SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of June 30, 1999, between
Diplomat Direct Marketing Corporation, a Delaware corporation with principal
executive offices located at 000 Xxxxxx Xxxxxx, Xxxxxxx, X.X. 00000 (the
"Company"), Xxxxx Holdings, Inc., having an address at 0 Xxxxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000 ("Xxxxx") and the undersigned ("Buyer").
W I T N E S S E T H:
WHEREAS, the Company desires to sell, and the Buyer desires to
purchase, upon the terms and subject to the conditions of this Agreement, 10,000
shares of newly created Series G 10% Convertible Preferred Stock of the Company,
$.01 par value (the "Preferred Stock"), having the rights, preferences and
privileges set forth in the Certificate of Designations to the Certificate of
Incorporation of the Company attached hereto as Annex I (the "Amendment");
WHEREAS, the Company has agreed to register on behalf of Buyer the
Conversion Shares (as hereinafter defined) acquired upon conversion of the
Preferred Stock, under the terms of that certain Registration Rights Agreement,
of even date herewith, by and among the Company, and Buyer (the "Registration
Agreement");
WHEREAS, the Company and Xxxxx desire to exchange that number of
shares of the Common Stock of the Company, $.0001 par value (the "Company Common
Stock"), for that number of shares of the Common Stock of Xxxxx, $.0001 par
value (the "Xxxxx Common Stock"), in each case having a Market Value equal to
$1,000,000 at the close of trading on June 7, 1999, which Market Value shall be
determined to be the last sale price of a share of Company Common Stock or of
Xxxxx Common Stock as reported by The Nasdaq Stock Market, Inc., with the shares
of Company Common Stock so received by Xxxxx being referred to as the "Company
Exchange Shares" and the shares of Xxxxx Common Stock so received by the Company
being referred to as the "Xxxxx Exchange Shares;"
WHEREAS, upon the terms and subject to the conditions set forth in the
Amendment, the Preferred Stock is convertible into shares of Company Common
Stock and is redeemable by the Company under certain conditions;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED STOCK
A. Transaction. Buyer hereby agrees to purchase from the Company, and
the Company has offered and hereby agrees to issue and sell to the Buyer in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as
amended (the "Securities Act"), the Preferred Stock; and Company and Xxxxx agree
to exchange the Company Exchange Shares for the Xxxxx Exchange Shares.
B. Purchase Price; Form of Payment. The purchase price (the "Preferred
Purchase Price") for the Preferred Stock to be purchased by Buyer hereunder
shall be equal to $1,000,000, which shall be payable in cash on the Closing
Date; and the purchase price (the "Company Exchange Purchase Price") for the
Company Exchange Shares shall be the Xxxxx Exchange Shares, and the purchase
price (the "Xxxxx Exchange Purchase Price") for the Xxxxx Exchange Shares shall
be the Company Exchange Shares, which Xxxxx Exchange Purchase Price and Company
Exchange Purchase Price shall be exchanged on the Closing Date.
II. BUYER'S AND XXXXX'X REPRESENTATIONS, WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Each of Buyer and Xxxxx severally represents and warrants to and
covenants and agrees with the Company, with each such company only making
representations which refer to its own activities or to information concerning
its own operations, as follows:
A. Buyer is purchasing the Preferred Stock and the shares of Common
Stock issuable upon conversion of the Preferred Stock (the "Conversion Shares",
and collectively with the Preferred Stock, the "Securities"), and Xxxxx is
purchasing the Company Exchange Shares, for its own account, for investment
purposes only and not with a view towards or in connection with the public sale
or distribution thereof in violation of the Securities Act.
B. Each of Buyer and Xxxxx is (i) experienced in making investments of
the kind contemplated by this Agreement, (ii) capable, by reason of its business
and financial experience, of evaluating the relative merits and risks of an
investment in the Securities, and (iii) able to afford the loss of its
investment in the Securities or in the Company Exchange Shares, respectively.
C. Each of Buyer and Xxxxx understands that the Securities and the
Company Exchange Shares, respectively, are being offered and sold by the Company
in reliance on an exemption from the registration requirements of the Securities
Act and equivalent state securities and "blue sky" laws, and that the Company is
relying upon the accuracy of, and Buyer's and Xxxxx'x compliance with, each of
Buyer's and Xxxxx'x representations, warranties and covenants, respectively and
severally, as set forth in this Agreement to determine the availability of such
exemption and the eligibility of Buyer and Xxxxx to purchase the Securities;
D. Each of Buyer and Xxxxx has been furnished with or provided access
to all materials relating to the business, financial position and results of
operations of the Company, and all other materials requested by Buyer and Xxxxx,
respectively, to enable it to make an informed investment decision with respect
to the Securities and the Company Exchange Shares, respectively.
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E. Each of Buyer and Xxxxx acknowledges that it has been furnished
with copies of the Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1998 and all other reports and documents heretofore filed by
the Company with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since September 30, 1998 (collectively the
"Commission Filings").
F. Each of Buyer and Xxxxx acknowledges that in making its decision to
purchase the Securities and the Company Exchange Shares, respectively, it has
been given an opportunity to ask questions of and to receive answers from the
Company's executive officers, directors and management personnel concerning the
terms and conditions of the private placement of the Securities and Company
Exchange Shares, respectively, by the Company.
G. Each of Buyer and Xxxxx understands that the Securities and Company
Exchange Shares, respectively, have not been approved or disapproved by the
Commission or any state securities commission and that the foregoing authorities
have not reviewed any documents or instruments in connection with the offer and
sale to it of the Securities and Company Exchange Shares, respectively, and have
not confirmed or determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by each of Buyer and Xxxxx and is a valid and binding agreement of
each of Buyer and Xxxxx enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally.
I. AUTHORITY; VALIDITY AND ENFORCEABILITY. Each of Buyer and Xxxxx, to
the extent it is a signatory, has the requisite corporate power and authority to
enter into this Agreement, the Registration Agreement and the Pledge Security
Agreement of even date herewith between the Company, the Buyer, the Xxxxx Family
Irrevocable Stock Trust (the "Xxxxx Trust"), a copy of which is annexed hereto
as Annex II (the "Pledge Agreement"). The execution, delivery and performance by
each of Xxxxx and Buyer, to the extent it is a signatory of this Agreement, the
Registration Agreement and the Pledge Agreement, and the consummation by each of
Buyer and Xxxxx of the transactions contemplated hereby and thereby has been
duly authorized by all necessary corporate action on the part of each of Buyer
and Xxxxx, respectively. Each of this Agreement, the Registration Agreement and
the Pledge Agreement has been duly validly executed and delivered by each of
Buyer and Xxxxx, to the extent it is a signatory, and each such instrument
constitutes a valid and binding obligation of each of Buyer and Xxxxx
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally. The Xxxxx
Exchange Shares have been duly and validly authorized for issuance by Xxxxx.
J. COMMISSION FILINGS. None of the Xxxxx Annual Report on Form 10-K
for the fiscal year ended June 30, 1998 and all other reports and documents
heretofore filed by Xxxxx
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with the Commission pursuant to the Securities Act and the Exchange Act since
June 30, 1998 (the "Xxxxx Commission Filings") contained at the time they were
filed any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
K. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. Xxxxx has
delivered to the Company true and complete copies of its audited balance sheet
as at June 30, 1998 and the related audited statements of operations and cash
flows for the three fiscal years ended June 30, 1998, including the related
notes and schedules thereto, as well as the same financial statements as of and
for the three, six and nine month periods ended March 31, 1999 (collectively,
the "Financial Statements"). Each of the Financial Statements is complete and
correct in all material respects, has been prepared in accordance with United
States General Accepted Accounting Principles ("GAAP") (subject, in the case of
the interim Financial Statements, to normal year end adjustments and the absence
of footnotes) and in conformity with the practices consistently applied by Xxxxx
without modification of the accounting principles used in the preparation
thereof, and fairly presents the financial position, results of operations and
cash flows of Xxxxx as at the dates and for the periods indicated. For purposes
hereof, the audited balance sheet of Xxxxx as at June 30, 1998 is hereinafter
referred to as the "Balance Sheet" and June 30, 1998 is hereinafter referred to
as the "Balance Sheet Date". Xxxxx has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the Balance Sheet or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the Balance Sheet or the notes thereto or
otherwise described and reflected in the Financial Statements, or was not
incurred in the ordinary course of business consistent with Xxxxx'x past
practices since the Balance Sheet Date.
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer and Xxxxx that:
A. CAPITALIZATION. 1. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $.0001 par value (the "Company
Common Stock"), of which 15,245,813 shares are outstanding on the date hereof
and 1,000,000 shares of preferred stock, of which 444,014 shares are outstanding
on the date hereof which can be converted into a maximum of 15,388,972 shares of
Common Stock (not including the payment of dividends thereon in additional
shares of Common Stock), subject to anti-dilution and similar provisions. All of
the issued and outstanding shares of Common Stock and preferred stock have been
duly authorized and validly issued and are fully paid and non-assessable. As of
the date hereof, the Company has outstanding stock options and warrants to
purchase 1,654,900 shares of Common Stock. The Securities have been duly and
validly authorized and reserved for issuance by the Company, and when issued by
the Company pursuant to the terms of this Agreement will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof to
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personal liability by reason of being such holder. There are no preemptive,
subscription, "call" or other similar rights to acquire the Common Stock or the
Company's preferred stock that have been issued or granted to any person, except
as disclosed on Schedule III. A.1.
2. The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity, except as disclosed on Schedule III.A.2.
B. ORGANIZATION; REPORTING COMPANY STATUS. 1. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is duly qualified as a foreign corporation in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or on the consummation of any
of the transactions contemplated by this Agreement (a "Material Adverse
Effect").
2. The Company has registered the Common Stock pursuant to Section 12
of the Exchange Act and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting obligations
under Section 13(a) or 15(d), as applicable, of the Exchange Act for the
12-month period immediately preceding the date hereof. The Common Stock is
listed and traded on the NASDAQ SmallCap Stock Market ("NASDAQ") and except for
a letter dated ___, 1999, a copy of which is annexed hereto as Schedule III B.2,
the Company has not received any notice regarding, and to its knowledge there is
no threat, of the termination or discontinuance of the eligibility of the Common
Stock for such listing.
C. AUTHORIZED SHARES. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Preferred Stock (assuming for purposes of this Section III.C.
a Conversion Price (as defined in the Amendment) of not greater than $.30. The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock of the issuance of the Preferred Stock. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Stock in accordance with this Agreement and the Preferred Stock is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to enter into this Agreement, the
Amendment, the Registration Agreement and the Pledge Agreement. The execution,
delivery and performance by the Company of this Agreement, the Amendment, the
Registration Agreement and the Pledge Agreement, and the consummation by the
Company of the transactions contemplated hereby and thereby (the issuance of the
Preferred Stock, the registration of the Conversion Shares and the pledge of
collateral pursuant to the Pledge Agreement), has been duly authorized by all
necessary corporate action on the part of the Company. Each of this Agreement,
the Amendment, the Registration Agreement and the Pledge Agreement has been duly
validly executed and delivered by the Company and each instrument constitutes a
valid and binding obligation of the Company enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency,
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fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The Securities have been duly and
validly authorized for issuance by the Company.
E. NON-CONTRAVENTION. The execution and delivery by the Company of
this Agreement, the Amendment and the Pledge Agreement, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, do not and will not conflict with or result in
a breach by the Company of any of the terms or provisions of, or constitute a
default (or an event which, with notice, lapse of time or both, would constitute
a default) under (i) the articles of incorporation or by-laws of the Company or
(ii) except for such conflict, breach or default which would not have a Material
Adverse Effect, any indenture, mortgage, deed of trust or other material
agreement or instrument to which the Company is a party or by which its
properties or assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having jurisdiction
over the Company or any of the Company's properties or assets, including the
Rules of The Nasdaq Stock Market, Inc.
F. APPROVALS. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Stock to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
G. COMMISSION FILINGS. None of the Commission Filings contained at the
time they were filed any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
H. ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule
III.A.I., Schedule III.A.II, or Schedule III.H. or in the Financial Statements
(as defined in Section III.L. hereto), since the Balance Sheet Date (as defined
in Section III.L.), there has not occurred any change, event or development in
the business, financial condition, prospects or results of operations of the
Company, and there has not existed any condition having or reasonably likely to
have, a Material Adverse Effect.
I. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in writing to the Buyer that (i) reasonably would be
expected to have a Material Adverse Effect or (ii) reasonably would be expected
to materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement, the Amendment, the Warrants or the
Pledge Agreement.
J. ABSENCE OF LITIGATION. There is no action, suit, claim, proceeding,
inquiry or investigation pending or, to the Company's knowledge, threatened, by
or before any court or public or governmental authority, or under the aegis of
the Listing Investigations Division of The Nasdaq Stock Market, Inc., which, if
determined adversely to the Company, would have a Material Adverse Effect.
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K. ABSENCE OF EVENTS OF DEFAULT. No "Event of Default" (as defined in
any agreement or instrument to which the Company is a party) and no event which,
with notice, lapse of time or both, would constitute an Event of Default (as so
defined), has occurred and is continuing, which could have a Material Adverse
Effect.
L. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
September 30, 1998 and the related audited statements of operations and cash
flows for the three fiscal years ended September 30, 1998, including the related
notes and schedules thereto, as well as the same financial statements as of and
for the three and six month periods ended March 31, 1999 (collectively, the
"Financial Statements"), and all management letters, if any, from the Company's
independent auditors relating to the dates and periods covered by the Financial
Statements. Each of the Financial Statements is complete and correct in all
material respects, has been prepared in accordance with United States General
Accepted Accounting Principles ("GAAP") (subject, in the case of the interim
Financial Statements, to normal year end adjustments and the absence of
footnotes) and in conformity with the practices consistently applied by the
Company without modification of the accounting principles used in the
preparation thereof, and fairly presents the financial position, results of
operations and cash flows of the Company as at the dates and for the periods
indicated. For purposes hereof, the audited balance sheet of the Company as at
September 30, 1998 is hereinafter referred to as the "Balance Sheet" and
September 30, 1998 is hereinafter referred to as the "Balance Sheet Date". The
Company has no indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to become due)
that would have been required to be reflected in, reserved against or otherwise
described in the Balance Sheet or in the notes thereto in accordance with GAAP,
which was not fully reflected in, reserved against or otherwise described in the
Balance Sheet or the notes thereto or otherwise described and reflected in the
Financial Statements, or was not incurred in the ordinary course of business
consistent with the Company's past practices since the Balance Sheet Date.
M. COMPLIANCE WITH LAWS; PERMITS. The Company is in compliance with
all laws, rules, regulations, codes, ordinances and statutes (collectively
"Laws") applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
N. RELATED PARTY TRANSACTIONS. Except as disclosed on Schedule III.N.
or the Commission Filings, neither the Company nor any of its officers,
directors or "Affiliates" (as such term is defined in Rule 12b-2 under the
Exchange Act) has borrowed any moneys from or has outstanding any indebtedness
or other similar obligations to the Company. Neither the Company nor any of its
officers, directors or Affiliates (i) owns any direct or indirect interest
constituting more than a one percent equity (or similar profit participation)
interest in, or controls or is a director, officer, partner, member or employee
of, or consultant to or lender to or borrower from, or has the right to
participate in the profits of, any person or entity which is (x) a
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competitor, supplier, customer, landlord, tenant, creditor or debtor of the
Company, (y) engaged in a business related to the business of the Company , or
(z) a participant in any transaction to which the Company is a party (other than
in the ordinary course of the Company's business) or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company.
O. INSURANCE. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
P. SECURITIES LAW MATTERS. Based, in part, upon the several
representations and warranties of Buyer and Xxxxx set forth in Section II
hereof, the offer and sale by the Company of the Securities and Company Exchange
Shares is exempt from (i) the registration and prospectus delivery requirements
of the Securities Act and the rules and regulations of the Commission thereunder
and (ii) the registration and/or qualification provisions of all applicable
state securities and "blue sky" laws. Other than pursuant to an effective
registration statement under the Securities Act, the Company has not issued,
offered or sold preferred stock (including for this purpose any securities of
the same or a similar class as the preferred stock, or any securities
convertible into or exchangeable or exercisable for preferred stock or any such
other securities) or Company Common Stock other than the Company's Series F
Preferred Stock which was sold to a single "accredited investor" as defined in
Rule 501 promulgated under the Securities Act (an "Accredited Investor") and
100,000 shares of Company Common Stock which was sold to a single Accredited
Investor at $1.00 per share within the six-month period next preceding the date
hereof, except as disclosed on Schedule III.P., and the Company shall not
directly or indirectly take, and shall not permit any of its directors, officers
or Affiliates directly or indirectly to take, any action [including, without
limitation, any offering or sale to any person or entity of preferred stock or
Company Common Stock (or securities of the same or similar class as the
Preferred Stock or Company Common Stock)], so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Buyer and Xxxxx of the Preferred Stock and Company Common
Stock as contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of the Preferred
Stock or Company Common Stock as contemplated by this Agreement or any other
agreement to which the Company is a party.
Q. ENVIRONMENTAL MATTERS. 1. The operations of the Company are in
material compliance with all applicable Environmental Laws and all permits
issued pursuant to Environmental Laws or otherwise;
2. To its knowledge, the Company has obtained or applied for all
material permits required under all applicable Environmental Laws necessary to
operate its business;
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3. The Company is not the subject of any outstanding written order of
or agreement with any governmental authority or person respecting (i)
Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened
Release of Hazardous Materials;
4. The Company has not received, since the Balance Sheet Date, any
written communication alleging that it may be in violation of any Environmental
Law or any permit issued pursuant to any Environmental Law, or may have any
liability under any Environmental Law;
5. The Company does not have any current contingent liability in
connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site);
6. To the Company's knowledge, there are no investigations of the
business, operations, or currently or previously owned, operated or leased
property of the Company pending or threatened which could lead to the imposition
of any liability pursuant to any Environmental Law;
7. There is not located at any of the properties of the Company any
(A) underground storage tanks, (B) asbestos-containing material or (C) equipment
containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all environmentally related
audits, studies, reports, analyses, and results of investigations that have been
performed with respect to the currently or previously owned, leased or operated
properties of the Company.
For purposes of this Section III.Q.:
"ENVIRONMENTAL LAW" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter in
effect in any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss. 9601 ET SEQ.), the
Hazardous Materials Transportation Act (49 U.S.C. App. ss. 1801 ET SEQ.), the
Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 ET SEQ.), the Clean
Water Act (33 U.S.C. ss. 1251 ET SEQ.), the Clean Air Act (42 U.S.C. ss. 7401 ET
SEQ.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 ET SEQ.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 ET SEQ.),
and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et SEQ.), and the
regulations promulgated pursuant thereto.
"HAZARDOUS MATERIAL" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or toxic substance" under any provision of any Environmental Law;
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"RELEASE" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;
"REMEDIAL ACTION" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
R. LABOR MATTERS. The Company is not party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of the Company. No employees of the Company are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company pending or to the Company's knowledge, threatened
by any labor organization or group of employees of the Company. There are no (i)
strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) material
grievances or other labor disputes pending or, to the knowledge of the Company,
threatened against or involving the Company. There are no unfair labor practice
charges, grievances or complaints pending or, to the knowledge of the Company,
threatened by or on behalf of any employee or group of employees of the Company.
S. ERISA MATTERS. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. Neither the Company nor any ERISA Affiliate maintains, contributes,
maintained or contributed to a plan subject to the provisions of Title IV of
ERISA or Section 412 of the Internal Revenue Code.
For purposes of this Section III.S.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, together with the final regulations promulgated
thereunder, as the same may be amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is a member of a group of which the Company is a member and
which is treated as a single employer under ss. 414 of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code").
T. TAX MATTERS. 1. The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in respect
of which the failure to so file does not and could not have a Material Adverse
Effect; all such Tax Returns are true and accurate in all material respects and
have been prepared in compliance with all applicable Laws; the Company has paid
all Taxes due and owing by it (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authorities
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all Taxes which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third parties; and since the Balance
Sheet Date, the charges, accruals and reserves for Taxes with respect to the
Company (including any provisions for deferred income taxes) reflected on the
books of the Company are adequate to cover any Tax liabilities of the Company if
its current tax year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that such corporation is or may be
subject to taxation by that jurisdiction. There are no foreign, federal, state
or local tax audits or administrative or judicial proceedings pending or being
conducted with respect to the Company; no information related to Tax matters has
been requested by any foreign, federal, state or local taxing authority; and,
except as disclosed above, no written notice indicating an intent to open an
audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority. There are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A) has
not executed or entered into a closing agreement pursuant to ss. 7121 of the
Internal Revenue Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; or (B) has not agreed to or is
required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or has any knowledge that
the IRS has proposed any such adjustment or change in accounting method, or has
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c) (2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c) (1) (A) (ii) of the
Internal Revenue Code.
3. The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
For purposes of this Section III.T.:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
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"TAX RETURN" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
U. PROPERTY. The Company has good and marketable title to all real and
personal property owned by it, free and clear of all liens, encumbrances and
defects except as disclosed in the Commission Filings or the Financial
Statements such as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company; and any real property and buildings held under lease by
the Company are held by it under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company.
V. INTELLECTUAL PROPERTY. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the best of the Company's knowledge, the Company is not infringing upon or in
conflict with any right of any other person with respect to any Intangibles. No
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
W. INTERNAL CONTROLS AND PROCEDURES. The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
X. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Y. NO MISREPRESENTATION. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer or Xxxxx
pursuant to this Agreement, contains
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any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, not
misleading.
Z. RIGHT OF FIRST REFUSAL. The Company has not granted any right of
first refusal to any person with respect to the issuance of Common Stock,
preferred stock or securities convertible into Common Stock which is currently
in effect.
AA. Company is purchasing the Xxxxx Exchange Shares for its own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.
BB. Company is (i) experienced in making investments of the kind
contemplated by this Agreement, (ii) capable, by reason of its business and
financial experience, of evaluating the relative merits and risks of an
investment in the Securities, and (iii) able to afford the loss of its
investment in the Xxxxx Exchange Shares.
CC. Company understands that the Xxxxx Exchange Shares are being
offered and sold by Xxxxx in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that Xxxxx is relying upon the accuracy of, and Company's
compliance with, Company's representations, warranties and covenants set forth
in this Agreement to determine the availability of such exemption and the
eligibility of Company to purchase the Xxxxx Exchange Shares;
DD. Company has been furnished with or provided access to all
materials relating to the business, financial position and results of operations
of Xxxxx, and all other materials requested by Company to enable it to make an
informed investment decision with respect to the Xxxxx Exchange Shares.
EE. Company acknowledges that it has been furnished with copies of the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998
and all other reports and documents heretofore filed by Xxxxx with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
since June 30, 1998 (collectively the "Xxxxx Commission Filings").
FF. Company acknowledges that in making its decision to purchase the
Xxxxx Exchange Shares it has been given an opportunity to ask questions of and
to receive answers from Xxxxx'x executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Xxxxx Exchange Shares by Xxxxx.
GG. Company understands that the Xxxxx Exchange Shares have not been
approved or disapproved by the Commission or any state securities commission and
that the foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Xxxxx Exchange Shares and have
not confirmed or determined the adequacy or accuracy of any such documents or
instruments.
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HH. Neither Company nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing, any put option, short position or other similar instrument or position
with respect to the Xxxxx Common Stock and neither Company nor any of its
affiliates nor any person acting on its or their behalf will use at any time
shares of Xxxxx Common Stock acquired pursuant to this Agreement to settle any
put option, short position or other similar instrument or position that may have
been entered into prior to the execution of this Agreement.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. RESTRICTIVE LEGEND. Each of Xxxxx and Buyer, on the one hand, and
Company, on the other hand, acknowledges and agrees that, upon issuance pursuant
to this Agreement, the Securities and the Company Exchange Shares, and the Xxxxx
Exchange Shares, respectively, shall have endorsed thereon a legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the Preferred Stock, the Company Exchange Shares and the
Xxxxx Exchange Shares):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. FILINGS. Each of Xxxxx, Buyer and the Company shall make all
necessary SEC, Nasdaq and "blue sky" filings required to be made by Xxxxx, Buyer
and the Company, respectively, in connection with the sale of the Securities,
the Company Exchange Shares and the Xxxxx Exchange Shares as contemplated under
the terms of this Agreement, and as required by all applicable laws and the
Rules of The Nasdaq Stock Market, Inc., and shall provide copies thereof to the
Buyer, Xxxxx and the Company, as relevant, promptly after such filing.
C. REPORTING STATUS. So long as the Buyer and/or Xxxxx beneficially
owns any of the Securities or Company Exchange Shares, on the one hand, and so
long as the Company beneficially owns any of the Xxxxx Exchange Shares, on the
other hand, the Company and Xxxxx, respectively, each shall use its best efforts
timely to file all reports required to be filed by it with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act.
D. Reserved.
E. LISTING. Except to the extent the Company lists its Common Stock on
The New York Stock Exchange or the Nasdaq National Market System, the Company
shall use its best efforts to maintain its listing of the Common Stock on the
NASDAQ.
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F. RESERVED CONVERSION SHARES. The Company at all times from and after
the date hereof shall have a sufficient number of shares of Common Stock duly
and validly authorized and reserved for issuance to satisfy the conversion, in
full, of the Preferred Stock (assuming for purposes of this Section IV.F., a
Conversion Price of not greater than $.30). In the event the Current Market
Price (as defined in the Amendment) declines to $.30, the Company shall, within
10 days of the occurrence of such event, authorize and reserve for issuance such
additional shares of Common Stock sufficient in number for the conversion, in
full, of the Preferred Stock, assuming for purposes of this Section IV.F. a
Conversion Price of not greater than $.15 per share.
G. RIGHT OF FIRST REFUSAL. If the Company should propose (the
"Proposal") to issue Common Stock or securities convertible into Common Stock,
or to become obligated for any indebtedness having equity or other non-debt
features at less than par value (e.g., having any attendant equity or other
features other than strictly calling for repayment of full face principal and
accrued interest), or to issue any debt securities or other indebtedness having
an effective annual interest rate in excess of 9.9% (each a "Right of First
Refusal Security" and collectively, the "Right of First Refusal Securities"), in
each case on the date of issuance, during any period during which the Preferred
Stock is issued and outstanding (the "Right of First Refusal Period"), the
Company shall be obligated to offer the Buyer on the terms set forth in the
Proposal (the "Offer") and the Buyer shall have the right, but not the
obligation, to accept such Offer on such terms. If during the Right of First
Refusal Period, the Company provides written notice to the Buyer that it
proposes to issue any Right of First Refusal Securities on the terms set forth
in the Proposal, then the Buyer shall have ten (10) business days to accept or
reject such Offer in writing. If the Company fails to: (i) provide such written
notice to the Buyer of a Proposal during the Right of First Refusal Period, (ii)
offer the Buyer the opportunity to complete the transaction as set forth in the
Proposal, or (iii) enter into an agreement with the Buyer, at such terms after
the Buyer has accepted the Offer, then the Company shall pay to the Buyer, as
liquidated damages, an amount in total equal to ten percent (10%) of the amount
paid to the Company for the Right of First Refusal Securities. The foregoing
Right of First Refusal is and shall be senior in right to any other right of
first refusal issued by the Company to any other person. Notwithstanding the
foregoing, the Buyer shall have no rights under this paragraph 4.G. in respect
of Common Stock or any other securities of the Company issuable (i) upon the
exercise or conversion of options, warrants or other rights to purchase
securities of the Company outstanding as of the date hereof, or (ii) under the
Company's ____ Employee Stock Option Plan (in the form and with respect to the
number of shares of Common Stock to which such plan is subject on the date
hereof).
H. DIRECTOR DESIGNATION. Until such time as Buyer shall have sold,
redeemed, or converted, all of its shares of Preferred Stock acquired pursuant
to this Agreement, Xxxxx shall have the right to designate an ex officio member
of the Company's Board of Directors, which designee shall receive notices of
(and related materials for discussion at), and shall be entitled to attend and
participate in all meetings of the Company's Board of Directors, as well as all
meetings of committees of the Company's Board of Directors, which notices (and
related materials) shall be delivered to such designee at the same time and in
the same manner as such communications are given to members of the Company's
Board of Directors. Such designee shall
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be reimbursed for the costs and expenses of his/her attendance at all such
meetings in the same manner and in the same amounts as are members of the
Company's Board of Directors, and such designee shall receive the same
compensation for attendance at meetings of the Company's Board of Directors
(including Committee meetings) as is received by members of the Company's Board
of Directors.
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other than
the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Company Exchange Shares
and/or Conversion Shares pursuant to an effective Securities Act registration
statement will be given to its transfer agent for the Company Exchange Shares
and/or Conversion Shares and that the Company Exchange Shares and the Conversion
Shares issuable upon conversion of the Preferred Stock otherwise shall be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing contained in this Section V.A. shall affect in any way Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of such Company Exchange Shares and/or Conversion Shares. If, at any
time, Buyer or Xxxxx provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of the resale by Buyer and Xxxxx
of such Company Exchange Shares and/or Conversion Shares is not required under
the Securities Act and that the removal of restrictive legends is permitted
under applicable law, the Company shall permit the transfer of such Company
Exchange Shares and/or Conversion Shares and, promptly instruct the Company's
transfer agent to issue one or more certificates for Company Common Stock
without any restrictive legends endorsed thereon.
X. Xxxxx undertakes and agrees that no instructions other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Xxxxx Exchange Shares
pursuant to an effective Securities Act registration statement will be given to
its transfer agent for Xxxxx Exchange Shares and that the Xxxxx Exchange Shares
otherwise shall be freely transferable on the books and records of Xxxxx as and
to the extent provided in this Agreement and applicable law. Nothing contained
in this Section V.B. shall affect in any way the Company's obligations and
agreement to comply with all applicable securities laws upon resale of such
Xxxxx Exchange Shares. If, at any time, Company provides Xxxxx with an opinion
of counsel reasonably satisfactory to Xxxxx that registration of the resale by
Company of such Xxxxx Exchange Shares is not required under the Securities Act
and that the removal of restrictive legends is permitted under applicable law,
the Xxxxx shall permit the transfer of such Xxxxx Exchange Shares and, promptly
instruct Xxxxx'x transfer agent to issue one or more certificates for Xxxxx
Common Stock without any restrictive legends endorsed thereon.
C. The Company shall permit Buyer to exercise its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion to
the Company. Each date on which a Notice of Conversion is telecopied to and
received by the Company in
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accordance with the provisions hereof shall be deemed a Conversion Date. The
Company shall transmit the certificates evidencing the shares of Company Common
Stock issuable upon conversion of any Preferred Stock (together with
certificates evidencing any Preferred Stock not being so converted) to Buyer via
express courier, by electronic transfer or otherwise, within five business days
after receipt by the Company of the Notice of Conversion (the "Delivery Date").
Within five business days after Buyer delivers the Notice of Conversion to the
Company, Buyer shall deliver to the Company the Preferred Stock being converted.
Buyer shall indemnify the Company for any damages to third parties as a result
of a claim by such third party to ownership of the Preferred Stock converted
prior to receipt of the Preferred Stock by the Company.
D. The Company understands that a delay in the issuance of the shares
of Company Common Stock upon the conversion of the Preferred Stock could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty), the Company agrees to pay to Buyer for late issuance of Company Common
Stock issuable upon conversion of the Preferred Stock in accordance with the
following schedule (where "No. Business Days" is defined as the number of
business days beyond five (5) days from the Delivery Date):
NO. BUSINESS DAYS COMPENSATION FOR EACH 500 SHARES OF
PREFERRED STOCK NOT CONVERTED
TIMELY
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
More than 10 $250 + $100 for each
Business Day Late beyond 10
days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Company Common Stock to Buyer (which actual damages shall be reduced by
the amount of any compensation paid by the Company as described above in this
Section V.D.), and in addition to any other remedies which may be available to
Buyer, in the event the Company fails for any reason to effect delivery of such
shares of Company Common Stock within five business days after the relevant
Delivery Date, Buyer shall be entitled to rescind the relevant Notice of
Conversion by delivering a notice to such effect to the Company whereupon the
Company and Buyer shall each be restored to their respective original positions
immediately prior to delivery of such Notice of Conversion on delivery.
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VI. DELIVERY INSTRUCTIONS.
The Securities, Company Exchange Shares and the Xxxxx Exchange Shares
shall be delivered by the Company, on the one hand, and by Xxxxx, on the other
hand, on a "delivery-against-payment basis" at the Closing.
VII. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Stock,
Company Exchange Shares and Xxxxx Exchange Shares (the "Closing Date") shall be
the date hereof or such other as shall be mutually agreed upon in writing. The
issuance and sale of the Securities, the Company Exchange Shares and the Xxxxx
Exchange Shares shall occur on the Closing Date at the offices of Nixon,
Hargrave, Devans & Xxxxx LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer and Xxxxx each understands that the Company's obligation to
sell the Securities and the Company Exchange Shares on the Closing Date to Buyer
and Xxxxx pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer and Xxxxx of the Preferred Purchase Price and the
Company Exchange Purchase Price, respectively;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer and Xxxxx contained in this Agreement as
if made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by Buyer and Xxxxx in all material respects on or before the Closing Date of all
covenants and agreements of Buyer required to be performed by it pursuant to
this Agreement on or before the Closing Date
C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. CONDITIONS TO BUYER'S AND XXXXX'X OBLIGATIONS.
The Company understands that the several obligations of Buyer to
purchase the Securities and of Xxxxx to purchase the Company Exchange Shares on
the Closing Date pursuant to this Agreement is each conditioned upon:
A. Delivery by the Company of one or more certificates (I/N/O Buyer)
evidencing the Securities to be purchased by Buyer pursuant to this Agreement,
and delivery to
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Buyer of a fully-executed copy of this Agreement, the Registration Agreement and
the Pledge Agreement (including all collateral subject thereto, along with
executed stock powers in blank and related medallion signature guarantees); and
Delivery by Company of one or more certificates (I/N/X Xxxxx) evidencing the
Company Exchange Shares to be purchased by Xxxxx pursuant to this Agreement, and
delivery to Xxxxx of a fully-executed copy of this Agreement.
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all material respects on or before the Closing Date of all
covenants and agreements of the Company required to be performed by it pursuant
to this Agreement on or before the Closing Date;
C. Buyer and Xxxxx having received an opinion of counsel for the
Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and Xxxxx.
D. There not having occurred (i) any general suspension of trading in,
or limitation on prices listed for, the Common Stock on the NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof.
E. There not having occurred any event or development, and there being
in existence no condition, having or which reasonably and foreseeable would have
a Material Adverse Effect.
F. The Company shall have delivered to Buyer and Xxxxx reimbursement
of Buyer's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by the Note and this Agreement (including the fees and
disbursements of Buyer's legal counsel of $20,000).
G. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
H. Buyer and Xxxxx shall have received such written consents, in form
acceptable to Buyer and Xxxxx, to the transactions contemplated by this
Agreement and the Amendment, as necessary to permit consummation thereof,
including but not limited to consents to the Company's payment of dividends on
the Preferred Stock out of legally available funds, the mandatory redemption of
the Preferred Stock under certain circumstances and the conversion to Conversion
Shares of the Preferred Stock, all in accordance with the terms and conditions
of
- 19 -
the Amendment; PROVIDED, that such consents shall include written consents from
FINOVA Mezzanine Capital Inc. and from First Source Financial LLP.
X. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of the
Company, on the one hand, and Buyer and Xxxxx, on the other hand, in this
Agreement, the annexes, schedules and exhibits hereto and in each instrument,
agreement and certificate entered into and delivered by them pursuant to this
Agreement, shall survive the Closing and the consummation of the transactions
contemplated hereby. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless the Buyer
and Xxxxx, their Affiliates and their respective officers, directors, partners
and members (collectively, the "Buyer Indemnitees"), from and against any and
all losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Buyer Indemnitees and to the
extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
or
2. any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement.
C. Buyer and Xxxxx, severally, hereby agree to indemnify and hold
harmless the Company, its Affiliates and their respective officers, directors,
partners and members (collectively, the "Company Indemnitees"), from and against
any and all Losses, and agrees to reimburse the Company Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses of legal
counsel), in each case promptly as incurred by the Company Indemnitees and to
the extent arising out of or in connection with:
1. any misrepresentation, omission of fact, or breach of any of Buyer
or Xxxxx'x representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by Buyer or Xxxxx pursuant to this
Agreement; or
- 20 -
2. any failure by Buyer or Xxxxx to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth in
this Agreement or any instrument, certificate or agreement entered into or
delivered by Buyer or Xxxxx pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel (together with appropriate local counsel) and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of- pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party
shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall have concluded
that representation of the Indemnified Party and the Indemnifying Party by the
same legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, (i) potentially differing
interests between such parties in the conduct of the defense of such Claim, or
(ii) if there may be legal defenses available to the Indemnified Party that are
in addition to or disparate from those available to the Indemnifying Party and
which can not be presented by counsel to the Indemnifying Party, or (z) the
Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
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procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XI. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on FORUM NON CONVENIENS, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
XII. NOTICES.
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
(1) if to the Company, to: (3) if to Xxxxx, to
Diplomat Direct Marketing Corporation Xxxxx Holdings, Inc.
000 Xxxxxx Xxxxxx 0 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxx, President Attention: Xxxxxxxxx Xxxxxxxx,
Executive Vice-President
With a copy to: with a copy to:
Xxxxxxx, Xxxxxx & Xxxxxxxxx LLP Nixon, Hargrave, Devans & Xxxxx LLP
000 Xxxx 00xx Xxxxxx 000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxxx X. Xxxxxx Attention: Xxxxx X. Xxxxxxxx, Esq.
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(2) if to Buyer, to
Xxxxx E-Commerce Corp.
0 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxxx, President
with a copy to:
Nixon, Hargrave, Devans & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq.
The Company, or Buyer or Xxxxx may change its foregoing address by
notice given pursuant to this Section XII.
XIII. CONFIDENTIALITY.
Each of the Company, Buyer and Xxxxx agrees to keep confidential and
not to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; PROVIDED, HOWEVER, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 10 of Rule
601 of Regulation S-K under the Securities Act and the Exchange Act).
XIV. ASSIGNMENT.
This Agreement shall not be assignable by any of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; PROVIDED, HOWEVER, that Buyer or Xxxxx may assign its rights and
obligations hereunder, in whole or in part, to any affiliate of Buyer or Xxxxx
who furnishes to the Company the representations and warranties set forth in
Section II hereof and otherwise agrees to be bound by the terms of this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
DIPLOMAT DIRECT MARKETING CORPORATION
By:/S/ XXXXXX XXXXXX
Name: Xxxxxx Xxxxxx
Title: President
XXXXX HOLDINGS, INC.
By: /S/ XXXXXXXXX XXXXXXXX
Name: Alexander Kaplaxis
Title: Executive Vice President
BUYER:
XXXXX E-COMMERCE CORP.
By: /S/ XXXXX XXXXXXXXXX
Name: Xxxxx Xxxxxxxxxx
Title: President
