EXHIBIT 4.3
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (this "Agreement"), dated as of April 25,
1996, among VERNITRON CORPORATION (with its successors, the "Company"), Paribas
Principal, Inc. ("PPI") and Banque Paribas acting through its Grand Cayman
Branch, as the initial Holder of the Warrants referred to herein.
W I T N E S S E T H :
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WHEREAS, the Company, various lending institutions listed on Annex I
thereto (the "Banks") and Banque Paribas, as agent for the Banks, are parties to
a Credit Agreement dated as of April 26, 1996 (as the same shall be modified and
supplemented and in effect from time to time, the "Credit Agreement");
WHEREAS, in order to induce Banque Paribas to enter into the Credit
Agreement, and as compensation therefor, the Company has authorized the issuance
to the Holder of the Warrants which are exercisable, pursuant to the terms and
conditions thereof, for 666,312 shares of Common Stock, $0.01 par value, of the
Company at a purchase price of $.01; and
WHEREAS, PPI may desire to provide additional financing to the Company
and in connection therewith the Company has agreed to sell to PPI a warrant to
purchase, pursuant to terms and conditions thereof, 776,388 shares of Common
Stock, $0.01 par value of the Company at a purchase price of $1.25 per share.
WHEREAS, the Holder desires to subscribe for, and the Company desires
to issue to the Holder, upon the terms and conditions set forth herein, the
Warrant substantially in the form of Exhibit A hereto;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS.
1.01 DEFINITIONS. The following terms, as used herein, shall have
the following respective meanings:
"Affiliate" shall have the meaning ascribed to such term in the Credit
Agreement.
"Agreement" shall have the meaning provided in the introductory
paragraph hereof.
"Business Day" shall mean any day other than Saturday, Sunday or any
other day on which commercial banks are required by law or authorized to close
in New York City.
"CIT Warrant" shall mean the Warrant issued to CIT exercisable into
31,345 shares of Common Stock on the date hereof.
"Commission" means the Securities and Exchange Commission or any other
United States agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company.
"Credit Agreement" shall have the meaning ascribed to such term in the
first WHEREAS clause of this Agreement.
"DLJ Warrant" shall mean a warrant exercisable into 100,000 shares of
Common Stock expected to be issued to Donaldson, Lufkin & Jenrette ("DLJ")
promptly after the date hereof which warrant and any purchase agreement pursuant
to which such warrant is purchased shall have terms no more favorable than the
terms and provisions of this Agreement and the Warrant and may, at the request
of the Company, constitute a Warrant and DLJ may become a party to this
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exercise Period" shall mean the period of time from April 25, 1996,
until 5:00 P.M., local time in New York City, on April 25, 2006 (or such later
date as specified in Section 4.07).
"Existing Warrants shall have the meaning provided in the Warrant.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time.
"Holder" shall mean the holder of any Warrant or Warrant Interest
unless, with respect to any such Warrant Interest, such Warrant Interest is
acquired in a public distribution pursuant to a registration statement under the
Securities Act or pursuant to a transaction exempt from registration under the
Securities Act if securities sold in such transaction may be resold without
subsequent registration under the Securities Act.
"Person" shall mean an individual, a corporation, a company, a
voluntary association, a partnership, a trust, an unincorporated organization or
a government or any agency, instrumentality or political subdivision thereof.
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"Public Sale" means any sale of Common Stock pursuant to a widely-
distributed registered public offering under the Securities Act or any sale of
Common Stock to the public pursuant to Rule 144 effected through a broker or
dealer.
"Registrable Securities" shall mean (i) any Warrant Interests issued
or sold to the Holder or any affiliate of the Holder whether or not at the time
of such determination such interests are then held by the Holder or such
affiliate of the Holder and (ii) any securities issued or issuable with respect
to any such Warrant Interests by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (i) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (ii) they
shall have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) they shall have been otherwise
transferred and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force or (iv) they shall have ceased to be outstanding. Registerable Securities
shall not include any Warrant.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 5, including, without limitation, (i)
all registration, filing and NASD fees, (ii) all fees and expenses of complying
with securities or blue sky laws, (iii) all word processing, duplicating and
printing expenses, (iv) messenger and delivery expenses, (v) the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (vi) the
reasonable fees and disbursements of one counsel, who may be counsel for the
Company, chosen by the holders of a majority of the Registrable Securities
included in such registration statement, (vii) premiums and other costs of
policies of insurance against liabilities arising out of the public offering of
the Registrable Securities being registered (if the Company elects to obtain any
such insurance), and (viii) any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding underwriting
fees, discounts and commissions, transfer taxes, if any, and accountants
retained by the selling securityholders in addition to those referred to in
preceding clause (v).
"Regulation Y" shall mean Regulation Y promulgated by the Board of
Governors of the Federal Reserve System or any successor regulation.
"Requesting Holder" shall mean in respect of any registration pursuant
to Section 5.01 hereof, any holder of Registrable Securities who gives notice to
the Company of its request to include Registrable Securities in such
registration.
"Required Holders" shall mean the holders of more than 50% of the
aggregate Warrant Interests then outstanding.
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"Securities Act" shall mean the Securities Act of 1933, as amended.
"Tag-Along Acceptance" shall have the meaning set forth in Section
6.01(b).
"Tag-Along Notice" shall have the meaning set forth in Section
6.01(a).
"Tag-Along Notice Period" shall have the meaning set forth in
Section 6.01(b).
"Tag-Along Offer" shall have the meaning set forth in Section 6.01(a).
"Tag-Along Offeree" shall have the meaning set forth in Section
6.01(a).
"Tag-Along Offerer" shall have the meaning set forth in Section
6.01(a).
"Tag-Along Offeree Shares" shall have the meaning set forth in Section
6.01(c).
"Tag-Along Shares" shall have the meaning set forth in Section
6.01(a).
"Warrant" shall mean a Warrant to purchase the number of Warrant
Interests indicated therein, substantially in the form of Exhibit A, and any
Warrant or Warrants issued upon transfer of, or in substitution therefor and, in
any event, shall consist of the warrants issued to Banque Paribas and PPI, on
the date hereof and the DLJ Warrant.
"Warrant Interest" shall mean the shares of Common Stock issued or
issuable upon exercise of any Warrant. For purposes of this Agreement, a
Warrant Interest shall be "outstanding" from and after the date hereof until the
redemption or cancellation of such Warrant Interest (or, if the related Warrant
has not been exercised, the expiration, repurchase or cancellation of such
Warrant) by the Company.
"Warrantholder" shall mean the holder of any Warrant.
1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with GAAP.
Section 2. TERMS AND CONDITIONS OF ISSUANCE OF WARRANTS.
2.01 ISSUANCE OF THE WARRANTS. In consideration of the premises and
other good and valuable consideration, the Company hereby agrees to issue on the
date hereof to Banque Paribas, acting through its Grand Cayman Branch, a Warrant
to purchase the number of Warrant Interests set forth on the signature page.
The Company hereby agrees to sell to PPI, for a purchase price equal to $1,000,
a Warrant to purchase the number of Warrant Interests
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set forth on the signature page. The number of Warrant Interests set forth on
the signature page are subject to adjustment from time to time as set forth in
the Warrants issued to the Holders; PROVIDED, HOWEVER, that no Holder shall be
entitled to exercise any Warrant to the extent that, as a result of such
exercise, such Holder and its Affiliates, directly or indirectly, would, in such
Holder's sole judgment, own, control or have power to vote a greater quantity of
securities of any kind issued by the Company than such Holder and its Affiliates
shall be permitted to own, control or have power to vote under any law or under
any regulation, rule or other requirement of any government authority at the
time applicable to such Holder and its Affiliates (including, without
limitation, any applicable provision of Regulation Y).
2.02 OPINION OF COUNSEL. On the date hereof, the Holder shall have
received from Elliot N. Konopko, general counsel to the Company, an opinion in
form and substance satisfactory to the Holder.
2.03 On the date hereof, PPI shall have received from the Company
fully executed Small Business Administration Forms 480 and 652 (together with
Small Business Administration Form 1031, the "SBA Forms").
Section 3.A REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Holders on the date hereof and on each
date on which a Warrant is exercised as follows; PROVIDED, HOWEVER, it is
understood that the Company shall have no liability to the Holders as a result
of the Holder determining not to exercise the Warrant because the Company in
connection therewith discloses that any of the representations and warranties
set forth below became untrue after the date hereof and are untrue on the date
that such representations are required to be remade and the Company shall have
no liability to the Holder in any event as a result of disclosures by the
Company in connection with the making of such representations and warranties
after the date hereof that any of such representations and warranties is not
true after the date hereof and prior to an exercise of a Warrant of which the
Company had prior notice:
3.01 INCORPORATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in Sections 7.01 through
7.26, inclusive, of the Credit Agreement are incorporated herein by reference
and made a part hereof as if set forth herein. Such representations and
warranties are true and correct in all material respects on the date hereof and
will be true and correct on each date on which a Warrant is exercised.
3.02 AUTHORIZATION. The Company has all necessary power and
authority to execute, deliver and perform its obligations under this Agreement
and the Warrants and to issue and deliver the Warrants and Warrant Interests;
the execution, delivery and performance by the Company of this Agreement and the
Warrants have been duly authorized by all necessary action; each of this
Agreement and each Warrant has been duly executed and delivered by the Company
and constitutes
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the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to creditors'
rights and remedies generally and subject, as to enforceability, to general
equitable principles (regardless of whether an enforcement is sought in a
proceeding in law or at equity).
3.03 VALID ISSUANCES. The Warrants, when issued and delivered
pursuant hereto, and the Warrant Interests, when issued and delivered and paid
for pursuant to the Warrants, will be validly issued, and are not subject to any
preemptive rights, rights of first refusal or rights of first offer except as
set forth herein. Except for the registration rights as set forth in this
Agreement , piggyback registration rights granted to the holder of the CIT
Warrant and rights to be granted to holder of the DLJ Warrant which shall be no
more favorable to the holder thereof than the registration rights provided for
herein, the Company is not under any obligation to cause the registration of any
of its presently outstanding securities or any of its securities which hereafter
may be issued.
3.04 NO BREACH. None of the execution and delivery of this Agreement
and the Warrants, the consummation of the transactions herein or therein
contemplated, including the issuance and delivery of the Warrants and the
Warrant Interests or compliance with the terms and provisions hereof or thereof
will conflict with or result in a breach of, or require any consent (other than
any consent already obtained which remains in full force and effect and other
than requirements for securities registration under applicable laws) under any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company is a party or by which it is bound or to which any of its
properties or assets is subject, or constitute a default under any such
agreement or instrument or result in the creation or imposition of any lien upon
any of the revenues or assets of the Company pursuant to the terms of any such
agreement or instrument.
3.05 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, which have not already been made or obtained, are necessary for the
execution, delivery or performance by the Company of this Agreement or the
Warrants, the consummation of the transactions contemplated herein and therein
or the validity or enforceability hereof or thereof.
3.06 CAPITALIZATION. The capital of the Company on the date hereof
consists of (x) 20,000,000 shares of common stock, $.01 par value, 12,659,957 of
which shares are issued and outstanding, and (y) 4,000,000 shares of preferred
stock, $.01 par value, 738,584 of which shares are issued and outstanding. All
of such outstanding shares have been duly and validly issued, are fully paid and
nonassessable and are free of preemptive rights. Except as set forth on
Schedule VII of the Credit Agreement (which shall include, without limitation,
the Warrants), the Company does not have outstanding any securities convertible
into or exchangeable for its capital stock or outstanding any rights to
subscribe for or to purchase, or any options for the purchase of, or any
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agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock.
3.07 OFFER OF WARRANTS. Neither the Company nor any Person acting on
its behalf has directly or indirectly offered the Warrants or any part thereof
or any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any
Person other than the Holder and Donaldson, Lufkin & Jenrette. Neither the
Company nor any Person acting on its behalf has taken or will take any action
which would subject the issuance and sale of the Warrants to the provisions of
Section 5 of the Securities Act, or to the provisions of any state securities
law requiring registration of securities, notification of the issuance or sale
thereof or confirmation of the availability of any exemption from such
registration.
3.08 SBIC INFORMATION. All information set forth in the SBA Forms
regarding the Company and its affiliates is accurate and complete. Copies of
such forms have been, on or prior to the date hereof (or within the time period
required by Section 4.03 in the case of Form 1031), completed and executed by
the Company and delivered to PPI.
Section 3.B. REPRESENTATION AND WARRANTIES OF THE HOLDERS. Each
Holder represents and warrants to the Company on the date hereof and on each
date on which a Warrant is exercised as follows:
(a) Such Holder represents that the Warrants or the Warrant
Interests, as the case may be, is being acquired by him for his own account
for investment purposes and not with a view to the distribution thereof.
Each Holder understands that the Warrant and the Warrant Interests have not
been registered under the Securities Act of 1933 as amended, on the grounds
that the offer and sale of the Warrants and Warrant Interests are exempt
from the registration requirements of the Securities Act of 1933 under
Section 4(2) thereof as transaction not involving any public offering of
the Warrants or Warrant Interests.
(b) Each Holder understands that he must bear the economic risk of
his investment in the Warrants and Warrant Interests for an indefinite
period of time because such securities have not been registered under the
Act and, therefore, cannot be sold unless they are subsequently registered
under the Act or an exemption from such registration is available.
Section 4. COVENANTS.
4.01 MAINTENANCE OF EXISTENCE; CORPORATE FRANCHISES. The Company
will do, and will cause each of its subsidiaries to do or cause to be done, all
things necessary to preserve and keep in full force and effect its existence and
its rights, franchises, licenses and patents useful and necessary for the
operation of their respective businesses; PROVIDED, HOWEVER, that nothing in
this Section 4.01 shall prevent the withdrawal by the Company or any subsidiary
of the Company of its qualification as a foreign corporation in any jurisdiction
or the taking of any other action or failure
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to take any action by the Company or any subsidiary where such withdrawal,
action or omission could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
properties, operations, condition (financial or otherwise) or prospects of the
Company and its subsidiaries taken as a whole.
4.02 INSPECTION. The Company covenants and agrees that it will
permit, on a reasonable basis, any Holder and its representatives (including
without limitation, examiners from the Small Business Administration) to inspect
the properties of the Company and to examine and make extracts and copies from
the books and records of the Company during normal business hours (including,
without limitation, for purposes of verifying the certifications and
representations made by the Company in the SBA Forms and this Agreement and in
verifying compliance with the covenants contained in this Agreement.
4.03 INFORMATION. The Company covenants and agrees that it will
deliver to all of the Holders all the financial statements and other information
required to be delivered under Section 8.01 of the Credit Agreement (as such
agreement is in effect on the date hereof without giving effect to any
amendments, modifications or waivers after the date hereof and whether or not
such agreement is in effect). In addition, the Company covenants and agrees to
provide to the Holders, at least annually, sufficient financial and other
information necessary to allow the Holder to evaluate the financial condition of
the Company for the purpose of valuing the Holder's interest in the Company, to
determine the continued eligibility of the Company under the Small Business
Investment Act of 1958, as amended (the "SBIA") and the regulations thereunder,
including Title 13, Code of Federal Regulations, Section 121.802, and to verify
the use of the proceeds received by the Company from the purchase of the Warrant
as well as the proceeds from the exercise of the Warrant. Prior to each date on
which the Warrant is exercised, the Company shall provide such financial
statements, plans of operation (including intended use of financing proceeds),
cash flow analyses and projections as PPI shall reasonably determine is
necessary to support its investment decision. In addition, prior to each
exercise of the Warrant, the Company shall certify to PPI the intended use of
the proceeds from such exercise. All such information shall be certified by the
President, Chief Executive Officer, Treasurer or Chief Financial Officer of the
Company. Within 30 days of the date hereof and within 30 days of the date of
each exercise of the Warrant, the Company shall have provided PPI a completed
Small Business Administration Form 1031. Promptly after the end of each fiscal
year of the Company (and in any event prior to February 28 of each year), the
Company shall provide to PPI a written assessment in form and substance
satisfactory to PPI of the economic impact of the financing assistance provided
to the Company by PPI, specifying the full time equivalent jobs created or
retained, and the impact of the financing on the revenues and profits of the
business and on taxes paid by the business and its employees. Upon the request
of PPI the Company will also provide all information requested by PPI in order
for it prepare and file SBA Form 468 and any other information requested or
required by any governmental agency asserting jurisdiction over PPI.
4.04 TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its subsidiaries to, enter into transactions with an Affiliate
(for purposes of this Section, except
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as specified below, as defined in the Credit Agreement for purposes of Section
9.07 thereof) of the Company other than transactions which have been approved by
a majority of the disinterested members of the Board of Directors and which
transactions are on terms and conditions substantially as favorable to the
Company or such subsidiary as would be obtainable in a comparable arm's-length
transaction with a person other than an Affiliate or as otherwise permitted
pursuant to Section 9.07 of the Credit Agreement. Neither the Company nor any
Subsidiary of the Company will repurchase any equity interests of the Company
except on a basis which is pro rata among all the holders of such equity
interests (including, without limitation, in the event any Warrants are
outstanding the holders of Warrants shall have the option to sell their Warrant
Interests pursuant to such repurchase (with the repurchase price per share to be
reduced by the exercise price)). Neither the Company nor any subsidiary shall
sell a material amount of assets to, or purchase a material amount of assets
from, an Affiliate of the Company, it being agreed that a merger or similar
transaction between the Company and an Affiliate shall not constitute a sale or
purchase of a material amount of assets.
4.05 REPURCHASE OF EQUITY INTERESTS. The Company covenants and
agrees that it will not, without prior written notice to any Holder which is
subject to the provisions of the Bank Holding Company Act of 1956, as amended
(including Regulation Y promulgated thereunder), directly or indirectly,
purchase, redeem, retire or otherwise acquire any partnership interests if, as a
result of such purchase, redemption, retirement or other acquisition, such
Holder, together with its Affiliates, will own, or be deemed to own, Warrant
Interests representing capital equal to 25% or more of the aggregate equity
interests then outstanding (assuming the exercise of all Warrants then held by
such Holder and its Affiliates).
4.06 REGULATORY MATTERS. The Company agrees to cooperate in good
faith with and assist any Holder or any of the Holders' Affiliates as any Holder
may reasonably request in connection with any United States banking regulatory
issues that may arise with respect to the Holder's ownership of the Warrant or
any Warrant Interest.
4.07 NOTICE OF EXPIRATION. The Company covenants and agrees to give
each Holder of a Warrant, as reflected in the books and records of the Company,
prior written notice of the expiration of the Exercise Period of the respective
Warrants. Such notice shall be delivered not less than thirty (30) days but not
more than sixty (60) days prior to such expiration; provided that if the Company
fails to give such notice, the expiration of such Exercise Period shall not
occur, as to the respective Warrants, until thirty (30) days after such notice
is delivered.
4.08 CREDIT AGREEMENT DEBT. It is recognized and agreed that the
fair market value of the Warrants, when taken together with the terms of the
indebtedness arising under the Credit Agreement ("Credit Agreement Debt"), will
not result in any original issue discount for federal income tax purposes
("OID") with respect to the Credit Agreement Debt and the Company agrees not to
claim any OID with respect to the Credit Agreement Debt.
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4.09 PREEMPTIVE RIGHTS. In case the Company shall at any time after
the date of this Agreement in any manner issue or sell any shares of its Common
Stock (other than issuances pursuant to the exercise of Existing Warrants) or
rights, options or warrants to subscribe for or purchase, or other securities
exchangeable for or convertible into, shares of Common Stock (any such rights,
options, warrants or other securities being herein called "Rights"), whether or
not such Rights are immediately exercisable or convertible, other than if made
as a distribution or dividend to all holders of Common Stock, the Company will
give to the Holders written notice (an "Offer Notice") of the Company's
decision, describing the type of Common Stock or Right, the price, and the
general terms upon which the Company has decided to issue such securities. The
Holders shall have twenty-one (21) days from the date on which the Company shall
give the written Offer Notice to agree to purchase such Holder's PRO RATA share
(as described in the next succeeding sentence) of the Common Stock or Rights
proposed to be issued plus its PRO RATA share of the shares of Common Stock and
Rights which the other Holders are entitled to purchase pursuant to this Section
and are not purchased by other Holders, of such Common Stock or Rights for the
price and upon the terms specified in the Offer Notice, by giving written notice
to the Company and stating therein the quantity of Common Stock or Rights to be
purchased by the Holder. The Holders shall be entitled to purchase an amount of
shares of Common Stock and Rights equal to the product of (i) the number of
shares of Common Stock and Rights proposed to be issued and sold multiplied by
(ii) a fraction, the numerator of which is the number of shares of Common Stock
then owned by such Holder which were acquired upon exercise of the Warrants plus
the number of shares of Common Stock which such Holder would be entitled to
purchase upon the exercise of any Rights owned by such Holder immediately prior
to the time of determination and the denominator of which is the total number of
shares of Common Stock then issued and outstanding plus the number of shares of
Common Stock which would be issued upon the exercise of any Rights held by all
holders. In the event that the Holder and the other holders of Warrants or
Warrant Interests shall fail or refuse to exercise in full their preemptive
rights within said twenty-one (21) day period, the Company shall have one
hundred twenty (120) days thereafter to sell the quantity of Common Stock or
Rights which the Holder did not agree to purchase pursuant to this Section, at a
price and upon general terms no more favorable to the purchasers thereof than
specified in the Company's Offer Notice to the Holder. In the event the Company
has not sold the Common Stock or Rights within said period of one hundred twenty
(120) days, the Company will not thereafter issue or sell any Common Stock or
Rights without first offering such securities to the Holder in the manner
provided by the foregoing provisions of this Section. In no event shall any
Holder be entitled to any rights pursuant to this Section 4.09 in the case of
the issuance or sale of shares of Common Stock or Rights (a) for a consideration
other than cash, (b) to providers (other than providers who are Affiliates of
the Company) of debt or preferred stock financing as part of such debt or
preferred stock financing or (c) constituting, or upon the exercise of,
Management Options (as defined in the Warrant).
4.10 USE OF PROCEEDS. The Company agrees that it will use the
proceeds from the sale of the Warrant to PPI and the proceeds from the exercise
of the Warrant for general corporate and working capital purposes and not for
any purpose that would be a violation of Section 107.720 of Title 13 of the Code
of Federal Regulations.
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4.11 BUSINESS. For a period of one year following the date hereof,
the Company will not and will not permit its subsidiaries to, change its
business activity if such change would render the Company ineligible to receive
financial assistance from a Small Business Investment Company under the Small
Business Act and the regulations thereunder. If the Company breaches this
covenant, then, PPI may demand that the Company and, subject to the terms of the
Credit Agreement, the Company shall immediately purchase all securities acquired
by PPI at a purchase price equal to PPI's original cost.
4.12 NON-DISCRIMINATION. The Company will at all time comply with
the nondiscrimination requirements of 13 C.F.R., Parts 112, 113 and 117.
Section 5. REGISTRATION RIGHTS.
5.01 REGISTRATION UNDER SECURITIES ACT.
(a) REGISTRATION ON REQUEST. (i) Subject to the last sentence of
this clause (i), any time and from time to time after the date hereof, upon the
request of the holders of a majority of the Registrable Securities, the Company
will promptly give written notice of such requested registration to all
registered holders of Registrable Securities, and thereupon the Company, in
accordance with the provisions of Section 5.01(c) hereof, will use its best
efforts to effect the registration under the Securities Act of:
(A) the Registrable Securities which the Company has been so
requested to register for disposition in accordance with the intended
method or methods of disposition stated in such request, and
(B) all other Registrable Securities which the Company has been
requested to register by the holders thereof by written request given
to the Company within 20 days after the giving of such written notice
by the Company (which request shall specify the intended method of
disposition of such Registrable Securities),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered. The Company shall be required to effect no more than two "long-form
registrations" pursuant to this Section 5.01(a) (i.e., registrations on Form S-
1) but there shall be no limit on "short-form registrations" pursuant to this
Section 5.01(a) (i.e., registrations on Form S-2 or S-3 or other short-form
registrations).
In no event may Holders request a registration pursuant to this
Section unless such Holders request the registration of at least 2% of the
outstanding shares of Common Stock of the Company. The Company shall not be
obligated to take any action to effect any registration requested pursuant to
this Section 5.01(a) during the period starting with the date 30 days prior to
the Company's estimate of the date of filing of, and ending on a date 90 days
after the effective date
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of, a Company initiated registration, provided that the Company is using all
reasonable efforts to cause such registration statement to become effective.
(ii) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 5.01(a) shall not be deemed to be effected (A) if a
registration statement with respect thereto shall not have become effective
unless the registration statement shall not have become effective because the
Holders requesting such registration requested that such registration be
withdrawn, (B) if, after it has become effective, such registration is
interfered with for any reason by any stop order, injunction or other order or
requirement of the Commission or any other governmental agency or any court, and
the result of such interference is to prevent the holders of Registrable
Securities to be sold thereunder from disposing thereof in accordance with the
intended methods of disposition, or (C) if the conditions to closing specified
in the purchase agreement or underwriting agreement entered into in connection
with any underwritten registration shall not be satisfied or waived with the
consent of the underwriters of such Registrable Securities that were to have
been sold thereunder, other than as a result of any breach by any such holder of
its obligations thereunder or hereunder.
(iii) REGISTRATION STATEMENT FORM. Registrations under this Section
5.01(a) shall be on such appropriate registration form of the Commission as
shall be selected by the Company and as shall permit the disposition of the
Registrable Securities so to be registered in accordance with the intended
method or methods of disposition specified in the request of the holders of
Registrable Securities being registered for such registration. The Company
agrees to include in any such registration statement all information which the
holders of Registrable Securities being registered shall reasonably request.
(iv) EXPENSES. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section 5.01(a). To
the extent expenses of the registration are not required to be paid by the
Company, each holder of securities included in the registration will pay those
expenses allocable to the registration of such holder's securities, and any
expenses not so allocable will be borne by all sellers of securities included in
the registration in proportion to the aggregate selling price of the securities
to be so registered.
(v) SELECTION OF UNDERWRITERS. If a requested registration pursuant
to this Section 5.01(a) involves an underwritten offering, the managing
underwriter or underwriters shall be selected by a majority of the holders of
Registrable Securities requested to be included in such registration, such
underwriter to be reasonably satisfactory to the Company.
(vi) PRIORITY IN REQUESTED REGISTRATIONS. If a requested
registration pursuant to this Section 5.01(a) involves an underwritten offering,
and the managing underwriter shall advise the Company in writing (with a copy to
each Person requesting registration of Registrable Securities) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities requested
to be included therein, the Company will include in
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such registration to the extent of the number which the Company is so advised
can be sold in such offering PRO RATA among the holders of Registrable
Securities requesting inclusion therein in accordance with the number of
securities requested to be included in such registration by each such holder;
PROVIDED, that if, as a result of the preceding clause, the number of
Registrable Securities registered and sold on behalf of holders of
Registrable Securities in any registration requested pursuant to this Section
5.01(a) is less than 50% of the Registrable Securities as to which such
holders requested registration pursuant to this Section 5.01(a), then such
registration shall be deemed to be a registration under Section 5.01(b)
hereof and not under Section 5.01(a) hereof. If this Section 5.01(a) is
applicable in connection with any such registration, without the written
consent of the holders of at least a majority of the Registrable Securities,
no securities other than Registrable Securities shall be covered by such
registration and the Company will not grant any registration rights
inconsistent with the provisions of this Section 5.01(a).
(b) INCIDENTAL REGISTRATION. (i) RIGHT TO INCLUDE REGISTRABLE
SECURITIES. If the Company at any time proposes to register any of its equity
securities under the Securities Act (other than by a registration on Form S-4 or
S-8 or any successor or similar forms, and other than pursuant to Section
5.01(a)), whether or not for sale for its own account, the Company will each
such time give prompt written notice to all holders of Warrants and of
Registrable Securities of its intention to do so and of such holders' rights
under this Section 5.01(b). Upon the written request of any holder of
Registrable Securities made within 20 days after the receipt of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such holder and the intended method of disposition thereof), the Company
will, subject to the provisions of paragraph (iii) of this Section 5.01(b), use
its best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holders thereof, to the extent required to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Securities so to be registered; PROVIDED, that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to each Requesting Holder and, thereupon,
(A) in the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation, to pay the Registration Expenses, if
any, in connection therewith), and (B) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities (but will
pay Registration Expenses, if any, as and when the same become due and payable
during such delay).
(ii) EXPENSES. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 5.01(b). To the extent expenses of the registration are not
required to be paid by the Company, each holder of securities included in the
registration will pay those expenses allocable to the registration of such
holder's
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securities, and any expenses not so allocable will be borne by all sellers of
securities included in the registration in proportion to the aggregate selling
price of the securities to be so registered.
(iii) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration
pursuant to this Section 5.01(b) involves an underwritten offering, and the
managing underwriter shall advise the Company in writing, that, in its opinion,
the number of securities requested and otherwise proposed to be included in such
registration exceeds the number which can be sold in such offering within a
price range acceptable to the Company, the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in such offering, (A) if the registration is a primary registration on
behalf of the Company, (x) first, the securities requested to be included in
such registration by the Company until such time as the Company has raised after
the date hereof in public offering gross proceeds of $20 million from the sale
of common equity, (y) second, the Registrable Securities and securities of other
Persons requested to be included in such registration PRO RATA in accordance
with their ownership interests (assuming the exercise of all Warrants) and (B)
if the registration is a secondary registration on behalf of Persons other than
the Company, the Registrable Securities and securities of the other Persons
included in such registration PRO RATA in accordance with their ownership
interests (assuming the exercise of all Warrants). Notwithstanding anything to
the contrary contained in the foregoing, in the event that a reduction in the
number of securities included in an incidental registration is required to be
made in accordance with this Section 5.01(b)(iii), in no event shall the number
of securities to be included by Steven W. Bershad be reduced (except to allow
the Company to include securities) until such time as Mr. Bershad has sold in a
manner after the date hereof at least 1,137,031 shares of Common Stock of the
Company.
(c) REGISTRATION PROCEDURES. If and whenever the Company is required
to use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 5.01(a) and (b) the Company
will as expeditiously as possible:
(i) prepare and as soon thereafter as possible file with the
Commission the requisite registration statement to effect such registration
and thereafter use its best efforts to cause such registration statement to
become effective; PROVIDED, that before filing such registration statement
or any amendments thereto, the Company will furnish to the Requesting
Holders copies of all such documents proposed to be filed;
(ii) 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 continuously effective for a period of either (A) not less than
nine months (subject to extension pursuant to the last paragraph of this
Section 5.01(c)) or (B) such shorter period as will terminate when all of
the securities covered by such registration statement have been disposed of
in accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement (but in any event
not before the expiration of any longer period required under the
Securities Act), and to comply with the provisions of the Securities Act
with respect to the disposition of all
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securities covered by such registration statement until such time as all of
such securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement;
(iii) furnish to each Requesting Holder such number of conformed copies
of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits, but only one copy thereof to
each such Requesting Holder), such number of copies of the prospectus
contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under
Rule 424 under the Securities Act, in conformity with the requirements of
the Securities Act, and such other documents in order to facilitate the
disposition of the Registrable Securities owned by such Requesting Holder,
as such Requesting Holder may reasonably request;
(iv) use its best efforts to register or qualify such Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions where an
exemption is not available, as each seller thereof shall reasonably
request, to keep such registration or qualification in effect for so long
as such registration statement remains in effect, and to take any other
action which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the securities owned
by such seller; PROVIDED, that the Company shall not for any such purpose
be required to (A) qualify generally to do business as a foreign
corporation in any jurisdiction where it would not otherwise be required to
qualify but for the requirements of this clause (iv), (B) consent to
general service of process in any such jurisdiction or (C) subject itself
to taxation in such jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Company to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller (and the underwriters, if any) of:
(A) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), and
(B) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under
the underwriting agreement), signed by the independent
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public accountants who have certified the Company's financial
statements included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included, therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities;
(vii) promptly notify each seller of Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the discovery of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and at the request
of any such seller promptly prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
a period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act, and will promptly
furnish to each seller of Registrable Securities a copy of any amendment or
supplement to such registration statement or prospectus;
(ix) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by such registration statement from
and after a date not later than the effective date of such registration
statement; and
(x) use its best efforts (A) to cause all such Registrable Securities
covered by such registration statement to be listed on any national
securities exchange (if such Registrable Securities are not already so
listed), and on any other securities exchange, on which similar securities
issued by the Company are then listed, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (B) to
secure the designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within
the meaning of Rule 11Aa2-1 of the Commission or, failing that, to secure
NASDAQ authorization for such Registrable Securities, in each case if the
Registrable
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Securities so qualify, in the case of each action referred to in this
clause (B) if requested by a majority of holders covered by such
registration statement or by the managing underwriter.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
clause (vii) of this Section 5.01(c), such holder will forthwith discontinue
such holder's disposition of Registrable Securities pursuant to the registration
statement relating to such Registrable Securities until such holder's receipt of
the copies of the supplemented or amended prospectus contemplated by clause
(vii) of this Section 5.01(c) and, if so directed by the Company, such holder
will use its best efforts to deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such holder's possession,
of the prospectus relating to such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the applicable time period mentioned in clause (ii) of this Section 5.01(c)
during which a Registration Statement is to remain effective shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to clause (vii) of this Section 5.01(c), to and
including the date when each seller of a Registrable Security covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by clause (vii) of this Section 5.01(c).
(d) UNDERWRITTEN OFFERINGS. (i) REQUESTED UNDERWRITTEN OFFERINGS.
If requested by the underwriters for any underwritten offering of Registrable
Securities pursuant to a registration requested under Section 5.01(a), the
Company will enter into an underwriting agreement with such underwriters for
such offering. Such agreement shall be reasonably satisfactory in substance and
form to the Company and the holders of a majority of the Registrable Securities
included in such registration and the underwriters and shall contain such
representations and warranties by the Company and by the selling shareholders
and such other terms as are generally prevailing in agreements of this type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 5.01(f). The holders of Registrable Securities to be
distributed by such underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such holders and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement be conditions precedent
to the obligations of such holders of Registrable Securities.
(ii) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 5.01(b) and such securities are to be distributed by or
through one or more underwriters, (i) the managing underwriter
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or underwriters shall be selected by the Company, and (ii) the Company will, if
requested by any holder of Registrable Securities as provided in Section
5.01(b), and subject to the provisions of Section 5.01(b)(iii), use its best
efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such holder among the securities to be
distributed by such underwriters. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Company and such underwriters and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities.
(iii) HOLDBACK AGREEMENTS. (I) The Company agrees without the
consent of the managing underwriter not to effect any public sale or
distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during such period of
time (but not to exceed 180 days after any underwritten registration pursuant to
Section 5.01(a) or (b) has become effective) as may be requested by the
underwriters, except as part of such underwritten registration and except
pursuant to registrations on Form S-4 or S-8, or any successor or similar forms
thereto or pursuant to an unregistered offering to employees of the Company or
its Subsidiaries pursuant to an employee benefit plan as defined in Rule 405 of
Regulation C under the Securities Act; PROVIDED, that the provisions of this
clause shall not prevent the conversion or exchange of any securities pursuant
to their terms into or for other securities.
(II) Each Holder agrees not to effect any public sale or
distribution of the issue being registered or a similar security of
the Company, or any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144
under the Securities Act during the 14 days prior to, and during the
180-day period (or such shorter period as may be agreed to by the
Company) beginning on, the effective date of any registration
statement filed by the Company with respect to the sale of equity
securities (other than a filing pursuant to Form S-8) (except as part
of such registration), if and to the extent requested by the managing
underwriters in the case of an underwritten public offering.
(e) PREPARATION, REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants the opportunity to participate
in the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or supplement
thereto, and will give each of them such customary access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders, and such
underwriters' and such
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holders' respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act provided that the Company receives customary
confidentiality agreements from such persons.
(f) INDEMNIFICATION. (i) INDEMNIFICATION BY THE COMPANY. In the
event of any registration of any securities of the Company under the Securities
Act pursuant to this Section 5.01, the Company will, and hereby does, indemnify
and hold harmless, the seller of any Registrable Securities covered by such
registration statement, its directors, officers, agents and employees, each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller or any
such director, officer, agent, employee, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (A) any untrue
statement or alleged untrue statement of any material fact contained (x) in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein or used in connection with the offering of
securities covered thereby, or any amendment or supplement thereto or any
document included by reference therein, or (y) in any application or other
document or communication (in this Section 5.01(f) collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify any securities covered by such registration statement under
the "blue sky" or securities laws thereof, or (B) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such seller and each such director, officer, agent, employee,
underwriter and controlling person for any legal or any other expenses incurred
by them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; PROVIDED, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or alleged
omission, made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement, or in any
application, in reliance upon and in conformity with written information
prepared and furnished to the Company by such seller specifically for use in the
preparation thereof which information contained any untrue statement of any
material fact or omitted to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and PROVIDED
FURTHER, that the Company shall not be liable to any Person who participates as
an underwriter in any such registration or any other Person who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended
(provided it has been made available to such Person in accordance with the terms
hereof), to the Person asserting an untrue statement or alleged untrue statement
or omission or alleged omission at or prior to the written confirmation of the
sale of the securities to such Person
-19-
if such statement or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, officer, agent,
employee, underwriter or controlling Person and shall survive the transfer of
such securities by such seller. The Company shall not be obligated to pay the
fees and expenses of more than one counsel or firm of counsel for all parties
indemnified in respect of a claim for each jurisdiction in which such counsel is
required unless in the reasonable judgment of any such indemnified party a
conflict of interest may exist between such indemnified party and any other
indemnified party in respect of such claim.
(ii) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to this Section 5.01, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in clause (i) of this Section 5.01(f)) the Company, each director of the
Company, each officer of the Company and each other Person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
application, if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
prepared and furnished to the Company by such seller specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, or such application,
which information contained any untrue statement of any material fact or omitted
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling Person and shall survive
the transfer of such securities by such seller. The indemnity provided by each
seller of securities under this Section 5.01(f)(ii) shall be provided severally,
and not jointly or jointly and severally with any other seller or prospective
seller of securities, and shall be limited in amount to the net amount of
proceeds received by such seller from the sale of Registrable Securities
pursuant to such registration statement.
(iii) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
5.01(f), such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; PROVIDED, that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 5.01(f), except
to the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, the indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent
-20-
that it may wish, with counsel reasonably satisfactory to such indemnified
party. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(iv) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 5.01(f) (with
appropriate and reasonable modifications) shall be given by the Company and each
seller of Registrable Securities with respect to any required registration or
other qualification of securities under any federal, state or provincial law or
regulation of any governmental authority, other than the Securities Act.
(v) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section 5.01(f) shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, subject to refund if the party
receiving such payments is subsequently found not to have been entitled thereto
hereunder.
(vi) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by this
Section 5.01(f) is for any reason not available, the parties required to
indemnify by the terms hereof shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company, any seller of Registrable
Securities and one or more of the underwriters, except to the extent that
contribution is not permitted under Section 11(f) of the Securities Act. In
determining the amounts which the respective parties shall contribute, there
shall be considered the relative benefits received by each party from the
offering of the Registrable Securities (taking into account the portion of the
proceeds of the offering realized by each), the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or omission and
any other equitable considerations appropriate under the circumstances. The
Company and each Person selling securities agree with each other that no seller
of Registrable Securities shall be required to contribute any amount in excess
of the amount such seller would have been required to pay to an indemnified
party if the indemnities under clauses (i) and (ii) above of this Section
5.01(f) were available. The Company and each such seller agree with each other
and the underwriters of the Registrable Securities, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by PRO RATA or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Registrable Securities. For
purposes of this clause (vi), each Person, if any, who controls an underwriter
within the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as such underwriter, and each director and each officer
of the Company who signed the registration statement, and each Person, if any,
who controls the Company or a seller of Registrable Securities within the
meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Company or a seller of Registerable
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Securities, as the case may be. Notwithstanding the foregoing, no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act shall be entitled to contributions from any person who is not
guilty of such fraudulent misrepresentation.
(g) PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registration hereunder unless such Person agrees
to sell such Person's securities on the basis provided in any underwriting
arrangements reasonably approved by the Company.
(h) LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO OBLIGATIONS UNDER
REGISTRATION COVENANTS. The obligations of the Company under this Section 5 to
file and to use its best efforts to cause the Registerable Securities to be
registered under the Securities Act are subject to the limitation, condition and
qualification that the Company shall be entitled to postpone for a reasonable
period of time (but not exceeding 60 days) the filing of any registration
statement otherwise required to be prepared and filed by it pursuant to this
Section 5 if the Company determines, in its reasonable judgment, that such
registration and offering would interfere with any financing, acquisition,
corporate reorganization or other material transaction involving the Company or
would require premature disclosure thereof and promptly gives the holders of
Registerable Securities requesting registration thereof pursuant to Section 5
written notice of such determination, containing a general statement of the
reasons for such postponement and an approximation of the anticipated delay.
5.02 RULE 144. The Company will file the reports required to be
filed by it under the Exchange Act and the rules and regulations adopted by the
Commission thereunder (or, if the Company is not required to file such reports,
will, upon the request of any holder of Registrable Securities, make publicly
available other information) and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with such requirements.
5.03 RULE 144A. The Company covenants that, except at such times as
the Company is a reporting company under Section 13 or 15(d) of the Exchange
Act, the Company shall, upon the written request of any holder of Registrable
Securities, provide to any such holder and to any prospective institutional
transferee of Registrable Securities designated by such holder, such financial
and other information as is available to the Company or can be obtained by the
Company without material expense and as such holder may reasonably determine is
required to permit a transfer of such Registrable Securities to comply with the
requirements of Rule 144A promulgated under the Securities Act.
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5.04 OTHER REGISTRATION RIGHTS. The Company will not grant to any
Affiliate of the Company the right to request the Company to register any equity
securities of the Company, or any securities convertible or exchangeable into or
exercisable for such securities, without the written consent of the holders of
at least a majority of all Registrable Securities at the time outstanding unless
such registration rights permit the holders of the Registrable Securities to
piggyback on all such registrations on a PRO rata basis (determined by ownership
and after giving effect to all cutbacks) with such Affiliate except as otherwise
permitted pursuant to the last sentence of Section 5.01(b)(iii). The Company
represents and warrants to the holders of Registrable Securities that on the
date hereof there are no other "registration rights" held by any Person except
for the Existing Warrants.
Section 6. OTHER RIGHTS AND OBLIGATIONS.
6.01 TAG ALONG RIGHTS. (a) In the event that Stephen W. Bershad or
any Affiliate of Stephen W. Bershad (the "Tag-Along Offeror") intends to sell,
transfer or otherwise in any manner dispose of (other than in connection with
the granting of a security interest in such securities) any shares of Common
Stock owned by him (the "Tag-Along Shares"), other than sales which when
aggregated with all other sales by Mr. Bershad after the date hereof, aggregate
less than 1,137,031 shares of Common Stock, the Tag-Along Offeror shall provide
written notice (the "Tag-Along Notice") to the Holder (and any assignee of the
Holder's rights hereunder who has acquired Common Stock issued upon exercise of
such Holder's Warrant) (the "Tag-Along Offeree") in the manner set forth in this
Section 6.01. The Tag-Along Notice shall identify the proposed transferee or
transferees, the Tag-Along Shares, the Tag-Along Offeree's rights pursuant to
this Section 6.01 (the "Tag-Along Offer"), the estimated expenses associated
with the sale, a description of the price and all the other terms and conditions
of the Tag-Along Offer. The Tag-Along Offeror shall not be permitted to sell,
transfer or otherwise dispose (other than in connection with the granting of a
security interest in such securities) of any shares of Common Stock owned by him
otherwise than as provided in this Section 6.01. In the event that the
consideration payable in a Tag-Along Offer consists in whole or in part of a
consideration which a Tag-Along Offeree is prohibited by law from receiving or
holding, then the Tag-Along Offeree shall receive in lieu of such consideration
cash in an amount equal to the fair market value of such consideration. In
connection with any such sale, neither the Tag-Along Offeror nor any of its
Affiliates shall receive any benefits of any type not received by the Tag-Along
Offeree on a PRO RATA basis, including, without limitation, any consulting, non-
competition, investment banking or other fees other than employment compensation
received in the ordinary course of business for employment services actually
provided by such person to the purchaser in any Tag-Along Offer after
consummation thereof. Notwithstanding the foregoing, the Tag-Along Offeree
shall be responsible for its PRO RATA share of all estimated expenses associated
with the sale. The timing provisions of this Section 6.01 shall not apply to
Tag-Along Offers structured as a merger, consolidation or similar transaction in
which all holders of shares of Common Stock are permitted or required to
transfer their interest on the same terms.
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(b) The Tag-Along Offeree shall have the right and option,
exercisable as set forth below, to accept the Tag-Along Offer for up to such
number of shares of Common Stock in respect of which the Tag-Along Offer is
made, as is determined in accordance with the provisions of this Section 6.01.
The terms of any sale of such shares of Common Stock by a Tag-Along Offeree
pursuant to the exercise of its option under this Section 6.01 shall be the same
terms as those for the sale of shares of Common Stock by the Tag-Along Offeror
as set forth in the Tag-Along Notice; PROVIDED, that the Tag-Along Offeree shall
not be required to give any representations except as to such Tag-Along
Offeree's ownership interests in the Company and its ability to sell such
interests; PROVIDED, FURTHER, HOWEVER, the Holder shall be required to
participate in any indemnity obligations of the selling stockholders on several
not joint, PRO RATA basis so long as the aggregate amount of such holders
indemnity obligation does not exceed the net proceeds received by such person in
connection with such Tag-Along Offer. If the Tag-Along Offeree desires to
exercise such option, it shall provide the Tag-Along Offeror with irrevocable
written notice (the "Tag-Along Acceptance"), specifying, subject to Section
6.01(c), the number of shares of Common Stock as to which it is accepting the
Tag-Along Offer, within 15 Business Days after the date on which the Tag-Along
Notice is given (the "Tag-Along Notice Period").
(c) The Tag-Along Offeree shall have the right to sell, pursuant to
the Tag-Along Offer, a number of shares of Common Stock (the "Tag Along Offeree
Shares") equal to the lesser of (i) the number specified in its Tag-Along
Acceptance or (ii) the number of shares of Common Stock equal to the product of
(i) the total number of shares of Common Stock constituting the Tag-Along
Shares, and (ii) a fraction, the numerator of which shall be the total number of
shares of Common Stock held by such Tag-Along Offeree and the denominator of
which shall be the total number of the then outstanding shares of Common Stock
held by the Tag-Along Offeror and the Tag-Along Offeree; PROVIDED, HOWEVER, in
the event that after giving effect to the sale by the Tag-Along Offeror pursuant
to such Tag-Along Offer, the Tag-Along Offeror and its Affiliates shall own less
than 50% of the amount of shares of Common Stock owned by them on the date
hereof, then in connection with such sale pursuant to the Tag-Along Offer, the
Tag-Along Offeree shall have the right to sell all shares of Common Stock owned
by such Tag-Along Offeree.
(d) If at the termination of the Tag-Along Notice Period the Tag-
Along Offeree shall not have accepted the Tag-Along Offer, the Tag-Along Offeree
will be deemed to have waived any and all of its rights under this Section 6.01
with respect to the sale or other disposition of any shares of Common Stock
pursuant to such Tag-Along Offer as described in the Tag-Along Notice. The Tag-
Along Offeror shall have 120 days in which to sell the Tag-Along Shares and Tag-
Along Offeree Shares not otherwise excluded pursuant to the previous sentence,
at a price not higher than that contained in the Tag-Along Notice and on terms
not materially more favorable to the Tag-Along Offeror than were contained in
the Tag-Along Notice. If, at the end of such 120 day period the Tag-Along
Offeror has not completed the sale of all the Tag-Along Shares, this Section
6.01 shall again apply to offers and sales of Tag-Along Shares.
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(e) Notwithstanding anything contained in this Section 6.01, there
shall be no liability on the part of the Tag-Along Offeror to any person if the
sale of Tag-Along Shares pursuant to this Section 6.01 is not consummated for
whatever reason other than because of the breach by the Tag-Along Offeror of
this Section 6.01. The Tag-Along Offeror shall have full and absolute
discretion to effect or not to effect a sale of shares of Common Stock pursuant
to this Section 6.01.
6.02 BOARD OBSERVATION RIGHTS. All of the Holders, as a group, by
vote of the Required Holders, shall be entitled to have up to two
representatives attend all meetings of the Board of Directors of the Company at
the expense of the Company. The Company agrees to give the Holders (and any
permitted assignee of the Holders' rights hereunder) prior written notice of all
such meetings promptly after the scheduling thereof and in any event no later
than five business days prior to such meeting, or if such meeting is scheduled
less than five business days in advance, on the date on which the date of the
Board meeting is set; PROVIDED, HOWEVER, that to the extent any Holder is a
Person or an Affiliate of any Person providing financing to the Company, such
Holder's representatives may be excluded from that portion of any Board or
committee meeting at which the financing provided by such Person is discussed.
6.03 DRAG-ALONG RIGHTS. (a) At the option of the Company, if at any
time the Company's Board of Directors approves the sale of the Company to any
person who is not an Affiliate of the Company (whether by merger, consolidation,
sale of all or substantially all of the Company's assets or sale of all of the
outstanding shares of Common Stock in which all of the stockholders are entitled
to participate) (an "Approved Sale"), each Holder agrees to sell all of such
Holder's Warrants plus the shares of Common Stock which were acquired upon the
exercise of the Warrants on the terms and conditions approved by the Company's
Board of Directors and, to the extent the Warrants have been converted, to vote
(or execute a consent with respect to) such shares in favor of the Approved
Sale. Notwithstanding the foregoing, no Holders shall be required to make any
representations and warranties to the purchaser in any Approved Sale other than
with respect to such Holder's title to its securities. At the request of the
Company's Board of Directors the Holders shall sell all of their Warrants to a
designee in furtherance of the consummation of an Approved Sale, for the amount
of consideration payable in accordance with Section 6.03(b) less the aggregate
exercise price thereof; provided, however, if the Approved Sale is not
consummated, then the Holders will be restored to the position they had been in
prior to such sale.
(b) The obligations of each Holder with respect to any Approved Sale
are subject to the satisfaction of the conditions that (a) upon the consummation
of the Approved Sale, each stockholder will receive the same form and amount of
consideration per share of outstanding Common Stock as is given to each other
stockholder, or if any holders are given an option as to the form and amount of
consideration to be received, all holders will be given the same option, and no
stockholder will be entitled to receive any benefits of any type not received by
all of the other stockholders on a PRO rata basis; PROVIDED, that (i) no
stockholder shall be required to accept any consideration which it is prohibited
by law from receiving and (b) in such event, such stockholder shall be entitled
to receive cash in an amount equal to the fair market value of such
consideration,
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and (ii) receipt by the Company of a written fairness opinion from an investment
banking firm of national prominence which is not an Affiliate of the Company or
of any stockholder and which is selected by the Company's Board of Directors
that the consideration per share of Common Stock to be received by each
stockholder is fair from a financial point of view. In determining the amount
of consideration per share payable to any stockholder in connection with an
Approved Sale, all consulting, noncompetition, investment banking or other fees
payable to such stockholder in connection with such Approved Sale shall be
deemed to be part of the consideration payable to such stockholder who is an
Affiliate in such Approved Sale other than compensation pursuant to employment
arrangements of the type described in Section 6.01(a). Notwithstanding the
foregoing, each stockholder shall be responsible for its PRO RATA share of all
estimated expenses associated with the sale.
Section 7. REGULATORY SALE OR DISPOSITION.
7.01 REGULATORY SALE OR DISPOSITION. Anything herein or in the
Warrants to the contrary notwithstanding, in the event that any Holder or any of
the Holders' Affiliates shall deliver to the Company an opinion of counsel to
such Holder or such Affiliate, as the case may be, to the effect that if such
Holder or such Affiliate, as the case may be, shall continue to hold some or all
of the Warrants or its Warrant Interest or any other securities of the Company
held by it, there is a material risk that such ownership will result in the
violation of any statute, regulation or rule of any governmental authority
(including, without limitation, Regulation Y), such Holder or such Affiliate, as
the case may be, may sell or otherwise dispose of its Warrants or Warrant
Interest, as the case may be, in as prompt and orderly a manner as is reasonably
necessary. The Company shall cooperate with such Holder or such Affiliate, as
the case may be, in disposing of its Warrants or Warrant Interest, and (without
limiting the foregoing) at the request of such Holder or such Affiliate, as the
case may be, the Company shall provide (and authorize such Holder or such
Affiliate, as the case may be, to provide) financial and other information
concerning the Company to any prospective purchaser of the Warrants or Warrant
Interest owned by such Holder or such Affiliate, as the case may be. The
provisions of this Section 7.01 shall inure solely to the benefit of the Holders
and their Affiliates which are subject to the provisions of the Bank Holding
Company Act of 1956, as amended (including Regulation Y promulgated thereunder).
The Company shall not be required to provide any information under this
Agreement unless the recipient thereof signs a confidentiality agreement
reasonably satisfactory to the Company, which confidentiality agreement shall in
any event include an acknowledgment by the recipient of such information of its
obligations under the United States securities laws relating to insider trading.
Section 8. MISCELLANEOUS.
8.01 EXPENSES. The Company agrees to pay all reasonable fees and
disbursements of the Holder (including reasonable fees and expenses of counsel)
in connection with the purchase and sale of the Warrants as contemplated by this
Agreement and in connection with any exercise of the Warrants, or any amendments
thereto, and the fees and disbursements of each Holder (including
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reasonable fees and expenses of counsel) in connection with the negotiation,
execution and delivery of this Agreement or the Warrants or any waiver or
consent hereunder or thereunder or any amendment hereof or thereof and in
connection with any filings or registrations required to be made in connection
with such Holder's ownership of the Warrants and the Warrant Interests
(including, without limitation, any filings under the Exchange Act, except as
otherwise set forth in the definition of Registration Expenses. In addition,
the Company agrees to pay any and all stamp, transfer and other similar taxes
payable or determined to be payable in connection with the execution and initial
delivery of this Agreement, any Warrants or the issuance or transfer of the
Warrants.
8.02 NOTICES. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made by telex, telegraph,
telecopy, cable or other writing and telexed, telecopied, telegraphed, cabled,
mailed or delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof; or, as to any party, at
such other address as shall be designated by such party in a notice to the
Company given in accordance with this Section 8.02. All such communications
shall be deemed to have been duly given when transmitted by telex or telecopier,
delivered to the telegraph or cable office or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
8.03 EXCLUSION. This Agreement and the Warrants shall be binding
upon, and inure solely to the benefit of the Company and the Holders and their
permitted successors and assigns, and no other Person shall acquire or have any
right under or by virtue of this Agreement or the Warrants. Transferees of the
original Holders of the Warrants on the date hereof shall not be entitled to the
benefits of this Agreement except that (a) Affiliates of Banque Paribas and PPI
and employees of such entities shall be entitled to all rights under this
Agreement so long as the exercise of any such rights shall be effected by Banque
Paribas or PPI, as the case may be, and Banque Paribas or PPI, as the case may
be, shall cause all such Affiliates and employees to comply with their
obligations under this Agreement and (b) a total of four additional Persons not
affiliated with Banque Paribas or PPI at any one time shall be entitled to be
Holders hereunder.
8.04 SPECIFIC PERFORMANCE. The Company acknowledges and agrees that
in the event of any breach of this Agreement or the Warrants by the Company, the
Holders would be irreparably harmed and could not be made whole by monetary
damages. The Company accordingly agrees (i) to waive the defense in any action
for specific performance that a remedy at law would be adequate, and (ii) that
the Holders, in addition to any other remedy to which they may be entitled at
law or in equity, shall be entitled to compel specific performance of this
Agreement or the Warrants in any action instituted in the United States District
Court for the Southern District of New York, or, in the event such Court would
not have jurisdiction for such action, in any court of the United States or any
state thereof having subject matter jurisdiction for such action.
8.05 NO WAIVERS. No failure or delay by any party in exercising any
right, power or privilege hereunder or under the Warrants except a failure to
exercise the purchase rights under
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the Warrants within the stated time period set forth therein shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies provided herein shall be cumulative and not
exclusive of any rights or remedies provided by law.
8.06 AMENDMENTS AND WAIVERS. Any provision of this Agreement or the
Warrants may be amended or waived if, but only if, such amendment or waiver is
in writing and signed by the Company and the Required Holders.
8.07 GOVERNING LAW. THIS AGREEMENT AND THE WARRANTS SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
8.08 COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatories thereto and hereto were upon the same instrument.
8.09 COMPANY AWARENESS. The Company acknowledges its awareness that
PPI is a Federal licensee under the Small Business Investment Act of 1958, as
amended.
8.10 TERMINATION. This Agreement (other than Sections 3, 4.02, 4.03,
4.13 (but in the case of Sections 4.02, 4.03 and 4.13 only to the extent any
Holder is a "small business investment concern" and such survival is reasonably
required in order for the "SBIC" to comply with applicable law), 4.05, 4.06,
4.07, 4.11, 4.12, 5, 7.01 and 8.01) shall terminate at such time as the Holders
and their Affiliates and employees own less than 2.5% of the outstanding shares
of the Company (assuming the exercise of all Warrants).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
VERNITRON CORPORATION
By________________________________
Title:
Address for Notices:
645 Madison Avenue
New York, New York 10022
Attention: Elliot Konopko
Telecopy Number: (212) 754-6348
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WARRANT INTERESTS
776,388 Shares of Common Stock PARIBAS PRINCIPAL, INC.
By________________________________
Title:
Address for Notices:
787 Seventh Avenue
New York, New York 10019
Attention: Donald Ercole
Telecopy Number: (212) 841-2363
666,312 Shares of Common Stock BANQUE PARIBAS
By________________________________
Title:
By________________________________
Title:
Address for Notices:
787 Seventh Avenue
New York, New York 10019
Attention: Donald Ercole
Telecopy Number: (212) 841-2363
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