a material adverse effect on the Company other
than as reflected or contemplated in the SEC Documents and other than
events or conditions that generally affect the industry in which the
Company operates; or
(x) negotiation or agreement by the Company or any officer thereof to
do any of the things described in the preceding clauses (i) through (x) of
this Section 3(f) for and on behalf of the Company and its subsidiaries.
4. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York applicable to agreements made
and performed entirely within such state without regard to the principles of
conflict of laws that would require the application of the laws of a
jurisdiction other than New York. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting the City of
New York, borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement supersedes all other prior
oral or written agreements between the Investors, the Company, their affiliates
and persons acting on their behalf with respect to the matters discussed herein,
and this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
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Company nor any Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding,
and no provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought.
(f) Notices. Any notices consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically generated and kept on file by the sending party);
or (iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Kenneth A. Paladino, CFO
TII Network Technologies, Inc.
1385 Akron Street
Copiague, NY 11726
Fax: (516) 789-2228
With a copy to:
Richard A. Rubin, Esq.
Jenkens & Gilchrist Parker Chapin LLP
405 Lexington Avenue
New York, NY 10174
Fax: (212) 704-6288
If to the Investor, to :
c/o Angelo Gordon & Co.
245 Park Avenue, 26th Floor
New York, NY 10167
Attention: Gary I. Wolf
Fax: (212) 867-5436
With a copy to:
Douglas A. Cifu, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Fax: (212) 492-0436
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Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) Publicity. The Company and one representative selected by the Investors
shall have the right to approve before issuance any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Investor, to make any press release or other public disclosure
with respect to such transactions as is required by applicable law and
regulations (although each Investor shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release and shall be provided with a copy thereof).
(j) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
[The next page is the signature page]
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IN WITNESS WHEREOF, the Investors and the Company have caused this Exchange
Agreement to be duly executed as of the date first written above.
COMPANY:
TII NETWORK TECHNOLOGIES, INC.
By:/s/ Kenneth A. Paladino
-------------------------------------
Name: Kenneth A. Paladino
Its: VP Finance, Treasurer and CFO
INVESTOR:
LEONARDO, L.P.
By: Angelo Gordon & Co., L.P. Director of
Leonardo Capital Management Inc.
General Partner
By:/s/ Michael L. Gordon
-------------------------------------
Name: Michael L. Gordon
Title: Chief Operating Officer
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SCHEDULE A
Wire instructions for the Investor:
CITIBANK,N.A.
20 EXCHANGE PLACE
NEW YORK, N.Y.
ABA # 021-000-089
CREDIT A/C BEAR STEARNS SECURITIES
383 MADISON AVENUE
NEW YORK, N.Y.
CR A/C # 09253186
FFC LEONARDO, L.P.
c/o ANGELO GORDON & CO., L.P.
245 PARK AVENUE, 26th FL
NEW YORK, N.Y. 10167
FFC A/C # 103-74900-1-6
SCHEDULE 3(a)
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Capitalization Table(a)
as of 06/17/02
Common Stock outstanding........................................................................11,682,284
Option held by Norman Pessin IRA, exercisable @ $2.50 until 7/18/2003..............100,000
Warrants from 2000 private placment, exercisable @ $2.79 until 12/8/04...........1,800,000
Unit purchase options held by private placement agent exercisable @ $2.69
until 12/8/04......................................................................414,000
Warrants issuable upon exercise of unit purchase options, which warrants, if
issued, will be exercisable at $2.79...............................................414,000
Options outstanding under existing plans..........................................3,430,341 6,158,341
----------
17,840,625
Options available for future grant under existing plans..........................................1,008,459
----------
Total..........................................................................................18,849,084
==========
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(a) Excludes (i) Series C Preferred Stock being purchased hereby and Common
Stock issuable upon exercise of the New Warrant and (ii) Preferred Stock
purchase rights to purchase, at $30 per one one-thousandth of a share,
Series D Junior Participating Preferred Stock (under the Shareholders'
Rights Plan) entitling the holder to purchase for $30, a number of shares
of Common Stock having a market value of $60.