CONVERTIBLE DEBENTURE
PURCHASE AGREEMENT
by and among
XXXXXXX-XXXXXX, INC.
and
Xxxxxxx X. XxXxxxxx
and
Xxxxx X. Xxxxxxx
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of April 15, 1999
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT dated as of April 15, 1999 by and
among Xxxxxxx-Xxxxxx, Inc., a Delaware corporation (the "Company"), Xxxxxxx X.
XxXxxxxx and Xxxxx X. Xxxxxxx (the "Managing Stockholders"), and the several
purchasers named in the attached Schedule I (individually a "Purchaser" and
collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers the
Company's 6% Subordinated Convertible Notes, due 2006, (the "Convertible
Debentures") in the original aggregate principal amount of $7,500,000; and
WHEREAS, the Purchasers, severally, wish to purchase the Convertible
Debentures on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE CONVERTIBLE DEBENTURES
SECTION 1.01 Issuance, Sale and Delivery of the Convertible Debentures. On
the basis of the representations, warranties, covenants and agreements contained
herein and subject to the terms and conditions of this Agreement, the Company
agrees to issue and sell to each Purchaser, and each Purchaser hereby agrees to
purchase from the Company, the Convertible Debentures with the principal amount
set forth opposite the name of such Purchaser under the heading "Convertible
Debentures to be Purchased" on Schedule I, at the aggregate purchase price set
forth opposite the name of such Purchaser under the heading "Purchase Price for
Convertible Debentures" on Schedule I. The Convertible Debentures shall be
substantially in the form set forth as Exhibit A attached hereto. Except as set
forth in this Agreement, the Convertible Debentures shall (a) be payable on
April 15, 2006 and (b) bear interest (based on a 360-day year consisting of
twelve 30-day months) on the unpaid principal amount thereof until due and
payable at the rate of six percent (6%) per annum, which interest shall be
payable monthly in arrears on the last business day of each month, commencing
May , 1999, and at maturity or prior prepayment of the Convertible Debentures in
full.
SECTION 1.02 Closing. The closing shall take place at the offices of
Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP, High Street Tower, 000 Xxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000, at 10:00 a.m., Boston time, on or before April 15, 1999, or
at such later date on or before April 26, 1999 on which all conditions precedent
set forth in Article IV are satisfied or waived, or at such other location or
such later date and time as may be agreed upon between the Purchasers and the
Company (such closing being called the "Closing" and such date and time being
called the "Closing Date"). After the Closing and on or before April 26, 1999,
the Company shall issue and deliver to each Purchaser a Convertible Debenture,
payable to the order of such Purchaser, in the principal amount set forth
opposite the name of such Purchaser under the heading "Convertible Debentures to
be Purchased" on Schedule I. As payment in full for the Convertible
Debentures being purchased by it under this Agreement, and against delivery of
the Convertible Debentures as aforesaid, on the Closing Date each Purchaser
shall transfer to the account of the Company by wire transfer the amount set
forth opposite the name of such Purchaser under the heading "Purchase Price for
Convertible Debenture" on Schedule I-.
SECTION 1.03 Repayment. The Company hereby unconditionally promises to pay
to each Holder of a Convertible Debenture the then unpaid principal amount of
the Convertible Debenture, all accrued and unpaid interest thereon on April 15,
2006.
SECTION 1.04 Registration of Transfer and Exchange; Payments and
Endorsements. The Company shall keep at its corporate headquarters located at
the address listed in Section 8.05 of this Agreement, or such other office as
the Company shall designate from time to time with prompt written notice, a
register (the "Security Register") maintained by a registrar (the "Security
Registrar") in which, subject to reasonable regulations as the Security
Registrar may prescribe, the Company shall provide for the registration of the
Convertible Debentures initially in the name of the Purchasers and upon the
transfer of the Convertible Debentures by each Purchaser in accordance with the
terms and conditions of this Agreement (the Purchasers and transferees and
distributees being referred to hereafter individually as a "Holder" and
collectively as "Holders"), in the name of the transferee. The Secretary of the
Company shall initially be the "Security Registrar" for the purpose of
registering the Convertible Debentures and transfers of Convertible Debentures.
Payments of principal and interest on the Convertible Debentures shall be
made without setoff or counterclaim directly by check duly mailed or delivered
to the Purchasers at their addresses referred to in Section 8.05 hereof, without
any presentment or notation of payment, except that prior to any transfer of any
Convertible Debentures, the Holder thereof shall endorse on such Convertible
Debentures a record of the date to which interest has been paid and all payments
made on account of principal of such Convertible Debentures. All payments and
prepayments of principal of and interest on the Convertible Debentures shall be
applied (to the extent thereof) to all of the Convertible Debentures pro rata
based on the principal amount outstanding and held by each Holder thereof.
SECTION 1.05 Default Rates of Interest. If an Event of Default described
in Section 9.01(c) (a "Ratio Default") has occurred and is continuing for at
least 30 days, from and after the 30th day after the date such Ratio Default
occurred the entire outstanding unpaid principal balance of the Convertible
Debentures and any unpaid interest from time to time due thereon shall bear
interest, payable on demand, at the rate of 15% per annum, or such lower rate as
then may be the maximum rate permitted by applicable law; provided, however,
that upon the cessation or cure of such Ratio Default, if no Payment Default (as
defined below) or Other Default (as defined below) is then continuing, the
Convertible Debentures shall again bear interest at the rate of 6% per annum as
set forth in Section 1.01 and if a Payment Default or Other Default is then
continuing, the Convertible Debentures shall bear interest at the rate required
by the applicable provision of this Section 1.05. If an Event of Default
described in Section 9.01(a) or (b) (a "Payment Default") has occurred and is
continuing for at least 30 days, from and after the 30th day after the date such
Payment Default occurred the entire outstanding
-2-
unpaid principal balance of the Convertible Debentures and any unpaid interest
from time to time due thereon shall bear interest, payable on demand, at the
rate of 8% per annum, or such lower rate as then may be the maximum rate
permitted by applicable law; provided, however, that upon the cessation or cure
of such Payment Default, if no Ratio Default or Other Default is then
continuing, the Convertible Debentures shall again bear interest at the rate of
6% per annum as set forth in Section 1.01 and if a Ratio Default or Other
Default is then continuing, the Convertible Debentures shall bear interest at
the rate required by any the applicable provision of this Section 1.05. If an
Other Default has occurred and is continuing, from and after the date such Other
Default occurred the entire outstanding unpaid principal balance of the
Convertible Debentures and any unpaid interest from time to time due thereon
shall bear interest, payable on demand, at the rate of 10% per annum, or such
lower rate as then may be the maximum rate permitted by applicable law;
provided, however, that upon the cessation or cure of such Other Default, if no
Ratio Default or Payment Default is then continuing, the Convertible Debentures
shall again bear interest at the rate of 6% per annum as set forth in Section
1.01 and if a Payment Default or Ratio Default is then continuing, the
Convertible Debentures shall bear interest at the rate required by the
applicable provision of this Section 1.05).
SECTION 1.06 Maximum Legal Rate of Interest. Nothing in this Agreement or
in the Convertible Debentures shall require the Company to pay interest at a
rate in excess of the maximum rate permitted by applicable law.
SECTION 1.07 Payment on Non-Business Days. Whenever any payment to be made
shall be due on a day which is not a business day, such payment may be made on
the next succeeding business day, and such extension of time shall in such case
not be included in the computation of payment of interest due.
SECTION 1.08 Optional Prepayment. Commencing only on April 15, 2002, upon
thirty (30) days prior written notice, the Company may prepay all, but not less
than all, of the unpaid principal amount and any outstanding interest on the
Convertible Debentures only if the market price of the Company's Common Stock
for the 30 consecutive trading days during the 35 trading days preceding the
date of such notice has been at least $20.00 per share (as adjusted from time to
time in the same manner as the Applicable Conversion Value pursuant to Article
IA hereof) provided, however, that upon thirty (30) days prior written notice,
the Company may prepay all, but not less than all, of the unpaid principal
amount and any outstanding interest on the Convertible Debentures at any time
the aggregate unpaid principal amount of all outstanding Convertible Debentures
is $1,000,000 or less.
SECTION 1.09 Transfer and Exchange of Convertible Debentures. The Holder
of any Convertible Debenture may, prior to maturity or prepayment thereof,
surrender such Convertible Debenture at the principal office of the Company for
transfer or exchange if (a) Convertible Debentures with at least $500,000 in
principal amount are transferred or (b) such transfer or exchange is in
connection with the dissolution or winding up of a Purchaser. Any Holder
desiring to transfer or exchange any Convertible Debenture shall first notify
the Company in writing at least five (5) days in advance of such transfer or
exchange. Within a reasonable time after such notice to the Company from a
Holder of its intention to make such exchange and
-3-
without expense (other than transfer taxes, if any) to such Holder, the Company
shall issue in exchange therefor another Convertible Debenture, in such
denominations as requested by the Holder, for the same aggregate principal
amount, as of the date of such issuance, as the unpaid principal amount of the
Convertible Debenture so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Convertible Debenture so surrendered. Each new Convertible
Debenture shall be made payable to such person or persons, or assigns, as the
Holder of such surrendered Convertible Debenture may designate, and such
transfer or exchange shall be made in such a manner that no gain or loss of
principal or interest shall result therefrom. Unless the Convertible Debentures
have been registered under the Securities Act, if the Company so requests, the
transferee shall provide, and the Company shall not be required to effect a
transfer until it receives, an opinion of counsel that is reasonably
satisfactory to the Company to the effect that such transfer is not required to
be registered under the Securities Act, provided that such opinion shall not be
required in respect of a transfer to any partner of a Purchaser.
SECTION 1.10 Replacement of Convertible Debentures. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Convertible Debenture and, if requested by the Company in the
case of any such loss, theft or destruction, upon delivery of an indemnity bond
or other agreement or security reasonably satisfactory to the Company, or, in
the case of any such mutilation, upon surrender and cancellation of such
Convertible Debenture, the Company will issue a new Convertible Debenture, of
like tenor and amount and dated the date to which interest has been paid, in
lieu of such lost, stolen, destroyed or mutilated Convertible Debenture;
provided, however, if any Convertible Debenture of which a Purchaser is the
Holder is lost, stolen or destroyed, the affidavit of an authorized partner or
officer of the Purchaser setting forth the circumstances with respect to such
loss, theft or destruction shall be accepted as satisfactory evidence thereof,
and no indemnification bond or other security shall be required as a condition
to the execution and delivery by the Company of a new Convertible Debenture in
replacement of such lost, stolen or destroyed Convertible Debenture other than
the Purchaser's written agreement to indemnify the Company.
SECTION 1.11 Subordination. The Company, the Purchasers and each Holder by
its acceptance of any Convertible Debenture agree, for the benefit of holders of
Senior Debt, that the principal of or interest on or any other amounts due with
respect to the Convertible Debentures shall be subordinated to the prior payment
in full of all Senior Debt as provided herein. Upon the maturity of any Senior
Debt (by lapse of time, acceleration or otherwise) all such Senior Debt which
has so matured and is then due and payable shall first be paid in full, or such
payment shall be duly provided for in a manner satisfactory to all holders of
such Senior Debt, before any payment is made on account of the principal of or
interest on or any other amounts due with respect to the Convertible Debentures.
Upon any distribution of assets of the Company in any dissolution, winding up,
liquidation or reorganization for the benefit of creditors of the Company
(whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise):
(a) the holders of all Senior Debt shall first be entitled to
receive payments in full of all Senior Debt (including, without limitation,
interest accruing after the commencement
-4-
of any such proceeding at the rate specified in the documentation governing the
terms of such Senior Debt) in cash or in a manner satisfactory to all of its
holders before any Purchaser or any other Holder is entitled to receive any
payment from the Company on account of the principal of or interest on or any
other amounts due with respect to the Convertible Debentures;
(b) in the event that notwithstanding the foregoing provisions of
this Section 1.11, any payment or distribution or assets of the Company of any
kind or character, whether in cash, property or securities, shall be received by
a Purchaser or any other Holder on account of the principal of or interest on or
any other amounts due with respect to the Convertible Debentures before all
Senior Debt is paid in full, such payment or distribution shall be received and
held in trust for the benefit of, and shall be paid forthwith over and delivered
to the holders of such Senior Debt remaining unpaid or provided for or their
representative under the credit or other agreement under which such Senior Debt
may have been issued (pro rata on the basis of such unpaid Senior Debt held by
such holders), for application to the payment of such Senior Debt until all such
Senior Debt shall have been paid in full, after giving effect to any concurrent
payment or distribution or provision therefor to the holders of such Senior
Debt.
(c) Subrogation. Subject to the payment in full of all Senior Debt
and until the Convertible Debentures shall be paid in full, the Holders shall be
subrogated to the rights of the holders of Senior Debt (to the extent of
payments or distributions previously made to such holders of Senior Debt
pursuant to the provisions of this Section 1.11) to receive payments or
distributions of assets of the Company applicable to the Senior Debt. No such
payments or distributions applicable to the Senior Debt shall, as between the
Company and its creditors, other than the holders of Senior Debt and the Holders
, be deemed to be a payment by the Company to or on account of the Convertible
Debentures; and for the purposes of such subrogation, no payments or
distributions to the Holders of Senior Debt to which the Holders of the
Convertible Debentures would be entitled except for the provisions of this
Section 1.11 shall, as between the Company and its creditors, other than the
holders of Senior Debt and the Holders, be deemed to be a payment by the Company
to or on account of the Senior Debt.
(d) Scope of Section. The provisions of this Section 1.11 are
intended solely for the purpose of defining the relative rights of the Holders,
on the one hand, and the holders of the Senior Debt, on the other hand. Nothing
contained in this Section 1.11 or elsewhere in this Agreement or the Convertible
Debentures is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Debt, and the Holders, the obligation of the
Company, which is unconditional and absolute, to pay to the Holders the
principal of and interest on the Convertible Debentures as and when the same
shall become due and payable in accordance with the terms thereof, or to affect
the relative rights of the Holders and creditors of the Company other than the
holders of the Senior Debt, nor shall anything herein or therein prevent any
Holder from accepting any payment with respect to a Convertible Debenture or
exercising all remedies otherwise permitted by applicable law upon default under
a Convertible Debenture, subject to the rights, if any, under this Section 1.11
of the holders of Senior Debt in respect of cash, property or securities of the
Company received by the Holders.
-5-
ARTICLE IA
CONVERSION OF CONVERTIBLE DEBENTURES
1A.01. Conversion Right. Subject to and in compliance with the provisions
of this Article IA, all or any part of the principal amount outstanding (but no
part of the unpaid interest) of any Convertible Debenture may, at the option of
the Holder thereof, be converted at any time or from time to time into
fully-paid and non-assessable shares of Common Stock.
1A.02. Applicable Conversion Value. The price at which any Convertible
Debenture may be converted into Common Stock (the "Applicable Conversion Value")
shall, subject to adjustment as hereinafter provided, be $10.00 in principal
amount of the Convertible Debenture for each share of Common Stock.
1A.03. Adjustments for Sale of Common Stock.
(a) If the Company shall, while there are any Convertible Debentures
outstanding, issue or sell shares of its Common Stock in a single transaction or
series of transactions with an aggregate sales price of up to $5,000,000, in a
transaction where such shares are not registered pursuant to the Securities Act,
at a price per share greater than or equal to $5.00 (as adjusted for any
Extraordinary Common Stock Event) but less than the Fair Market Value on the day
immediately prior to such issuance or sale, then in each such case such
Applicable Conversion Value, upon each such issuance or sale, except as
hereinafter provided, shall be lowered so as to be equal to an amount determined
by multiplying the Applicable Conversion Value by a fraction:
(1) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (b) the number of shares of Common Stock which the
net aggregate consideration, if any, received by the Company for the total
number of such additional shares of Common Stock so issued would purchase at the
Fair Market Value on the day immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock plus (b) the number of such additional shares of Common
Stock so issued.
(b) If the Company shall, while there are any Convertible Debentures
outstanding, issue or sell shares of its Common Stock in excess of the amount
set forth in (a) above in a transaction where such shares are not registered
pursuant to the Securities Act without consideration or at a price per share
less than the Applicable Conversion Value in effect immediately prior to such
issuance or sale, then in each such case the Applicable Conversion Value, upon
each such issuance or sale, except as hereinafter provided, shall be lowered so
as to be equal to an amount determined by multiplying the Applicable Conversion
Value by a fraction:
-6-
(1) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (b) the number of shares of Common Stock which the
net aggregate consideration, if any, received by the Company for the total
number of such additional shares of Common Stock so issued would purchase at the
Applicable Conversion Value in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock plus (b) the number of such additional shares of Common
Stock so issued.
This Section 1A.03 shall not apply under any circumstances under which
Section 1A.04 is applied.
1A.04. Adjustments Upon Issuance of Common Stock, Warrants, Options and
Rights to Common Stock.
(a) For the purposes of this Article IA, the issuance of any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock and the issuance of any securities convertible into or exchangeable
for shares of Common Stock (or the issuance of any warrants, options or any
rights with respect to such convertible or exchangeable securities) shall be
deemed an issuance at such time of such Common Stock if the Net Consideration
Per Share (as hereinafter determined) which may be received by the Company for
such Common Stock shall be less than the Fair Market Value at the time of such
issuance. Any obligation, agreement or undertaking to issue shares of Common
Stock or warrants, options, subscriptions or purchase rights at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Applicable Conversion
Value shall be made under this Article IA upon the issuance of any shares of
Common Stock which are issued pursuant to the exercise of any warrants, options,
subscriptions or purchase rights or pursuant to the exercise of any conversion
or exchange rights in any convertible securities if any adjustment shall
previously have been made upon the issuance of any such warrants, options or
subscriptions or purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided or if such warrants, options or subscription rights
or purchase rights or convertible securities were issued or sold prior to the
date hereof.
Should the Net Consideration Per Share of any such warrants,
options, subscriptions or purchase rights or convertible securities be decreased
from time to time, then, upon the effectiveness of each such change, the
Applicable Conversion Value shall be adjusted to such Applicable Conversion
Value as would have obtained (1) had the adjustments made upon the issuance of
such warrants, options, rights or convertible securities been made upon the
basis of the actual Net Consideration Per Share of such securities, and (2) had
adjustments made to the Applicable Conversion Value since the date of issuance
of such securities been made to the Applicable Conversion Value as adjusted
pursuant to (1) above. Any adjustment of the Applicable Conversion Value with
respect to this paragraph which relates to warrants, options,
-7-
subscriptions or purchase rights with respect to shares of Common Stock shall be
disregarded if, as, and when all of such warrants, options, subscriptions or
purchase rights expire or are cancelled without being exercised, so that the
Applicable Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Applicable Conversion Value in effect at the
time of the issuance of the expired or canceled warrants, options, subscriptions
or purchase rights, with such additional adjustments as would have been made to
that Applicable Conversion Value had the expired or canceled warrants, options,
subscriptions or purchase rights not been issued.
(b) For purposes of this Article IA the "Net Consideration Per
Share" which may be received by the Company shall be determined as follows:
(i) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by the
Company for the issuance of warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities, plus the
minimum amount of consideration, if any, payable to the Company upon
exercise or conversion thereof, divided by the aggregate number of shares
of Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
(ii) The "Net Consideration Per Share" which may be received
by the Company shall be determined in each instance as of the date of
issuance of warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities without giving effect to any
possible future upward price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities.
(c) For purposes of this Article IA, if a part or all of the
consideration received by the Company in connection with the issuance of shares
of the Common Stock or the issuance of any of the securities described in this
Article IA consists of property other than cash, such consideration shall be
deemed to have a fair market value as is reasonably determined in good faith by
the Board of Directors of the Company.
(d) Sections 1A.03 and 1A.04 shall not apply under any of the
circumstances which would constitute an Extraordinary Common Stock Event (as
defined in Section 1A.05).
1A.05. Upon Extraordinary Common Stock Event. Upon the happening of an
Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value shall, simultaneously with the happening of such Extraordinary
Common Stock Event, be adjusted by multiplying the then effective Applicable
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Applicable Conversion
Value. The Applicable Conversion Value,
-8-
as so adjusted, shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of additional
shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock, (ii) a subdivision of outstanding shares of Common Stock into a
greater number of shares of the Common Stock, or (iii) a combination of
outstanding shares of the Common Stock into a smaller number of shares of the
Common Stock.
1A.06. Intentionally Omitted.
1A.07. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, the Holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor:
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock issued as a stock dividend or in a
stock-split, then and in each such case each Holder of a Convertible Debenture,
on the conversion thereof as provided in this Article IA, shall be entitled to
receive the amount of stock and other securities and property (including cash in
the cases referred to in subdivisions (b) and (c) of this Section 1A.07) which
such Holder would hold on the date of such conversion if on the date hereof he
had been the Holder of record of the number of shares of Common Stock issuable
upon conversion of such Convertible Debenture and had thereafter, during the
period from the date hereof to and including the date of such conversion,
retained such shares and all such other or additional stock and other securities
and property (including cash in the cases referred to in subdivisions (b) and
(c) of this Section 1A.07) receivable by him as aforesaid during such period,
giving effect to all adjustments called for during such period under this
Article IA.
1A.08. Adjustment for Reorganization, Consolidation, Merger, etc.
(a) In case at any time or from time to time, the Company shall (a)
effect a reorganization, (b) consolidate with or merger into any other Person,
or (c) transfer all or substantially all of its properties or assets to any
other Person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, each Holder of a Convertible Debenture, on the
conversion thereof as provided in this Article IA at any time after
-9-
the consummation of such reorganization, consolidation or merger or the
effective date of such dissolution, as the case may be, shall receive, in lieu
of the Common Stock issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
converted its Convertible Debenture, immediately prior thereto, all subject to
further adjustment thereafter as provided under this Article IA.
(b) Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holders after the effective date of such
dissolution pursuant to this Section 1A.08 to a bank or trust company having its
principal office in Boston, Massachusetts, or Baltimore, Maryland, as trustee
for the Holders. Upon delivery of such stock, other securities and property
(including cash) to such a bank or trust company, the Company shall be
discharged from its obligations under Section 1A.08(a).
(c) Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 1A.08, each Convertible Debenture shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the conversion of any Convertible
Debenture after the consummation of such reorganization, consolidation or merger
or the effective date of dissolution following any such transfer, as the case
may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the Person acquiring
all or substantially all of the properties or assets of the Company.
1A.09. Officer's Certificate as to Adjustments; Notice by Company. In each
case of an adjustment or readjustment of the Applicable Conversion Value, the
Company at its expense will furnish each Holder of a Convertible Debenture with
a certificate, prepared and certified by the chief financial officer or
treasurer of the Company, showing such adjustment or readjustment, and stating
in detail the facts upon which such adjustment or readjustment is based.
1A.10. Exercise of Conversion Privilege. To exercise its conversion
privilege, a Holder of a Convertible Debenture shall surrender such Convertible
Debenture being converted to the Company at its principal office, and shall give
written notice to the Company at that office that such Holder elects to convert
such Convertible Debenture, or a portion thereof. Such notice shall also state
the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The Convertible Debenture so surrendered for conversion shall be
accompanied by proper assignment thereof to the Company or in blank. The date
when such written notice is received by the Company, together with the
Convertible Debenture being converted, shall be the "Conversion Date." As
promptly as practicable after the Conversion Date, the Company shall issue and
shall deliver to the Holder of the Convertible Debenture being converted, or on
its written order, such certificate or certificates as it may request for the
number of whole shares of Common Stock issuable upon
-10-
the conversion of such Convertible Debenture in accordance with the provisions
of this Article IA, cash in the amount of all accrued and unpaid interest on
such Convertible Debenture up to and including the Conversion Date, and cash, as
provided in Section 1A.11, in respect of any fraction of a share of Common Stock
issuable upon such conversion. Such conversion shall be deemed to have been
effected immediately prior to the close of business on the Conversion Date, and
at such time the rights of the Holder as a Holder of a Convertible Debenture
shall cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the Holder or Holders of record of the shares of
Common Stock represented thereby.
1A.11 Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of a Convertible Debenture. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of a Convertible
Debenture, the Company shall pay to the Holder of the Convertible Debenture
which was converted a cash adjustment in respect of such fractional shares in an
amount equal to the same fraction of the Fair Market Value per share of the
Common Stock at the close of business on the Conversion Date. The determination
as to whether or not any fractional shares are issuable shall be based upon the
total principal amount of Convertible Debentures being converted at any one time
by any Holder thereof, not upon each Convertible Debenture being converted.
1A.12. Partial Conversion. In the event some but not all of the principal
amount represented by a Convertible Debenture surrendered by a Holder is
converted, the Company shall execute and deliver to or on the order of the
Holder, at the expense of the Company, a new Convertible Debenture representing
the principal amount which was not converted.
1A.13. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other corporation, or any other entity or person,
or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then and in each such event the Company shall mail or cause to be mailed to each
Holder of a Convertible Debenture a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
-11-
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed, as to when the
Holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least thirty (30) days prior to the
date specified in such notice on which such action is to be taken.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as set
forth in the Disclosure Schedule attached as Schedule II (which Disclosure
Schedule makes explicit reference to the particular representation or warranty
as to which exception is taken, which in each case shall constitute the sole
representation and warranty as to which such exception shall apply):
SECTION 2.01. Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification except for such failure to so qualify
or be in such good standing, which, when taken together with all other such
failures, are not reasonably expected to have a material adverse effect on the
financial condition, regulatory condition, capital, properties, business results
of operations or prospects of the Company and its subsidiaries taken as a whole
(a "Material Adverse Effect"). The Company has the corporate power and authority
to own and hold its properties and to carry on its business as now conducted and
as proposed to be conducted, to execute, deliver and perform this Agreement and
the Registration Rights Agreement with the Purchasers in the form attached as
Exhibit B (the "Registration Rights Agreement," and together with this
Agreement, and any documents or agreements ancillary to this Agreement, the
"Transaction Documents"), to issue, sell and deliver the Convertible Debentures
and to issue and deliver the Conversion Shares.""
(b) The attached Schedule III contains a list of all subsidiaries
and affiliates of the Company and each other entity controlled, directly or
indirectly, by the Company of the Company. Except for such entities, the Company
does not (i) own of record or beneficially, directly or indirectly, (A) any
shares of capital stock or securities convertible into capital stock of any
other corporation or (B) any participating interest in any partnership, joint
venture or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity. Each of the entities listed on Schedule III is a
duly formed entity, validly existing and in good standing under the laws of its
respective jurisdiction of formation and is duly licensed or qualified to
-12-
transact business as a foreign entity and is in good standing in each
jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification except for such failure to so qualify or be in good standing
which, when taken together with all other such failures, are not reasonably
expected to have a Material Adverse Effect. Each of the entities listed on
Schedule III has the power and authority to own and hold its properties and to
carry on its business as now conducted and as proposed to be conducted. All of
the outstanding shares of capital stock or other equity interests of each of the
entities listed on Schedule III are owned beneficially and of record by the
Company, one of its other subsidiaries, or any combination of the Company and/or
one or more of its other subsidiaries, in each case free and clear of any liens,
charges, restrictions, claims or encumbrances of any nature whatsoever; and
there are no outstanding subscriptions, warrants, options, convertible
securities, or other rights (contingent or other) pursuant to which any of the
entities listed on Schedule III is or may become obligated to issue any shares
of its capital stock or other equity interests to any person other than the
Company or one of the other subsidiaries. As used in Section 2.06(i)-(vi) and
(vii) - (ii) and Sections through 2.09, 2.11 through 2.17, 2.21 and 2.23 through
2.29 inclusive, the term "Company" shall mean the Company and each of the
entities listed in Schedule III.
SECTION 2.02. Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of the Transaction
Documents, the performance by the Company of its obligations thereunder, the
issuance, sale and delivery of the Convertible Debentures and the issuance and
delivery of the Conversion Shares have been duly authorized by all requisite
corporate action and does not (i) violate any provision of law, any order of any
court or other agency of government; (ii) violate the Certificate of
Incorporation of the Company, as amended (the "Charter") or the By-Laws of the
Company, as amended; (iii) violate any provision of any indenture, agreement or
other instrument to which the Company, any of its subsidiaries or any of their
respective properties or assets is bound; (iv) conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or (v) result in the creation or
imposition of any Lien, of any nature whatsoever upon any of the properties or
assets of the Company or any of its subsidiaries, except, in the case of clauses
(i), (iii), (iv) or (v), for such breaches, violations, defaults, conflicts or
Liens which, alone or in the aggregate, are not reasonably expected to have a
Material Adverse Effect or prevent, materially delay or materially burden the
transactions and acts contemplated by this Agreement.
(b) The Conversion Shares have been duly reserved for issuance upon
conversion of the Convertible Debentures and when so issued will be duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
with no personal liability attaching to the ownership thereof and will be free
and clear of all Liens, imposed by or through the Company. The issuance or
delivery of the Conversion Shares is not subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other right in
favor of any person except for such rights that have been irrevocably waived in
writing.
-13-
SECTION 2.03 Validity. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms. The other Transaction
Documents, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms.
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of the
Company consists of (i) 5,000,000 shares of preferred stock, $.01 par value (the
"Preferred Stock"), of which no shares have been designated, and (ii) 50,000,000
shares of Common Stock. As of March 2, 1999, 6,746,681 shares of Common Stock
were validly issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and no shares of Preferred
Stock had been issued. The holders of subscriptions, warrants, options,
convertible securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the number of shares of
Common Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each, are as set forth in
Section 2.04 of the attached Schedule II. Except as set forth in Section 2.04 of
the attached Schedule II, (i) no person owns of record or is known to the
Company to own beneficially any share of Common Stock, (ii) no subscription,
warrant, option, convertible security, or other right (contingent or other) to
purchase or otherwise acquire equity securities of the Company is authorized or
outstanding and (iii) there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities, or other such rights
or to distribute to holders of any of its equity securities any evidence of
indebtedness or asset. Except as provided for in the Charter or as set forth in
Section 2.04 of the attached Schedule II, the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Except as set forth in the Transaction
Documents or Section 2.04 of Schedule II, to the best of the Company's knowledge
there are no voting trusts or agreements, stockholders' agreements, pledge
agreements, buy-sell agreements, rights of first refusal, preemptive rights or
proxies relating to any securities of the Company or any of its subsidiaries
(whether or not the Company or any of its subsidiaries is a party thereto). All
of the outstanding securities of the Company were issued in compliance with all
applicable Federal and state securities laws.
SECTION 2.05 Company SEC Reports and Financial Statements.
(a) The Company has made available to Purchasers true and complete
copies of all periodic reports, statements and other documents that the Company
has filed with the SEC under the Exchange Act since December 31, 1995 and prior
to the date hereof and the Form S-1 Registration Statement (File 333-74391) (the
"Registration Statement") filed under the Securities Act (collectively, the
"Company SEC Reports"), each in the form (including exhibits and any amendments
thereto) required to be filed with the Securities and Exchange Commission (the
"SEC"). As of their respective dates, each of the Company's SEC Reports (i)
complied in all respects with all applicable requirements of the Securities Act
and the Exchange Act, and the rules and regulations promulgated thereunder,
respectively, (ii) were filed in a timely manner, and (iii) did not contain any
untrue statement of a material fact or omit to state a material fact
-14-
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the subsidiaries are required to file any forms, reports or
other documents with the SEC.
(b) Each of the audited consolidated financial statements of the
Company (including any related notes and schedules thereto) included (or
incorporated by reference) in its Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, (the "Financial Statements" and December 31, 1998, the
"Financial Statements Date"), or the Registration Statement, are accurate and
complete and fairly presents, in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be noted therein), and in conformity with the SEC's
regulations, the consolidated financial position of the Company and its
consolidated subsidiaries as of its date and the consolidated results of
operations and changes in financial position for the period then ended.
SECTION 2.06 Events Subsequent to the Financial Statements Date. Since the
Financial Statements Date, except as set forth in Section 2.06 in Schedule II,
the Company has not (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Financial Statements and current liabilities incurred
since the Financial Statements Date in the ordinary course of business, (iv)
declared or made any payment or distribution to stockholders or purchased or
redeemed any share of its capital stock or other security, (v) mortgaged,
pledged, encumbered or subjected to lien any of its assets, tangible or
intangible, other than liens of current real property taxes not yet due and
payable, (vi) sold, assigned or transferred any of its tangible assets or
canceled any debt or claim except in the ordinary course of business, (vii)
incurred any recourse indebtedness, (viii) suffered any loss of property or
waived any right, of substantial value, whether or not in the ordinary course of
business, (ix) made any change in officer compensation except in the ordinary
course of business and consistent with past practice, (x) made any material
change in the manner of business or operations of the Company, (xi) entered into
any transaction except in the ordinary course of business or as otherwise
contemplated hereby or (xii) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
SECTION 2.07 Litigation; Compliance with Law. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against the Company, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding relating to the Company pending under collective
bargaining agreements or otherwise or (iii) governmental inquiry pending or, to
the best of the Company's knowledge, threatened against the Company (including
without limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), which, alone or in the aggregate, is reasonably
expected to have a Material Adverse Effect. The Company has not received any
opinion or memorandum or legal advice from legal counsel to the effect that it
is exposed, from a legal standpoint, to any liability or disadvantage to its
business, financial
-15-
condition, operations, property or affairs except such exposure which, alone or
in the aggregate, is not reasonably expected to have a Material Adverse Effect.
The Company is not in default with respect to any order, writ, injunction or
decree known to or served upon the Company of any court or of any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign except such defaults which, alone
or in the aggregate, are not reasonably expected to have a Material Adverse
Effect. There is no action or suit by the Company pending, threatened or
contemplated against others. The Company has complied with all laws, rules,
regulations and orders applicable to its business, operations, properties,
assets, products and services, the Company has all necessary permits, licenses
and other authorizations required to conduct its business as conducted and as
proposed to be conducted, and the Company has been operating its business
pursuant to and in compliance with the terms of all such permits, licenses and
other authorizations except such noncompliance which, alone or in the aggregate,
is not reasonably expected to have a Material Adverse Effect. There is no
existing law, rule, regulation or order, and the Company after due inquiry is
not aware of any proposed law, rule, regulation or order, whether Federal,
state, county or local, which would prohibit or restrict the Company from, or
otherwise materially adversely affect the Company in, conducting its business in
any jurisdiction in which it is now conducting business.
SECTION 2.08 Intentionally Omitted.
SECTION 2.09 Intentionally Omitted.
SECTION 2.10 Title to properties. The Company and its subsidiaries have
sufficient title to their respective properties and assets reflected on the
Financial Statements or acquired by them since the date of the Financial
Statements (other than properties and assets disposed of in the ordinary course
of business since the date of the Financial Statements) to carry on business as
now conducted, and all such properties and assets are free and clear of Liens,
except for Liens disclosed in the Company SEC Reports or the Financial
Statements and except for liens for or current taxes not yet due and payable or
tax liabilities which are being contested in good faith and imperfections of
title, if any, not material in nature or amount and not materially detracting
from the value or marketability or impairing the use of the property subject
thereto or materially impairing the operations of the Company and its
subsidiaries. All real property of the Company and its subsidiaries is in
material compliance with all material laws and regulations applicable thereto
including, without limitation, environmental, zoning and other land use laws and
regulations except where failure to comply, alone or in the aggregate, is not
reasonably expected to have a Material Adverse Effect. To the best of the
Company's knowledge after due inquiry, there are no condemnation, environmental,
zoning or other land use regulation proceedings, either instituted or, to the
best of the Company's knowledge, planned to be instituted, which would
materially adversely affect the use or operation of the Company's and its
subsidiaries' properties and assets for their respective intended uses and
purposes, or the value of such properties, and neither the Company nor any
subsidiary has received written notice of any violation of any of such land use
regulations or special assessment proceedings which would affect such properties
and assets.
-16-
SECTION 2.11 Leasehold Interests. Each lease or agreement to which the
Company is a party under which it is a lessee or lessor of any property, real or
personal, is a valid and subsisting agreement, duly authorized and entered into,
without any default of the Company thereunder and, to the best of the Company's
knowledge, without any default thereunder of any other party thereto, except
such defaults which, alone or in the aggregate, are not reasonably expected to
have a Material Adverse Effect. No event has occurred and is continuing which,
with due notice or lapse of time or both, would constitute a default or event of
default by the Company under any such lease or agreement or, to the best of the
Company's knowledge, by any other party thereto. The Company's possession of
such property, as lessee, has not been disturbed and, to the best of the
Company's knowledge after due inquiry, no claim has been asserted against the
Company materially adverse to its rights in such leasehold interests.
SECTION 2.12 Insurance. The Company holds valid policies covering all of
the insurance required to be maintained by it under Section 5.04.
SECTION 2.13 Taxes. The Company has filed all material tax returns,
Federal, state, county and local, required to be filed by it, and such returns
were complete and correct in all material respects. The Company has paid all
taxes shown to be due by such returns. The Company has paid all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third parties, except (i) in such
instances where the failure to do so, alone or in the aggregate, are not
reasonably expected to have a Material Adverse Effect and (ii) taxes,
assessments and governmental charges which are being contested in good faith and
for which adequate reserves have been established. The Company has established
adequate reserves for all taxes accrued but not yet payable. No deficiency
assessment with respect to or proposed adjustment of the Company's Federal,
state, county or local taxes is pending or, to the best of the Company's
knowledge, threatened other than tax deficiencies which are being contested in
good faith and for which adequate reserves have been established. Neither the
Company nor any of its present or former stockholders has ever filed an election
pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the
"Code"), that the Company be taxed as an S corporation.
SECTION 2.14 Other Agreements. Except as set forth in Section 2.14 in
Schedule II or the Company Registration Statement, the Company is not a party to
or otherwise bound by any written or oral agreement, instrument, commitment or
restriction which individually could reasonably be expected to have a Material
Adverse Effect or any other written or oral:
(a) agreement with any labor union representing employees of the
Company;
(b) agreement for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(c) agreement relating to the borrowing of money or to the
mortgaging or pledging of, or otherwise placing a lien or security interest on,
any asset of the Company;
-17-
(d) guaranty of any obligation for borrowed money or otherwise;
(e) other agreement, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the SEC as an exhibit to a
registration statement on Form S-1 if the Company were registering securities
under the Securities Act.
The Company, and to the best of the Company's knowledge, each other party
thereto have in all material respects performed all the obligations required to
be performed by them to date (or each non-performing party has received a valid,
enforceable and irrevocable written waiver with respect to its non-performance),
have received no notice of default and are not in default (with due notice or
lapse of time or both) under any agreement, instrument, commitment, plan or
arrangement to which the Company is a party or by which it or its property may
be bound except such defaults which, alone or in the aggregate, are not
reasonably expected to have a Material Adverse Effect. The Company has no
present expectation or intention of not performing all its material obligations
under each such agreement, instrument, commitment, plan or arrangement, and the
Company has no knowledge of any breach or anticipated breach by the other party
to any agreement, instrument, commitment, plan or arrangement to which the
Company is a party except for such breaches which, alone or in the aggregate,
are not reasonably expected to have a Material Adverse Effect. The Company is in
compliance with all of the material terms and provisions of its Charter and
By-Laws, as amended.
SECTION 2.15 Loans and Advances. Except as disclosed in the Company SEC
Reports and the Financial Statements, the Company does not have any material
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be incurred
by them in connection with their performance of services for the Company.
SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person or on
any mortgages with respect to real property acquired by the Company or any of
its affiliates (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in the debtor, or otherwise to assure the creditor
against loss), except for guaranties by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.
SECTION 2.17 Significant Customers and Suppliers. No customer or supplier
which was significant to the Company during the period covered by the financial
statements referred to in Section 2.05 or which has been significant to the
Company thereafter, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
SECTION 2.18 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent
-18-
or approval of or other action by, any Federal, state or other governmental
agency or instrumentality is or will be necessary for the valid execution,
delivery and performance by the Company of the Transaction Documents, the
issuance, sale and delivery of the Convertible Debentures or, upon conversion
thereof, the issuance and delivery of the Conversion Shares, other than (i)
filings pursuant to state securities laws (all of which filings have been made
by the Company, other than those which are required to be made after the Closing
and which will be duly made on a timely basis) in connection with the sale of
the Convertible Debentures and (ii) with respect to the Registration Rights
Agreement, the registration of the shares covered thereby with the Commission
and filings pursuant to state securities laws.
SECTION 2.19 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor any documents furnished or made available to the
Purchasers relating to this Agreement, contains any material misstatement of
fact or omits to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not misleading. None of the statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains any material misstatement of fact or omits to state
a material fact necessary to make the statements contained therein, in light of
the circumstances under which they are made, not misleading. There is no fact
which the Company has not disclosed to the Purchasers and their counsel in
writing and of which the Company is aware which, alone or in the aggregate, is
reasonably expected to have a Material Adverse Effect. The financial projections
and other estimates contained in any documents furnished to the Purchasers
relating to this Agreement were prepared by the Company based on the Company's
experience in the industry and on assumptions of fact and opinion as to future
events which the Company, believed to be reasonable, but which the Company
cannot and does not assure or guarantee the attainment of in any manner. As of
the date hereof no facts have come to the attention of the Company which would,
in its opinion, require the Company to materially revise or amplify the
assumptions underlying such projections and other estimates or the conclusions
derived therefrom.
SECTION 2.20 Offering of the Convertible Debentures. Neither the Company
nor any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Convertible Debentures
or any security of the Company similar to the Convertible Debentures has offered
the Convertible Debentures or any such similar security for sale to, or
solicited any offer to buy the Convertible Debentures or any such similar
security from, or otherwise approached or negotiated with respect thereto with,
any person or persons, and neither the Company nor any person acting on its
behalf has taken or will take any other action (including, without limitation,
any offer, issuance or sale of any security of the Company under circumstances
which might require the integration of such security with Convertible Debentures
under the Securities Act or the rules and regulations of the Commission
thereunder), in either case so as to subject the offering, issuance or sale of
the Convertible Debentures to the registration provisions of the Securities Act.
SECTION 2.21 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
-19-
SECTION 2.22 Intentionally Omitted.
SECTION 2.23 Intentionally Omitted.
SECTION 2.24 Employees. No officer or key employee of the Company has
advised the Company (orally or in writing) that he intends to terminate
employment with the Company. The Company has complied in all material respects
with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of Social Security and other taxes.
SECTION 2.25 Intentionally Omitted.
SECTION 2.26 Environmental Protection. The Company has not caused or
allowed, or contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substances (as defined below) in
connection with the operation of its business or otherwise. The Company, the
operation of its business, and any real property that the Company owns, leases
or otherwise occupies or uses (the "Premises") are in compliance with all
applicable Environmental Laws (as defined below) and orders or directives of any
governmental authorities having jurisdiction under such Environmental Laws,
including, without limitation, any Environmental Laws or orders or directives
with respect to any cleanup or remediation of any release or threat of release
of Hazardous Substances, except for any noncompliance which, alone or in the
aggregate, is not reasonably expected to have a Material Adverse Effect. The
Company has not received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or lawsuit, from any
person arising out of the ownership or occupation of the Premises, or the
conduct of its operations, that alleges that the Company is not in compliance
with any Environmental Laws and the Company is not aware of any basis therefor.
The Company has obtained and is maintaining in full force and effect all
necessary permits, licenses and approvals required by all Environmental Laws
applicable to the Premises and the business operations conducted thereon
(including operations conducted by tenants on the Premises), and is in
compliance with all such permits, licenses and approvals, except for any
noncompliance which, alone or in the aggregate, is not reasonably expected to
have a Material Adverse Effect. The Company has not caused or allowed a release,
or a threat of release, of any Hazardous Substance unto, at or near the
Premises, and neither the Premises nor any property at or near the Premises has
ever been subject to a release, or a threat of release, of any Hazardous
Substance. For the purposes of this Agreement, the term "Environmental Laws"
shall mean any Federal, state or local law or ordinance or regulation pertaining
to the protection of human health or the environment, and any common law or
equitable doctrines relating to such matters, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601, et seq., the Emergency Planning and Community Right-to-Know Act,
42 U.S.C. Sections 11001, et seq., and the Resource Conservation and Recovery
Act, 42 U.S.C. Sections 6901, et seq. For purposes of this Agreement, the term
"Hazardous Substances" shall include oil and petroleum products, asbestos,
polychlorinated biphenyls, urea formaldehyde and any other materials classified
as pollutants, contaminants, hazardous or toxic under any Environmental Laws.
-20-
SECTION 2.27 Intentionally Omitted.
SECTION 2.28 Foreign Corrupt Practices Act. The Company has not taken any
action which would cause it to be in material violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any rules and regulations thereunder. To
the best of the Company's knowledge after due inquiry, there is not now, and
there has never been, any employment by the Company of, or beneficial ownership
in the Company by, any governmental or political official in any country in the
world.
SECTION 2.29 Federal Reserve Regulations. The Company is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin securities (within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System), and no part of the proceeds of the Convertible
Debentures will be used to purchase or carry any margin security or to extend
credit to others for the purpose of purchasing or carrying any margin security
or in any other manner which would involve a violation of any of the regulations
of the Board of Governors of the Federal Reserve System.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Convertible Debentures;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) the Convertible Debentures being purchased by it are being
acquired for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof;
(e) it understands that (i) the Convertible Debentures and the
Conversion Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the
-21-
Convertible Debentures and, upon conversion thereof, the Conversion Shares must
be held indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration, (iii) the Convertible
Debentures and the Conversion Shares will bear a legend to such effect and (iv)
the Company will make a notation on its transfer books to such effect; and
(f) there are no actions, suits, claims or legal, administrative or
arbitration proceedings or investigations pending or, to its knowledge,
threatened against it, which could have a material adverse effect on its ability
to consummate the transactions contemplated hereby.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Convertible
Debentures being purchased by it on the Closing Date is, at its option, subject
to the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received
from White & Case LLP, securities counsel for the Company, an opinion dated the
Closing Date, satisfactory to the Purchasers and their counsel.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Treasurer of the Company shall have certified to such effect to
the Purchasers in writing.
(c) Performance. The Company shall have performed and complied with
all agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Treasurer of the Company
shall have certified to the Purchasers in writing to such effect.
(d) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they reasonably may request.
(e) Supporting Documents. The Purchasers and their counsel shall
have received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by the
Secretary of State of the State of Delaware and (B) a certificate of said
Secretary dated as of a recent
-22-
date as to the due incorporation and good standing of the Company, the
payment of all excise taxes by the Company and listing all documents of
the Company on file with said Secretary; and
(ii) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Closing Date and certifying: (A) that attached
thereto is a true and complete copy of the By-laws of the Company as in
effect on the date of such certification; (B) that attached thereto is a
true and complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing an increase in
the authorized capital stock, the execution, delivery and performance of
the Transaction Documents, the issuance, sale and delivery of the
Convertible Debentures and the reservation, issuance and delivery of the
Conversion Shares, and that all such resolutions are in full force and
effect and are all the resolutions adopted in connection with the
transactions contemplated by the Transaction Documents; (C) that the
Charter has not been amended since the date of the last amendment referred
to in the certificate delivered pursuant to clause (i)(B) above; and (D)
to the incumbency and specimen signature of each officer of the Company
executing any of the Transaction Documents and any certificate or
instrument furnished pursuant hereto, and a certification by another
officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (ii).
(f) Registration Rights Agreement. The Company shall have executed
and delivered the Registration Rights Agreement.
(g) Preemptive Rights. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of the
Convertible Debentures or the Conversion Shares shall have irrevocably waived
the same in writing.
(h) Fees of Purchasers' Counsel. The Company shall have paid in
accordance with Section 8.01 the fees and disbursements of Purchasers' counsel
invoiced at the Closing.
(i) Consents. The Company shall have received the written consent of
East-West Bank to the transactions contemplated hereby.
All such documents shall be satisfactory in form and substance to the Purchasers
and their counsel.
-23-
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
SECTION 5.01 Information. Commencing on the Closing Date and continuing so
long as any Holder holds either (i) Convertible Debentures with an aggregate
principal amount of at least $5,000,000 or (ii) 500,000 Conversion Shares (as
adjusted from time to time to reflect any Extraordinary Common Stock Event) or
such earlier time as provided below, the Company shall deliver to such Holder
the information specified in this Section 5.01 unless any such Holder at any
time specifically requests that such information not be delivered to it:
(a) Annual Financial Statements. As soon as available, but in any
event within one hundred twenty (120) days after the end of each fiscal year of
the Company, a copy of the audited consolidated balance sheets of the Company
and its subsidiaries as at the end of such fiscal year and the related audited
consolidated statements of operations, stockholders' equity and cash flows of
the Company and its subsidiaries for such fiscal year, all in reasonable detail
and stating in comparative form the figures as at the end of and for the
immediately preceding fiscal year, accompanied (in the case of the audited
consolidated financial statements) by an opinion of an accounting firm of
recognized national standing selected by the Company, which opinion shall state
that such accounting firm's audit was conducted in accordance with generally
accepted auditing standards. All such financial statements shall be prepared in
accordance with GAAP applied on a consistent basis throughout the periods
reflected therein except as stated therein. Such financial statements shall be
supplemented with real property portfolio-level data.
(b) Quarterly Financial Statements. As soon as available, but in any
event not later than forty-five (45) days after the end of each quarterly fiscal
period (other than the last quarterly fiscal period in any fiscal year of the
Company), the unaudited consolidated balance sheet of the Company and its
subsidiaries as at the end of each such period and the related unaudited
consolidated statements of income and cash flows of the Company and its
subsidiaries for such period and for the elapsed period in such fiscal year, all
in reasonable detail and stating in comparative form (i) the figures as of the
end of and for the comparable periods of the preceding fiscal year and (ii) the
figures reflected in the operating budget (if any) for such period as specified
in the financial plan of the Company. All such financial statements shall be
prepared in accordance with GAAP applied on a consistent basis throughout the
periods reflected therein except as stated therein. Such financial statements
shall be supplemented with real property portfolio-level data.
(c) Monthly Financial Statements. Within thirty (30) days after the
end of each month in each fiscal year (other than the last month in each fiscal
year) an unaudited consolidated balance sheet of the Company and its
subsidiaries, if any, and the related unaudited consolidated statements of
income, certified by the Chief Financial Officer of the Company, such
consolidated balance sheet to be as of the end of such month and such
consolidated statements of
-24-
income to be for such month and for the period from the beginning of the fiscal
year to the end of such month, in each case with comparative statements for the
prior fiscal year;
(d) Material Litigation. Within twenty (20) days after the Company
learns of the commencement or written threat of commencement of any litigation
or proceeding against the Company, any of its subsidiaries or any of the
Partnerships or any of their respective assets that could reasonably be expected
to have a Material Adverse Effect, written notice of the nature and extent of
such litigation or proceeding.
(e) Material Agreements. Within five (5) days after the expiration
of the applicable cure period, if any, or if no such cure period exists within
five (5) days after the receipt by the Company of written notice of a default by
the Company or any of its subsidiaries under any material contract, agreement or
document to which it is a party or by which it is bound, written notice of the
nature and extent of such default except for such defaults which, individually
or in the aggregate, are not reasonably expected to have a Material Adverse
Effect.
(f) Other Reports and Statements. Promptly upon any distribution to
its stockholders generally, to its directors or to the financial community of an
annual report, quarterly report, proxy statement, registration statement or
other similar report or communication, a copy of each such annual report,
quarterly report, proxy statement, registration statement or other similar
report or communication and promptly upon filing by the Company with the SEC or
with The National Market System, Inc., the National Association of Securities
Dealers, Inc. or any national securities exchange or other market system of all
regular and other reports or applications, a copy of each such report or
application; and a copy of such report or statement and copies of all press
releases and other statements made available generally by the Company to the
public concerning material developments in the Company.
(g) Accountants' Management Letters, Etc. Promptly after receipt by
the Company, copies of all accountants' management letters and all management
and board responses to such letters, and copies of all certificates as to
compliance, defaults, material adverse changes, material litigation or similar
matters relating to the Company and its subsidiaries, which shall be prepared by
the Company or its officers and delivered to the third parties.
(h) Annual Budget. Not later than 45 days after the beginning of
each fiscal year of the Company, a copy of a consolidated operating budget of
the Company and its subsidiaries prepared by the Company for such fiscal year,
which shall include at minimum a projected balance sheet and a projected
statement of operations and cash flows for each month in such fiscal year.
(i) Notices to Senior Lenders. Copies of all notices, reports,
certificates and other information furnished to the holders of Senior Debt or to
any agent or representative to such holders, in each case promptly after the
same are so furnished.
-25-
(j) Other. Promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations, property or
affairs of the Company and its subsidiaries as such Purchaser reasonably may
request.
SECTION 5.02 Reserve for Conversion Shares . The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Convertible
Debentures and otherwise complying with the terms of this Agreement, such number
of its duly authorized shares of Common Stock as shall be sufficient to effect
the conversion of the Convertible Debentures from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Convertible Debentures or otherwise to comply with
the terms of this Agreement, the Company will forthwith take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.
The Company will obtain any authorization, consent, approval or other action by
or make any filing with any court or administrative body that may be required
under applicable state securities laws in connection with the issuance of
Conversion Shares.
SECTION 5.03 Corporate Existence. The Company shall maintain and cause
each of its subsidiaries (if any) to maintain, their respective corporate
existence, rights and franchises in full force and effect unless the failure to
maintain such existence (in the case of any subsidiaries), rights and franchises
are not reasonably expected to have a Material Adverse Effect.
SECTION 5.04 Properties, Business, Insurance. The Company shall maintain
and cause each of its subsidiaries to maintain as to their respective properties
and business, with financially sound and reputable insurers, insurance against
such casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated, which insurance shall be deemed by
the Company to be sufficient. The Company shall also maintain in effect "key
person" life insurance policies, payable to the Company, on the life of Xxxxxxx
X. XxXxxxxx (so long as he remains an employee of the Company), in the amounts
of $5,000,000. The Company shall not cause or permit any assignment or change in
beneficiary and shall not borrow against any such policy.
SECTION 5.05 Inspection and Consultation. The Company shall permit and
cause each of its subsidiaries to permit each Purchaser and such persons as it
may designate, at such Purchaser's expense, to visit and inspect any of the
properties of the Company and its subsidiaries during normal business hours,
examine their books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company and its subsidiaries with their officers,
employees and public accountants (and the Company hereby authorizes said
accountants to discuss with such Purchaser and such designees such affairs,
finances and accounts), and consult with the management of the Company and its
subsidiaries as to their affairs, finances and accounts, all upon reasonable
notice.
-26-
SECTION 5.06 Restrictive Agreements Prohibited. Neither the Company nor
any of its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of any of the Transaction Documents.
SECTION 5.07 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or Holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or Holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
SECTION 5.08 Directors. The Company shall identify one new independent
director acceptable to the Purchasers by July 30, 1999.
SECTION 5.09 Use of Proceeds. The Company agrees to use the full proceeds
from the sale of the Convertible Debentures to pay down or retire existing debt
of the Company.
SECTION 5.10 Restrictions on New Debt. The Company will obtain the prior
written consent of Holders of two-thirds or more of the principal amount of
Convertible Debentures then outstanding prior to issuing any Debt of the
Company, whether or not in combination with warrants or other equity securities
to any person; provided, that such consent shall not be required to issue (i)
Senior Debt so long as the Company does not grant any contractual preference or
priority for payment to one lender of Senior Debt over another lender of Senior
Debt; (ii) up to an aggregate of $13,500,000 of principal amount of Debt that is
pari passu with the Convertible Debentures or (iii) any Debt that is junior and
subordinate to the Convertible Debentures (the debt in (i), (ii) and (iii) is
the "Additional Permitted Debt").
SECTION 5.11 Intentionally Omitted.
SECTION 5.12 Intentionally Omitted.
SECTION 5.13 Intentionally Omitted.
SECTION 5.14 Intentionally Omitted.
SECTION 5.15 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could reasonably be expected to have a Material
Adverse Effect.
SECTION 5.16 Keeping of Records and Books of Account. The Company shall
keep, and cause each subsidiary to keep, adequate records and books of account,
in which complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which,
-27-
for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made.
SECTION 5.17 Change in Nature of Business. The Company and its
subsidiaries taken as a whole shall not make any material change in the nature
of its business as set forth in any documents furnished by the Company relating
to the present Agreement.
SECTION 5.18 U.S. Real property Interest Statement. Upon a written request
by any Purchaser, the Company shall provide such Purchaser with a written
statement informing the Purchaser whether such Purchaser's interest in the
Company constitutes a U.S. real property interest. The Company's determination
shall comply with the requirements of Treasury Regulation Section 1.897-2(h)(1)
or any successor regulation, and the Company shall provide timely notice to the
Internal Revenue Service, in accordance with and to the extent required by
Treasury Regulation Section 1.897-2(h)(2) or any successor regulation, that such
statement has been made. The Company's written statement to any Purchaser shall
be delivered to such Purchaser within twenty (20) days of such Purchaser's
written request therefor.
SECTION 5.19 International Investment Survey Act of 1976. The Company
shall use its best efforts to file on a timely basis all reports required of it
under 22 U.S.C. Section 3104, or any similar statute, relating to a foreign
person's direct or indirect investment in the Company.
SECTION 5.20 Rule 144A Information. The Company shall, at all times during
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under
the Exchange Act, provide in writing, upon the written request of any Purchaser
or a prospective buyer of Conversion Shares from any Purchaser, all information
required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the
Commission under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of any Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Conversion Shares for trading through PORTAL. The Company's obligations
under this Section 5.20 shall at all times be contingent upon the relevant
Purchaser's obtaining from the prospective buyer of or Conversion Shares a
written agreement to take all reasonable precautions to safeguard the Rule 144A
Information from disclosure to anyone other than a person who will assist such
buyer in evaluating the purchase of any or Conversion Shares.
SECTION 5.21 Intentionally Omitted.
SECTION 5.22 Intentionally Omitted.
SECTION 5.23 Consolidation, Merger of Disposition of Assets. The Company
will not consolidate with or merge with any other person or convey, transfer or
lease substantially all of its assets in a single transaction or series of
transactions to any person unless the Company shall have paid all outstanding
principal and interest on the Convertible Debentures and all interest that would
have been due and payable on the Convertible Debentures had they been held to
-28-
maturity. The Company shall provide each Holder of a Convertible Debenture with
written notice of such payment at least 30 business days in advance of any
proposed transaction.
SECTION 5.24 Debt to Equity Ratio. The Company shall not permit the Debt
to Equity Ratio to be greater than 3 to 1.
SECTION 5.25 Debt Coverage Ratio. The Company shall not permit the Debt
Coverage Ratio calculated on the last business day of any fiscal quarter of the
Company to be less than 1.5 to 1.
SECTION 5.26 FBR Asset Investment Corporation. The Company shall obtain
the written consent of FBR Asset Investment Corporation ("FBR") to the
transactions contemplated herein or shall repay in full any amounts due pursuant
to any written agreement with FBR by April 28, 1999.
SECTION 5.27 Termination of Covenants. The covenants set forth in Article
V shall terminate and be of no further force or effect as to each Holder when
such Holder no longer holds any Convertible Debentures.
ARTICLE VI
COVENANTS OF THE PURCHASERS
SECTION 6.01 Restriction on Transfers.
(a) The Purchasers shall not transfer Convertible Debentures or
Conversion Shares except in compliance with this Agreement and the applicable
provisions of the securities laws of the United States.
SECTION 6.02 Termination of Covenants. The covenant set forth in this
Article VI shall terminate and be of no further force or effect as to each of
the Purchasers when such Purchaser no longer holds any Convertible Debentures or
Conversion Shares.
ARTICLE VII
COVENANTS OF THE MANAGING STOCKHOLDERS
SECTION 7.01 Tag-Along Rights. For the purposes of this Section 7.01 only
the term "Shares" shall mean and include (i) in respect of a Managing
Stockholder, all voting securities of the Company now beneficially owned or
hereafter acquired by that Managing Stockholder and (ii) in the case of a
Purchaser, all Conversion Shares acquired by that Purchaser prior to the
termination of this Article VII.
-29-
(a) Each Managing Stockholder agrees that if he (a "Selling
Stockholder") proposes to sell or transfer any of his Shares (the "Tag-Along
Securities") in a transaction that does not comply with the Manner of Sale
provisions of Rule 144(f) under the Securities Act, and the amount of such
Tag-Along Securities together with all other Shares sold by such Managing
Stockholder after the date hereof exceeds 320,000 shares in the case of Xxxxxxx
XxXxxxxx or 280,000 shares in the case of Xxxxx Xxxxxxx (subject to adjustment
for any Extraordinary Common Stock Event but excluding any shares sold in
compliance with the Manner of Sale provision of Rule 144(f) under the Securities
Act), then such Selling Stockholder shall provide written notice (the "Tag-Along
Offer Notice") of such intent to the Purchasers in the manner set forth in this
Section 7.01 (the date of receipt of such notice being the "Tag-Along Notice
Date"). The Tag-Along Offer Notice shall identify the proposed transferee(s)
(the "Tag-Along Purchaser"), the number of Tag-Along Securities proposed to be
purchased by the Tag-Along Purchaser, the Tag-Along Ratio (as defined in Section
7.01(b)(i)), the consideration offered per Tag-Along Security (the "Tag-Along
Offer Price") and any other material terms and conditions of the proposed
transfer (the "Tag-Along Offer") and, in the case of a Tag-Along Offer in which
the Tag-Along Offer Price consists in part or in whole of consideration other
than cash, such information relating to such consideration as the Purchasers may
reasonably request in order to evaluate such non-cash consideration. The
Purchasers shall have the right, exercisable as set forth below, to accept the
Tag-Along Offer to sell for up to the number of Shares determined pursuant to
Section 7.01(b). The Tag-Along Offer Price paid to any Purchaser shall be not
less than the highest price paid per Tag-Along Security to any Selling
Stockholder, which shall include any payments to such Selling Stockholder for an
agreement not to compete or any consulting or other similar fees payable to such
Selling Stockholder (other than fees for actually anticipated future services).
Any Purchaser that wishes to accept the Tag-Along Offer shall, within 10 days
after the Tag-Along Notice Date (the "Tag-Along Notice Period"), provide the
Selling Stockholder with written notice (a "Tag-Along Acceptance Notice")
specifying the number of Shares that the Purchaser wishes to sell, and shall
simultaneously provide a copy of such Tag-Along Acceptance Notice to the
Company.
Not less than 10 days prior to the proposed date of any sale pursuant to a
Tag-Along Offer (the "Transfer Date"), which date may not be earlier than 10
days after the termination of the Tag-Along Notice Period, the Selling
Stockholder shall notify the Company and the Purchasers of the Transfer Date.
Not less than three days prior to the Transfer Date, the participating
Purchasers shall deliver to the Company in escrow (pending the consummation of
the sale pursuant to the Tag-Along Offer) their duly endorsed certificates
representing the Shares to be transferred by the participating Purchasers
pursuant to the Tag-Along Offer, together with all other documents reasonably
required by the Company and/or the Tag-Along Purchaser to be executed in
connection with the sale of such Tag-Along Securities pursuant to the terms of
the Tag-Along Offer; provided, that each participating Purchaser shall, as a
condition to the sale of the Tag-Along Securities, have the right to receive all
documentation (the "Transfer Documentation") from the Selling Stockholder
relating to the sale of the Tag-Along Securities at least five days prior to the
consummation of such sale. Any material change in the terms of the Tag-Along
Offer (whether or not reflected in the Transfer Documentation) will require the
submission of a new Tag-Along Offer Notice and the recommencement of compliance
with all of the other applicable provisions of this Section 7.01.
-30-
(b) (i) The Purchasers shall have the right to sell (and the Selling
Stockholder shall reduce the number of its shares to be sold by a
corresponding amount), pursuant to the Tag-Along Offer, a number of shares
equal to the product of the total number of Tag-Along Securities offered
to be purchased by the Tag-Along Purchaser as set forth in such Tag-Along
Offer multiplied by a fraction (the "Tag-Along Ratio"), the numerator of
which shall be the aggregate number of Shares owned by such Purchaser and
the denominator of which shall be the aggregate number of Shares owned at
that time by the Selling Stockholder and the participating Purchasers.
(ii) In no event may the Purchasers sell more than the total
number of Shares specified in such Purchasers' Tag-Along Notice applicable
to the relevant Tag-Along Offer. If, at the termination of the Tag-Along
Notice Period, any Purchaser shall not have accepted the Tag-Along Offer,
the Purchaser will be deemed to have waived any and all of its rights
under this Section 7.01 with respect to the sale of any of its Shares
pursuant to such Tag-Along Offer.
(c) The Selling Stockholder, shall have 60 days from the conclusion
of the Tag-Along Notice Period in which to consummate the sale contemplated by
the Tag-Along Offer to the Tag-Along Purchaser at the price and on the terms
contained in the Tag-Along Offer Notice. If, at the end of such 60-day period,
the Selling Stockholder has not completed the sale contemplated by the Tag-Along
Offer Notice, the right of the Selling Stockholder to effect such sale shall
terminate, and the Tag-Along Securities subject to such proposed sale shall
again be subject to all the restrictions on sale or other disposition and other
provisions contained in this Agreement.
(d) Immediately after the consummation of the sale of the Tag-Along
Securities pursuant to the Tag-Along Offer, the Selling Stockholder shall notify
the participating Purchasers and the Company thereof, shall remit to each of the
participating Purchasers their portion of the total sales price specified in the
Tag-Along Offer Notice, and shall furnish such other evidence of such sale
(including the time of completion) and the terms thereof as may be reasonably
requested by the Purchasers. The Company shall, upon being notified of the
consummation of such sale, return to each participating Purchaser a new stock
certificate, as the case may be, for the balance of the Shares not sold as part
of the Tag-Along Securities, in accordance with each Purchasers instructions.
(e) Notwithstanding anything contained in this Section 7.01, there
shall be no liability on the part of a Selling Stockholder to any Purchaser if
the sale of the Tag-Along Securities is not consummated for whatever reason.
(f) No Purchaser shall be required to make any representation or
warranty in connection with the Tag-Along Offer other than as to such
Purchaser's ownership and authority to sell, free of liens, claims and
encumbrances, the Shares proposed to be sold by it.
-31-
SECTION 7.02 Termination. The covenants set forth in this Article VII
shall terminate and be of no further force or effect as to each Purchaser when
such Purchaser no longer holds at least 25% of the aggregate principal amount of
Convertible Debentures, or Conversion Shares issuable thereon, purchased hereby.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall
reimburse the Purchasers for all reasonable expenses of the Purchasers, not in
excess of $40,000, incurred by the Purchasers with respect to the due diligence,
documentation, and closing of the transactions contemplated by the present
Agreement, including but not limited to the fees and disbursements of the
Purchasers' special counsel, Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP. Notwithstanding
the foregoing, the Company shall reimburse the Purchasers for all reasonable
out-of-pocket expenses and costs, including without limitation, reasonable
attorney's fees, expended or incurred by the Purchasers with respect to any
subsequent amendment, waiver, consent requested by the Company or enforcement of
the transactions contemplated by the present Agreement.
SECTION 8.02 Survival of Agreements. All covenants, agreements,
representations and warranties made in any of the Transaction Documents or any
certificate or instrument delivered to the Purchasers pursuant to or in
connection with any of the Transaction Documents shall survive the execution and
delivery of all of the Transaction Documents, the issuance, sale and delivery of
the Convertible Debentures, and the issuance and delivery of the Conversion
Shares unless such covenants, agreements, representations or warranties
expressly state otherwise, and all statements contained in any certificate or
other instrument delivered by the Company hereunder or thereunder or in
connection herewith or therewith shall be deemed to constitute representations
and warranties made by the Company.
SECTION 8.03 Brokerage. Each party hereto will indemnify and hold harmless
the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 8.04 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors,
transferees, distributees and assigns of the parties hereto whether so expressed
or not, provided, that (i) the Company shall not have the right to assign its
rights hereunder or any interest therein without the prior written consent of
Holders of at least two-thirds of the shares of Common Stock issued or issuable
upon conversion of the Convertible
-32-
Debentures and (ii) a Purchaser and its successor, transferee, distributee or
assign shall not have the right to assign its rights hereunder or any interest
therein without the written consent of the Company other than to a successor,
transferee, distributee or assign as permitted by the first sentence of Section
1.09.
SECTION 8.05 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at 0000 Xxxxxxxx Xxxx., Xxxxx 000, Xxxxxxx
Xxxxx, XX 00000, Attention: Chief Executive Officer, with a copy to Xxxxxxx X.
Xxxxx, White & Case LLP, 000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxx, XX
00000-0000; and
(b) if to any Purchaser, at the address of such Purchaser set forth
in Schedule I, with a copy to Xxxxxx X. Xxxxx, Esq., Xxxxx, Xxxxxxx & Xxxxxxxxx,
LLP, High Street Tower, 000 Xxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 8.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8.07 Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, the Registration Rights Agreement and the Convertible
Debentures constitute the entire agreement of the parties with respect to the
subject matter hereof and thereof. All Schedules and Exhibits hereto are hereby
incorporated herein by reference.
SECTION 8.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.09 Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the Holders of at least two-thirds of the shares of Common Stock
issued or issuable upon conversion of the Convertible Debentures and, with
respect to Article VII only, with the consent of each Managing Stockholder.
SECTION 8.10 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 8.11 Titles and Subtitles. The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
-33-
SECTION 8.12 Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchasers
and their affiliates, and their respective partners, co-investors, officers,
directors, employees, agents, consultants, attorneys and advisers (each, an
"Indemnified Party"), from and against any and all actual losses, claims,
damages, liabilities, costs and expenses (including, without limitation,
environmental liabilities, costs and expenses and all reasonable fees, expenses
and disbursements of counsel), joint or several (hereinafter collectively
referred to as a "Loss"), which may be incurred by or asserted or awarded
against any Indemnified Party in connection with or in any manner arising out of
or relating to any investigation, litigation or proceeding or the preparation of
any defense with respect thereto, arising out of or in connection with or
relating to this Agreement, the other Transaction Documents or the transactions
contemplated hereby or thereby or any use made or proposal to be made with the
proceeds of the Purchasers' purchase of the Preferred Stock pursuant to this
Agreement, whether or not such investigation, litigation or proceeding is
brought by the Company, any of its subsidiaries, shareholders or creditors, an
Indemnified Party or any other person, whether or not any of the transactions
contemplated by this Agreement or the other Transaction Documents are
consummated, except to the extent such Loss is found in a final judgment by a
court of competent jurisdiction to have resulted from such Indemnified Party's
gross negligence or willful misconduct. The Company agrees that no Indemnified
Party shall have any liability (whether direct or indirect, in contract, tort or
otherwise) to the Company or any of its subsidiaries, shareholders or creditors
for or in connection with the transactions contemplated hereby, except to the
extent such liability is found in a final judgment by a court of competent
jurisdiction to have resulted from any Indemnified Party's gross negligence or
willful misconduct or the breach by a Purchaser of its obligations under the
Transaction Documents but in no event shall an Indemnified Party be liable for
punitive, exemplary or consequential damages.
(b) An Indemnified Party shall give written notice to the Company of
any claim with respect to which it seeks indemnification promptly (but in no
event later than thirty (30) days) after the discovery by such parties of any
matters giving arise to a claim for indemnification pursuant to Section 8.12(a);
provided that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Company of its obligations under this Section 8.12,
except to the extent that the Company is actually prejudiced by such failure to
give notice. In case any such action or claim is brought against any Indemnified
Party, the Company shall be entitled to participate in and, unless in the
judgment of the Indemnified Party a conflict of interest between such
Indemnified Party and the Company may exist in respect of such action or claim,
to assume the defense thereof, with counsel reasonably satisfactory to the
Indemnified Party and after notice from the Company to the Indemnified Party of
its election so to assume the defense thereof. If the Company elects in writing
to assume the defense of such action or claim, and does so assume the defense of
any such action or claim, the Company shall not be liable to such Indemnified
Party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. In any event, unless and until the Company elects in writing to
assume and does so assume the defense of any such action or claim the
Indemnified Party's reasonable costs and expenses arising out of the
-34-
defense, settlement or compromise of any such action or claim shall be Losses
subject to indemnification hereunder. If the Company elects to defend any such
action or claim, then the Indemnified Party shall be entitled to participate in
such defense with counsel of its choice at its sole cost and expense. The
Company shall not be liable for any settlement of any action or claim effected
without its written consent. Anything in this Section 8.12 to the contrary
notwithstanding, the Company shall not, without the Indemnified Party's prior
written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof that imposes any future obligation on the
Indemnified Party or that does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the Indemnified Party, a release
from all liability in respect of such claim.
SECTION 8.13 Remedies Cumulative. No remedy conferred in this Agreement or
the other Transaction Documents is intended to be exclusive of any other remedy
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or otherwise.
SECTION 8.14 Remedies Not Waived. No course of dealing between the Company
and any Purchaser and no delay or failure in exercising any rights hereunder or
under any other Transaction Document shall operate as a waiver of any of the
rights of any Purchaser.
SECTION 8.15 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Conversion Shares" means the shares of Common Stock issuable
with respect to the Convertible Debentures.
(b) "Capital Lease Obligations" of any person means the obligations
of such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
(c) "Debt" of any person means, without duplication, (a) all
obligations of such person for borrowed money, whether or not evidenced by
bonds, debentures, notes or similar instruments, (b) all Capital Lease
Obligations of such person, (c) all obligations of such person to pay the
deferred purchase price of property or services (other than current accounts
payable in the ordinary course of business), (d) all indebtedness secured by a
Lien on the property or assets of such person, whether or not such indebtedness
shall have been assumed by such person, (e) all obligations, contingent or
otherwise, with respect to the face amount of all letters of credit (whether or
not drawn) and banker's acceptances issued for the account of such person, (f)
all Suretyship Liabilities of such person, (g) all other obligations of such
person upon which interest charges are customarily paid (other than accounts
payable in
-35-
the ordinary course of business which are not more than 90 days past due), (h)
all obligations of such person under conditional sale or other title retention
agreements relating to property or assets acquired by such person, (i) all net
obligations, contingent or otherwise, of such person with respect to any Hedging
Agreement, (j) all obligations of such person to redeem, purchase or otherwise
retire or extinguish any of its capital stock at a fixed or determinable date
(whether by operation of a sinking fund or otherwise), at another's option or
upon the occurrence of a condition not solely within the control of such person
(e.g., redemption from future earnings), and (k) all debt (as defined above) of
any partnership in which such person is a general partner (except to the extent
such debt is not recourse to such person).
(d) "Hedging Agreement" means any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price hedging
arrangement.
(e) "Suretyship Liability" means any agreement, undertaking or other
contractual arrangement by which any person guarantees, endorses or otherwise
becomes or is contingently liable upon (by direct or indirect agreement,
contingent or otherwise, to provide funds for payment, to supply funds to or
otherwise to invest in a debtor, or otherwise to assure a creditor against loss)
any Debt of any other person (other than by endorsements of instruments in the
course of collection), or guarantees the payment of dividends or other
distributions upon the shares of any other Person. The amount of any person's
obligation under any Suretyship Liability shall (subject to any limitation set
forth therein) be deemed to be the principal amount of the indebtedness,
obligation or other liability guaranteed thereby.
(f) "Measured Debt" means with respect to the Company and its
subsidiaries, all indebtedness and all liabilities for borrowed money of the
Company and its subsidiaries, whether or not evidenced by a written instrument,
except (i) the Convertible Debentures, (ii) Debt which by its terms is
subordinate and junior to, or pari passu with, the Convertible Debentures, (iii)
Debt of the Company and its subsidiaries with respect to which recourse for the
payment of the principal of and interest on such Debt is limited to the property
or assets financed with such Debt and (iv) Debt under any agreements identified
in Section 9.03.
(g) "Debt Coverage Ratio" means, at the date of calculation, the
ratio of EBITDA to Total Debt Interest computed on a twelve month trailing
basis.
(h) "Debt to Equity Ratio" means the ratio of Measured Debt to
Equity.
(i) "EBITDA" means, for any period, earnings for such period before
reduction for depreciation, interest, amortization and income taxes for such
period, determined in accordance with GAAP.
(j) "Equity" means the total stockholder's equity of the Company and
its subsidiaries, determined in accordance with GAAP plus (i) the Convertible
Debentures, (ii)
-36-
any Debt that ranks pari passu with, or is subordinated to, the Convertible
Debentures and (iii) any debt under any agreement identified in Section 9.03.
(k) "Exchange Act" means the Securities Exchange Act of 1934.
(l) "Fair Market Value" means if the Common Stock is publicly traded
(i) the average (on any date) of the high and low prices of the Common Stock on
the principal national securities exchange on which the Common Stock is traded,
if the Common Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on any date) of the Common Stock on the NASDAQ
National Market, if the Common Stock is not traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National Market.
If the Common Stock is not publicly traded, "fair market value" shall mean the
fair value of the Common Stock as determined by the board of directors of the
Company after taking into consideration all factors which it deems appropriate.
If the prices or quotes discussed herein are unavailable for any date, the
prices or quotes for the last business day for which such prices or quotes are
available shall be used.
(m) "Lien" means mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance (including the lien or retained security
title of a conditional vendor) of any nature.
(n) "person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
any agency or political subdivision thereof, or other entity.
(o)_ "Securities Act" means the Securities Act of 1933.
(p) "Senior Debt" means all Debt of the Company, including any
extensions, renewals, replacements or refinancings thereof, whether outstanding
on the date hereof or hereafter created or incurred, which is not by its terms
subordinate and junior to the Convertible Debentures.
(q) "subsidiary" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by the Company, or
by one or more of its subsidiaries, or by the Company and one or more of its
subsidiaries, and each other entity listed on Schedule III hereto.
(r) "Total Debt Interest" means the sum of the outstanding interest
due as of the date of calculation with respect to the Debt of the Company other
than Debt of the
-37-
Company with respect to which recourse for the payment of the principal of and
interest on such Debt is limited to the property or assets financed with such
Debt.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing :
(a) The Company shall fail to pay any installment of principal of
any of the Convertible Debentures within 5 days of when due; or
(b) The Company shall fail to pay any interest on any of the
Convertible Debentures within 5 days of when due; or
(c) The Company shall default in the performance of any covenant
contained in Section 5.24 or 5.25; or
(d) Any representation or warranty made by the Company in this
Agreement or by the Company (or any of its officers) in any certificate,
instrument or written statement contemplated by or made or delivered pursuant to
or in connection with this Agreement, shall prove to have been incorrect when
made in any material respect and shall remain incorrect 10 days after written
notice thereof to the Company; or
(e) The Company shall fail to perform or observe any other term,
covenant or agreement contained in the Transaction Documents or the Convertible
Debentures on its part to be performed or observed and any such failure remains
unremedied for thirty (30) business days after written notice thereof shall have
been given to the Company by any registered Holder of the Convertible
Debentures; or
(f) The Company or any Subsidiary shall (i) admit in writing its
inability to pay its debts generally as they become due; (ii) commence a
voluntary case under Title 11 of the United States Code as from time to time in
effect, or by its authorizing, by appropriate proceedings of its board of
directors or other governing body, the commencement of such a voluntary case;
(iii) file an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) be the subject of an order entered for relief in any
involuntary case commenced under said Title 11 for at least 60 days; (v) 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 by its consenting to
or acquiescing in such relief; (vi) receive or have notice of an
-38-
order by a court of competent jurisdiction (a) finding it to be bankrupt or
insolvent, (b) ordering or approving its liquidation, reorganization or any
modification or alteration of the rights of its creditors, or (c) assuming
custody of, or appointing a receiver or other custodian for, all or a
substantial part of its property; or (vii) make an assignment for the benefit
of, or entering into a composition with, its creditors, or appointing or
consenting to the appointment of a receiver or other custodian for all or a
substantial part of its property;
then, and in any such event,
(1) the Purchasers may, by notice to the Company, declare the entire
unpaid principal amount of the Convertible Debentures, all interest
accrued and unpaid thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all such
accrued interest and all such amounts shall become and be forthwith due
and payable (unless there shall have occurred an Event of Default under
subsection 9.01(h) in which case all such amounts shall automatically
become due and payable), without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the
Company, and
(2) the Purchasers may proceed to protect and enforce their rights
by suit in equity (including without limitation a suit for rescission),
action at law and/or other appropriate proceeding either for specific
performance of any covenant, provision or condition contained or
incorporated by reference in this Agreement or any term of the Certificate
of Incorporation of the Company, or in aid of the exercise of any power
granted in this Agreement or in the Certificate of Incorporation of the
Company.
SECTION 9.02.Annulment of Defaults. Section 9.01 is subject to the
condition that, if at any time after the principal of any of the Convertible
Debentures shall have become due and payable, and before any judgment or decree
for the payment of the moneys so due, or any portion thereof, shall have been
entered, then and in every such case the Holders of sixty-six and two-thirds
percent (66 2/3%) or more in principal amount of all Convertible Debentures then
outstanding may, by written instrument filed with the Company, rescind and annul
such declaration and its consequences; but no such rescission or annulment shall
extend to or affect any subsequent default or Event of Default or impair any
right consequent thereon.
SECTION 9.03 Other Defaults. The Company's failure to repay in full any
amounts due under the Loan and Warrant Agreement dated June 3, 1998 by and
between the Company and FBR Asset Investment Corporation, as amended, and the
Bridge Loan Agreement dated as of July 16, 1998 among the Company, Colony K-W,
LLC and the other parties thereto, as amended, and to terminate each such
agreement on or prior to January 15, 2000 shall be an "Other Default".
-39-
IN WITNESS WHEREOF, the Company, the Managing Stockholders, and
the Purchasers have executed this Convertible Debentures Purchase Agreement as
of the day and year first above written.
XXXXXXX-XXXXXX, INC.
By: /s/ Xxxxxxx X. XxXxxxxx
---------------------------------
[Corporate Seal] Title: CEO
-----------------------------
Attest:
/s/ Xxxxxxx Xxxx
---------------------------------
Secretary
Convertible Debentures Purchase Agreement
Counterpart Signature Page
PURCHASERS:
Xxxxxx, Xxxxxxx Strategic Partners Fund, L.P.
By: Xxxxxx, Xxxxxxx Strategic Partners, L.P., its sole General Partner
By: /s/ X. Xxxxxx
--------------------------------
Title:
-----------------------------
Strategic Associates, L.P.
By: Xxxxxx, Xxxxxxx & Co., LLC, its sole General Partner
By: /s/ X. Xxxxxx
--------------------------------
Title:
--------------------------------
Convertible Debentures Purchase Agreement
Counterpart Signature Page
MANAGING STOCKHOLDERS:
/s/ Xxxxxxx X. XxXxxxxx
----------------------------------
Xxxxxxx X. XxXxxxxx
/s/ Xxxxx X. Xxxxxxx
----------------------------------
Xxxxx X. Xxxxxxx
Purchasers
Name and Convertible Debentures to Purchase Price for
Address of Purchaser be Purchased Convertible Debentures
-------------------- ------------ ----------------------
Xxxxxx, Xxxxxxx Strategic $7,106,000 $7,106,000
Partners Fund, L.P.
Xxx Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, XX 00000
Strategic Associates, L.P. $394,000 $394,000
Xxx Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, XX 00000
Disclosure Schedule
Section 2.01(b)
Pledged Stock
Pursuant to a Pledge Agreement dated as of July 16, 1998 between
Xxxxxxx-Xxxxxx Properties, Ltd., a Delaware corporation ("K-W Delaware"), and
Colony K-W, LLC, a Delaware limited liability company ("Colony"), K-W Delaware
pledged to and granted a first priority security interest in all shares of
Xxxxxxx-Xxxxxx Properties, Ltd., an Illinois corporation, then held or
thereafter acquired by K-W Delaware to Colony.
Section 2.04
Authorized Capital Stock
I. Options Granted
Xxxxxxx-Xxxxxx, Inc. 1992 Incentive & Non-Statutory Stock Option Plan
Total Remaining
Original Option Exercise Exercisable Exercise Expiration
Name Options Type Price Option Date Options Date Date
---------------------------------------------------------------------------------------------------
Xxxxxx 00000 A 1.065 12/18/95 - 12/18/00
18,000 12/18/97
18,000 12/18/98
Xxxxxx 54000 A 0.995 01/02/96 18,000 01/02/97 01/02/01
18,000 01/02/98
18,000 01/02/99
Xxx 27000 A 0.949 02/01/96 -
-
-
Xxxx 27000 A 0.949 04/01/96 - 04/01/01
-
9,000 04/01/99
Xxxxxxx 27000 A 1.574 07/29/96 - 07/29/01
-
9,000 07/29/99
Homma 27000 A 1.552 10/01/96 - 10/01/97 10/01/01
- 10/01/98
9,000 10/01/99
Xxxx 27000 A 1.806 12/31/96 - 12/31/01
9,000 12/31/98
9,000 12/31/99
Xxxxxx 54000 A 1.806 01/01/97 18,000 01/04/98 01/01/02
18,000 01/01/99
18,000 01/01/00
-2-
Total Remaining
Original Option Exercise Exercisable Exercise Expiration
Name Options Type Price Option Date Options Date Date
---------------------------------------------------------------------------------------------------
Xxxxxxx 27000 A 1.806 01/01/97 - 01/01/02
-
9,000 01/01/00
Xxxxx 27000 A 1.806 01/01/97 01/01/02
- 01/01/99
9,000 01/01/00
Ozello 27000 A 1.806 01/01/97 9,000 01/01/98 01/01/02
9,000 01/01/99
9,000 01/01/00
Xxxxxx 108000 A 2.130 05/19/97 36,000 05/19/98 05/19/02
36,000 05/19/99
36,000 05/19/00
Xxxxxx 81000 A 2.130 05/19/97 27,000 05/19/98 05/19/02
27,000 05/19/99
27,000 05/19/00
Xxxxxx 27000 A 2.129 05/19/97 - 05/19/02
9,000 05/19/99
9,000 05/19/00
Xxxxxx 27000 A 3.333 09/30/97 - 09/30/02
9,000 09/30/99
9,000 09/30/00
Xxx 45000 A 3.722 10/28/97
Xxxxxxx 45000 A 3.722 10/28/97 15,000 10/28/98 10/28/02
15,000 10/28/99
15,000 10/28/00
XxXxxxxx 90000 A 3.722 10/28/97 30,000 10/28/98 10/28/02
30,000 10/28/99
30,000 10/28/00
Xxxx 45000 A 3.667 01/20/98 15,000 01/20/99 01/20/03
15,000 01/20/00
15,000 01/20/01
-3-
Total Remaining
Original Option Exercise Exercisable Exercise Expiration
Name Options Type Price Option Date Options Date Date
---------------------------------------------------------------------------------------------------
Xxxxx 22500 A 3.667 01/20/98 - 01/20/99 01/20/03
7,500 01/20/00
7,500 01/20/01
Homma 22500 A 3.667 01/20/98 - 01/20/99 01/20/03
7,500 01/20/00
7,500 01/20/01
Anodide 11250 A 3.667 01/20/98 3,750 01/20/99 01/20/03
3,750 01/20/00
3,750 01/20/01
XxXxxxxx 37500 A 7.000 04/27/98 12,500 04/27/99 04/27/03
12,500 04/27/00
12,500 04/27/01
Xxxxxx 37500 A 7.000 04/27/98 12,500 04/27/99 04/27/03
12,500 04/27/00
12,500 04/27/01
Homma 30000 A 7.000 04/27/98 10,000 04/27/99 04/27/03
10,000 04/27/00
10,000 04/27/01
Honda 7500 A 7.000 04/27/98 2,500 04/27/99 04/27/03
2,500 04/27/00
2,500 04/27/01
Xxxxxxx 18900 A 8.167 04/29/98 6,300 04/29/99 04/29/03
6,300 04/29/00
6,300 04/29/01
Ozello 11250 A 8.250 06/10/98 3,750 06/10/99 06/10/03
3,750 06/10/00
3,750 06/10/01
Xxxxxxx 15000 A 8.333 07/15/98 5,000 07/15/99 12/15/03
5,000 07/15/00
5,000 07/15/01
Latvaaho 0 A 0.000 -
-
-
Powalish 15000 A 8.333 07/15/98 5,000 07/15/99 12/15/03
5,000 07/15/00
5,000 07/15/01
-4-
Total Remaining
Original Option Exercise Exercisable Exercise Expiration
Name Options Type Price Option Date Options Date Date
---------------------------------------------------------------------------------------------------
Xxxxxxxxxxx 75000 A 8.333 07/15/98 25,000 07/15/99 12/15/03
25,000 07/15/00
25,000 07/15/01
Wachsner 22500 A 8.333 07/15/98 7,500 07/15/99 12/15/03
7,500 07/15/00
7,500 07/15/01
Xxxxxxxxxxx 100000 A 7.375 01/04/99 20,000 01/04/00 01/04/04
20,000 01/04/01
20,000 01/04/02
20,000 01/04/03
20,000 01/04/04
Waschner 20000 A 7.375 01/04/99 4,000 01/04/00 01/04/04
4,000 01/04/01
4,000 01/04/02
4,000 01/04/03
4,000 01/04/04
Xxxxxxx 15000 A 7.375 01/04/99 3,000 01/04/00 01/04/04
3,000 01/04/01
3,000 01/04/02
3,000 01/04/03
3,000 01/04/04
Powalish 15000 A 7.375 01/04/99 3,000 01/04/00 01/04/04
3,000 01/04/01
3,000 01/04/02
3,000 01/04/03
3,000 01/04/04
Xxxxxxxxx 25000 A 7.375 01/04/99 5,000 01/04/00 01/04/04
5,000 01/04/01
5,000 01/04/02
5,000 01/04/03
5,000 01/04/04
Xxxxx 10000 A 7.375 01/04/99 3,333 01/04/00 01/04/04
3,333 01/04/01
3,334 01/04/02
Xxxxxxx 25000 A 7.500 01/11/99 8,333 01/11/00 01/11/04
8,333 01/11/01
8,334 01/11/02
Xxxxxx 7500 A 9.000 03/19/99 2,500 03/19/00 03/19/04
2,500 03/19/01
2,500 03/19/02
Xxxxxxx-Xxxxxx, Inc. 1992 Non-Employee Director Stock Option Plan
-5-
Total Option Exercise Option Exercisable Exercise Expiration
Name Options Type Price Date Options Date Date
---------------------------------------------------------------------------------------------------
Xxxxxxx 13500 2 12.963 08/14/92 13,500 08/14/93 08/14/02
Xxxxxxx 540 2 1.620 05/11/95 540 05/11/96 05/11/05
Xxxxxx 13,500 2 0.926 12/18/95 13,500 12/18/96 12/18/05
Xxxxxx 540 2 1.713 06/13/96 540 06/13/97 06/13/06
Xxxxx 13,500 2 12.963 08/14/92 13,500 08/14/93 08/14/02
Xxxxx 540 2 1.620 05/11/95 540 05/11/96 05/11/05
---------------------------------------------------------------------------------------------------
II. Rights to Acquire Equity Securities
Underlying Shares of
Common Stock of
Name Right Amount the Company
---- ----- ------ -----------
FBR Asset Investment Warrant 131,096 (subject to 131,096 (subject to
Corporation adjustment) adjustment)
Colony Investors III, Warrant 198,039 (subject to 198,039 (subject to
L.P. adjustment) adjustment)
Purchase An amount sufficient to An amount sufficient to
Colony Investors III, Rights maintain its pro rata maintain its pro rata
L.P. ownership ownership
III. Pledge Agreements
Pursuant to a Pledge Agreement dated as of July 16, 1998 between
Xxxxxxx-Xxxxxx Properties, Ltd., a Delaware corporation ("K-W Delaware"), and
Colony K-W, LLC, a Delaware limited liability company ("Colony"), K-W Delaware
pledged to and granted a first priority security interest in all shares of
Xxxxxxx-Xxxxxx Properties, Ltd., an Illinois corporation, then held or
thereafter acquired by K-W Delaware to Colony.
-6-
Section 2.06
Events Subsequent To Balance Sheet Date
None, except for borrowings and repayments under the Amended and Restated
Revolving Credit Agreement dated as of September 10, 1998 between the Company
and East-West Bank.
-7-
Section 2.07
Litigation
The Company is engaged in Litigation in the ordinary course of its
operations. The Company does not believe that such Litigation will have a
material adverse affect on its business, financial condition, operations or
property.
-8-
Section 2.09
Patents, Trademarks, Etc.
None.
-9-
Section 2.14
Material Agreements
(c) (1) Amended and Restated Revolving Credit Agreement dated as of
September 10, 1998 between the Company and East-West Bank;
(2) Loan and Warrant Agreement dated June 3, 1998 between the
Company and FBR Asset Investment Corporation, as amended;
(3) $21,000,000 Bridge Loan Agreement dated as of July 16, 1998
among the Company, Xxxxxxx-Xxxxxx International, K-W Properties,
Xxxxxxx-Xxxxxx Properties, Ltd. and Colony K-W, LLC, as amended;
(4) Pledge Agreement dated as of July 16, 1998 between
Xxxxxxx-Xxxxxx Properties, Ltd. and Colony K-W, LLC; and
(5) The other agreements referenced in the Registration Statement
and the Financial Statements.
(d) In addition to providing industry standard limited recourse guarantees
in the acquisition of real property by the Company or its affiliates, the
Company has provided guarantees of borrowers' obligations under the
promissory notes and agreements listed below. The limited recourse
guarantees described in the preceding sentence do not relate to the
property being acquired or the payment of principal or interest under any
mortgage.
(1) Promissory Note in the principal amount of $1,000,000 dated July
28, 1998 by Xxxxxxx-Xxxxxx Properties, Ltd. in favor of East-West
Bank;
(2) Promissory Note in the principal amount of $2,300,000 dated July
9, 1998 by X-X XXX, LLC in favor Old Standard Life Insurance
Company;
(3) Promissory Note in the principal amount of $5,075,000 dated
February 20, 1998 by K-W Paseo Heights, LLC in favor INMC Mortgage
Holdings, Inc. (dba Construction Lending Corporation of America);
(4) Promissory Note in the principal amount of $540,000 dated April
30, 1998 by X-X Xxxxxxxx 15, Inc. in favor of National Bank of
California;
(5) Promissory Note in the principal amount of $3,990,000 dated
November 23, 1998 by K-W Courtyard Homes, LLC in favor of Valley
Independent Bank;
(6) Promissory Note in the principal amount of $2,490,000 dated
March 19, 1998 by K-W Properties in favor of Century Bank;
(7) Overdraft Agreement (with maximum amount of (Y)30,000,000) dated
July 30, 1998 between Xxxxxxx-Xxxxxx Japan and Tokyo Mitsubishi
Bank;
(8) Overdraft Agreement (with maximum amount of (Y)30,000,000)
between Xxxxxxx-Xxxxxx Japan and Sumitomo Bank;
-10-
(9) Overdraft Agreement (with maximum amount of (Y)30,000,000)
between Xxxxxxx-Xxxxxx Japan and Sumitomo Bank; and
(10) The other agreements referenced in the Registration Statement
and the Financial Statements.
-11-
Section 2.16
Assumptions, Guarantees of Indebtedness of Other Persons
In addition to providing industry standard limited recourse guarantees in
the acquisition of real property by the Company or its affiliates, the Company
has provided guarantees of borrowers' obligations under the promissory notes and
agreements listed below. The limited recourse guarantees described in the
preceding sentence do not relate to the property being acquired or the payment
of principal or interest under any mortgage.
1. Promissory Note in the principal amount of $1,000,000 dated July 28,
1998 by Xxxxxxx-Xxxxxx Properties, Ltd. in favor of East-West Bank;
2. Promissory Note in the principal amount of $2,300,000 dated July 9,
1998 by X-X XXX, LLC in favor Old Standard Life Insurance Company;
3. Promissory Note in the principal amount of $5,075,000 dated February
20, 1998 by K-W Paseo Heights, LLC in favor INMC Mortgage Holdings,
Inc. (dba Construction Lending Corporation of America);
4. Promissory Note in the principal amount of $540,000 dated April 30,
1998 by X-X Xxxxxxxx 15, Inc. in favor of National Bank of
California;
5. Promissory Note in the principal amount of $3,990,000 dated November
23, 1998 by K-W Courtyard Homes, LLC in favor of Valley Independent
Bank;
6. Promissory Note in the principal amount of $2,490,000 dated March
19, 1998 by K-W Properties in favor of Century Bank;
7. Overdraft Agreement (with maximum amount of (Y)30,000,000) dated
July 30, 1998 between Xxxxxxx-Xxxxxx Japan and Tokyo Mitsubishi
Bank;
8. Overdraft Agreement (with maximum amount of (Y)30,000,000) between
Xxxxxxx-Xxxxxx Japan and Sumitomo Bank;
9. Overdraft Agreement (with maximum amount of (Y)30,000,000) between
Xxxxxxx-Xxxxxx Japan and Sumitomo Bank; and
10. The other agreements referenced in the Registration Statement and
the Financial Statements.
-12-
List of Subsidiaries and Affiliates
State or Other
Jurisdiction of
Name Incorporation
---- -------------
301 South Fair Oaks, LLC California
453 Barrington Property Group, Inc. California
801 Flower Group, Inc. California
5900 Xxxxxxxxx Property Group, Inc. California
11743 Kiowa Partners Corporation California
Asset One K.K. Japan
Xxxxxxx Crescent LLC California
Carriage Villas Group, Inc. California
Cathedral Hills Vistas California
Choei Building Management K.K. Japan
Choei Create K.K. Japan
Choei Kaihatsu K.K. Japan
Choei Urban K.K. Japan
Colony KW Investment Y.K. Japan
Colony-KW Partners, L.P. Delaware
Dealco One, Inc. California
Dealco Two, Inc. California
Del Mar Pasadena, LLC California
Downtown Properties NY LLC California
Edinger Business Centre Group, Inc. California
e-KWIC, Inc. California
State or Other
Jurisdiction of
Name Incorporation
---- -------------
Hilltop Colony, LLC California
JUL K.K. Japan
Jutaku Ryutsu K.K. Japan
K.A. Capital K.K. Japan
Xxxxxxx-Xxxxxx DC Properties, Ltd. District of Columbia
Xxxxxxx-Xxxxxx Hong Kong Hong Kong
Xxxxxxx-Xxxxxx International California
Xxxxxxx-Xxxxxx Japan Co., Ltd. Japan
Xxxxxxx-Xxxxxx Japan K.K. Japan
Xxxxxxx-Xxxxxx Minnesota Management, Inc. Minnesota
Xxxxxxx-Xxxxxx Nevada Management, Inc. Nevada
Xxxxxxx-Xxxxxx Ohio Management, Inc. Ohio
Xxxxxxx-Xxxxxx Portfolio Fund I, LLC Delaware
Xxxxxxx-Xxxxxx Portfolio Fund II, LLC Delaware
Xxxxxxx-Xxxxxx Properties, Ltd. Illinois
Xxxxxxx-Xxxxxx Properties, Ltd. Delaware
Xxxxxxx-Xxxxxx Properties of Delaware, Ltd. Delaware
Xxxxxxx-Xxxxxx Properties of Louisiana, Ltd. Louisiana
Xxxxxxx-Xxxxxx Properties of Maryland, Ltd. Maryland
Xxxxxxx-Xxxxxx Properties of Oregon, Ltd. Oregon
Xxxxxxx-Xxxxxx RHA Holding Company, Inc. California
Xxxxxxx Xxxxxx Tech, Ltd. California
-2-
State or Other
Jurisdiction of
Name Incorporation
---- -------------
Xxxxxxx-Xxxxxx Wisconsin Management, Inc. Wisconsin
KMK K.K. Japan
Kona Surf Group, Inc. California
Kona Surf Investors, LLC California
Kuhio Group, Inc. California
KW 1055 Wilshire Group, Inc. California
KW 6255 Sunset Group, Inc. California
K-W 6380 Wilshire Group, Inc. California
KW 7080 Hollywood Group California
K-W Black Oak, Inc. California
KW Capital Corporation California
KW Courtyard Homes Group, Inc. California
KW Courtyard Homes, LLC California
KW Crescent Group, Inc. California
KW Del Mar Group, Inc. California
K-W Euclid, Inc. California
X-X Xxxxxx Crest, Inc. California
K-W Hilltop, Inc. California
KW Hilltop, Inc. California
KW Japan Investments, Inc. Delaware
XX Xxx Group, Inc. California
XX Xxx LLC California
-3-
State or Other
Jurisdiction of
Name Incorporation
---- -------------
KW Kohanaiki Group, Inc. California
KW Kohanaiki LLC California
K-W Laurelwood, Inc. California
KW Management Svs. Inc. California
KW Maple Partners, Inc. California
XX Xxxxxxx Group, Inc. California
XX Xxxxxxxx, Inc. California
KW Paseo Group, Inc. California
KW Paseo Heights, Inc. California
KW Paseo Heights, LLC California
KW Portfolio Group I, Inc. Delaware
KW Portfolio Group II, Inc. Delaware
KW Properties California
KW Properties I California
KW Puako Group, Inc. California
KW Puako, LLC California
XX Xxxx Equity, Inc. California
KW Rochester 24, LLC California
KW Rochester Group, Inc. California
KW Rochester, Inc. California
XX Xxxxxxxx, Inc. California
KW Upland Equities, Inc. California
-4-
State or Other
Jurisdiction of
Name Incorporation
---- -------------
XX Xxxxxxxx Group, Inc. California
KW Vista Del Xxxxx, LLC California
XX Xxxxxxxx 15, Inc. California
KW-A, LLC California
KW-LP Investments, Inc. California
KWP Financial I California
KWP Financial II California
KWP Financial III California
KWP Financial IV California
KWP Financial V California
MAY K.K. Japan
Monarch Investors, Inc. California
MPM K.K. Japan
Muromachi Building Management K.K. Japan
Mutual Capital Mortgage Company California
NOV K.K. Japan
OCT K.K. Japan
Plaza Centre Group, Inc. California
Prestonwood Group, Inc. California
Rancho Del Xxxxx Properties Group California
SFR Properties, LLC California
Southwood Townhomes Group, Inc. California
-5-
State or Other
Jurisdiction of
Name Incorporation
---- -------------
SSI K.K. Japan
SST K.K. Japan
Stonegate Group, Inc. California
TST K.K. Japan
TUE K.K. Japan
VDE Corona Group, Inc. California
Vista Del Xxxxx, LLC California
Vista Waikoloa Group, Inc. California
Westborough Court Group, Inc. California
Wilshire & 7th Properties, Inc. California
Woodcreek, Inc. California
-6-
