SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"AGREEMENT") is made and entered into as of May 20, 1999 by and between Sports
Group International, Inc., a Florida corporation (the "COMPANY"), and Xxxxxx X.
Xxxxxxxx & Xxxxxxxx X. Xxxxxxxx, Trustees of the R.E. & X. Xxxxxxxx Living Trust
Dated 1/17/83 (the "INVESTOR").
W I T N E S S E T H:
WHEREAS, the Company desires to sell to the Investor, and the Investor
desires to purchase from the Company, shares of the Company's Series B Preferred
Stock and a Warrant to purchase shares of the Company's common stock on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK. The Company agrees to sell to the
Investor at the Closing, and the Investor agrees to purchase from the Company at
the Closing, (i) 650,000 shares of Series B Preferred Stock ("PURCHASED SHARES")
at a price of $10.00 per share and (ii) a warrant to purchase 1,000,000 shares
of the Company's common stock (the "WARRANT SHARES") in substantially the form
of EXHIBIT A attached hereto (the "WARRANT"). The shares of Company Common Stock
issuable upon the conversion of the Purchased Shares will be hereinafter
referred to as the "CONVERSION SHARES."
2. CLOSING. The purchase and sale of the Purchased Shares and the Warrant
will take place at the offices of Xxxxxxx & Xxxxxx, LLP, 000 Xxxx "X" Xxxxxx,
Xxxxx 0000, Xxx Xxxxx, XX 00000, at 10:00 a.m. Pacific Time, on May 20, 1999, or
at such other time and place on which the Company and the Investor mutually
agree (which time and place are referred to in this Agreement as the "CLOSING").
The Closing shall be concurrent with the closing of the contemplated acquisition
by the Company of all of the outstanding stock of Xxxxxx Systems, Inc., a Texas
Corporation (hereinafter "Xxxxxx"). At the Closing, the Company will deliver to
the Investor a certificate representing the Purchased Shares and the Warrant,
against delivery to the Company by wire transfer of same day funds in the amount
of $6,500,000.00.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as disclosed in
the Disclosure Schedule dated as of the date of this Agreement and delivered to
the Investor concurrently herewith (by specific reference to the section hereof
pursuant to which the disclosure is being made), the Company hereby represents
and warrants to the Investor that the statements in the following paragraphs of
this Section 3 are true and correct:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted and to enter into and perform this
Agreement and to carry out the transactions contemplated by this Agreement. The
Company has furnished to counsel to the Investor true and complete copies of its
Amended and Restated Articles of Incorporation (the "Restated Articles") and
Bylaws, each as amended to date and presently in effect. The Company is duly
qualified, licensed or domesticated as a foreign corporation in good standing in
each jurisdiction where the nature of its activities or of its owned or leased
properties makes such qualification, licensing or domestication necessary.
3.2 SUBSIDIARIES. Surf City Acquisition Corporation II, an Arizona
corporation ("Surf City"), is a wholly owned subsidiary of the Company, and the
Company owns all of the outstanding capital stock of Surf City free from any
liens or encumbrances other than the pledge in favor of Xxxxx Xxxxxxxxx
contemplated by the Restated Articles. The Company has entered into an agreement
to purchase all of the outstanding capital stock of Xxxxxx for six million, five
hundred thousand dollars ($6,500,000) in cash. Such agreement has been duly
executed and delivered by Xxxx X. Xxxxx (hereinafter "Xxxxx"), and constitutes a
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valid and legally binding obligation of Xxxxx, enforceable in accordance with
its terms, except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies. Upon the closing of the Xxxxxx
transaction, Xxxxxx will become a wholly-owned subsidiary of the Company, and
the Company will own all of the outstanding capital stock of Xxxxxx free from
any liens or encumbrances, except as otherwise disclosed on the Balance Sheet
attached to the Xxxxxx Purchase Agreement. Except for Surf City and Xxxxxx, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association, or other business entity. The Company
entered into a merger agreement with Sports Group International, Inc., a
Delaware corporation on March 15, 1999. The Investor understands and
acknowledges that the merger contemplated by the merger agreement has not been
consummated. Following its execution, it was determined that it could not be
effectuated as contemplated and thus the merger agreement will be terminated.
3.3 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders, necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the issuance and delivery of the Purchased Shares, the
Warrant, the Warrant Shares and the Conversion Shares has been taken or will be
taken prior to the Closing, and this Agreement has been duly executed and
delivered by the Company and constitutes a valid and legally binding obligation
of the Company, enforceable in accordance with its terms, except as may be
limited by (i) applicable bankruptcy, insolvency, reorganization or other laws
of general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the effect of rules of law governing the availability
of equitable remedies.
3.4 VALID ISSUANCE OF STOCK.
(a) The Purchased Shares and Warrant Shares have been reserved
for issuance and, when issued, sold and delivered in accordance with the terms
of this Agreement for the consideration provided for herein or upon exercise of
the Warrant in accordance with the terms thereof, will be duly and validly
issued, fully paid and nonassessable and will be free of any liens. The
Conversion Shares have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Articles, will be duly and
validly issued, fully paid and nonassessable and will be free of any liens.
(b) Based in part on the representations made by the Investor in
Section 4 hereof, the Purchased Shares, the Warrant Shares, when issued in
accordance with the terms of the Warrant, and (assuming no change in applicable
law and no unlawful distribution of Purchased Shares by the Investor or other
parties) the Conversion Shares, when issued in accordance with the terms of the
Restated Articles, will be issued in full compliance with the registration and
prospectus delivery requirements of the U.S. Securities Act of 1933, as amended
(the "1933 ACT"), and the registration and qualification requirements of the
securities laws of the State of California (PROVIDED THAT, with respect to the
Conversion Shares and the Warrant Shares, no commission or other remuneration is
paid or given, directly or indirectly, for soliciting the issuance of Conversion
Shares upon the conversion of the Purchased Shares or exercise of the Warrant
Shares, as the case may be, and no additional consideration is paid for the
Conversion Shares other than surrender of the applicable Purchased Shares or
Warrant Shares upon conversion thereof in accordance with the Restated
Articles).
3.5 CAPITALIZATION. Immediately prior to the Closing, the
capitalization of the Company will consist of the following:
(a) PREFERRED STOCK. A total of 2,000,000 authorized shares of
preferred stock, $.001 par value per share (the "PREFERRED STOCK"), consisting
of 575,000 shares designated as Series A Preferred Stock, 525,000 of which have
been validly issued and are outstanding and 50,000 of which have been reserved
for issuance upon exercise of an outstanding warrant (the "SERIES A WARRANT"),
and 650,000 shares designated as Series B Preferred Stock, none of which are
issued and outstanding. The rights, preferences and privileges of the Series A
Preferred Stock and Series B Preferred Stock will be as stated in the Restated
Articles and as provided by law.
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(b) COMMON STOCK. A total of 100,000,000 authorized shares of
common stock, no par value per share (the "COMMON STOCK"), of which 6,300,000
shares are issued and outstanding. Said number of shares assumes the merger
contemplated between the Company and Sports Group International, a Delaware
corporation will not be effectuated and the merger agreement will be terminated.
(c) OPTIONS, WARRANTS, RESERVED SHARES. Except for: (i) the
conversion privileges of the Series A Preferred Stock; (ii) the conversion
privileges of the Series B Preferred Stock; (iii) the Warrant; (iv) the Series A
Warrant; and (v) the Options granted to Xxxxx Xxxxxxxxx in his Employment
Agreement with the Company, there are not outstanding any options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock or
any securities convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock. Apart from the exceptions noted in
this Section 3.5(c), no shares of the Company's outstanding capital stock, or
other stock issuable by the Company, are subject to any rights of first refusal
or other rights to purchase such stock (whether in favor of the Company or any
other person or entity) pursuant to any agreement or commitment of the Company.
3.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for the filing pursuant to Section 25102(f) of the California
Corporate Securities Law of 1968, as amended, and the regulations thereunder,
which filing will be effected by the Company in a timely manner in accordance
with such section.
3.7 INDEBTEDNESS. The Company has no Indebtedness for Borrowed Money
(as hereinafter defined) except as disclosed on the Balance Sheet (as
hereinafter defined).
3.8 FINANCIAL STATEMENTS. Attached at Section 3.8 of the Disclosure
Schedule are (a) the Company's unaudited balance sheet (the "Balance Sheet") as
of December 31, 1998 (the "Balance Sheet Date") and the unaudited statements of
income, changes in financial condition, and shareholders' equity for the year
then ended. These financial statements (i) are in accordance with the books and
records of the Company, (ii) present fairly the financial condition of the
Company at the Balance Sheet Date and other dates therein specified and the
results of its operations for the periods therein specified, and (iii) have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior accounting periods.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on Section
3.9 of the Disclosure Schedule, the Company has no material obligation or
liability (whether accrued, absolute, contingent, liquidated or otherwise,
whether due or to become due, whether or not known to the Company) except (a) to
the extent set forth on or reserved against in the Balance Sheet and (b) current
liabilities incurred, and obligations under agreements entered into, in the
usual and ordinary course of business since the Balance Sheet Date that
(individually or in the aggregate) do not materially and adversely affect the
business, properties, finances or prospects of the Company.
3.10 TAX RETURNS AND AUDITS. All required federal, state and local tax
returns of the Company and its subsidiaries have been accurately prepared and
duly and timely filed, or are in the process of being prepared and filed and all
federal, state and local taxes required to be paid with respect to the periods
covered by such returns have been paid. Neither the Company nor any of its
subsidiaries is or has been delinquent in the payment of any tax, assessment or
governmental charge. Neither the Company nor any of its subsidiaries has ever
had any tax deficiency proposed or assessed against it and neither the Company
nor any of its subsidiaries has executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
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None of the Company's and none of its subsidiaries' federal income tax returns
nor any state income or franchise tax returns has ever been audited by
governmental authorities. The reserves for taxes, assessments and governmental
charges reflected on the Balance Sheet are and will be sufficient for the
payment of all unpaid taxes and governmental charges payable by the Company with
respect to the period ended on the Balance Sheet Date. Since the Balance Sheet
Date, the Company has made adequate provisions on its books of account for all
taxes, assessments and governmental charges with respect to its business,
properties and operations for such period. The Company and each of its
subsidiaries has withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment
Tax Act taxes) required to be withheld or collected therefrom, and has paid the
same to the proper tax receiving officers or authorized depositaries.
3.11 EMPLOYMENT BENEFIT PLANS-ERISA. Neither the Company nor any of
its subsidiaries maintains or makes contributions to any pension, profit sharing
or other employee retirement benefit plan. Neither the Company nor any of its
subsidiaries has any material liability with respect to any such plan
(including, without limitation, any unfunded past service or other liability or
any accumulated funding deficiency) or any material liability to the Pension
Benefit Guaranty Corporation or under Title IV of the Employee Retirement Income
Security Act of 1974, as amended, with respect to a multi-employer pension
benefit plan, nor would the Company or any of its subsidiaries have any such
liability if any such plan were terminated or if the Company or any of its
subsidiaries withdrew, in whole or in part, from any multi-employer plan.
3.12 INSURANCE COVERAGE. There is in full force and effect one or more
policies of insurance issued by insurers of recognized responsibility, insuring
the Company and its properties and business against such losses and risks, and
in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or similar business and similarly situated. The
Company has not been refused any insurance coverage sought or applied for, and
the Company has no reason to believe that it will be unable to renew its
existing insurance coverage upon terms at least as favorable as those presently
in effect, other than possible increases in premiums that do not result from any
act or omission of the Company.
3.13 LITIGATION. Except as set forth on Section 3.13 of the Disclosure
Schedule, there is no action, suit, proceeding, government inquiry or
investigation pending or currently threatened against the Company or any of its
subsidiaries that questions the validity of this Agreement or the right of the
Company to enter into it, or to consummate the transactions contemplated hereby,
or that might result, either individually or in the aggregate, in any material
adverse changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing.
Neither the Company nor any of its subsidiaries is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
3.14 INTELLECTUAL PROPERTY. To the best of the Company's knowledge,
the business conducted or proposed by the Company and its subsidiaries does not
and will not cause the Company to infringe or violate any of the patents,
trademarks, service marks, trade names, copyrights, licenses, trade secrets or
other intellectual property rights of any other person or entity and the Company
has not received any communications alleging such infringement or violation.
3.15 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, a default
under the Restated Articles or the Bylaws or any mortgage, instrument, judgment,
order, writ, decree or contract to which the Company is party or by which it is
bound.
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3.16 AFFILIATE TRANSACTIONS. Except as set forth at Section 3.16 of
the Disclosure Schedule, there are no agreements, understandings or proposed
transactions between the Company and any of its shareholders, officers,
directors, affiliates or any affiliate or associates thereof (as such terms are
defined in the rules and regulations under the Securities Act of 1933, as
amended).
3.17 REGISTRATION RIGHTS. Except as set forth at Section 3.17 of the
Disclosure Schedule, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants to the Company that the statements in the following
paragraphs of this Section 4 are true and correct:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Investor has
all requisite power and authority to enter into and perform this Agreement and
to carry out the transactions contemplated by this Agreement.
4.2 AUTHORIZATION. All action on the part of the Investor necessary
for the authorization, execution and delivery of this Agreement and the
performance of all obligations of the Investor hereunder has been taken or will
be taken prior to the Closing, and this Agreement has been duly executed and
delivered by the Investor and constitutes a valid and legally binding obligation
of the Investor, enforceable in accordance with its terms, except as may be
limited by (i) applicable bankruptcy, insolvency, reorganization or other laws
of general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the effect of rules of law governing the availability
of equitable remedies.
4.3 PURCHASE FOR OWN ACCOUNT. The Purchased Shares and the Warrant to
be purchased by the Investor hereunder will be acquired for investment for the
Investor's own account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the 1933 Act, and
the Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same. The Investor also represents that it has not
been formed for the specific purpose of acquiring Purchased Shares and the
Warrant.
4.4 ACCREDITED THE INVESTOR STATUS. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the 0000 Xxx.
4.5 RESTRICTED SECURITIES. The Investor understands that the Purchased
Shares or the Investor Stock are characterized as "restricted securities" under
the 1933 Act inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the 1933 Act and
applicable regulations thereunder such securities may be resold without
registration under the 1933 Act only in certain limited circumstances. In this
connection, the Investor represents that it is familiar with Rule 144 of the
U.S. Securities and Exchange Commission, as presently in effect, and understands
the resale limitations imposed thereby and by the 1933 Act. The Investor
understands that the Company is under no obligation to register any of the
securities sold hereunder except as provided in Section 7 hereof.
4.6 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Purchased Shares, the Conversion Shares
or the Warrant Shares unless and until:
(a) there is then in effect a registration statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
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(b) (i) the Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (ii) the Investor
shall have furnished the Company at the Investor's expense of an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require registration of such securities under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Purchased Shares, Warrant Shares or Conversion Shares in
compliance with SEC Rule 144, or (ii) for any transfer of Purchased Shares,
Warrant Shares or Conversion Shares or the Investor Stock by gift, will or
intestate succession to the spouse or lineal descendants or ancestors of Xxxxxx
X. Xxxxxxxx or Xxxxxxxx X. Xxxxxxxx or any trust for any of the foregoing;
PROVIDED that in each of the foregoing cases the transferee agrees in writing to
be subject to the terms of this Section 4 to the same extent as if the
transferee were an original party hereunder.
4.7 LEGENDS. It is understood that the certificates evidencing the
Purchased Shares, the Conversion Shares and the Warrant Shares will bear the
legends set forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 if the California Corporations Code or any other state
securities laws, including, with respect to the Purchased Shares, a legend
substantially in the form of the following:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE INTO SHARES OF
COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER AT ANY TIME PRIOR TO
AUTOMATIC CONVERSION THEREOF. A COPY OF SUCH ARTICLES OF INCORPORATION MAY BE
OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S PRINCIPAL OFFICE.
5. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT CLOSING. The obligations of
the Investor under Section 2 of this Agreement are subject to the fulfillment or
waiver, on or before the Closing, of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company contained in Section 3 shall be true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
5.2 RESTATED ARTICLES EFFECTIVE. The Restated Articles shall have been
duly adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders and duly filed with and accepted by the Secretary of
the State of Florida.
5.3 CERTIFICATES AND DOCUMENTS. The Company shall have delivered to
counsel to the Investor:
(a) The Restated Articles of Incorporation of the Company, as
amended and in effect prior to the Closing Date, to be certified by the
Secretary of State of Florida;
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(b) Certificates, as of the most recent practicable dates, as to
the corporate good standing of the Company issued by the Secretary of State of
Florida;
(c) Bylaws of the Company, certified by its Secretary or
Assistant Secretary as of the Closing Date; and
(d) Resolutions of the Board of Directors of the Company,
authorizing and approving all matters in connection with this Agreement and the
transactions contemplated hereby and reserving appropriate numbers of shares of
capital stock, certified by the Secretary or Assistant Secretary of the Company
as of the Closing Date.
5.4 SHARES TENDERED. The Company shall have tendered executed
certificates for the Purchased Shares.
5.5 WARRANT. The Company shall have executed and delivered to the
Investor the Warrant.
5.6 XXXXXX TRANSACTION. All conditions to the purchase by the Company
of the outstanding shares of capital stock of Xxxxxx (other than the payment of
the purchase price) shall have been satisfied and Xxxxx shall have tendered
certificates endorsed in favor of the Company representing all of the
outstanding capital stock of Xxxxxx.
5.7 SECURITIES EXEMPTIONS. The offer and sale of the Purchased Shares
and the Warrant to the Investor pursuant to this Agreement shall be exempt from
the registration requirements of the 1933 Act, the qualifications requirement of
the California Corporate Securities Law of 1968 (the "LAW") and the registration
and/or qualification requirements of all other applicable state securities laws.
5.8 OPINION OF COUNSEL. The Investor shall have received an opinion of
the Company's counsel, dated as of each Closing Date, in form, scope and
substance reasonably satisfactory to the Investor and in substantially the same
form as Exhibit "B" attached hereto.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to the Investor under this Agreement are subject to the fulfillment
or waiver on or before the Closing of each of the following conditions by the
Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor contained in Section 4 shall be true and correct on the date of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
6.2 PAYMENT OF CONSIDERATION. The Investor shall have delivered to the
Company by wire transfer the purchase price for the Purchased Shares and the
Warrant in accordance with the provisions of Section 2.
6.3 SECURITIES EXEMPTIONS. The offer and sale of the Purchased Shares
and the Warrant to the Investor and of the Investor Stock to the Company
pursuant to this Agreement shall be exempt from the registration requirements of
the 1933 Act, the qualifications requirements of the Law and the registration
and/or qualification requirements of all other applicable state securities laws.
7. REGISTRATION RIGHTS.
7.1 DEFINITIONS. For purposes of this Section 7:
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(a) REGISTRATION. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement.
(b) REGISTRABLE SECURITIES. The term "Registrable Securities"
means: (1) all the shares of Common Stock of the Company issued or issuable upon
the conversion of any shares of Series A and/or Series B Preferred Stock issued
and shares of Common Stock issued or issuable upon exercise of the Warrant and
(2) any shares of Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, the Series A and/or B Preferred Stock or all such shares of
Common Stock described in clause (1) of this subsection (b), as such shares may
be adjusted for any stock dividends, splits, reverse splits, combinations and
recapitalizations occurring after the closing; excluding in all cases, however,
any Registrable Securities sold to the public or sold pursuant to Rule 144.
(c) REGISTRABLE SECURITIES THEN OUTSTANDING. The number of shares
of "Registrable Securities then outstanding" shall mean the number of shares of
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) HOLDER. For purposes of this Section 7, the term "Holder"
means any person owning of record Registrable Securities that have not been sold
to the public pursuant to Rule 144 or any assignee of record of such Registrable
Securities.
(e) SEC. The term "SEC" or "Commission" means the U.S. Securities
and Exchange Commission.
7.2 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the 1933 Act for purposes of effecting a public
offering of securities of the Company (but excluding registration statements
relating to any employee benefit plan or a corporate reorganization) and will
afford each such Holder an opportunity to include in such registration statement
all or any part of the Registrable Securities then held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of
the Registrable Securities held by such Holder shall, within twenty (20) days
after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number of
Registrable Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) UNDERWRITING. If a registration statement under which the
Company gives notice under this Section 7.2 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 7.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement and each other stockholder
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exercising piggyback registration rights on a pro rata basis. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For any
Holder which is a partnership or corporation, the partners, retired partners and
stockholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "Holder," and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) EXPENSES. The Company shall bear and pay all expenses
incurred in connection with any registration or qualification of Registrable
Securities pursuant to this Section 7.2 for each Holder, including all
registration and qualification fees, printers and accounting fees relating
thereto, and legal fees of counsel to the Company, but excluding underwriting
discounts and commissions relating to the Registrable Securities and the legal
fees of counsel to the Holders.
7.3 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by them that are
included in such registration.
(d) If the Company has delivered preliminary or final
prospectuses to the Holders and after having done so the prospectus is amended
to comply with the requirements of the 1933 Act, the Company shall promptly
notify the Holders and, if requested, the Holders shall immediately cease making
offers of Registrable Shares and return all prospectuses to the Company. The
Company shall promptly provide the Holders with revised prospectuses and,
following receipt of the revised prospectuses, the Holders shall be free to
resume making offers of the Registrable Shares.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders, keep
such registration or qualification in effect for so long as such registration
statement remains in effect, and take any other action which may be reasonably
necessary or advisable to consummate the disposition in such jurisdictions of
such securities; PROVIDED that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(f) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
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(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and, upon
the occurrence of any such event, prepare a supplement or post-effective
amendment to the registration statement or related prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the facts therein not
misleading.
(h) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the issuance by the SEC of (i)
any stop order suspending the effectiveness of a registration statement or the
initiation of any proceedings for that purpose and (ii) the receipt by the
Company of any notification with respect to the suspension of the qualification
of any of such Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, and the Company
shall make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of such a registration statement or the lifting of
any suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction, at the earliest possible time.
(i) Cause all Registrable Securities covered by such registration
statement to be listed on each securities exchange, if any, on which securities
of such class are then listed.
(j) Use its reasonable efforts to take any other steps necessary
to effect the registration contemplated by Section 7.2.
7.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 7 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to timely effect the
registration of their Registrable Securities.
7.5 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 7.
7.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(a) BY THE COMPANY. To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the 0000 Xxx) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the 1933 Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the 1933 Act, the l934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which Registrable
Securities are registered, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or
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(iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any federal or state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any federal or state
securities law in connection with the offering covered by such registration
statement; and the Company will reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 7.6(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(b) BY SELLING HOLDERS. To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the 1933 Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the 1933 Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or several) to
which the Company or any such director, officer, controlling person, underwriter
or other such Holder, partner or director, officer or controlling person of such
other Holder may become subject under the 1933 Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 7.6(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and provided further, that the total amounts payable in indemnity by a
Holder under this Section 7.6(b) in respect of any Violation shall not exceed
the net proceeds received by such Holder in the registered offering out of which
such Violation arises.
(c) NOTICE. Promptly after receipt by an indemnified party under
this Section 7.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.6, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 7.6.
(d) CONTRIBUTION. In order to provide for just and equitable
contribution to joint liability under the 1933 Act in any case in which either
(i) any Holder exercising rights under this Agreement, or any controlling person
of any such Holder, makes a claim for indemnification pursuant to this Section
11
7.6 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 7.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of any such selling Holder or any such controlling person
in circumstances for which indemnification is provided under this Section 7.6;
then, and in each such case, the Company and such Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that such Holder is
responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
that, in any such case, (A) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such registration statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 0000 Xxx) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
(e) SURVIVAL. The obligations of the Company and Holders under
this Section 7.6 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
7.7 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees, partners or affiliates of the Holder who
agree to be similarly bound) for up to one hundred and eighty (180) days
following the effective date of a registration statement of the Company filed
under the 1933 Act; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all executive officers, directors and stockholders then
holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
7.8 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after the effective date of
the first registration under the 1933 Act filed by the Company for an offering
of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the 1933
Act and the 1934 Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
12
statement filed by the Company for an offering of its securities to the general
public), and of the 1933 Act and the 1934 Act (at any time after it has become
subject to the reporting requirements of the 1934 Act), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has become
subject to the reporting requirements of the 1934 Act).
7.9 TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company shall have
no obligations pursuant to this Section 7 with respect to: (i) any request or
requests for registration made by any Holder on a date more than five (5) years
after the closing date of the Initial Public Offering; (ii) any request or
requests for registration made by any Holder after an acquisition of the Company
by a publicly traded, reporting company, pursuant to which such Holder receives
registered securities listed for trading; or (iii) any Registrable Securities
proposed to be sold by a Holder in a registration pursuant to this Section 7 if,
in the opinion of counsel to the Company, all such Registrable Securities
proposed to be sold by a Holder may be sold in a three-month period without
registration under the 1933 Act pursuant to Rule 144.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The representations, warranties and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
8.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties.
8.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
law.
8.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and/or by facsimile with original signatures to follow, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
8.5 HEADINGS. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
8.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated below for such party, or at such other address as any party or the
Company may designate by giving ten (10) days advance written notice to all
other parties.
To the Company: Mr. Xxxxx Xxxxxxxxx
0000 Xxxx Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000
13
with a copy to: Xxxxx Xxxxxx, Esq.
Xxxxxxx & Xxxxxx, LLP
000 Xxxx "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000
To Investor: Xxxxxx X. Xxxxxxxx
0000 Xxxxxxxx Xxxxxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: Xxxxxx X. Xxxxxxx, Esq.
Xxxxxx & Xxxxxxx
000 "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000
8.7 NO FINDER'S FEES. Each party represents that it neither is nor
will be obligated for any finder's or broker's fee or commission in connection
with this transaction. The Company agrees to indemnify and hold harmless the
Investor from any liability for any commission or compensation in the nature of
a finder's or broker's fee (and any asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
8.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investor. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any Purchased Shares and/or Conversion Shares and/or Warrant Shares
and/or the Warrant at the time outstanding, each future holder of such
securities, and the Company.
8.9 EXPENSES. The Company and the Investor shall pay their own fees
and expenses incurred in entering into this Agreement. If any action at law or
in equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
8.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
8.11 ENTIRE AGREEMENT. This Agreement, together with all exhibits and
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
8.12 FURTHER ASSURANCES. From and after the date of this Agreement,
upon the request of the Investor or the Company, the Company and the Investor
shall execute and deliver such instruments, documents or other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY: THE INVESTOR:
Sports Group International, Inc., R. E. & X. Xxxxxxxx Living Trust Dated
a Florida corporation 1/17/83
By: /s/ Xxxxx X. Xxxxxxxxx By: /s/ Xxxxxx X. Xxxxxxxx
-------------------------------- --------------------------------
Name: Xxxxx X. Xxxxxxxxx Name: Xxxxxx X. Xxxxxxxx
------------------------------ ------------------------------
Title: President and CEO Title: Trustee
----------------------------- -----------------------------
[SIGNATURE PAGE TO SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT]
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