1
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of April 23, 1996, between Xxxxx
Instruments Corp., a California corporation (the "Company"), and Xxxxxxxxx ESOP
Capital Partners, A Minnesota Limited Partnership (the "Purchaser").
RECITALS:
WHEREAS, the Company desires to issue and sell, and the Purchaser
desires to purchase, certain of the Company's securities.
NOW, THEREFORE, in consideration of the Premises and mutual covenants
and conditions hereinafter contained, the Company and the Purchaser agree as
follows:
1. DEFINITIONS.
1.1. Definitions. For all purposes of this Agreement the following
terms shall have the meanings (and such meanings shall be equally applicable to
both the singular and plural form of the terms defined, as the context may
require) set forth herein or elsewhere in the provisions hereof:
Adjusted Net Income. Adjusted Net Income shall mean, for any fiscal
period, the Company's Net Income for such period, but excluding therefrom to the
extent included; (a) non-operating gains (including extraordinary or unusual
gains, gains from discontinuance of operations, gains arising from the sale of
assets other than Inventory, and other non-recurring gains) during such period;
and (b) similar non-operating losses during such period, but only to the extent
that any such loss has not caused, or will not cause, any cash expenditure.
Affiliate. Affiliate shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with the
Company (or other specified Person) and shall include (a) any Person who, in the
case of the Company, is a member of the Managing Group, or a director or
beneficial holder of at least 10% of any class of the then outstanding capital
stock (or other shares of beneficial interest) of the Company (or other
specified Person) and Family Members of any such Person, (b) any Person of which
the Company (or other specified Person) or an Affiliate (as defined in clause
(a) above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of any class of the then
outstanding capital stock (or other shares of beneficial interest) or constitute
at least a 10% equity participant, and (c) in the case of a specified Person who
is an individual, Family Members of such Person and any trust created by such
Person for his benefit or the benefit of
1
2
his Family Members; provided, however, that the Purchaser shall not be an
Affiliate of the Company for the purposes of this Agreement.
Balance Sheet Date. See Section 4.6(a)(i).
Call Closing Date. See Section 9.3.
Call Notice. See Section 9.3.
Capital Expenditures. Capital Expenditures shall mean amounts paid or
Indebtedness incurred by the Company in connection with the purchase or lease of
fixed assets (both tangible and intangible) that is capitalized and shown on the
balance sheet of such Person in accordance with Generally Accepted Accounting
Principles.
Capital Transaction. Capital Transaction shall mean the occurrence of
any of the following: (a) a merger, consolidation, liquidation, sale of more
than 51% of the assets of the Company based on the book value of such assets, in
each case in one or a series of related transactions, or other similar corporate
action pursuant to which the Company or the holders of Common Stock receive
cash, securities or other property; (b) any transaction or series of related
transactions pursuant to which a majority of the Common Stock of the Company is
sold; or (c) any Public Sale.
Capitalized Lease. Capitalized Leases shall mean all leases which shall
have been or should be, in accordance with Generally Accepted Accounting
Principles, recorded as capital leases on the lessee's or obligor's balance
sheet.
CECP Appraiser. See Section 9.5(b).
CECP Floor Amount. CECP Floor Amount shall mean at least 10% of the
Series A Common Stock, on a Fully Diluted Basis; provided, however, that, if the
Company cannot pay the Repurchase Price for the Warrant and Warrant Stock in
immediately available funds because of a Statutory Restriction and if the
members of the Managing Group have failed to exercise their "Right of
Repurchase" under the Shareholder Agreement with respect to the Rescinded Put
Shares resulting from such Statutory Restriction, then the CECP Floor Amount
shall mean the number of Warrant and Warrant Stock held by the Purchaser from
time to time.
CERCLA. See Section 4.19.
Charter. Charter shall mean the Company's Amended and Restated Articles
of Incorporation in the form of Exhibit C-1 attached hereto as from time to time
amended or modified including, without limitation, by the Certificate of
Determination of Rights, Preferences, Privileges and Restrictions of Series A
Preferred Stock in the form of Exhibit C-2 attached hereto (sometimes
hereinafter being referred to as the "Certificate of Determination").
2
3
Closing. See Section 2.4.
Closing Date. See Section 2.4.
Code. Code shall mean the Internal Revenue Code of 1986, as amended,
any successor statute of similar import, and the rules and regulations
thereunder, collectively and as from time to time amended and in effect.
Commission. Commission shall mean the Securities and Exchange
Commission.
Common Stock. Common Stock shall mean, collectively, the Series A
Common Stock and the Series B Common Stock, each having the rights and
privileges set forth in the Company's Charter and in addition, any capital stock
or other securities into which or for which Series A Common Stock or Series B
Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company.
Company. Company shall have the meaning provided in the preamble
hereto.
Company Appraiser. See Section 9.5(b).
Credit Agreement. Credit Agreement shall mean the Fleet Loan Agreement
and any Refinancing Agreement in respect thereof entered into by the Company
that does not violate Sections 7.10(i) or 7.21(b) of this Agreement.
Credit Agreement Restrictions. Credit Agreement Restrictions shall mean
the restrictions imposed from time to time under the then applicable Credit
Agreement upon the Company's ability to redeem the Preferred Stock or to pay the
Repurchase Price with respect to the Warrants and the Warrant Stock, so long as
such restrictions do not conflict with the provisions of Section 7.21(b).
Disposal (or Disposed). Disposal (or Disposed) shall have the meaning
specified in RCRA and regulations promulgated thereunder as of the date hereof;
provided, that to the extent that the laws of a state wherein any Property lies
establishes a meaning for "Disposal" (or "Disposed") which is broader than
specified in RCRA, such broader meaning shall apply.
Distribution. Distribution shall mean: (a) the declaration or payment
of any dividend on or in respect of any shares of any class of capital stock of
the Company or other specified Person; (b) the purchase, redemption or other
retirement of any shares of any class of capital stock of the Company or other
specified Person, directly or indirectly or otherwise, including without
limitation any repurchase of shares of Common Stock pursuant to the terms of the
ESOP; or (c) any other distribution on or in respect of any shares of any class
of capital stock of the Company or other specified Person.
3
4
EBIT. EBIT shall mean, for any fiscal period, the sum of: (a) the
Adjusted Net Income for such period; plus (b) the sum of the following amount
deducted therefrom: (i) Interest Expense; plus (ii) income taxes; plus (iii)
contributions to the ESOP; plus (iv) the ESOP Qualifying Dividends paid on the
Series B Common Stock with respect to such period's Net Income; plus (v) the
dividends accrued on the Preferred Stock during such period; plus (vi) any
expense item charged against such period's net income arising from the actual,
proposed or contractual right to, redemption of the Warrants or the Warrant
Stock; plus (vii) if such period is a fiscal year, then the bonuses or other
compensation payable to the members of the Managing Group with respect to such
fiscal year, other than base salary paid or payable to the Managing Group and
benefits generally made available to the Company's employees, but in no event
more than the Maximum Incentive Compensation payable with respect to such fiscal
year; plus (viii) one-time bonuses aggregating up to $300,000 paid to Xxxxx X.
Xxxxxxxxxxx and Xxxxxx Xxxx described on Schedule 7.15.
EBITA. EBITA shall mean, for any fiscal period, the sum of: (a) the
EBIT for such period; plus (b) the non-cash amortization deducted from the
Adjusted Net Income used in the calculation of such EBIT.
Employer Securities. Employer Securities shall mean the shares of the
Company's Series B Common Stock purchased by the ESOP with the proceeds of the
ESOP Loan in accordance with the ESOP Purchase Agreement.
Employment Agreements. Employment Agreements shall mean the Employment
Agreements dated as of the date hereof entered into by the Company and Xxxx
Xxxxxx, Xxxxx Xxxxxxx, Xxx Xxxx and Xxxxxx X. Xxxxxx, Xx., respectively; in each
case, as originally executed and as amended, modified, supplemented or restated
in accordance with the prior written consent of the Purchaser.
Enforcement Action. Enforcement Action means any or all of (a) the
commencement or prosecution of a lawsuit, action, arbitration, or other
proceeding to obtain a money judgment against the Company based upon or arising
out of this Agreement or any of the other Financing Agreements, whether sounding
in contract or tort, including without limitation, any such lawsuit, action,
arbitration, or other proceeding seeking to rescind the purchase of the
Securities, (b) the commencement or prosecution of any action or writ to
garnish, attach, levy, or otherwise obtain a statutory or judicial lien upon all
or any portion of the Company's property or assets or (c) the initiation or
commencement of, or participation in the initiation or commencement of, any
involuntary bankruptcy or insolvency proceeding against the Company.
Environmental Laws. See Section 4.19.
EPA. See Section 4.19.
4
5
ERISA. ERISA shall mean the federal Employee Retirement Income Security
Act of 1974, as amended, any successor statute of similar import, and the rules
and regulations thereunder, collectively and as from time to time amended and in
effect.
ERISA Affiliate. ERISA Affiliate shall mean any Person that is a member
of a group of which the Company is a member and which is treated as a single
employer with the Company under Section 414 of the Code.
ESOP. ESOP shall mean the "Xxxxx Instruments Corp. Employee Stock
Ownership Plan" established and maintained by the Company as an employee benefit
plan, effective March 1, 1996, pursuant to the Xxxxx Instruments Corp. Employee
Stock Ownership Plan (the "ESOP Plan Document") and the ESOP Trust Agreement.
ESOP Loan. ESOP Loan shall mean the loan made by the Company to the
ESOP Trustee in order to enable the ESOP Trustee to purchase the Employer
Securities in accordance with the ESOP Purchase Agreements.
ESOP Loan Documents. ESOP Loan Documents shall mean: (a) the ESOP Loan
and Pledge Agreement dated as of date hereof between the Company and the ESOP
Trustee pursuant to which the ESOP Loan will be made by the Company to the ESOP
Trustee; (b) the "Note" (as defined in the ESOP Loan Agreement); and (c) each
other instrument or document executed and/or delivered by the ESOP Trustee to
the Company to evidence or create any obligation of the ESOP to the Company to
repay the ESOP Loan; in each case, as originally executed and as amended,
modified or supplemented from time to time.
ESOP Purchase Agreement(s). ESOP Purchase Agreements shall mean
collectively the "Stock Purchase Agreements" dated as of the date hereof among
each member of the Managing Group and the ESOP Trustee pursuant to which such
members of the Managing Group have agreed to sell, and the Trustee has agreed to
purchase 1,500,000 shares of the Company's Series B Common Stock for $7.3333 per
share and an aggregate consideration of $10,999,950.
ESOP Qualifying Dividends. ESOP Qualifying Dividends shall mean, with
respect to any period, the preference dividends on the Company's Series B Common
Stock permitted by Sections 3.1(a)(i) and (ii) of the Company's Charter that are
paid in cash during such period.
ESOP Transaction. ESOP Transaction shall mean: (a) the Company's
establishment of the ESOP in accordance with the terms of the ESOP and the ESOP
Trust Agreement; (b) the ESOP Trustee's purchase, and the Managing Group's sale,
of the Company's Series B Common Stock in accordance with the terms of the ESOP
Purchase Agreements; and (c) the Company's receipt of the "Term Loan" under the
Fleet Loan Agreement and the Company's use of such "Term Loan" proceeds to make
the ESOP Loan to the ESOP Trustee in accordance with the terms of the ESOP Loan
Documents.
5
6
ESOP Transaction Documents. ESOP Transaction Documents shall mean: (a)
the ESOP Plan Document; (b) the ESOP Trust Agreement; (c) the ESOP Purchase
Agreements; and (d) the ESOP Loan Documents; in each case as originally executed
and as amended, modified or supplemented from time to time.
ESOP Trust. ESOP Trust shall mean the trust created by the Xxxxx
Instruments Corp. Employee Stock Ownership Trust Agreement, effective March 1,
1996 (the "ESOP Trust Agreement"), between the Company, as grantor, and Xxxxx
Fargo Bank, N.A., as trustee (the "ESOP Trustee"), created to hold the assets of
the ESOP.
Events of Non-Compliance. See Section 8.1.
Exchange Act. Exchange Act shall mean the Securities Exchange Act of
1934, as amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
Fair Market Value. See Section 9.5(b).
Family Members. Family Members shall mean, as applied to any
individual, any parent, spouse, child, spouse of a child, brother or sister of
the individual, and each trust created for the benefit of one or more of such
Persons and each custodian of a property of one or more such Persons.
Financing Agreements. Financing Agreements shall include this
Agreement, the Securities, the Shareholder Agreement, the Registration Rights
Agreement, the Managing Group Indemnity Agreement, the Charter and any and every
other present or future instrument or agreement from time to time entered into
between the Company or any member of the Managing Group, on the one hand, and
the Purchaser or any other Permitted Transferee of the Securities, on the other
hand, which relates to this Agreement or is stated to be a Financing Agreement,
as from time to time amended or modified, and all statements, reports or
certificates delivered by or on behalf of the Company, or any member of the
Managing Group, on the one hand, to the Purchaser or any other Permitted
Transferee of the Securities, on the other hand, in connection herewith or
therewith.
Fleet. Fleet shall mean Fleet Capital Corporation, a Connecticut
corporation, or any other lender party to a Credit Agreement which is not the
Fleet Loan Agreement.
Fleet Loan Documents. Fleet Loan Documents shall mean: (a) the Loan and
Security Agreement dated as of the date hereof (the "Fleet Loan Agreement")
between the Company and Fleet; (b) the Secured Promissory Note, dated as of the
date hereof (the "Term Note"), issued by the Company to the order of Fleet in
the original principal amount of $9,500,000; and (c) each of the other Loan
Documents (as that term is defined in the Fleet Loan Agreement or any successor
Credit Agreement); in each case, as such agreement or instruments may be
modified,
6
7
amended, supplemented, restated, extended, or renewed from time to time in a
manner that does not conflict with Section 7.21(b).
Fully Diluted Basis. Fully diluted basis shall mean giving effect to
the exercise or conversion of all then outstanding options, warrants,
convertible securities and similar rights, whether or not then exercisable or
convertible, without assuming that the proceeds of any such exercise would be
used to repurchase any Common Stock.
Generally Accepted Accounting Principles. Generally Accepted Accounting
Principles shall mean accounting principles which are: (a) consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors, as in effect from time to time; and (b) such that a
certified public accountant would, insofar as the use of accounting principles
is pertinent, be in a position to deliver an unqualified opinion as to financial
statements in which such principles have been properly applied.
Hazardous Substances. See Section 4.19.
Indebtedness. Indebtedness shall include all obligations, contingent
and otherwise, which in accordance with Generally Accepted Accounting Principles
should be classified upon the obligor's balance sheet as liabilities, or to
which reference should be made by footnotes thereto as contingent liabilities,
including without limitation, in any event and whether or not so classified: (a)
all debt and similar monetary obligations, whether direct or indirect; (b) all
liabilities secured by any mortgage, pledge, security interest, lien, charge, or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; (c) all
guaranties, endorsements and other contingent obligations whether direct or
indirect in respect of Indebtedness of others, including any obligation to
supply funds to or in any manner to invest in, directly or indirectly, the
debtor, to purchase Indebtedness, or to assure the owner of Indebtedness against
loss, through an agreement to purchase goods, supplies, or services for the
purpose of enabling the debtor to make payment of the Indebtedness held by such
owner or otherwise; and (d) obligations to reimburse issuers of any letters of
credit.
Indebtedness for Borrowed Money. Indebtedness for Borrowed Money shall
mean: (a) all Indebtedness of the Company for borrowed money, whether current or
funded, or secured or unsecured; (b) all Indebtedness of the Company for the
deferred purchase price of property or services represented by a note or other
security; (c) all Indebtedness of the Company created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by the Company (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property); (d) all Indebtedness of the Company secured by a
purchase money mortgage or other lien to secure all or part of the purchase
price of property subject to such mortgage or lien; (e) all obligations under
Capitalized Leases in respect of which the Company is liable as lessee or
obligor; (f) any liability of the Company in respect of banker's acceptances or
letters of credit; and (g) all
7
8
Indebtedness referred to in clause (a), (b), (c), (d), (e) or (f) above which is
directly or indirectly guaranteed by the Company or which the Company has agreed
(contingently or otherwise) to purchase or otherwise acquire or in respect of
which it has otherwise assured a creditor against loss.
Independent Appraiser. See Section 9.5(b).
Independent Financial Adviser. Independent Financial Adviser shall mean
the independent financial adviser selected by the ESOP Trustee to evaluate that
the purchase price being paid by the ESOP Trustee for the Employer Securities
does not exceed the fair market value thereof.
Interest Expense. Interest Expense shall mean, for any fiscal period,
the aggregate interest expense (including capitalized interest) of the Company
for such period including, without limitation, the interest portion of any
payment on any Capitalized Lease; provided, however, that the foregoing shall be
adjusted to reflect only the net effect of any interest rate swap, interest
hedging transaction, or other similar arrangement entered into by the Company in
order to reduce or eliminate variations in its interest expenses.
Investments. Investments shall mean: (a) any share of capital stock,
evidence of Indebtedness or other security issued by any other Person; (b) any
loan, advance, or extension of credit to, or contribution to the capital of, any
other Person; (c) any purchase of the securities or business or integral part of
the business of any other Person (including, without limitation, any purchase of
all or any substantial portion of the assets of such Person), or commitment to
make such purchase; and (d) any other investment in any other Person; provided,
however, that the term "Investment" shall not include: (i) trade and customer
accounts and notes receivable for goods sold or services rendered in the
ordinary course of business and, except for those acquired in connection with
the satisfaction or enforcement of Indebtedness or claims due or owing to the
Company, payable in accordance with customary trade terms, and all letters of
credit or other instruments securing or evidencing the same; (ii) advances to
employees for travel expenses, drawing accounts and similar expenditures made in
the ordinary course of business; (iii) stock or other securities acquired in
connection with the satisfaction or enforcement of Indebtedness or claims due or
owing to the Company or as security for any such Indebtedness or claim; or (iv)
deposits, prepayments, and other advances made by the Company in the ordinary
course of business.
Knowledge. Knowledge shall mean the present and actual knowledge of any
Shareholder or of Xxxxx Xxxxxxxxxxx.
Lien. Lien shall mean: (a) any encumbrance, mortgage, pledge, lien,
charge or other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement
8
9
(including a Capitalized Lease); or (c) any sale, assignment, pledge or other
transfer for security of any accounts, general intangibles, or chattel paper,
with or without recourse.
Major Holder. Major Holder shall mean the holder or holders at the
relevant time (excluding the Company) of: (a) in the case of the Preferred
Stock, at least 51% of the then issued and outstanding shares of the Preferred
Stock, or (b) in the case of the Warrants and Warrant Stock, of at least 51% of
the total number of (i) shares of Warrant Stock then issuable upon exercise of
the outstanding Warrants and (ii) then outstanding shares of Warrant Stock.
Majority Holders. Majority Holders shall mean the holder or holders at
the relevant time (excluding the Company) of (a) in the case of the Preferred
Stock, 51% or more of the issued and outstanding shares of the Preferred Stock,
or (b) in the case of the Warrants and Warrant Stock, 51% or more of the sum of
the number of shares of (i) Warrant Stock then issuable upon exercise of the
outstanding Warrants and (ii) the then outstanding shares of Warrant Stock.
Managing Group. Managing Group shall mean Xxxx Xxxxxx, Xxxxx Xxxxxxx,
Xxx Xxxx and Xxxxxx X. Xxxxxx, Xx.
Managing Group Indemnity Agreement. Managing Group Indemnity Agreement
shall mean that certain Indemnity Agreement dated as of the date hereof, made by
each member of the Managing Group and certain of their Affiliates in favor of
the Purchaser, as originally executed and as amended, modified, supplemented or
restated from time to time.
Managing Group Stock Sale. Managing Group Stock Sale shall mean: (a)
the Company's redemption (the "Xxxxx Redemption") of 71,361 shares of the
Company's Series A Common Stock owned by the Managing Group immediately prior to
the consummation of the Transactions for an aggregate consideration of $250,000
in accordance with the terms of that certain Xxxxx Redemption Agreement dated as
of the date hereof (the "Xxxxx Redemption Agreement") among the Company and the
members of the Managing Group; and (b) the ESOP Trustee's purchase of 1,500,000
shares of the Company's Series B Common Stock owned by the Managing Group in
order to consummate the ESOP Transaction.
Material Adverse Effect. Material Adverse Effect shall mean a material
adverse effect on the business, assets or financial condition of the Company
taken as a whole.
Maximum Incentive Compensation. Maximum Incentive Compensation shall
mean, for any fiscal year, an amount equal to 40% of the difference (but not
less than $0.00 (zero)) between the Company's: (i) actual EBIT for such fiscal
year; and (ii) the Target EBIT for such fiscal year.
Negotiation Period. See Section 9.5(b).
9
10
Net Income. Net Income, shall mean, for any fiscal period, the
after-tax net income of the Company for such period determined in accordance
with Generally Accepted Accounting Principles.
Net Proceeds. Net Proceeds shall mean, with respect to any sale,
transfer or other disposition of any assets of the Company or its Subsidiaries
(other than sales of inventory in the ordinary course of business), the cash
proceeds received by the Company or any of its Subsidiaries from such
transaction less the sum of: (a) the costs incurred in connection with such
transaction in the ordinary course of business; and (b) the amount of any
liabilities which are required to be paid in connection with such transaction.
PBGC. PBGC shall mean the Pension Benefit Guaranty Corporation created
by Section 4002 of ERISA and any successor entity or entities having similar
responsibilities.
Permitted Indebtedness. See Section 7.10.
Permitted Liens. See Section 7.11.
Permitted Stock Issues. Permitted Stock Issues shall mean: (a) the
issuance of shares of Series A Common Stock in consideration of the payment of
the fair market value thereof on the date of issuance as determined in good
faith by the Company's board of directors; (b) the issuance of options (the
"Permitted Employee Stock Options") to key employees (other than members of the
Managing Group (excluding Xxxxxx X. Xxxxxx, Xx.) or any of their respective
Affiliates) permitting the acquisition of shares of Series A Common Stock, on an
aggregate basis for all such key employees, of up to 10% of the Company's Common
Stock, on a Fully Diluted Basis, where the exercise price is not less than 85%
of the fair market value of the Company's Series A Common Stock on the date of
the grant of the relevant option as determined in good faith by the Company's
board of directors and the issuance of the applicable shares of the Company's
Series A Common Stock upon the exercise of such options; and (c) the issuance of
any preferred stock or convertible or exchangeable preferred stock which is
junior to the liquidation, dividend, redemption, and distribution rights of the
Preferred Stock in consideration of the payment of the fair market value thereof
on the date of issuance as determined in good faith by the Company's board of
directors and the issuance of the applicable shares of the Company's Series A
Common Stock upon the conversion or exchange of any such convertible or
exchangeable preferred stock; it being understood and agreed that any right of
the holders of such preferred stock to elect any member of the Company's board
of directors shall be subject to the Purchaser's rights to elect a majority of
the Company's board of directors upon the occurrence of a Specified Event of
Non-Compliance.
Permitted Transferee. Permitted Transferee shall mean any Affiliate of
any holder of Securities, any commercial bank, insurance company or other
financial institution or Affiliate thereof, any reputable corporate or
institutional investor, or any other Person reasonably acceptable to the
Company.
10
11
Person. Person shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.
Plan. Plan shall mean an employee benefit plan or other plan,
maintained for employees of the Company or of any ERISA Affiliate, and subject
to Title IV of ERISA or Section 412 of the Code.
Post-Closing Year. Post-Closing Year shall mean each of the annual
periods commencing on the Closing Date (or its anniversary date in any
subsequent year) and ending on the day preceding the anniversary date of the
Closing Date in the immediately following calendar year.
Preferred Stock. See Section 2.1.
Preferred Stock Early Redemption Date. See Section 7.24.
Preferred Stock Redemption Date. Preferred Stock Redemption Date shall
mean, as the context may require: (a) the Preferred Stock Early Redemption Date;
or (b) the Preferred Stock Stated Redemption Date.
Preferred Stock Stated Redemption Date. Preferred Stock Stated
Redemption Date shall mean April 1, 2001.
Preferred Stock Redemption Price. Preferred Stock Redemption Price
shall mean, at any date of determination, the sum of: (a) the "Liquidation
Value" (as defined in Section 3.2(a) of the Certificate of Determination) at
such date; plus (b) all accrued, but unpaid, dividends through and including
such date; plus (c) if the redemption is being made on a Preferred Stock Early
Redemption Date, then the Preferred Stock Early Redemption Premium required by
Section 7.24.
Projections. See Section 4.6(a)(iii).
Property. Property means the properties owned, leased or operated by
the Company.
Public Sale. Public Sale shall mean any sale of Common Stock to the
public pursuant to a public offering registered under the Securities Act or to
the public through a broker or market-maker pursuant to the provisions of Rule
144 (or any successor rule) adopted under the Securities Act or any other public
offering not required to be registered under the Securities Act.
Purchase Price. See Section 2.3.
Purchased Securities. See Section 2.3.
11
12
Purchaser's Representative. Purchaser's Representative shall mean
either: (a) the Company's director designated by the Purchaser; or (b) if the
Purchaser does not exercise its right to designate a director, the Person
authorized by the Purchaser to attend the meetings of the Company's board of
directors meetings as the Purchaser's observer; provided, however, that the
Purchaser's rights to have a Purchaser's Representative on or to the Company's
board of directors shall terminate when: (a) the Preferred Stock is no longer
outstanding; and (b) either: (i) the Purchaser ceases to own Warrants or Warrant
Stock aggregating at least 10% of the Series A Common Stock of the Company, on a
Fully Diluted Basis; or (ii) the Company consummates, or has previously
consummated, a Qualified Public Sale.
Put Closing Date. See Section 9.2.
Put Notice. See Section 9.1.
Qualified Public Sale. Qualified Public Sale shall mean a Public Sale
of the Company's Series A Common Stock to the public pursuant to an underwritten
public offering registered under the Securities Act for an aggregate
consideration of at least $15,000,000.00.
RCRA. See Section 4.19.
Refinancing Agreements. Refinancing Agreements means an agreement or
agreements entered into by the Company pursuant to which the Company incurs
Refinancing Indebtedness, as such agreement or agreements may be amended,
modified, supplemented, restated, extended, or renewed from time to time;
provided, however, that if such Indebtedness is: (a) evidenced by the Credit
Agreement (or a Refinancing Agreement in respect thereof), no such refinancing
shall be made on terms and conditions that would be prohibited by Section
7.21(b), if the Indebtedness refinanced thereby was not being refinanced but was
being modified or amended; or (b) not evidenced by the Credit Agreement (or a
Refinancing Agreement in respect thereof), no such refinancing shall be made on
terms and conditions that would be prohibited by Section 7.21(a), if the
Indebtedness refinanced thereby was not being refinanced but was being modified
or amended.
Refinancing Indebtedness. Refinancing Indebtedness means Indebtedness
of the Company incurred pursuant to any Refinancing Agreement the proceeds of
which are applied to refinance all or a portion of the Indebtedness at the time
outstanding and permitted under Section 7.10. With respect to any refinancing of
Indebtedness under the Credit Agreement, Refinancing Indebtedness also may
include any additional Indebtedness permitted under Section 7.10.
Registration Rights Agreement. Registration Rights Agreement shall mean
the Registration Rights Agreement dated as of the date hereof among the Company
and the Purchaser, in the form of Exhibit E hereto, as originally executed and
as amended, modified, supplemented or restated from time to time.
12
13
Related Agreements. Related Agreements shall mean, collectively the
Employment Agreements, the ESOP Transaction Documents and the Fleet Loan
Documents (and any Refinancing Agreements therefor).
Release. Release shall have the meaning specified in CERCLA and
regulations promulgated thereunder as of the date hereof; provided, that to the
extent that the laws of a state wherein any Property lies establishes a meaning
for "Release" which is broader than specified in CERCLA, such broader meaning
shall apply.
Repurchase Price. See Section 9.5(a).
Rescinded Put Shares. See Section 9.4.
Rescission Notice. See Section 9.4.
Restricted Payment. Restricted Payment shall mean any payment (whether
in cash, securities or other property) to or for the benefit of any Affiliate of
the Company in respect of any Indebtedness owed by or other obligation of the
Company to such Affiliate.
XXXX. See Section 4.19.
Securities. Securities shall mean the Preferred Stock, the Warrants and
the shares of Warrant Stock.
Securities Act. Securities Act shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
Series A Common Stock. See Section 4.4(a)(i).
Series B Common Stock. See Section 4.4(a)(ii).
Shareholder Agreement. Shareholder Agreement shall mean the Shareholder
Agreement dated as of the date hereof among the Company, the Management Group
and the Purchaser, in the form of Exhibit D hereto, as originally executed and
as amended, modified, supplemented or restated from time to time in accordance
with the provisions of Section 17 hereof.
Shares. See Section 2.1.
Specified Event of Non-Compliance. Specified Event of Non-Compliance
shall mean the occurrence of any Event of Non-Compliance under Section 8.1(a),
(b), (c), (g), or (h) prior to the redemption of the Preferred Stock in full.
13
14
Statutory Restriction. Statutory Restriction shall mean the
restrictions imposed on the Company's right to make distributions to its
shareholder under applicable provision of the California Corporations Code or
any other state's laws then governing the Company's organization, in each case
as from time to time amended and in effect.
Subsidiary. Subsidiary shall mean any Person of which the Company or
other specified Person now or hereafter shall at the time own directly or
indirectly through a Subsidiary at least a majority of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally.
Target EBIT. Target EBIT shall mean, for each fiscal year, the amount
shown in the table below for such fiscal year:
Fiscal Year Target EBIT
----------- -----------
1997 $ 5,380,000
1998 $ 6,860,000
1999 $ 8,370,000
2000 $ 9,620,000
2001 $10,630,000.
Transactions. Transactions shall mean: (a) the Managing Group Stock
Sale; (b) the ESOP Transaction; (d) the Company's sale, and the Purchaser's
purchase, of the Securities in accordance with this Agreement and the other
Financing Agreements; and (d) the disbursement of the proceeds of the initial
revolving credit loan and the term loan by Fleet pursuant to the Fleet Loan
Agreement.
Transaction Costs. See Section 4.24.
Transfer Notice. See Section 13.2.
Unmatured Event of Non-Compliance. Unmatured Event of Non-Compliance
shall mean an event or condition which with the passage of time or giving of
notice, or both, would become an Event of Non-Compliance.
Unrepurchased Securities. See Section 9.4.
Warrant(s). Warrants shall mean the Series A Common Stock Warrant of
the Company issued to the Purchaser pursuant to Section 2.2 hereof and any other
Warrants transferred to any other Permitted Transferee pursuant to Section 13
hereof.
Warrant Stock. Warrant Stock shall mean Common Stock previously issued
or, at the time of determination, issuable upon exercise of the Warrants in
accordance with their terms and
14
15
any capital stock or other securities into which or for which such Common Stock
shall have been converted or exchanged pursuant to any recapitalization,
reorganization or merger of the Company and any shares of capital stock issued
with respect to the foregoing pursuant to a stock split or stock dividend.
1.2. Accounting Terms and Calculations. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and the accounting determinations of compliance with the EBITA
covenant set forth in Section 7.26 hereof) shall be made in accordance with
Generally Accepted Accounting Principles consistently applied.
1.3. Computation of Time Periods. In this Agreement, in the computation
of a period of time from a specified date to a later specified date, unless
otherwise stated, the word "from" means "from and including" and the words "to"
or "until" each means "to but excluding."
1.4. Other Definitional Provisions. The words "hereof," "herein," and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided.
2. SALE AND PURCHASE OF PURCHASED SECURITIES.
2.1. Authorization of the Preferred Stock. The Company has, or before
the Closing will have, authorized the sale and issuance of 1,000 shares (the
"Shares") of its Series A Preferred Stock, no par value (the "Preferred Stock"),
having the rights, restrictions, privileges and preferences as set forth in the
Certificate of Determination.
2.2 Issuance of Securities. Subject to all of the terms and conditions
hereof, the Company agrees to issue and sell to the Purchaser and, and the
Purchaser agrees to purchase from the Company, the Securities listed below:
(a) the Shares; and
(b) the Series A Common Stock Purchase Warrant No. W-1 for the purchase
of 1,000,000 shares of Series A Common Stock in the form of Exhibit A hereto.
2.3. Purchase Price. The aggregate purchase price for the Securities
purchased pursuant to Section 2.2 (the "Purchased Securities") is $6,000,000
(the "Purchase Price"). The parties hereto agree that the entire Purchase Price
shall be allocated to the Shares, and will be reported as such by both parties
for federal, state and local tax purposes.
2.4. Closing. The closing of the purchase and sale of the Purchased
Securities (the "Closing") will take place at the offices of O'Melveny & Xxxxx,
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, XX 00000, at 10:00 a.m. on
April 23, 1996, or at such other time,
15
16
date and place as the parties hereto may agree upon (the "Closing Date"). At the
Closing, the Company will deliver to the Purchaser the Purchased Securities
against payment by the Purchaser of the Purchase Price in immediately available
funds. Each of the Purchased Securities will be issued to the Purchaser or any
nominee specified by the Purchaser on or before the Closing Date and registered
in the Purchaser's name or the name of such specified nominee in the records of
the Company.
2.5. Use of Proceeds. The proceeds from the sale of the Purchased
Securities hereunder will be used solely to partially fund the ESOP Loan and to
partially recapitalize the Company (including the Managing Group Stock Sale) in
connection with the consummation of the Transactions. The Company agrees that it
will not use any part of the proceeds from the sale of the Purchased Securities
to purchase or carry any "margin security" or "margin stock", as such terms are
defined in any regulation, rule or interpretation of the Board of Governors of
the Federal Reserve System.
3. CERTAIN RELATED AGREEMENTS.
3.1. Registration Rights Agreement. The Company shall afford the
holders of the Shares and the Warrants registration rights in accordance with
the terms and conditions of the Registration Rights Agreement.
3.2 Shareholder Agreement. The Company and the members of the Managing
Group shall afford the holders of the Shares and the Warrants the rights,
privileges and benefits provided in the Shareholder Agreement.
4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Purchaser to enter into this Agreement and to
purchase the Purchased Securities, the Company hereby represents and warrants
that, both before and immediately after giving effect to the Closing and the
consummation of the Transactions:
4.1. Organization and Good Standing. The Company is duly organized and
existing in good standing in its jurisdiction of incorporation and is duly
qualified as a foreign corporation and authorized to do business in all other
jurisdictions in which the nature of its business or property makes such
qualification necessary and where failure to qualify either individually or in
the aggregate would have a Material Adverse Effect. The Company has the
corporate power to own its properties and to carry on its business as now
conducted.
4.2. Authorization; Approvals. The execution, delivery and performance
by the Company of this Agreement and each Related Agreement to which the Company
is a party, and the issuance and sale by the Company of the Securities
hereunder, (a) are within the Company's corporate power and authority, (b) have
been duly authorized by all necessary corporate proceedings, (c) do not conflict
with or result in any breach of any provision of the Charter or
16
17
bylaws of the Company or any law, regulation, order, judgment, writ, injunction,
material license, permit, agreement or instrument binding on, or applicable to
the Company or any of its property, (d) do not require any consent, approval or
filing pursuant to, the Charter or bylaws of the Company or any law, regulation,
order, judgment, writ, injunction, material license, permit, agreement or
instrument binding on, or applicable to the Company or any of its property,
other than approval of the shareholders and directors of the Company which will
be obtained on or prior to the Closing Date and (e) except for Liens created by
the Fleet Loan Documents, do not result in the creation of any Lien upon any of
the property of the Company.
4.3. Enforceability. The execution and delivery by the Company of this
Agreement and each Related Agreement to which the Company is a party, and the
issuance and sale by the Company of the Securities hereunder, will result in
legally binding obligations of the Company enforceable against the Company in
accordance with the respective terms and provisions hereof and thereof, except
to the extent that (a) such enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights, (b) the availability of the remedy of specific
performance or injunctive or other equitable relief is subject to the discretion
of the court before which any proceeding therefor may be brought and (c) the
enforceability of the indemnities and contribution provisions contained in the
Registration Rights Agreement may be limited under federal securities laws.
4.4. Capitalization.
(a) Capital Stock. At Closing, the authorized capital stock of
the Company consists solely of: (i) one class of Common Stock
consisting of: (A) 15,000,000 shares of Series A Common Stock, no par
value (the "Series A Common Stock"); (B) 5,000,000 shares of Series B
Common Stock, no par value (the "Series B Common Stock"); and (ii)
1,000,000 shares of Preferred Stock. On the Closing Date, after giving
effect to the Transactions, the Company will have no outstanding
capital stock other than 3,500,000 shares of Series A Common Stock, on
a Fully Diluted Basis, 1,500,000 shares of Series B Common Stock and
1,000 shares of Preferred Stock, all of which will be owned as set
forth in Schedule 4.4(a) hereto and will be duly authorized, validly
issued, fully paid and nonassessable.
(b) Options, Etc. Except for the Warrants and the Series B
Common Stock, the Company has no outstanding rights (either pre-emptive
or other) or options to subscribe for or purchase from the Company and
no warrants or other agreements providing for or requiring the issuance
by the Company of, any capital stock or any securities convertible into
or exchangeable for its capital stock.
(c) Reservation, Etc. Sufficient shares of authorized but
unissued Series A Common Stock have been reserved by appropriate
corporate action in connection with the prospective exercise of the
Warrants assuming for such purposes the exercise of the
17
18
Warrants on the date hereof. The issuance of the Warrants or the shares
of Warrant Stock (i) will not require any further corporate action by
the stockholders or directors of the Company, (ii) will not be subject
to pre-emptive rights in any present or future stockholder of the
Company under the Company's Charter as currently in effect, any current
agreements or existing law and (iii) will not conflict with any
provision of any agreement as currently in effect to which the Company
is a party or by which it is bound. All shares of Warrant Stock, when
issued upon exercise of the Warrants in accordance with their terms or
upon such conversion, will be duly authorized, validly issued, fully
paid and non-assessable.
(d) Registration. No class of any security of the Company has
been or is required to be registered with the Commission pursuant to
Section 12 of the Exchange Act.
4.5. Subsidiaries. Except as otherwise set forth on Schedule 4.5
hereto, the Company does not have any Subsidiary and does not own or hold of
record and/or beneficially any shares of any class of the capital of any
corporations or any legal and/or beneficial interests in any partnership,
business trust or joint venture or in any other unincorporated trade or business
enterprise.
4.6. Reports and Financial Statements.
(a) The Purchaser has heretofore been furnished with complete and
correct copies of the following:
(i) the audited balance sheet of the Company as at
February 28, 1995 (the "Balance Sheet Date") and the related
statements of income and retained earnings and cash flows for
the fiscal year then ended, and the unaudited balance sheet of
the Company, as at February 29, 1996, and the related
statements of income and cash flows for the twelve-month
period then ended;
(ii) the pro forma balance sheet of the Company as at
February 29, 1996, taking into account the Transactions as of
such date, such balance sheet being attached hereto as
Schedule 4.6(a)(ii); and
(iii) the projections of the Company's future
performance for each of the five fiscal years following
February 29, 1996, including income, balance sheets, and cash
flows, dated as of April 23, 1996 and attached hereto as
Schedule 4.6(a)(iii) (the "Projections"); provided, however
that the Company may deliver such Projections in two
installments with the first installment consisting of
Projections for the first three years of the required five
year period being required to be delivered on or prior to the
Closing Date and the second installment consisting of
Projections for the remaining two years of such five-year
period
18
19
being required to be delivered within 60 days after the
Closing Date; in each case, such Projections shall comply with
subsection (d) below.
(b) Subject in the case of unaudited financial statements to
(i) the absence of footnote disclosures, cash flow financial statements
and other presentation items and (ii) changes resulting from year-end
adjustments consistent with year-end adjustments made in connection
with the audits of the Company's financial statements for the fiscal
year ended February 28, 1995, each of the financial statements
delivered under Section 4.6(a)(i) hereof was prepared in accordance
with Generally Accepted Accounting Principles applied on a basis
consistent with prior periods except as otherwise stated therein; each
of the balance sheets included in such financial statements fairly
presents the financial position of the Company as at the close of
business on the date thereof; and each of the statements of income
included in such financial statements fairly presents in all material
respects the results of operations of the Company for the fiscal period
then ended.
(c) The pro forma balance sheet of the Company referred to in
Section 4.6(a)(ii) has been prepared by the Company and fairly presents
the pro forma financial position in all material respects of the
Company as of the Closing Date after taking into consideration the
effect of the Transactions. The Company has no Knowledge of any
material fact inconsistent with the assumptions used in the preparation
thereof, each of which material assumptions has been set forth therein.
Immediately after giving effect to the Transactions, the Company will
not have any material liabilities, contingent or otherwise, which are
not referred to in such balance sheet or in the notes thereto or
pertaining to or arising from the agreements described or identified in
the Schedules hereto except for obligations and liabilities incurred in
the ordinary course of business subsequent to February 29, 1996.
(d) All material assumptions used in the preparation of the
Projections are attached thereto. The Projections were prepared in good
faith, there is a reasonable basis for such Projections, and such
Projections represent the Company's good faith estimate of its future
performance.
4.7. Material Adverse Change. There has been no material adverse change
in the business, assets, or financial condition of the Company since the Balance
Sheet Date whether or not covered by insurance or arising from transactions in
the ordinary course of business.
4.8. Indebtedness and Liens. The Company does not have any Indebtedness
other than Permitted Indebtedness or Liens upon any of its properties other than
Permitted Liens.
4.9. Related Agreements. The Company has heretofore or simultaneously
herewith furnished the Purchaser with complete and correct copies of all of the
Related Agreements. This Agreement and the Related Agreements are the only
material agreements relating to the
19
20
Transactions. The Company is not in default on any of its obligations under this
Agreement or any Related Agreement to which it is a party and, to the best
Knowledge of the Company, no other party to any Related Agreement is in material
default thereunder.
4.10. Licenses, Etc. The Company has all of the material franchises,
patents, patent applications, patent licenses, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, licenses, permits,
authorizations and other rights as are necessary for the conduct of its business
as currently conducted. All of the foregoing are in full force and effect, and
the Company is in compliance with the foregoing without any known conflict with
the valid rights of others which would have a Material Adverse Effect.
4.11. INTENTIONALLY OMITTED.
4.12. Title to Assets; Leases. Except as disclosed on Schedule 4.12
hereto, the Company owns all of the assets reflected in the pro forma balance
sheet of the Company as at the Closing Date, subject to no Liens other than
Permitted Liens. Except as disclosed on Schedule 4.12 hereto, the Company enjoys
peaceful and undisturbed possession, and is in compliance with the material
terms, of all leases of real property on which facilities operated by it are
situated and of all leases of personal property, and to the Company's Knowledge,
all such leases are valid and in full force and effect.
4.13. Litigation. There is no litigation, at law or in equity, or any
proceeding before any court, board or other governmental or administrative
agency or any arbitrator pending or, to the Knowledge of the Company, threatened
which, individually or in the aggregate, is reasonably likely to result in any
final judgment or liability which, after giving effect to any applicable
insurance, would have a Material Adverse Effect or which, to the Company's
Knowledge, seeks to enjoin the consummation of the Transactions, or which
questions the validity of, any of the Transactions, except for the matters set
forth on Schedule 4.13 hereto, all of which are fully covered by insurance
except to the extent otherwise disclosed therein. Except as disclosed on
Schedule 4.13, no judgment, decree or order of any court, board or other
governmental or administrative agency or arbitrator has been issued against or
binds the Company or its assets which has or may have a Material Adverse Effect.
4.14. Tax Returns. Except as disclosed on Schedule 4.14 hereto, the
Company has filed all tax returns and reports which are required to be filed
with any foreign, federal, state or local governmental authority or agency and
has paid, or made adequate provision for the payment of, all assessments
received and all taxes reflected in such returns which have or may become due
under applicable foreign, federal, state or local governmental law or
regulations with respect to the periods in respect of which such returns and
reports were filed (other than taxes, fees or charges the amount or validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which reserves in accordance with Generally Accepted Accounting
Principles have been provided on the books of the Company). The sum of the
charges, accruals and reserves on the books of the Company in respect of taxes
and other
20
21
governmental charges are adequate to pay and discharge all such taxes. Except as
set forth on Schedule 4.14 hereto, the Company knows of no additional
assessments since the date of such returns and reports, and, there will be no
additional assessments for which adequate reserves appearing on the balance
sheet referred to in Section 4.6(a)(ii) have not been established. The Company
has made adequate provision for all accrued and unpaid taxes.
4.15. Events of Non-Compliance. No Unmatured Event of Non-Compliance or
Event of Non-Compliance exists on the date hereof. The Company is not in default
under any provisions of its Charter or by-laws or under any provision of any
franchise, contract, agreement, lease or other instrument to which it is a party
or by which it or its property is bound (other than a Financing Agreement or a
Related Agreement) or in violation of any law, judgment, decree or governmental
order, rule or regulation that would have a Material Adverse Effect.
4.16. Burdensome Obligations. The Company is not a party to or bound by
any agreement, deed, lease or other instrument which is reasonably believed by
the Company to be so unusual or burdensome as to materially and adversely affect
or impair the business, assets or financial condition of the Company.
4.17 ERISA. No employee benefit plan established or maintained by the
Company or to which the Company has made contributions, which is subject to Part
3 of Subtitle B of Title I of ERISA or Section 412 of the Code, had an
accumulated funding deficiency (as such term is defined in Section 302 of ERISA
or Section 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of such plan heretofore ended. No liability to the PBGC
(other than required insurance premiums, all of which heretofore due have been
paid) has been incurred with respect to any such plan and there has not been any
reportable event within the meaning of ERISA and the regulations promulgated
thereunder, or any other event or condition, which presents a material risk of
termination of any such plan by the PBGC. Neither any such plan nor any trust
created thereunder, nor any trustee or administrator thereof, has engaged in a
prohibited transaction (as such term is defined in Section 4975 of the Code or
Section 406 of ERISA) that could subject any such plan, trust, trustee or
administrator or the Company to any material tax or material penalty on
prohibited transactions imposed under said Section 4975 of ERISA. No material
liability has been incurred with respect to any multi-employer plan, within the
meaning of Section 4001(a)(3) of ERISA, as a result of the complete or partial
withdrawal by the Company from such a multi-employer plan under Section 4201 or
4204 of ERISA; nor has the Company been notified by any such multi-employer plan
that such multi-employer plan is in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such multi-employer
plan intends to terminate or has been terminated under Section 4041A of ERISA.
4.18. Governmental Regulations. The Company is not a "holding company",
or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is the Company a
21
22
"registered investment company", or an "affiliated person" or a "principal
underwriter" of a "registered investment company", as such terms are defined in
the Investment Company Act of 1940, as amended.
4.19. Safety, Zoning and Environmental Compliance. Neither the plants,
offices or properties in or on which the Company carries on its business or the
activities carried on therein are in material violation of any zoning, health or
safety law or regulation including, without limitation, the Occupational Safety
and Health Act of 1970, as amended. Except as set forth on Schedule 4.19 hereto:
(a) Neither of the Company or any operator of any real property
presently or formerly owned, leased or operated by the Company is in
violation, or alleged violation, of any judgment, decree, order, law,
license, rule or regulation pertaining to environmental matters,
including without limitation those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986 ("XXXX"), the
Federal Clean Water Act, the Solid Wastes Disposal Act, as amended, the
Federal Clean Air Act, as amended, the Toxic Substances Control Act, or
any state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter
"Environmental Laws") which violation, or alleged violation, is
reasonably believed to have a Material Adverse Effect;
(b) The Company has not received notice from any third party
including without limitation any federal, state or local governmental
authority, (i) that the Company or any predecessor in interest has been
identified by the United States Environmental Protection Agency ("EPA")
as a potentially responsible party under CERCLA with respect to a site
listed on the National Priorities List, 40 C.F.R. Part 000 Xxxxxxxx X
(1986); (ii) that any "hazardous waste" as defined by 42 U.S.C.
Section 6903(5), any "hazardous substances" as defined by 42 U.S.C.
Section 9601(14), any "pollutant or contaminant" as defined by
42 U.S.C. Section 9601(33) or any toxic substance, oil or hazardous
materials or other chemicals or substances regulated by any
Environmental Laws ("Hazardous Substances") which any one of them has
generated, transported or Disposed of has been found at any site at
which a federal, state or local agency or other third party has
conducted or has ordered that the Company or any predecessor in
interest conduct a remedial investigation, removal or other response
action pursuant to any Environmental Law; or (iii) that any of them is
or shall be a named party to any claim, action, cause of action,
complaint or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in connection
with the Release of Hazardous Substances;
(c)(i) No portion of any real property presently or formerly
owned, leased or operated by the Company has been used for the
handling, manufacturing, processing,
22
23
storage or Disposal of Hazardous Substances in material violation of
any Environmental Law; and no underground tank or other underground
storage receptacle for Hazardous Substances is located on such
properties; (ii) in the course of any activities conducted by the
Company or operators of any real property presently or formerly owned,
leased or operated by the Company, no Hazardous Substances have been
generated or are being used on such properties; (iii) there have been
no Releases (i.e. any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened Releases of Hazardous Substances
on, upon, into or from any real property presently or formerly owned,
leased or operated by the Company in material violation of any
Environmental Law; (iv) to the Knowledge of the Company, there have
been no Releases of Hazardous Substances on, upon, from or into any
real property in the vicinity of any real property presently or
formerly owned, leased or operated by the Company which, through soil
or groundwater contamination, may have come to be located on any of the
properties of the Company; and (v) in addition, any Hazardous
Substances that have been generated on any real property presently or
formerly owned, leased or operated by the Company have been transported
offsite only by carriers having an identification number issued by the
EPA, treated or Disposed of only by treatment or disposal facilities
maintaining valid permits as required under applicable Environmental
Laws, which transporters and facilities have been and are, to the best
knowledge of the Company, operating in compliance with such permits and
applicable Environmental Laws; and
(d) No real property presently or formerly owned, leased or
operated by the Company is or shall be subject to any applicable
environmental cleanup responsibility law or environmental restrictive
transfer law or regulation by virtue of the transactions set forth
herein and contemplated hereby.
4.20. Intentionally Omitted.
4.21. Disclosure. No representation or warranty of the Company to the
Purchaser contained in this Agreement or any other document, certificate, or
written statement furnished to the Purchaser by the Company for use in
connection with the transactions contemplated by this Agreement contains an
untrue statement of a material fact or omits to state a material fact (to the
Company's Knowledge, in the case of any document not furnished by it) necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances in which the same were made.
4.22. Withholding, Union Contracts, Labor Relations.
(a) The Company has withheld all amounts required by law or
agreement to be withheld by it from the wages, salaries and other
payments to its employees and is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
23
24
(b) The Company is not a party to any written employment
agreement, written arrangement or written understanding with any of its
officers or employees, other than as set forth on Schedule 4.22 hereto.
The Company has never been subject to a collective bargaining agreement
covering any of the employees of the Company. Except as disclosed in
Schedule 4.13, there are no pending, or, to the Knowledge of the
Company, threatened or anticipated (i) employment discrimination
charges or complaints against or involving the Company before any
federal, state, or local board, department, commission or agency, (ii)
unfair labor practice charges or complaints, disputes or grievances
affecting the Company, (iii) union representation petitions respecting
the employees of the Company, (iv) efforts being made to organize any
of the employees of the Company or (v) strikes, slow downs, work
stoppages, or lockouts or threats thereof affecting the Company.
4.23. Potential Conflicts of Interest. Except as set forth on Schedule
4.23 hereto, no Affiliate of the Company: (a) owns, directly or indirectly, any
interest in (excepting not more than 1% stock holdings for investment purposes
in securities of publicly held and traded companies) or is an officer, director,
employee or consultant of any Person which is a competitor, lessor, lessee,
customer or supplier of the Company; (b) owns, directly or indirectly, in whole
or in part, any tangible or intangible property which the Company is using or
the use of which is necessary for the business of the Company; or (c) has any
cause of action or other claim whatsoever against, or owes any amount to, the
Company, except for claims in the ordinary course of business, including,
without limitation, claims for accrued vacation pay, accrued benefits under
employee benefit plans and similar matters and agreements.
4.24. Transaction Costs. Except as set forth on Schedule 4.24 hereto,
there are no Transaction Costs, as defined below, that will be payable by the
Company with respect to the Transactions. The term "Transaction Costs" shall
mean all of the costs, fees and expenses incurred by the Company in connection
with the Transactions, as set forth in Schedule 4.24, including without
limitation, broker's, finder's or placement fees or commissions, attorneys' fees
and fees of other professionals; provided, however, that with respect to any
such Transaction Costs not available on the Closing Date, then Schedule 4.24 may
contain the Company's estimate thereof identified as an estimate.
4.25. ESOP Qualification. The ESOP qualifies as an "employee stock
ownership plan" within the meaning of Section 4975(e)(7) of the Code and
qualifies under Section 401(a) of the Code, and the ESOP Trust is exempt under
Section 501(a) of the Code.
4.26. ESOP Loan. The ESOP Loan is an "exempt loan" within the meaning
of Treas. Reg. Section 54-4975-7(b). The transactions contemplated by this
Agreement and the Related Agreements including, without limitation, the
Company's making of the ESOP Loan to the ESOP Trustee, and the ESOP Trustee's
purchase and retention of the Employer Securities are not "prohibited
transactions" within the meaning of Section 4975 of the Code or Section 406 of
ERISA.
24
25
4.27. ESOP Trustee; Independent Financial Adviser; etc. Both the ESOP
Trustee and the Independent Financial Adviser are independent of the Company and
its Affiliates as defined in Prop. DOL Reg. Section 2510.3-18(b)(3)(iii).
4.28. 1996 Fiscal Year Financial Performance. The Company's: (a) net
revenues for its fiscal year ending February 29, 1996 are not less than
$29,000,000; and (b) EBIT for such fiscal year is not less than $3,700,000.
4.29 Trade Relations. There exists no actual or, to the Knowledge of
the Company, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between the Company and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of the Company, or with any material
supplier, and, to the Knowledge of the Company, there exists no present
condition or state of facts or circumstances that reasonably could be expected
to materially adversely affect the Company or prevent the Company from
conducting such business after the consummation of the transactions contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted.
5. INVESTMENT REPRESENTATION.
In order to induce the Company to enter into this Agreement and to sell
the Securities to the Purchaser, the Purchaser hereby represents and warrants
that, both before and immediately after giving effect to the Closing and the
consummation of the Transactions:
5.1. Organization and Good Standing. The Purchaser is duly organized
and existing in good standing in its jurisdiction of organization and is duly
qualified as a foreign limited partnership and authorized to do business in the
State of California to the extent that the nature of its business or property
makes such qualification necessary. The Purchaser has the partnership power to
own its properties and to carry on its business as now conducted.
5.2. Authorization; Approvals. The execution, delivery and performance
by the Purchaser of this Agreement and each Related Agreement to which the
Purchaser is a party, and the purchase by the Purchaser of the Purchased
Securities hereunder, (a) are within the Purchaser's partnership power and
authority, (b) have been duly authorized by all necessary partnership action,
(c) do not conflict with or result in any breach of any provision of the
partnership agreement of the Purchaser or any law, regulation, order, judgment,
writ, injunction, material license, permit, agreement or instrument binding on,
or applicable to the Purchaser or any of its property, and (d) do not require
any consent, approval or filing pursuant to, the partnership agreement of the
Purchaser or any law, regulation, order, judgment, writ, injunction, material
license, permit, agreement or instrument binding on, or applicable to the
Purchaser or any of its property.
25
26
5.3. Enforceability. The execution and delivery by the Purchaser of
this Agreement and each Related Agreement to which the Purchaser is a party, and
the purchase by the Purchaser of the Purchased Securities hereunder, will result
in legally binding obligations of the Purchaser enforceable against the
Purchaser in accordance with the respective terms and provisions hereof and
thereof, except to the extent that (a) such enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and (b) the
availability of the remedy of specific performance or injunctive or other
equitable relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
5.4 Accredited Investor. The Purchaser represents and warrants to the
Company that the Purchaser is (a) an "accredited investor" as defined in Rule
501 promulgated under the Securities Act, and (b) acquiring the Purchased
Securities for investment and not with a view to selling or otherwise
distributing the Purchased Securities; provided, however, that the disposition
of the Purchaser's property shall at all times be and remain in the Purchaser's
control, subject to the provisions of Section 13 hereof. Purchaser acknowledges
that the Securities have not been registered under the Securities Act. Purchaser
further represents and warrants to the Company that no portion of the funds to
be used by Purchaser to purchase the Securities are assets of a "plan" as
defined in Section 4975(e)(1) of the Code, which may be subject to the excise
tax provisions of Section 4975 of the Code.
5.5 Broker's Fees. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the Transactions based
on any agreement or arrangement by the Purchaser that would impose any
obligation or liability on the Company.
6. CONDITIONS TO PURCHASE.
The Purchaser's obligation to purchase the Purchased Securities
pursuant to this Agreement is subject to compliance by the Company with its
agreements herein contained, and to the satisfaction, on or prior to the Closing
Date, of the following conditions:
6.1. Related Agreements. Each of the Related Agreements shall have been
executed and delivered in a form satisfactory to the Purchaser, and each of the
Related Agreements shall be in full force and effect and no term or condition
thereof shall have been amended, modified or waived without the disclosure
thereof to the Purchaser and, if the Purchaser determines such amendment or
waiver to be material, the Purchaser's prior written consent thereto. All
covenants, agreements and conditions contained in the Related Agreements which
are to be performed or complied with on or prior to the Closing Date shall have
been performed or complied with (or waived with the Purchaser's prior written
consent) in all material respects.
6.2. Charter Documents; Good Standing Certificate. The Purchaser shall
have received from the Company a copy of the Charter certified by the California
Secretary of State and a copy of the bylaws of the Company, certified by a duly
authorized officer of the Company to
26
27
be true and complete as of the Closing Date; and a certificate, dated not more
than ten (10) days prior to the Closing Date, of the Secretary of State or other
appropriate official of each state in which the Company is incorporated or
qualified to do business, as to the Company's corporate good standing or
qualification to do business in such state, as the case may be.
6.3. Proof of Corporate Action. The Purchaser shall have received from
the Company copies, certified by a duly authorized officer thereof to be true
and complete as of the Closing Date, of the records of all corporate action
taken by the Company to authorize the execution, delivery and performance of
this Agreement and each of the Financing Agreements or Related Agreements to
which such Person is or is to become a party.
6.4. Incumbency Certificate. The Purchaser shall have received from the
Company an incumbency certificate, dated as of the Closing Date, signed by a
duly authorized officer thereof and giving the name and bearing a specimen
signature of each individual who shall be authorized to sign, in the name and on
behalf of such Person, this Agreement and each of the Related Agreements to
which such Person is or is to become a party, and to give notices and to take
other action on behalf of such Person under each of such documents.
6.5. Legal Opinion. The Purchaser shall have received from counsel to
the Company and to the members of the Managing Group its opinion, substantially
in the form of Exhibit B hereto.
6.6. Representations and Warranties; Officers' Certificates. The
representations and warranties contained or incorporated by reference herein
shall be true and correct immediately after completion of the Transactions on
and as of the Closing Date; no event or condition shall have occurred or would
result from the issuance of any of the Securities which would be an Unmatured
Event of Non-Compliance or an Event of Non-Compliance on and as of the Closing
Date, and the Company shall have performed and complied with all conditions and
agreements required to be performed or complied with by it prior to the Closing;
and the Purchaser shall have received on the Closing Date a certificate to these
effects signed by an authorized officer of the Company.
6.7. Legality; Governmental Authorization. The purchase of the
Purchased Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject the Purchaser to any penalty, special tax, or
other onerous condition. All necessary consents, approvals, licenses, permits,
orders and authorizations of, or registrations, declarations and filings with,
any governmental or administrative agency or of or with any other Person, with
respect to any of the Transactions shall have been duly obtained or made and
shall be in full force and effect.
6.8. Intentionally Omitted.
27
28
6.9. Closing Fee. The Purchaser shall have received from the Company
payment in full of a closing fee in the amount of $120,000.
6.10. Fleet Financing. Simultaneously with the purchase and sale of the
Purchased Securities hereunder, the Company and Fleet shall have executed and
delivered the Fleet Loan Agreement, such agreement to provide total credit of
not more than $19,500,000 and contain other terms and conditions satisfactory to
the Purchaser. On the Closing Date, after giving effect to the Transactions, the
Company shall have aggregate cash and cash equivalents, including availability
to borrow under the revolving credit facility evidenced by the Credit Agreement
of at least $1,500,000.
6.11. Completion of Transactions. On the Closing Date, simultaneously
with the purchase and sale of the Purchased Securities hereunder, the Company
shall have completed the Transactions, on terms satisfactory to the Purchaser in
all respects.
6.12. Payment of Certain Fees and Disbursements. Fabyanske, Svoboda,
Xxxxxx & Xxxx, P.A., special counsel to the Purchaser, shall have received
payment in full for all reasonable legal fees charged and all costs and expenses
incurred by such counsel through the Closing Date in connection with the
Transactions. All of the other reasonable fees, expenses and disbursements
incurred by the Purchaser or its accountants and other consultants in connection
with its due diligence investigation of the Company shall have been paid in full
by the Company.
6.13. No Material Change. There shall not have been, or threatened to
be after giving effect to the Transactions, any material damage to or loss or
destruction of any properties owned or leased by the Company (whether or not
covered by insurance) or any material adverse change in the business, assets or
financial condition of the Company or imposition of any laws, rules or
regulations which would materially adversely affect the business, assets or
financial condition of the Company.
6.14. No Litigation. No restraining order or injunction shall prevent
the Transactions and no action, suit or proceeding shall be pending or
threatened before any court or administrative body in which it will be, or is,
sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the Transactions.
6.15. Fairness. The Purchaser shall have received a copy of a favorable
opinion of FMV Opinions, Inc. addressed to the ESOP Trustee and stating to the
effect that the purchase price being paid by the ESOP Trustee for the Employer
Securities does not exceed the fair market value thereof and the Transactions
are fair to the ESOP from a financial point of view.
6.16. General. All instruments and legal, governmental, administrative
and corporate proceedings in connection with the Transactions shall be
satisfactory in form and substance to the Purchaser, and the Purchaser shall
have received copies of all documents, including, without
28
29
limitation, records of corporate or other proceedings, opinions of counsel,
consents, licenses, approvals, permits and orders which the Purchaser may have
requested in connection therewith.
7. COVENANTS APPLICABLE TO THE COMPANY WHILE SECURITIES ARE OUTSTANDING.
Subject to Section 7.25, the Company covenants that, for so long as the
Purchaser owns any Securities or for such other period of time as is expressly
provided below, the Company will comply with the following provisions unless
otherwise consented to in writing by the Purchaser:
7.1. Financial Information. The Company will furnish the following
reports to the Purchaser:
(a) As soon as available and in any event within 90 days after the
end of each fiscal year of the Company, the annual audit report of the
Company prepared in conformity with Generally Accepted Accounting
Principles consistently applied, consisting of at least statements of
operations and retained earnings and cash flows for such fiscal year,
and a balance sheet as at the end of such year, setting forth in each
case in comparative form corresponding figures from the previous annual
audit, audited by an independent public accounting firm of
nationally-recognized standing meeting the requirements of Section 7.9
selected by the Company. Each of the financial statements delivered
hereunder shall be certified without qualification as to the scope of
the audit or as to the Company's viability as a going-concern by such
accounting firm to have been prepared in accordance with Generally
Accepted Accounting Principles consistently applied, accompanied by:
(i) any management letters, management reports or other supplementary
comments or reports to the Company or its board of directors furnished
by such accounting firm and the Company's response thereto; and (ii) if
the then applicable Credit Agreement requires a certificate from such
accounting firm addressing the Company's compliance or non-compliance
with the financial covenants set forth in such Credit Agreement, then a
similar certificate from such accounting firm addressing the Company's
compliance or non-compliance with the EBITA covenant set forth in
Section 7.26 of this Agreement.
(b) Within 45 days after the end of each fiscal month
commencing with the first month ending March 31, 1996, the Company will
deliver to the Purchaser internal, unaudited balance sheets and
statements of income, retained earnings and cash flows of the Company
as of the end of each such month and for the year-to-date together with
comparisons to the financial statements for the same month and the same
year-to-date period of the immediately preceding fiscal year and to the
budget delivered to the Purchaser as part of Schedule 4.6(a)(iii) or,
with respect to subsequent years, pursuant to Section 7.1(c).
29
30
(c) The Company will deliver to the Purchaser, within 30 days
after the commencement of each fiscal year, an annual budget and
projected monthly balance sheets and statements of income for such
fiscal year, prepared on a comparative basis to the Projections and as
soon as practical after preparation thereof, complete and correct
copies of all quarterly (if any) or annual (if any) analyses in the
form customarily prepared by management for the use of the board of
directors of the Company.
(d) Contemporaneously with the mailing thereof, the Company
will mail to the Purchaser, copies of all material of a financial
nature delivered to Fleet or other lender party to the Credit Agreement
including, without limitation, a borrowing base certificate as of the
end of each of the Company's fiscal months and each financial covenant
compliance certificate.
(e) Together with delivery of financial statements of the
Company pursuant to Sections 7.1(a) and (b) above, the Company will
deliver to the Purchaser a certificate of the chief financial officer
of the Company: (i) stating that such statements have been prepared in
accordance with Generally Accepted Accounting Principles consistently
applied and present fairly in all material respects the financial
position of the Company as of the dates specified and the results of
its operations and cash flows with respect to the periods specified
(subject in the case of interim financial statements only to normal
year-end audit adjustments and a lack of footnotes); (ii) setting forth
the computation demonstrating compliance with the EBITA covenant set
forth in Section 7.26 of this Agreement; and (iii) stating that such
officer has caused the provisions of this Agreement and the Securities
to be reviewed and has no Knowledge of any Unmatured Event of
Non-Compliance or Event of Non-Compliance, or if such officer has such
Knowledge, specifying such Unmatured Event of Non-Compliance or Event
of Non-Compliance and the nature thereof, and what action the Company
has taken, is taking or proposes to take with respect thereto.
(f) Within five days after any executive officer of the
Company obtaining knowledge of any Unmatured Event of Non-Compliance or
Event of Non-Compliance, a notice describing the nature thereof and
what action the Company has taken, is taking or proposes to take with
respect thereto.
(g) Within five days after any executive officer of the
Company obtaining knowledge of the occurrence thereof, notice of the
institution of any litigation, arbitration or governmental proceeding
against the Company or any of its property which, if determined
adversely to the Company, would constitute a Material Adverse Effect,
or the rendering of a judgment or decision in such litigation or
proceeding which constitutes a Material Adverse Effect, and the steps
being taken by the Company with respect thereto.
30
31
(h) Within five days after any executive officer of the
Company obtaining knowledge of any default or event of default under
any Related Agreement, or any agreement relating to any Indebtedness
for Borrowed Money that has an outstanding principal balance of
$1,000,000 or more, the Company will furnish a notice specifying the
nature and period of existence thereof. Promptly after the receipt
thereof, the Company will provide copies of any reports as to
adequacies in accounting controls submitted by independent accountants
with respect to the Company.
(i) Promptly after any executive officer of the Company
obtaining knowledge of the occurrence thereof, notice of any violation
as to any environmental matter by the Company and of the commencement
of any judicial or administrative proceeding relating to health, safety
or environmental matters: (i) in which an adverse determination or
result could result in the revocation of or have a material adverse
effect on any operating permits, air emission permits, water discharge
permits, hazardous waste permits or other permits held by such Person
which are material to the operations of the Company; or (ii) which will
or threatens to impose a material liability on the Company to any other
Person or which will require a material expenditure by the Company to
cure any alleged problem or violation.
(j) Promptly upon becoming available, a copy of all regular or
periodic reports which the Company shall file with the Commission or
any national securities exchange.
(k) From time to time, such other information regarding the
business, operation and financial condition of the Company as the
Purchaser may reasonably request.
7.2. Records and Accounts. The Company will keep true and accurate
records and books of account in which full, true and correct entries will be
made in accordance with Generally Accepted Accounting Principles and maintain,
in accordance with Generally Accepted Accounting Principles, adequate accounts
and reserves for all taxes (including income taxes), all depreciation,
depletion, obsolescence and amortization of its properties and all other
contingencies.
7.3. Corporate Existence; Maintenance of Properties. The Company will
preserve and keep in full force and effect its corporate existence and all
rights and franchises then material to its operations. The Company will engage
in the business currently conducted by it and businesses reasonably related
thereto. The Company will maintain all of its properties used or useful in the
conduct of its business in good condition, repair and working order and cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section 7.3 shall prevent the Company from discontinuing the operation and
maintenance of any of such properties if such discontinuance is, in the judgment
31
32
of the Board of Directors of the Company, desirable in the conduct of the
Company's business and does not in the aggregate have a Material Adverse Effect.
7.4. Insurance. The Company will maintain, with financially sound and
reputable insurance companies, funds or underwriters, casualty loss insurance on
its properties and assets, and liability insurance against its liability to
other persons, properties and assets, covering the risks and in the amounts and
with such deductibles as are customarily carried by companies conducting
businesses similar to that of the Company or having properties similar to that
of the Company; provided, however, that in all events the amount of such
insurance be sufficient to prevent the Company from becoming a co-insurer. The
Company will maintain such other insurance as may be required by law.
7.5. Taxes. The Company will pay and discharge, or cause to be paid and
discharged, before the same shall become overdue, all taxes, assessments and
other governmental charges imposed upon the Company and its real properties,
sales and activities, or any part thereof, or upon the income or profits
therefrom, as well as all claims for labor, materials, or supplies, which if
unpaid might by law become a Lien or charge upon any of its properties;
provided, however, that any such tax, assessment, charge, levy or claim need not
be paid if the validity or amount thereof shall currently be contested in good
faith by appropriate action or proceedings and if the Company shall have set
aside on its books adequate reserves with respect thereto in accordance with
Generally Accepted Accounting Principles; provided, further, that the Company
will pay or cause to be paid all such taxes, assessments, charges, levies or
claims forthwith upon the commencement of foreclosure on any Lien which may have
attached as security therefor.
7.6. Inspection of Properties and Books. The Company shall permit the
Purchaser or any of its designated representatives to visit and inspect any of
the properties of the Company, to examine the books of account of the Company
(and to make copies thereof and extracts therefrom), and to discuss the affairs,
finances and accounts of the Company with, and to be advised as to the same by,
officers of the Company, all at such reasonable times and intervals as the
Purchaser may reasonably request.
7.7. Compliance with Laws, Contracts, Licenses, and Permits. The
Company will comply in all material respects with: (a) all applicable laws and
regulations wherever its business is conducted; (b) the provisions of its
Charter and bylaws; (c) all agreements and instruments by which it or any of its
properties may be bound (including, without limitation, the Financing Agreements
and the Related Agreements); and (d) all applicable decrees, orders, and
judgments except, in each case, where the effect of such non-compliance under
any of such subsections would not have a Material Adverse Effect. If any
authorization, consent, approval, operating right, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that the Company may fulfill any of its obligations hereunder,
the Company promptly will take or cause to be taken all reasonable steps within
its power to obtain such authorization, consent, approval, operating right,
permit or license and furnish the Purchaser with evidence thereof.
32
33
7.8. Further Assurances. The Company will execute such further
instruments and documents as the Purchaser shall reasonably request to carry out
the transactions contemplated by this Agreement and the Financing Agreements.
7.9. Independent Public Accountants. The Company will retain a
so-called "Big 6" nationally recognized firm of independent public accountants
as the Company's independent public accountants to audit the Company's financial
statements at the end of each fiscal year. No retained firm of the independent
public accounts shall be terminated without the approval of the Company's Board
of Directors.
7.10. Restrictions on Indebtedness. The Company will not create,
incur, assume, guarantee or be or remain liable, contingently or otherwise, with
respect to any Indebtedness other than the following("Permitted Indebtedness"):
(a) Indebtedness outstanding under the Credit Agreement;
provided, however, that the amount of such Indebtedness shall not
exceed the sum of: (i) in the case of a revolving credit facility, the
greater of (A) $10,000,000, or (B) the amount that the aggregate amount
of credit that can be advanced based upon customary advance rates for
the Company's accounts receivable and inventory, the determination of
the customary nature of such advance rates to be made from time to time
in the reasonable judgment of the lender or lenders under the Credit
Agreement plus (ii) the outstanding principal balance of the term loan
evidenced by the Term Note (or a Refinancing Agreement in respect
thereof);
(b) Current liabilities incurred in the ordinary course of
business not incurred through: (i) the borrowing of money; or (ii) the
obtaining of credit except for credit on an open account basis
customarily extended in connection with purchases of goods and
services; provided, however, that the Company shall pay such open
accounts in accordance with its customary trade practices except where
the Company is contesting in good faith the amount or validity thereof
by appropriate proceedings and then only to the extent that the Company
has set aside on its books adequate reserves with respect thereto in
accordance with Generally Accepted Accounting Principles;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 7.5
hereof;
(d) Indebtedness in respect of: (i) judgments or awards which
have been in force for less than the applicable period for taking an
appeal so long as execution is not levied thereunder or in respect of
which the Company shall at the time in good faith be prosecuting an
appeal or proceedings for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review; or
(ii) actions, suits
33
34
or proceedings which, if adversely determined, would not have a
Material Adverse Effect;
(e) Endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(f) Indebtedness under or in respect of the agreements or
instruments existing on the date of this Agreement listed and described
on Schedule 7.10 hereto, but only to the extent of the amounts listed
thereon;
(g) Indebtedness for Borrowed Money and Capitalized Leases
incurred in connection with the acquisition of fixed assets; provided,
however, that the aggregate outstanding principal amount of such
Indebtedness shall not exceed $3,000,000 at any time;
(h) Other Indebtedness of the Company in an aggregate amount
outstanding at any one time of not more than $4,000,000; and
(i) Refinancing Indebtedness incurred pursuant to any
Refinancing Agreement, in an aggregate principal amount outstanding not
to exceed the amount of the Indebtedness refinanced with the proceeds
of such Refinancing Indebtedness; provided, however, that with respect
to any refinancing of Indebtedness under the Credit Agreement,
Refinancing Indebtedness also may include Indebtedness arising from the
funding of unused revolving credit commitment permitted by subsection
(a)(i) above.
7.11. Restrictions on Liens. The Company will not create or incur or
suffer to be created or incurred or to exist any Lien upon any of its property
or assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; or transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; or acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; or suffer to exist
for a period of more than 30 days after the same shall have been incurred any
Indebtedness or claim or demand against it which if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors (other than those claims which the Company is contesting
in good faith by appropriate proceedings and as to which the Company shall have
set aside on its books, adequate reserves with respect thereto); or sell,
assign, pledge or otherwise transfer any accounts, contract rights, general
intangibles or chattel paper, with or without recourse; provided, however, that
the Company may create or incur or suffer to be created or incurred or to exist
any of the following ("Permitted Liens"):
34
35
(a) Liens to secure taxes, assessments and other government
charges or claims for labor, material or supplies in respect of
obligations not overdue (other than any such overdue taxes, levies,
claims, assessments or charges, to the extent the payment therefor
shall not at the time be required to be made in accordance with the
provisions of Section 7.5 hereof);
(b) Deposits or pledges made in connection with, or to secure
payment of, worker's compensation, unemployment insurance, old age
pensions or other social security obligations;
(c) Liens in respect of judgments or awards, the Indebtedness
with respect to which is permitted by Section 7.10(d);
(d) Liens of carriers, warehousemen, mechanics and
materialmen, and other like liens, in existence less than 60 days from
the date of creation thereof or in respect of obligations not overdue
or, if overdue, all such liens that the Company is contesting in good
faith by appropriate actions or proceedings which prevent enforcement
of the lien;
(e) Encumbrances consisting of easements, rights of way,
zoning restrictions, restrictions on the use of real property and
irregularities in the title thereto, landlord's or lessor's Liens under
leases to which the Company is a party, and other Liens none of which
interferes materially with the use of the property affected in the
ordinary conduct of the business of the Company or which does not
individually or in the aggregate have a Material Adverse Effect;
(f) Any Liens on the assets and property of the Company from
time to time securing Indebtedness permitted by Sections 7.10(a), (g)
or (h) and Liens presently outstanding as shown on Schedule 7.11
hereto; and
(g) Liens incurred in connection with Capital Expenditures
made after the date of this Agreement by way of purchase money security
interest, purchase money mortgage, conditional sale or other title
retention agreement, Capitalized Lease or other deferred payment
contract, and attaching only to the property being acquired; provided,
however, that the Indebtedness secured thereby is permitted by Section
7.10(g), and the amount of such secured Indebtedness does not exceed
the lesser of the purchase price or the fair market value of such
property and related acquisition costs at the time of its acquisition;
and
(h) Liens securing Refinancing Indebtedness to the extent any
such Lien replaces a Lien securing the Indebtedness so refinanced and
is limited to the properties or assets that were subject to the Lien
securing the Indebtedness so refinanced; provided, however, that in the
case of Refinancing Indebtedness incurred in order to refinance the
35
36
Indebtedness owing under and pursuant to the Credit Agreement, the
Liens may extend to any and all properties and assets of the Company.
7.12. Distributions. The Company shall not make any Distribution
except:
(a) to the extent not prohibited by any Credit Agreement
Restriction, the Company:
(i) shall redeem the Preferred Stock on the Preferred Stock
Stated Redemption Date;
(ii) may repurchase the Warrants and Warrant Stock in
accordance with Section 9 hereof;
(iii) may purchase the "Deceased Founder's Shares" (as
defined in the Shareholder Agreement) in accordance with, and
subject to, the terms and conditions of the Shareholder
Agreement; and
(iv) may: (A) make contributions to the ESOP; (B) make cash
distributions to participants in the ESOP required by the ESOP
Plan Document; (C) purchase any share of the Series B Common
Stock put to the Company pursuant to Section 14(b) of the ESOP
Plan Document; and (D) pay ESOP Qualifying Dividends; and
(b) the Company may redeem the Preferred Stock on each
Preferred Stock Early Redemption Date.
7.13. Merger, Consolidation or Sale of Assets. The Company will not
become a party to any merger or consolidation, or sell, lease, sublease or
otherwise transfer or dispose of any of its assets other than: (a) transactions
requiring the consent of a majority of each class of the Company's issued and
outstanding capital stock under California law or receiving the consent of a
majority of each class of the Company's issued and outstanding capital stock;
(b) any merger or consolidation with a wholly-owned Subsidiary permitted by
Section 7.14(f) so long as the Company is the surviving corporation; or (c) any
of the following transactions if such shareholder consent is not required or
obtained: (i) sales of inventory in the ordinary course of business; (ii) sales
of obsolescent equipment permitted by the terms of the then applicable Credit
Agreement with respect to sales of equipment subject to a Lien in favor of the
lender party thereto; or (iii) sales or other dispositions of other assets or
property so long as, after giving effect to the contemplated transaction, the
aggregate Net Proceeds from all such transactions would not exceed $1,000,000.
7.14. Investments. The Company will not have outstanding or acquire or
commit itself to acquire or hold any Investment except for the ESOP Loan and for
the Investments set forth
36
37
on Schedule 7.14 hereto and except Investments in: (a) marketable direct
obligations issued or guaranteed by the United States of America which mature
within one year from the date of acquisition thereof or which are subject to a
repurchase agreement, exercisable within 90 days from the date of acquisition of
such agreement, with any commercial bank or trust company incorporated under the
laws of the United States of America or any State thereof or the District of
Columbia; (b) commercial paper maturing within one year from the date of
acquisition thereof and having, at the date of acquisition thereof, the highest
rating obtainable from Xxxxx'x Investors Service, Inc. or Standard & Poor's
Corporation; (c) bankers' acceptances eligible for rediscount under Federal
Reserve Board requirements accepted by any commercial bank or trust company
referred to in clause (a) hereof; (d) certificates of deposit maturing within
one year from the date of acquisition thereof issued by any commercial bank or
trust company referred to in clause (a) hereof and having capital and surplus of
at least $100,000,000 and having at least an "A" rating or better; (e)
certificates of deposit issued by banks organized under the laws of any other
jurisdiction, each having combined capital and surplus of not less than
$100,000,000, and having at least an "A" rating or better; (f) wholly-owned
Subsidiaries organized solely to consummate an Investment permitted by
subsection (g) below so long as such Subsidiary is merged into, or consolidated
with, the Company as soon as practicable after the consummation of such
Investment but in no event more than 30 days thereafter; and (g) the assets or
capital stock of any other Person so long as, after giving effect to the
contemplated Investment, the aggregate amount of such Investments would not
exceed $2,000,000.
7.15. Transactions with Affiliates. The Company will not: (a) except
pursuant to the Financing Agreements or the Related Agreements (including,
without limitation, the ESOP Transactions Documents), engage in any transaction
with any Affiliate on terms more favorable to such Affiliate than would have
been obtainable on an arms-length basis in the ordinary course of business; or
(b) make any Restricted Payment other than: (i) contributions made, and
dividends paid, to the ESOP to enable the ESOP to pay the principal of, and/or
interest on, the ESOP Loan; (ii) in the case of each of the members of the
Managing Group, payments of: (A) base salary and employee benefits (other than
bonuses) in the amount of base salary and types of employee benefits provided by
the terms of the Employment Agreements as in effect on the Closing Date plus,
commencing with the Company's fiscal year beginning March 1, 1997, an additional
amount of base salary not to exceed 10% (or 15% in the case of the fiscal year
beginning March 1, 1997) of the prior fiscal year's base salary in the aggregate
for all members of the Managing Group so long as no Specified Event of
Non-Compliance or Unmatured Event of Non-Compliance which with notice and/or
lapse of time would constitute a Specified Event of Non-Compliance has occurred
and is continuing at the time of any such salary increase or would result
therefrom; and (B) bonuses to members of the Managing Group with respect to each
of the Company's 1997, 1998, 1999, 2000 and 2001 fiscal years, commencing with
the fiscal year ending February 28, 1997, so long as: (1) the aggregate amount
of such bonuses paid to any or all of the members of the Managing Group does not
exceed the Maximum Incentive Compensation for such fiscal year; (2) no Specified
Event of Non-Compliance or Unmatured Event of Non-Compliance which with notice
and/or lapse of time would constitute a Specified Event of Non-Compliance has
occurred and is continuing at the time of any such bonus payment
37
38
or would result therefrom; and (3) such bonuses are not paid with respect to any
fiscal year until after the Company delivers its annual audited financial
statements for such fiscal year to the Purchaser in accordance with Section 7.1;
(ii) payments made pursuant to the terms of any agreement or instrument, as in
effect on the Closing Date, listed on Schedule 7.15; and (iii) premiums on life
insurance policies maintained by the Company on the lives of members of the
Managing Group in accordance with the Shareholder Agreement and repurchases of
any "Deceased Founder's Shares" in accordance with, and subject to, the terms
and conditions of the Shareholder Agreement.
7.16. Intentionally Omitted.
7.17. Availability of Common Stock. The Company will keep such number
of shares of Series A Common Stock unissued and available for issuance in order
to permit issuance of the Warrant Stock.
7.18. Dilution Protection. Except for the Series B Common Stock and for
Permitted Stock Issues the Company will not: (a) issue, sell, give away,
transfer, pledge, mortgage, assign or otherwise dispose of; (b) grant any rights
(either preemptive or other) or options to subscribe for or purchase; or (c)
enter into any agreements, or issue any warrants, providing for the issuance of
any stock or any stock or securities convertible into or exchangeable for any
stock of the Company. Except for Permitted Stock Issues, the Company will not
authorize any additional class or series of capital stock or increase the number
of shares of authorized capital stock from that set forth in Section 4.4 hereof,
as applicable, except to the extent necessary to comply with its obligations
under Section 9 hereof.
7.19. Directors, etc. So long as the Purchaser is permitted to have a
Purchaser's Representative to or on the Company's board of directors, the
Company will call and hold a meeting of its board of directors at least once
each fiscal quarter and the Company will give the Purchaser's Representative at
least five business days' prior written notice (at least three business days'
prior written notice in the case of a telephone meeting and in the case of an
urgent meeting, such lesser number of days' prior written notice as is
reasonably practicable) of the time, place and subject matter of any proposed
meeting (or action by written consent) of the board of directors of the Company
(except written consents executed solely in connection with the establishment of
bank accounts or other purely administrative matters), such notice in all cases
to include true and complete copies of all documents furnished to any director
in connection with such meeting or consent. The Purchaser's Representative, if
not a board member, shall be entitled to attend as an observer at any such
meeting or, if a meeting is held by telephone conference, to participate therein
for the purpose of listening thereto. All normal travel and out-of-pocket
expenses incurred by directors in connection with attending any meetings of the
board will be paid by the Company so long as such payments do not violate
applicable law. Upon the Purchaser's request at any time when the Purchaser has
exercised its rights to designate one of the Company's directors, the Company
will purchase a reasonable amount of director's and officer's insurance
(including fiduciary coverage) for directors of the
38
39
Company, including the Purchaser's Representative; provided, however, that: (a)
the Company's obligation is limited to spending no more than the aggregate
amount of $75,000 during any fiscal year on premiums for insurance on all
directors; and (b) the Company, in no event, shall provide any less favorable
coverage for the Purchaser's Representative than it provides for any other
director.
7.20. Stockholders' Meetings. So long as the Purchaser is permitted
to have a Purchaser's Representative to or on the Company's board of directors,
the Purchaser may call for a stockholders' meeting.
7.21. Amendment of Related Agreements; etc. The Company shall not:
(a) agree to any amendment or modification of, or grant any
waiver or fail to enforce any of its rights pursuant to, any of the
Related Agreements (other than the Fleet Loan Documents or any
Refinancing Agreements in respect thereof) which would have a material
adverse effect on the holders of the Securities or on any of their
rights hereunder or under any of the Financing Agreements including,
without limitation, the amendment or modification of any term
restricting the Company's ability to redeem or pay dividends on the
Preferred Stock or to purchase the Warrants or the Warrant Stock; or
(b) enter into any amendment or modification of any of the
provisions of the Credit Agreement (or a Refinancing Agreement in
respect thereof), without having obtained the prior written consent of
the Majority Holders if the effect thereof would be to (i) extend the
final maturity of the Term Note (or any Refinancing Agreement in
respect thereof) beyond October 23, 2002, or (ii) prohibit the
redemption of the Preferred Stock on or after the date on which the
Term Note has been repaid in full so long as no default or event of
default then exists or would result under the Credit Agreement as a
result thereof; provided, however, that the incurrance of any
Refinancing Indebtedness to repay the Term Note shall not be deemed to
constitute a repayment for purposes of this Section.
7.22. Impairment of Rights. The Company will not enter into any
contract or agreement which by its terms restricts the Company's ability to
redeem or pay dividends on the Preferred Stock or to purchase the Warrants or
the Warrant Stock or which may otherwise restrict the Company's ability to
comply with and perform the terms of this Agreement and the other Financing
Agreements except for the Credit Agreement Restrictions, if any, set forth in
the Fleet Loan Agreement or any successor Credit Agreement or take any action,
or permit any action to be taken by others, solely or primarily for the purpose
of increasing the value of any class of stock of the Company if the effect of
such action is to reduce the value or security of the Preferred Stock.
39
40
7.23. Charter Amendments; etc. The Charter of the Company shall not be
amended or modified in any manner that would adversely affect the rights of the
holders of the Preferred Stock.
7.24. Redemption. The Company shall redeem the outstanding Preferred
Stock on the Preferred Stock Stated Redemption Date unless such redemption is
prohibited by a Credit Agreement Restriction; provided, however, that if a
Credit Agreement Restriction prohibits such redemption, then the Company shall
immediately redeem the Preferred Stock upon the termination of such Credit
Agreement Restriction. At any time when redemption of the Preferred Stock is not
prohibited by any Credit Agreement Restriction, the Company may elect to redeem
the Preferred Stock in whole, or in part, by giving the Purchaser (or the then
holder of the Preferred Stock) and Fleet (or the lender or lenders under a
successor Credit Agreement) at least 30 business days' prior written notice of
the Company's election; provided, however, that any partial voluntary redemption
shall be for the number of shares of Preferred Stock having a Liquidation Value
of not less than $1,000,000. The Company's written notice of election shall
specify a redemption date (each a "Preferred Stock Early Redemption Date") which
shall be no later than 10 days after the end of the 30 day notice period. On the
relevant Preferred Stock Redemption Date, the Company shall redeem the Preferred
Stock by paying the Preferred Stock Redemption Price to the Purchaser in
immediately available funds. For the purpose of calculating the Preferred Stock
Redemption Price on the Preferred Stock Early Redemption Date, the "Preferred
Stock Early Redemption Premium" shall be the percentage of the Liquidation Value
(as of the date of the original issuance) of the shares of the Preferred Stock
to be redeemed specified in the table below for the Post-Closing Year in which
such early redemption occurs:
Preferred Stock
Post-Closing Year Early Redemption Premium
----------------- ------------------------
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%.
7.25 Termination of Covenants. Upon the Company's redemption of all of
the Preferred Stock, all of the covenants under this Section 7 shall terminate
except that, so long as the Purchaser holds at least the CECP Floor Amount, the
covenants under the following Sections shall remain in full force and effect:
Sections 7.1(a), (b), (c), (e) (exclusive of clause (ii)), and (k), Section
7.12, Section 7.15, Section 7.17, Section 7.18, Section 7.19, Section 7.20,
Section 7.21 and Section 7.22; provided, however that all such remaining
covenants shall terminate upon the closing of a Qualified Public Sale.
40
41
7.26 EBITA. The Company will not permit, as of the end of any of
its fiscal quarters, commencing with the fiscal quarter ending on February 28,
1997, its EBITA for the four fiscal quarters ending with such fiscal quarter to
be less than the amount specified in the following table for any fiscal quarter
occurring in the specified fiscal year:
Fiscal Year EBITA
----------- -----
1997 $2,250,000
1998 $3,000,000
1999 $3,350,000
2000 $3,700,000
2001 $3,700,000.
8. Non-Compliance.
8.1. Events of Non-Compliance. Holders of the Securities will be
entitled to exercise the remedies provided by Section 8.2 hereof in accordance
with the terms thereof if any one or more of the following events ("Events of
Non-Compliance") shall occur:
(a) the Company shall fail to redeem the Preferred Stock on
the Preferred Stock Stated Redemption Date, regardless of whether such
failure results from a Statutory Restriction, Credit Agreement
Restriction or otherwise;
(b) the Company shall fail to pay the Repurchase Price payable
under Section 9.2 in accordance with Section 9.4 or shall fail to make
any payment required by Section 9.6 on the date when due or, if payable
on demand, on the date demanded unless such payment cannot be made
because of a Statutory Restriction or Credit Agreement Restriction; or
(c) the Company shall fail to perform or observe the covenant
applicable to it set forth in Section 7.26; or
(d) the Company shall fail to perform or observe any of the
covenants applicable to it set forth in Sections 7.3, 7.10, 7.12, 7.13,
7.14 or 7.15; or
(e) the Company shall fail to perform or observe any covenant,
agreement or provision set forth in this Agreement or any covenant,
agreement, or provision to be performed or observed by it under any
Financing Agreements (other than those provisions set forth in other
subsections of this Section 8.1) and such failure shall not be
rectified or cured to the Purchaser's satisfaction within thirty (30)
days after written notice from the Purchaser; or
41
42
(f) any representation or warranty in writing made by the
Company to the Purchaser in connection with the execution and delivery
of this Agreement or any other Financing Agreement or in connection
with the execution and delivery of any amendment to this Agreement or
any other Financing Agreement shall prove to have been false, in any
material respect, on the date as of which it was made; or
(g) the Company shall fail to pay when due any scheduled
installment payment of principal on any Indebtedness for Borrowed Money
having an outstanding principal balance of $1,000,000 or more and such
failure shall not be cured by the payment thereof within twelve (12)
months of the original due date; provided, however, that it is agreed
that no waiver or rescheduling of such payment after the default by the
holder of the relevant Indebtedness shall be deemed to constitute a
cure under this subsection; or
(h) the holder of any Indebtedness for Borrowed Money having
an outstanding principal of $1,000,000 or more shall: (i) accelerate
the payment thereof so that the same shall have become due and payable
prior to the date on which the same is scheduled to be due and payable
or the holder of any Indebtedness for Borrowed Money payable on demand
shall demand payment thereof and payment thereof is not made within 30
days thereof unless, other than with respect to any such Indebtedness
arising under any Credit Agreement, the Company is contesting such
acceleration in good faith by appropriate actions or proceedings; or
(ii) commence any action to enforce any security interest in or other
Lien on any property securing any such Indebtedness through judicial
proceedings or foreclosure or repossession of collateral and such
action shall not be dismissed within ___ days of the commencement
thereof unless, other than with respect to any Lien arising under the
Credit Agreement, the Company is contesting such proceedings in good
faith by appropriate actions or proceedings and the Company's right
to use any such property during such contest is not materially
impaired; or
(i) a final judgment which in the aggregate with other
outstanding final judgments against the Company exceeds $500,000 shall
be rendered against the Company if, within 30 days after entry thereof,
such judgment shall not have been satisfied and discharged or stayed
pending appeal or bonded, or within 30 days after expiration of such
stay such judgment shall not have been discharged; or
(j) the Company shall:
(i) commence a voluntary case under Title 11
of the United States Code as from time to time in
effect, or authorize, by appropriate proceedings of
its board of directors or other governing body, the
commencement of such a voluntary case;
42
43
(ii) have filed against it a petition
commencing an involuntary case under said Title 11
and such petition shall not have been dismissed or
stayed within 60 days;
(iii) seek relief as a debtor under any
applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to
or acquiesce in such relief;
(iv) have entered against it an order by a
court of competent jurisdiction (x) finding it to be
bankrupt or insolvent, (y) ordering or approving its
liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (z)
assuming custody of, or appointing a receiver or
other custodian for, all or a substantial part of its
property;
(v) make an assignment for the benefit of
creditors, or enter into a composition with its
creditors generally, or appoint or consent to the
appointment of a receiver or other custodian for all
or a substantial part of its property; or
(k) the employment of any of Xxxx Xxxxxx, Xxxxx Xxxxxxx, Xxx
Ezra or Xxxxxx X. Xxxxxx, Xx. shall be terminated for any reason, and
the Company, if requested by the Purchaser, shall not have hired a
replacement for any such Person who is reasonably satisfactory to the
Purchaser, within 180 days thereafter.
8.2. Remedies.
Subject to the provisions of Section 8.5 hereof, the Purchaser, upon
the occurrence and continuance of any of the Events of Non-Compliance under
Section 8.1 hereof, may proceed to protect and enforce its rights by suit in
equity, action at law or other appropriate proceeding for specific performance
of, or injunctive relief enjoining any violation of, any covenant, provision or
condition contained or incorporated by reference in this Agreement or in any
Financing Agreement, or in aid of the exercise of any power granted in this
Agreement or any Financing Agreement, and, if such Event of Non-Compliance is a
Specified Event of Non-Compliance, the Purchaser shall also have the rights
provided in Section 3.5 of the Certificate of Determination.
8.3. Waivers. The Company hereby waives, to the extent not
prohibited by applicable law, (a) all presentments, demands for performance and
notices of nonperformance (except to the extent specifically required by the
provisions hereof), (b) any requirement of diligence or promptness on the part
of any holder of Securities in the enforcement of its rights under the
provisions of this Agreement, the Company's Charter, or any Financing Agreement,
and (c) any and all notices of every kind and description which may be required
to be given by any statute or rule of law.
43
44
8.4. Course of Dealing. No course of dealing, between the Company on
the one hand, and the Purchaser or any holder of Securities, on the other hand,
shall operate as a waiver of any of the Purchaser's rights under this Agreement,
the Company's Charter, or any Financing Agreement. No delay or omission in
exercising any right under this Agreement, the Company's Charter, or any
Financing Agreement shall operate as a waiver of such right or any other right.
A waiver on any one occasion shall not be construed as a bar to or waiver of any
right or remedy on any other occasion.
8.5 Credit Agreement Restrictions. Anything contained herein to the
contrary notwithstanding, the Purchaser (and any transferee of a Security by its
acceptance thereof) agrees that, except for a subordinated claim set forth in
the proviso hereto, it shall have no "claim" (used in its broadest sense, as
contemplated by and defined in Section 101(5) of the Bankruptcy Code) as a
result of the occurrence of any Unmatured Event of Non-Compliance or any Event
of Non-Compliance and shall not commence or prosecute any Enforcement Action as
a result of the occurrence of any such Unmatured Event of Non-Compliance or any
Event of Non-Compliance; provided, however, that, subject to the prior execution
and delivery by Purchaser (or its successors or assigns, as applicable) in favor
of the lender or lenders under the Credit Agreement (or any Refinancing
Agreement) of a subordination agreement containing terms and conditions
reasonably satisfactory to such lender or lenders, the Purchaser shall be
entitled to commence and prosecute a lawsuit, arbitration, or other proceeding
solely to be able to establish the amount of any damages that it may have
suffered as a result of the occurrence of any such Unmatured Event of
Non-Compliance or any Event of Non-Compliance; it being understood and agreed
that, the foregoing limited exception notwithstanding, in no event shall the
Purchaser be entitled to commence or prosecute any of the actions described in
clauses (b) or (c) of the definition of Enforcement Action. For purposes of this
Section, "reasonably satisfactory" terms and conditions shall mean the
subordination terms customarily found in subordination agreements between a
senior lender and the seller of a business with respect to a note taken back by
such seller in connection with the sale of a business. The lender or lenders
shall deliver a draft of the subordination agreement contemplated by this
Section within 10 business days after the Purchaser's written request therefor
in connection with an Event of Non-Compliance and shall diligently attempt to
reach agreement with the Purchaser on such reasonably satisfactory terms and
conditions. The foregoing agreement by the Purchaser is made for the direct and
intended benefit of Fleet (or any other lender or lenders under the Credit
Agreement) and may not be amended or revoked without their prior written consent
except that this Section shall automatically terminate without further action on
the Company's or any lender's or lenders' part upon payment in full of all
obligations under the then applicable Credit Agreement. This Section is not
intended to benefit the Company and the Company shall not have any rights
hereunder.
9. REPURCHASE OF WARRANTS AND WARRANT STOCK.
9.1. Right to Put Warrants or Warrant Stock. At any time and from time
to time on or after the Preferred Stock Stated Redemption Date, but in any case
only prior to the consummation of a Qualified Public Sale, the Majority Holders
of the Warrants and Warrant
44
45
Stock may, by notice to the Company and Fleet (or the lender or lenders under
the then applicable Credit Agreement) (a "Put Notice"), elect to sell to the
Company and, subject to the absence of any Credit Agreement Restrictions, the
Company hereby agrees to repurchase from such holders, at the Repurchase Price
specified in Section 9.5 hereof, such number of shares of Warrant Stock and/or
such portion of the Warrants exercisable for that number of shares of Warrant
Stock as are specified in the Put Notice. For all purposes of this Section 9,
each Warrant shall be treated as the number of shares of Warrant Stock for which
it is then exercisable. Notwithstanding anything herein to the contrary, the
Majority Holders of Warrants and Warrant Stock may exercise their put rights
under this Section 9.1 no more than once each fiscal year and three times in the
aggregate and may not require the Company to repurchase at any put closing
hereunder Warrants and Warrant Stock representing in the aggregate the lesser of
(i) 250,000 shares (as such number of shares may be adjusted from time to time)
of Warrant Stock or (ii) such lesser number of shares of Warrant Stock as are
then outstanding or issuable pursuant to then outstanding Warrants.
9.2. Put Closing. The put closing shall take place at the offices of
the Company at 10:00 a.m. local time on a date (a) not more than 30 days after
the date a Put Notice is received by the Company (or the lender or lenders under
the then applicable Credit Agreement) as the Company shall specify by notice to
the holders of Warrants and Warrant Stock, or at such later time as Fair Market
Value shall have been determined under Section 9.5(b) hereof, or (b) at such
other time and place as the Majority Holders of Warrants and Warrant Stock and
the Company may agree upon (a "Put Closing Date"). At the put closing the
holders of Warrants and Warrant Stock will deliver to the Company a certificate
or certificates evidencing the Warrant Stock and Warrants then to be purchased
by the Company (properly endorsed or accompanied by stock powers or, in the case
of any Warrant, assignments with signature(s) guaranteed or similar appropriate
documentation of authority to transfer) against payment of the Repurchase Price
to the holders of Warrants and Warrant Stock in the manner specified in Section
9.4 hereof (together with a certificate or certificates evidencing any shares of
Warrant Stock, and Warrants evidencing the right to purchase any shares of
Warrant Stock, presented to the Company but not then being purchased by the
Company). Except to the extent prohibited by applicable law, prior to the Put
Closing Date, the Company will provide the Majority Holders of Warrants and
Warrant Stock with all available information that may be material to the
exercise of their rights under this Section 9, including any plans or proposals
for any mergers, sales of assets, acquisitions and substantial sales of stock by
its stockholders.
9.3. Right to Call Warrants or Warrant Stock; Call Closing. At any time
after the Preferred Stock Stated Redemption Date, but in any case only after the
termination of any Credit Agreement Restriction and when the Company is then
able to pay the Repurchase Price in immediately available funds out of funds
legally available therefor, the Company may, by notice to the holders of
Warrants and Warrant Stock (the "Call Notice"), elect to purchase from the
holders of Warrants and Warrant Stock (and the holders of Warrants and Warrant
Stock hereby agree to sell to the Company), at the Repurchase Price, all or a
portion of the shares of Warrant Stock and the Warrants as are then outstanding
on a date specified in such notice not fewer than
45
46
30 nor more than 90 days after the date of the Call Notice; provided, however,
that the Company may exercise its partial call rights no more than twice and may
not require the Purchaser to sell Warrants and Warrant Stock at the initial Call
Closing Date that would reduce the Purchaser's Warrants and Warrant Stock to
less than 10% of the Company's Common Stock, on a Fully Diluted Basis. The
closing under this Section 9.3 shall take place at the offices of the Company at
10:00 a.m. local time on the date so specified or at such later time as Fair
Market Value shall have been determined under Section 9.5(b) hereof, or at such
other time and place as the Company and the Majority Holders of Warrants and
Warrant Stock may agree upon (the "Call Closing Date"). At the closing, the
holders of Warrants and Warrant Stock will deliver to the Company a certificate
or certificates evidencing the Warrant Stock and/or the Warrant or Warrants
(properly endorsed or accompanied by stock powers or assignments with
signature(s) guaranteed or similar appropriate documentation of authority to
transfer), and the Company shall pay the Repurchase Price for such Warrants
and/or Warrant Stock to the holders of the Warrants and Warrant Stock.
9.4. Payment. Subject to any Statutory Restriction or Credit
Agreement Restriction, the Company shall pay the Repurchase Price at any closing
under Section 9.2 or 9.3 hereof out of funds legally available therefor in cash
or immediately available funds. In the event that any portion of the Repurchase
Price payable on any Put Closing Date is not paid:
(a) as a result of any Statutory Restriction or during any
period when a Credit Agreement Restriction prohibits or restricts such
payment, the holders of Warrants and Warrant Stock shall be deemed to
have rescinded their put as to that number of shares of Warrant Stock
or portion of the Warrants exercisable for that number of shares as
such unpaid portion of the Repurchase Price represents (the "Rescinded
Put Shares") and shall retain all their then applicable rights
hereunder and under and in connection with the Warrants and Warrant
Stock as to the Rescinded Put Shares; or
(b) as a result of any reason, other than a Statutory
Restriction, during any period when a Credit Agreement Restriction does
not prohibit or restrict such payment, the holders of Warrants and
Warrant Stock shall retain all their then applicable rights hereunder
and under and in connection with the Warrants and Warrant Stock, as to
that number of shares of Warrant Stock or portion of the Warrants
exercisable for that number of shares as such unpaid portion of the
Repurchase Price represents (the "Unrepurchased Securities"), until
such time as the unpaid portion of the Repurchase Price and interest
thereon, determined as set forth below, shall be paid to the holders of
Warrants and Warrant Stock in full; and the Majority Holders of the
Warrants and Warrant Stock shall, at any time prior to its or their
request for the demand note described below for the payment of the
Repurchase Price for any Unrepurchased Securities, be entitled, by
notice to the Company (the "Rescission Notice"), to rescind their put
of such Unrepurchased Securities pursuant to Section 9.1. Unless and
until the Company receives a Rescission Notice permitted by this
Section 9.4, the unpaid portion of the Repurchase Price allocable to
the Unrepurchased Securities shall remain an
46
47
obligation of the Company. In the circumstances governed by this
Section 9.4(b), the holders of Unrepurchased Securities may request, at
their option, that the Company issue a demand note to evidence such
unpaid portion of the Repurchase Price, and all rights to rescind the
put are terminated. In the circumstances governed by this Section
9.4(b), interest shall accrue on any unpaid portion of the Repurchase
Price for Unrepurchased Securities from (and including) the relevant
Put Closing Date until (but excluding) the date of payment in full
thereof at the rate of 18% per annum, compounded on a monthly basis to
the extent permitted by law and payable on demand.
9.5. Repurchase Price for Warrants and Warrant Stock.
(a) Repurchase Price. The repurchase price (the "Repurchase
Price") shall be an amount equal to (i) in the case of each share of
Warrant Stock, the quotient obtained by dividing (A) the Fair Market
Value (as determined pursuant to Section 9.5(b) hereof), calculated as
of the date of the related Put Notice or Call Notice under Section 9.1
or 9.3 hereof, respectively, by (B) the sum of (1) the number of shares
of Common Stock (all classes) then outstanding plus (2) the number of
shares of Common Stock then issuable upon exercise of then outstanding
Warrants plus (3) the number of shares of Common Stock issuable upon
the exercise of any of the outstanding Permitted Employee Stock Options
or the conversion or exchange into Common Stock of any convertible or
exchangeable preferred stock issued in a Permitted Stock Issue, and
(ii) in the case of each Warrant, the difference between (A) the
product of the repurchase price per share of Warrant Stock then
purchasable thereunder as determined under this Section 9.5(i)
multiplied by the number of such shares then purchasable thereunder,
minus (B) the aggregate exercise price for such shares.
(b) Fair Market Value. For a period of 10 days after the date
of any Put Notice or Call Notice (the "Negotiation Period"), each party
hereto agrees to negotiate in good faith to reach agreement upon the
fair market value of 100% of the Company's common stock equity
determined as though there were a willing seller and a willing buyer
for all of such equity, neither being under any compulsion, and as
though the Series B Common Stock has been exchanged for Series A Common
Stock and any outstanding Permitted Employee Stock Options have been
exercised and any convertible or exchangeable preferred stock issued in
a Permitted Stock Issue has been converted or exchanged in accordance
with the terms thereof, there were no other warrants, options or
convertible securities outstanding (the "Fair Market Value"). In the
event that the parties are unable to agree upon the Fair Market Value
by the end of the Negotiation Period, the Fair Market Value of the
Company's common stock equity shall be determined for purposes of this
Section 9.5(b) by an appraiser (the "Independent Appraiser") selected
in accordance with the procedures set forth in this Section 9.5(b).
Within 30 days after the end of the Negotiation Period, the Company
shall select an appraiser (the "Company Appraiser") and notify the
Majority Holders of Warrants and Warrant Stock in writing (such notice
being the "Company Appraiser Notice") of the Company's selection. If
the
47
48
Majority Holders of Warrants and Warrant Stock do not notify the
Company in writing of its or their objection (such objection being the
"CECP Objection") to such selection within 15 days after receipt of the
Company Appraiser Notice, then the Company's Appraiser shall be deemed
to be the Independent Appraiser and the fair market value determined by
the Company Appraiser shall be the Fair Market Value. If the Majority
Holders of Warrants and Warrant Stock timely object to the Company
Appraiser, then, within 15 days after the delivery of the CECP
Objection, the Majority Holders of Warrants and Warrant Stock shall
select an Appraiser (the "CECP Appraiser") and notify the Company in
writing (such notice being the "CECP Appraiser Notice") of the
selection of the CECP Appraiser provided, however, that if CECP fails
to timely select the CECP Appraiser, then the Company Appraiser shall
be deemed to be the Independent Appraiser and the appraised value
determined by the Company Appraiser shall be the Fair Market Value. If
the Company does not notify the Majority Holders of Warrants and
Warrant Stock in writing of its objection (such objection being the
"Company Objection") to such selection within 15 days after receipt of
the CECP Appraiser Notice, then the CECP Appraiser shall be deemed to
be the Independent Appraiser and the appraised value determined by the
CECP Appraiser shall be the Fair Market Value. If the Company timely
objects to the CECP Appraiser, then the Company Appraiser and the CECP
Appraiser shall meet to select the Independent Appraiser within 15 days
after the Company's delivery of the Company Objection. If the Company
Appraiser and the CECP Appraiser cannot agree upon the Independent
Appraiser within 30 days after the Company's delivery of the Company
Objection to the CECP Appraiser, then the selection of the Independent
Appraiser shall be submitted to the Chief Judge of the United States
District Court for the District of Minnesota. Fair Market Value shall
then be determined by the Independent Appraiser within 30 days after
its selection, and the determination of the Independent Appraiser shall
be conclusive and binding upon the Company and the holders of Warrants
and Warrant Stock. Fair Market Value shall in all cases be calculated
by determining the Fair Market Value of the entire common stock equity
interest of the Company taken as a whole, without premium for control
or discounts for minority interests, restrictions on transfer or
liquidity. All expenses of the Company Appraiser, the CECP Appraiser
and the Independent Appraiser shall be borne by the Company.
9.6. Additional Payments Upon Merger, Etc. If at any time within three
(3) months after any Put Closing Date or nine (9) months after any Call Closing
Date with respect to the repurchase or exchange of any Warrants and/or Warrant
Stock, the Company shall become party to any Capital Transaction or the Company
or their respective stockholders enter into any agreement or letter of intent
contemplating any Capital Transaction, the Company shall, simultaneously with
the consummation of such Capital Transaction or at such later time as any
payment is received by the Company or any of its stockholders in respect of such
Capital Transaction, make an additional payment to each Person who held Warrants
or Warrant Stock which were repurchased on such Put Closing Date or such Call
Closing Date in an amount per share of Warrant Stock (or Warrant Stock issuable
upon exercise of any Warrant) repurchased
48
49
from such Person pursuant to Section 9.2 or 9.3 hereof equal to the excess, if
any, of the value per share of the cash, securities and other property that such
Person would have received (or that the Company received and in which such
Person would have had a beneficial interest as a stockholder of the Company) had
such Person's Warrant Stock and/or Warrants not been previously repurchased
pursuant to Section 9.2 or 9.3 hereof, over the payment received by such Person
with respect to each such share pursuant to Section 9.2 or 9.3 hereof. Each
payment to any such Person pursuant to this Section 9.6 shall be made either in
cash or in the form of consideration received by the holders of common equity of
the Company (or the Company).
10. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement,
the provisions of this Agreement and the Financing Agreements that are for the
Purchaser's benefit as the holder of any Securities are also for the benefit of,
and enforceable by: (a) any subsequent holder of at least 51% of the Preferred
Stock; and/or (b) any subsequent holder of at least the CECP Floor Amount of the
Warrants or the Warrant Stock (assuming for this purpose the complete exercise
of the Warrant); subject, however to the express terms of any other Financing
Agreement. Any transferee of Securities agrees by acceptance thereof to be bound
by the terms of Section 7.24 hereof.
11. REGISTRATION RIGHTS.
The Purchaser shall have certain registration rights with respect to
the Securities as set forth in the Registration Rights Agreement.
12. REGISTRATION AND TRANSFER OF SECURITIES.
12.1. Registration, Transfer and Exchange of Preferred Stock.
(a) The Company shall keep at its principal office a register
in which shall be entered the names and addresses of the holders of the
Preferred Stock and the particulars (including, without limitation the
class thereof) of the respective Preferred Stock held by them and of
all transfers of shares of Preferred Stock. References to the "holder"
or "holder of record" of any Preferred Stock shall mean the holder
thereof unless the holder shall have presented the stock certificates
evidencing same to the Company for transfer and the transferee shall
have been entered in said register as a subsequent holder, in which
case the terms shall mean such subsequent holder. The ownership of any
of the Preferred Stock shall be proven by such register and the Company
may conclusively rely upon such register.
(b) Upon surrender at such office of any certificate
representing shares of Preferred Stock for registration of exchange or
(subject to compliance with the applicable provisions of this
Agreement, including without limitation the conditions set forth in
49
50
Section 13 hereof) transfer or conversion, the Company shall issue, at
its expense, one or more new certificates, in such denomination or
denominations as may be requested, for shares of such class of
Preferred Stock as may be requested, and registered as such holder may
request. Any certificate representing shares of Preferred Stock
surrendered for registration of transfer shall be duly endorsed, or
accompanied by a written instrument of transfer duly executed by the
holder of such certificate or his attorney duly authorized in writing.
The Company will pay shipping and insurance charges, from and to each
holder's principal office, upon any transfer, exchange or conversion
provided for in this Section 12.1.
(c) Each stock certificate evidencing Preferred Stock, whether
originally or in substitution for, or upon transfer, conversion or
exchange of, any Preferred Stock shall be registered on the date of
execution thereof by the Company. The registered holder of record shall
be deemed to be the owner of the Preferred Stock for all purposes of
this Agreement. All notices given hereunder to the holder of record
shall be deemed validly given if given in the manner specified in
Section 15 hereof.
12.2. Registration, Transfer and Exchange of Warrants.
(a) The Company shall keep at its principal office a register
in which shall be entered the names and addresses of the holders of
Warrants issued by it and particulars of the respective Warrants held
by them and of all transfers of such Warrants. References to the
"holder" or "holder of record" of any Warrant shall mean the holder
thereof unless the holder shall have presented such Warrant to the
Company for transfer and the transferee shall have been entered in said
register as a subsequent holder, in which case the terms shall mean
such subsequent holder. The ownership of any of the Warrants shall be
proven by such register and the Company may conclusively rely upon such
register.
(b) The holder of any of the Warrants may at any time and from
time to time prior to exercise, repurchase or redemption thereof
surrender any Warrant held by it for exchange or (subject to compliance
with Section 13 hereof) transfer at said office of the Company. On
surrender for exchange of the Warrants, properly endorsed, to the
Company, the Company at its expense will issue and deliver to or on the
order of the holder thereof a new warrant or warrants of like tenor, in
the name of such holder or, upon payment by such holder of any
applicable transfer taxes, as such holder may direct, calling in the
aggregate on the face or faces thereof for the number of shares of
Warrant Stock called for on the face or faces of the Warrants so
surrendered. The Company will pay shipping and insurance charges, from
and to each holder's principal office, involved in the exchange or
transfer of any Warrant.
(c) Each Warrant issued hereunder, whether originally or in
substitution for, or upon transfer or exchange of, any Warrant shall be
registered on the date of execution
50
51
thereof by the Company. The registered holder of record shall be deemed
to be the owner of the Warrant for all purposes of this Agreement. All
notices given hereunder to the holder of record shall be deemed validly
given if given in the manner specified in Section 15 hereof.
12.3. Transfer and Exchange of Common Stock.
(a) The Company shall keep at its principal office a register
in which shall be entered the names and addresses of the holders of the
Common Stock and the particulars (including, without limitation the
class thereof) of the respective Common Stock held by them and of all
transfers of shares of Common Stock or conversions of shares of Common
Stock from one class to another. References to the "holder" or "holder
of record" of any Common Stock shall mean the holder thereof unless the
holder shall have presented the stock certificates evidencing same to
the Company for transfer and the transferee shall have been entered in
said register as a subsequent holder, in which case the terms shall
mean such subsequent holder. The ownership of any of the Common Stock
shall be proven by such register and the Company may conclusively rely
upon such register.
(b) Upon surrender at such office of any certificate
representing shares of Common Stock for registration of exchange or
(subject to compliance with the applicable provisions of this
Agreement, including without limitation the conditions set forth in
Section 13 hereof) transfer or conversion, the Company shall issue, at
its expense, one or more new certificates, in such denomination or
denominations as may be requested, for shares of such class of Common
Stock as may be requested, and registered as such holder may request.
Any certificate representing shares of Common Stock surrendered for
registration of transfer shall be duly endorsed, or accompanied by a
written instrument of transfer duly executed by the holder of such
certificate or his attorney duly authorized in writing. The Company
will pay shipping and insurance charges, from and to each holder's
principal office, upon any transfer, exchange or conversion provided
for in this Section 12.3.
(c) Each stock certificate evidencing Common Stock, whether
originally or in substitution for, or upon transfer, conversion or
exchange of, any Common Stock or upon the exercise of any Warrant shall
be registered on the date of execution thereof by the Company. The
registered holder of record shall be deemed to be the owner of the
Common Stock for all purposes of this Agreement. All notices given
hereunder to the holder of record shall be deemed validly given if
given in the manner specified in Section 15 hereof.
12.4. Replacement of Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the
51
52
Company may determine (or, in the case of any Security held by the Purchaser or
another institutional holder, an unsecured indemnity agreement from the
Purchaser or such other holder reasonably satisfactory to the Company) or, in
the case of any such mutilation, upon the surrender of such Security for
cancellation to the Company at its principal office, the Company, at its own
expense, will execute and deliver, in lieu thereof, a new Security of like
tenor, dated in the case of a Note so that there will be no loss of interest.
Any Security in lieu of which any such new Security has been so executed and
delivered by the Company shall not be deemed to be outstanding for any purpose
of this Agreement.
13. RESTRICTIONS ON TRANSFER.
13.1. General Restriction. The Securities shall be transferable (a)
only upon the satisfaction of the conditions set forth below in this Section 13
and (b) only to Permitted Transferees.
13.2. Notice of Transfer. Prior to any transfer of any Securities, the
holder thereof shall be required to give written notice to the Company
describing in reasonable detail the manner and terms of the proposed transfer
and the identity of the proposed transferee (the "Transfer Notice"), accompanied
by (a) an opinion of Purchaser's counsel addressed to the Company, or other
counsel reasonably acceptable to the Company, that such transfer may be effected
without registration of such Securities under the Securities Act, and (b) the
written agreement of the proposed transferee to be bound by all of the
provisions hereof and of the Financing Agreements, applicable to holders of such
Securities hereunder or thereunder.
13.3. Restrictive Legends. Except as otherwise permitted by this
Section 13, each Security shall bear the legend specified for such Security in
Schedule 13.3 hereto.
13.4. Termination of Restrictions. The restrictions imposed by this
Section 13 upon the transferability of Securities shall terminate as to any
particular Securities sold pursuant to a Public Sale. Whenever any of such
restrictions shall terminate as to any Securities, the holder thereof shall be
entitled to receive from the Company, at the Company's expense, new Securities
without such legends.
14. EXPENSES; INDEMNITY.
(a) The Company hereby agrees to pay on demand all reasonable
out-of-pocket expenses incurred by the Purchaser, in connection with
the transactions contemplated by this Agreement and the Related
Agreements and in connection with any amendments or waivers (whether or
not the same become effective) hereof or thereof and all reasonable
out-of-pocket expenses incurred by the Purchaser or any holder of any
Security issued hereunder in connection with the enforcement of any
rights hereunder, under any other Financing Agreement or with respect
to any Security, including without limitation (i) the cost and expenses
of preparing and duplicating this Agreement, each other Financing
52
53
Agreement and the Securities; (ii) the cost of delivering to the
Purchaser's principal offices, insured to the Purchaser's satisfaction,
the Securities sold to the Purchaser hereunder and any Securities
delivered to the Purchaser in exchange therefor or upon any exercise,
conversion or substitution thereof; (iii) the fees, expenses and
disbursements of Fabyanske, Svoboda, Xxxxxx & Xxxx, P. A., the
Purchaser's special counsel, in connection with the transactions
contemplated by this Agreement and the Related Agreements and any
amendments, modifications, approvals, consents or waivers hereunder or
thereunder; (iv) the reasonable fees, expenses and disbursements of the
Purchaser's accountants and other consultants, in connection with the
Purchaser's due diligence investigation of the Company; (v) subject to
the terms of the Registration Rights Agreement, all taxes (other than
taxes determined with respect to income), including any recording fees
and filing fees and documentary stamp and similar taxes at any time
payable in respect of this Agreement, any other Financing Agreement or
the issuance of any of the Securities; (vi) the reasonable fees and
disbursements of counsel for any holder of Securities in connection
with all opinions rendered by such counsel pursuant to Section 13
hereof; and (vii) all reasonable out-of-pocket expenses (including
without limitation reasonable attorneys' fees and costs, whether or not
such attorneys are the Purchaser's employees, all costs associated with
any rights of board attendance, observation or inspection and travel
and lodging expenses related thereto and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees
and charges) incurred by the Purchaser in connection with: (A) the
exercise, enforcement or preservation of rights under this Agreement or
any of the Financing Agreements against the Company or the
administration thereof whether before or after the occurrence of an
Unmatured Event of Non-Compliance or Event of Non-Compliance; and (B)
any litigation, proceeding or dispute whether arising hereunder or
otherwise, in any way related to the Purchaser's relationship with the
Company.
(b) The Company hereby further agrees to indemnify, exonerate
and hold the Purchaser and its stockholders, officers, directors,
employees and agents free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities, damages and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements), incurred in any capacity by any of the indemnitees as a
result of or relating to (A) any transaction financed or to be financed
in whole or in part directly or indirectly with proceeds from the sale
of any of the Securities, or (B) the execution, delivery, performance
or enforcement of this Agreement (including, without limitation, any
failure by the Company to comply with any of its covenants hereunder),
the Related Agreements or any instrument contemplated hereby or
thereby, except, in each such case, for any such liabilities arising
from any indemnitee's breach of this Agreement, gross negligence or
willful misconduct.
(c) The Company hereby indemnifies the Purchaser against and
agrees that it will hold the Purchaser harmless from any claim, demand
or liability for any broker's, finder's or placement fees or lender's
incentive fees alleged to have been incurred by it
53
54
in connection with the transactions contemplated by this Agreement or
the Related Agreements.
(d) Except to the extent otherwise expressly provided herein,
the Company shall pay on demand interest at a rate per annum equal to
the lesser of the maximum rate of interest permitted by law or 18% (in
each case, compounded monthly) on all overdue amounts payable under
this Agreement until such amounts shall be paid in full.
(e) The obligations of the Company under this Section 14 shall
survive payment or transfer of the Securities and the termination of
this Agreement.
15. NOTICES.
Any notice or other communication in connection with this Agreement,
any other Financing Agreement or the Securities shall be deemed to be delivered
if in writing (or in the form of a telex or telecopy) addressed as provided
below (a) when actually delivered, telexed or telecopied to said address or (b)
in the case of a letter, three business days shall have elapsed after the same
shall have been deposited in the United States mails, postage prepaid and
registered or certified:
If to the Company, then to its address set forth on
the signature page hereof, addressed to the attention of the
notice party described on such signature page or at such other
address or to such other Person as the Company shall have
specified by notice actually received by the Purchaser.
If to the Purchaser, then to its address set forth on
signature page hereof, addressed to the attention of the
notice party described on such signature page or at such other
address or to such other Person as the Purchaser shall have
specified by notice actually received by the Company.
If to any other holder of record of any Security, to
it at its address set forth in the applicable register
referred to in Section 12 hereof.
16. SURVIVAL AND TERMINATION OF COVENANTS.
All covenants, agreements, representations and warranties made herein
or in any other document referred to herein or delivered to the Purchaser
pursuant hereto shall be deemed to have been relied on by the Purchaser,
notwithstanding any investigation made by the Purchaser or on the Purchaser's
behalf, and shall survive the execution and delivery to the Purchaser hereof and
of the Securities and shall thereafter terminate as provided for in this
Agreement.
54
55
17. AMENDMENTS AND WAIVERS.
Any term of this Agreement or any other Financing 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 Majority Holders of the
Preferred Stock and the Majority Holders of the Warrants and Warrant Stock,
respectively, with respect to any provision of this Agreement or other Financing
Agreement which by its terms operates for the benefit of such respective
holders. Notwithstanding the foregoing, (a) without the prior written consent of
each holder of the Preferred Stock, no such amendment or waiver shall extend the
scheduled date of any required repurchase of such respective Securities held by
such holder or reduce the repurchase price or dividend rate payable thereon, (b)
without the prior written consent of each holder of the Warrants or the Warrant
Stock, no such amendment or waiver shall extend the scheduled date of any
required repurchase of such respective Securities held by such holder or reduce
the repurchase price payable thereon, (c) without the written consent of each
holder of the Warrants and Warrant Stock reduce the percentage of Securities
which is required to consent to any such amendment or waiver or (d) without the
written consent of the percentage of the holders of each Security required to
exercise the remedies provided in Section 8.2 hereof, increase such required
percentage. Any amendment or waiver effected in accordance with this Section 17
shall be binding upon each holder of any Security sold pursuant to this
Agreement and the Company.
18. CONSENT TO JURISDICTION.
THE COMPANY HEREBY AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS IN AND OF THE STATE OF MINNESOTA, AND CONSENTS THAT SERVICE OF
PROCESS WITH RESPECT TO ALL COURTS IN AND OF THE STATE OF MINNESOTA MAY BE MADE
BY REGISTERED MAIL TO IT AT ITS ADDRESS FOR NOTICES.
19. RIGHT TO PUBLICIZE.
The Company hereby acknowledges that the Purchaser will have the right
to publicize its investment in the Company as contemplated hereby by means of a
tombstone advertisement or other customary advertisement in newspapers and other
periodicals.
20. WAIVER OF JURY TRIAL.
THE COMPANY AND THE HOLDERS OF THE SECURITIES HEREBY EXPRESSLY WAIVE
ANY RIGHT THEY MAY HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING
EXISTING UNDER OR RELATING TO THIS AGREEMENT, THE SECURITIES OR ANY OF THE OTHER
FINANCING AGREEMENTS.
55
56
21. MISCELLANEOUS.
21.1 Entire Agreement; etc. This Agreement and the other Financing
Agreements set forth the entire understanding of the parties hereto with respect
to the transactions contemplated hereby and supersede any prior written or oral
understandings with respect thereto. The invalidity or unenforceability of any
term or provision hereof shall not affect the validity or enforceability of any
other term or provision hereof. The headings in this Agreement are for
convenience of reference only and shall not alter or otherwise affect the
meaning hereof. THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS
WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT
GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE THAT WOULD
CAUSE THE APPLICATION OF THE DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER STATE, AND
SHALL BIND AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS.
21.2. Confidentiality. The Purchaser agrees that, except as may be
required by applicable law or regulation, or by reason of subpoena, court order
or government action, the Purchaser will hold in confidence any Confidential
Information (as hereinafter defined). For purposes of this Agreement,
"Confidential Information" shall mean any proprietary information of the Company
provided or made available to the Purchaser pursuant to this Agreement and the
other Financing Agreements, except any such information which (a) was known to
the Purchaser prior to the date of its disclosure to the Purchaser by the
Company, or (b) was known to the public prior to the date of its disclosure to
the Purchaser, or (c) becomes known to the public subsequent to the date of its
disclosure by the Company through no act of the Purchaser, or (d) becomes known
to the Purchaser on a non-confidential basis from a source other than the
Company. The Purchaser may furnish any information concerning the Company in the
possession of the Purchaser from time to time to the Purchaser's officers,
directors, employees auditors and agents and to Permitted Transferees and
prospective Permitted Transferees; provided that the Purchaser shall require
that any such Permitted Transferee or prospective Permitted Transferee agrees to
be a bound by the provisions of this Section 21.2.
56
57
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
Xxxxx Instruments Corp.
By: /s/ XXXXXX XXXXXXX
-----------------------------------------
Title: President
Address: 00000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention:_____________________________
Telecopier No.: 000-000-0000
Xxxxxxxxx ESOP Capital Partners,
A Minnesota Limited Partnership
By: Xxxxxxxxx Capital Investment Partners,
A Minnesota Limited Partnership
Its: General Partner
By: Xxxxxxxxx Capital, Inc.
Its: General Partner
By: /s/ XXXXXX X. XXXXX
-------------------------------
Title: Vice President
Address: 0000 Xxxxxxxxxxxx Xxxxxx
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention:___________
Telecopier No. (000) 000-0000
57
