EXHIBIT 10.40
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SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
ANCHOR PACIFIC UNDERWRITERS, INC.,
a Delaware corporation
AND
XXXX NORTH AMERICA HOLDING, INC.,
a California corporation
Dated as of March 9, 2000
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is made and entered into as of March 9,
2000 (the "Effective Date") by and between Anchor Pacific Underwriters, Inc., a
Delaware corporation (the "Company"), and Xxxx North America Holding, Inc., a
California corporation ("Purchaser"). The parties hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
1.1 Sale and Issuance of Senior Convertible Debentures.
(a) Purchaser has purchased and the Company has issued and sold
to Purchaser (i) Series E Convertible Debentures (the "Debentures"), in the form
attached hereto as Exhibit A, in the principal amount of $500,000 (the
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"Debentures Purchase Price") and (ii) five year term Warrants attached thereto
for the purchase of 300,000 shares of the Common Stock of the Company
exercisable at $.50 per share (the "Debenture Warrants").
(b) The Company acknowledges that Purchaser has already
delivered $500,000 in cash to the Company as payment for the Debentures
(including the Debenture Warrants), and Purchaser acknowledges that the Company
has already delivered to Purchaser $500,000 of the Debentures (including the
Debenture Warrants), pursuant to the terms and conditions of that certain Letter
Agreement by and between the Company and Purchaser dated November 29, 1999 (the
"Letter Agreement") and the subsequent letter agreement between the Company and
Purchaser dated February 18, 2000 (the "later Letter Agreement").
(c) The payment provision of the Debentures shall be amended to
provide for repayment on July 1, 2000. The Debentures shall be convertible at
all times prior to repayment by the Company and following the Closing (as
defined in Section 1.5 below) the payment date may be extended at Purchaser's
election to a date no later than December 31, 2002.
1.2 Sale and Issuance of Preferred Stock.
(a) The Company shall, on or before the Closing, adopt and file
a Certificate of Designation (the "Certificate of Designation") in the form
attached hereto as Exhibit B with the Delaware Secretary of State, creating a
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Series A Convertible Preferred Stock, $.02 par value per share ("Series A
Preferred Stock"), which series shall initially consist of 1,853,300 shares.
(b) Subject to the terms and conditions of this Agreement,
Purchaser agrees to purchase at the Closing, and the Company agrees to sell and
issue to Purchaser at the Closing, 1,853,300 shares of the Company's Series A
Preferred Stock (the "Shares") for the purchase price of One Dollar and
079156/100 ($1.079156) per share, for a total purchase price for the Shares of
$2,000,000. Purchaser has previously made a convertible bridge loan (the "Bridge
Loan") in the amount of $200,000 to the Company and Purchaser may apply the
principal amount of the Bridge Loan and any accrued interest thereon toward the
purchase price of the Shares and the remainder of the purchase price shall be
paid in cash.
1.3 Execution and Delivery of Secured Convertible Loan Facility.
Subject to the terms and conditions of this Agreement, Purchaser
agrees to execute and deliver at the Closing, and the Company agrees to execute
and deliver to Purchaser at Closing, a Secured Convertible Loan Facility (the
"Loan Facility"), in the form attached hereto as
Exhibit C, which shall permit the Company to borrow from Purchaser the principal
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amount of up to $1,000,000 at an interest rate of 10% per annum. The Loan
Facility shall initially be convertible into that number of shares of the
Company that when added to all other convertible securities held by Purchaser of
the Company, shall allow Purchaser to acquire on a fully diluted basis 74.5% of
the Company's Common Stock assuming the full $1,000,000 was borrowed.
1.4 Standstill.
During the 36 month period commencing on the date of the Closing,
Purchaser shall not acquire any securities of the Company except pursuant to the
conversion or exercise of the Shares, the Debentures, the Loan Facility or the
Debenture Warrants, until Purchaser has either (i) made a tender offer (the
"Tender Offer") pursuant to Regulation 14D as promulgated under the Exchange
Act, as defined below, for the purchase of all the shares of Common Stock of the
Company outstanding and not owned by Purchaser or its affiliates, or (ii)
Purchaser has made an offer to acquire all remaining securities of the Company
outstanding by way of a cash merger (the "Merger"). The price per share offered
in the Tender Offer or in the Merger shall be the greater of (i) $.80 per share
(as adjusted for stock splits, combinations or dividends with respect to such
shares) or (ii) a price per share determined by assuming the value of the
Company to be equal to the Company's earnings before interest and taxes for the
last twelve months most recently ended immediately prior to such Tender Offer or
Merger, multiplied by six and divided by the number of shares outstanding of the
Company on a fully diluted basis.
1.5 The Closing.
(a) The purchase and sale of the Shares and the execution and
delivery of the Loan Facility shall take place at the offices of Xxxxxxxxx Xxxxx
Xxxxxxx & Xxxxx, 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, Xxxxxxxxxx
00000, on March 10, 2000, or at such other time and place as the Company and
Purchaser mutually agree upon orally or in writing (which time and place are
designated as the "Closing").
(b) At the Closing, the Company shall deliver to the Purchaser a
stock certificate registered in Purchaser's name evidencing the Shares against
delivery to the Company by Purchaser of $2,000,000 (the "Stock Purchase Price"
and collectively with the Debentures Purchase Price and the Stock Purchase
Price, the "Total Purchase Price").
(c) Except as provided in Section 1.2(b) above, the Total
Purchase Price (less the $500,000 previously paid by the Purchaser for the
Debentures and the $200,000 previously advanced by the Purchaser in the form of
a Bridge Loan) shall be paid by a wire transfer of funds to an account
designated by the Company, which account shall be designated no later than three
(3) days prior to the Closing.
1.6 Reservation of Common Stock. Any shares of Common Stock of the
Company issuable upon conversion of the Series A Preferred Stock when issued,
issuable upon conversion of the Loan Facility or the Debentures when issued or
issuable upon exercise of the Debenture Warrants are herein referred to as the
"Underlying Common Stock." The Debentures, the Debenture Warrants, the Shares,
the Loan Facility and the Underlying Common Stock are sometimes herein referred
to collectively as the "Securities." The Board of Directors of the Company will,
prior to the Closing, vote to authorize an increase in the number of shares of
Common Stock the Company is authorized to issue and shall reserve and authorize
the continued reservation of, free of preemptive rights and other preferential
rights, (a) a sufficient number of its authorized but unissued shares of Series
A Preferred Stock to satisfy the purchase hereunder, and (b) a sufficient number
of its
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authorized but unissued shares of Common Stock to satisfy the rights of
conversion of all the Debentures, the Shares, the Loan Facility, and the
exercise of the Debenture Warrants.
1.7 Further Stockholder Action. Prior to the Closing, the Company
will (a) secure the written consent of the holders of a sufficient number of
shares of its Common Stock to authorize an increase in the number of shares of
Common Stock the Company is authorized to issue to at least 50,000,000; and (b)
prepare and file a Certificate of Designation to reflect the specific terms and
conditions of the Series A Preferred Stock. Subsequent to the Closing, the
Company will also take the necessary steps to promptly prepare, file and
circulate an Information Statement (the "Information Statement") in conformity
with the requirements of Section 14(c) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated thereunder (the "Exchange Act").
Approximately, twenty-one (21) days after the circulation of the Information
Statement, the Company will take the necessary steps to amend its Certificate of
Incorporation by filing an amendment with the Delaware Secretary of State to
increase the number of shares of Common Stock the Company is authorized to issue
to 50,000,000.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as otherwise set forth on the Schedule of Exceptions attached
hereto as Exhibit D specifically identifying the relevant subparagraph hereof,
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which exceptions shall be deemed to be representations and warranties hereunder,
the Company hereby represents and warrants to Purchaser as follows:
2.1 Organization and Standing; Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate or similar power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as presently proposed to be conducted. The Company
is duly qualified and is authorized to transact business and is in good standing
as a foreign corporation in each jurisdiction in which the failure so to qualify
would have a material adverse effect on the business, financial condition,
properties, operations or results of operations of the Company.
2.2 Authority. The Company has taken all corporate action necessary
in order, to execute, deliver and perform its obligations under this Agreement,
the Investor Rights Agreement and any other agreement to which the Company is a
party the execution and delivery of which is contemplated hereby (the "Ancillary
Agreements"), to issue and sell the Debentures, the Debenture Warrants, the
Shares and the Loan Facility and to carry out the provisions of this Agreement
and the Investor Rights Agreement or any Ancillary Agreement. This Agreement,
the Investor Rights Agreement and each Ancillary Agreement is a legal, valid and
binding obligation of the Company, enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
2.3 Capitalization. The authorized capital stock of the Company,
immediately prior to the Closing, will consist of 16,000,000 shares of Common
Stock, $0.02 par value, of which 4,710,055 shares are issued and outstanding as
of the Closing; 2,000,000 shares of Preferred Stock, $0.02 par value, 1,853,300
of which have been designated as Series A Preferred Stock, none of which are
currently issued and outstanding. All issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued, are fully
paid and nonassessable, and are free and clear of any lien, mortgage, pledge,
security interest, claim or other encumbrances (collectively, "Encumbrances").
Except as set forth in the Schedule of Exceptions, there are no outstanding
rights of first refusal, preemptive rights or other rights, options, warrants,
conversion
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rights, or other agreements either directly or indirectly for the purchase or
acquisition from the Company of any shares of its capital stock. All of the
outstanding shares of Common Stock, Preferred Stock, options and warrants have
been duly and validly issued in compliance with all applicable federal and state
securities laws.
2.4 Validity. The sale of the Debentures, the Debenture Warrants and
the Shares, and the subsequent conversions and/or exercise, as applicable, of
the Debentures, the Debenture Warrants, the Shares and the Loan Facility are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been waived and, when issued, sold and delivered in compliance with the
provisions of this Agreement and the Company's Certificate of Incorporation, the
Securities will be validly issued, fully paid and nonassessable, and will be
free of any Encumbrances; provided, however, the parties recognize and
understand that further action is required following the Closing with respect to
the preparation, filing and circulation of the Information Statement by the
Company as required under the Exchange Act.
2.5 SEC Filings. The Company has filed with the Securities and
Exchange Commission (the "SEC") all reports, schedules, forms, statements and
other documents required pursuant to the Exchange Act, since January 1, 1997
(collectively, and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein, the "SEC Documents"). As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Documents.
As of their respective dates, none of the SEC Documents (including any and all
financial statements included therein) filed pursuant to the Exchange Act or any
rule or regulation thereunder contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any SEC Document has been revised or superseded by a later filed
SEC Document, none of the SEC Documents (including any and all financial
statements included therein) contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
the Company included in all SEC Documents filed since January 1, 1997 (the "SEC
Financial Statements") comply in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto). The SEC Financial Statements
fairly present the consolidated financial position of the Company as of the
dates thereof and the consolidated results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited quarterly statements,
to normal recurring audit adjustments). Except as set forth on the Schedule of
Exceptions, the Company does not have any material liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) required by
generally accepted accounting principles to be recognized or disclosed on a
consolidated balance sheet of the Company or in the notes thereto, except (i)
liabilities reflected in the consolidated audited balance sheet of the Company
as of December 31, 1998 or the notes thereto, (ii) liabilities reflected in the
consolidated unaudited balance sheet of the Company as of September 30, 1999, or
any notes thereto, and (iii) liabilities disclosed in any SEC Documents filed by
the Company prior to the date of this Agreement with respect to any period
ending, or date occurring, after September 30, 1999.
2.6 Absence of Changes or Events. Except as set forth on the Schedule
of Exceptions, since September 30, 1999, the Company has conducted its business
only in the ordinary
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course consistent with past practice, and there is not and has not been: (i)
since September 30, 1999, any condition, event or occurrence which has had a
material adverse effect on the business, properties, financial condition or
results of operations of the Company (a "Material Adverse Effect"); (ii) since
September 30, 1999, any condition, event or occurrence which as of the date of
this Agreement, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect with respect to the Company; or (iii) since
September 30, 1999, any condition, event or occurrence which, individually or in
the aggregate, could reasonably be expected to prevent or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement or perform its obligations hereunder.
2.7 Material Contracts and Agreements.
(a) The Schedule of Exceptions lists the following accounts,
agreements, leases, contracts, notes, mortgages, indentures, arrangements or
other obligations (individually, a "Contract," collectively, the "Contracts") to
which the Company is a party on the date hereof:
(i) any Contract the performance of which is expected to
involve consideration payable either to or by the Company in excess of $25,000
per annum;
(ii) any Contract which restricts or contains limitations
on the ability of the Company to freely conduct business in any area within the
United States;
(iii) any collective bargaining agreement to which the
Company is a party;
(iv) any employment agreement to which the Company is a
party; and
(v) any Contract which relates to indebtedness owed by the
Company having a principal amount of $25,000 or more, or the guarantee thereof.
(b) The Company has made available to Purchaser a correct and
complete copy of each Contract listed in the Schedule of Exceptions, together
with any and all amendments or modifications thereto. Each such Contract is
valid, binding, enforceable, and in full force and effect, and the Company is
not in breach or default under any such Contract and no event has occurred
which, with notice or lapse of time or both, would constitute a breach or
default, or permit termination, modification, or acceleration, under such
Contract.
(c) The Company owns each and every Contract to which it is a
party and no employee or agent producer has any ownership in any Contract,
account or business of the Company.
2.8 Accounts Receivable. All accounts receivable of the Company have
and will have arisen from the provision of services by the Company in the
ordinary course of business. The Company has not received any notice of, nor
does the Company know of any counterclaim or set-off with respect to any
accounts receivable or any facts or circumstances that would be the basis for,
any such counterclaim or set-off which is not reflected or taken into account in
the contractual allowance or bad debt reserves set forth in the SEC Financial
Statements.
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2.9 Fixed Assets. The fixed assets of the Company used in its
operations, including, but not limited to, all vehicles, materials, equipment,
and computers are in good working order and condition in all material respects.
2.10 Title to Properties and Assets; Liens; etc. The Company has good
and marketable title to its properties and assets, and good title to all its
leasehold estates, in each case free of all Encumbrances other than (a) liens
resulting from taxes which have not yet become delinquent, (b) minor liens,
encumbrances, or defects of title which do not, individually or in the
aggregate, materially detract from the value of the property subject thereto or
materially impair the Company's ownership or use of such property or assets, or
(c) as set forth on the Schedule of Exceptions. With respect to property it
leases, the Company is in compliance with such leases in all material respects.
2.11 Compliance with Other Instruments. Other than as set forth on the
Schedule of Exceptions, the Company is not in violation or default of any term
or provision of its Certificate of Incorporation or Bylaws, any Contract,
judgment, decree or order to which it is a party or by which it is bound or, to
the best of its knowledge, any statute, rule or regulation applicable to the
Company. Other than as set forth on the Schedule of Exceptions, the execution,
delivery and performance of this Agreement, the Investor Rights Agreement or any
Ancillary Agreement by the Company do not, and the consummation by the Company
of the transactions contemplated hereby and thereby will not, constitute or
result in (A) a breach or violation of, or a default under, the Certificate of
Incorporation or By-laws of the Company, (B) a breach or violation of, or a
default under, the acceleration of any obligations or the creation of a lien,
pledge, security interest or other encumbrance on the assets of the Company
(with or without notice, lapse of time or both) pursuant to any Contracts
binding upon the Company, (C) a violation of any law, rule, regulation,
judgment, injunction, order, decree or other restriction of any court or
governmental entity ("Law") or any governmental or non-governmental permit or
license to which the Company is subject or (D) any change in the rights or
obligations of any party under any Contract binding upon the Company.
2.12 Litigation, etc. Other than as set forth on the Schedule of
Exceptions, there are no actions, suits, proceedings, or investigations before
any court, or administrative agency pending or, to the best of the Company's
knowledge, currently threatened by, against or with respect to the Company. The
Company is not a party or subject to, and none of its assets are bound by, the
provisions of any order, writ, injunction, judgment, or decree of any court or
governmental agency or instrumentality. There is no action, suit, proceeding, or
investigation by the Company currently pending or that the Company intends to
initiate.
2.13 Tax Returns, Payments and Elections. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith that are listed in
the Schedule of Exceptions. The provision for taxes of the Company as shown in
the SEC Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected to be treated as a collapsible corporation
pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any
other elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a material
effect on the Company, its financial condition, its business as presently
conducted or proposed to be conducted or any of its properties or material
assets. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns and none of its state income or franchise
tax or sales or use tax returns has ever been audited by governmental
authorities. Since the date of the SEC Financial
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Statements, the Company has made adequate provisions on its books of account for
all taxes, assessments and governmental charges with respect to its business,
properties and operations for such period. The Company has withheld or collected
from each payment made to each of its employees, the amount of all taxes
(including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositaries.
2.14 Employees. No employee of the Company is obligated under any
contract (including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any Court or
administrative agency that would conflict with such employee's obligation to use
his or her best efforts to promote the interests of the Company or that would
conflict with the Company's business as conducted or as proposed to be
conducted. To the Company's knowledge, no employee of the Company is in
violation of any term of any employment contract, proprietary information and
inventions agreement, non-competition agreement, or any other contract or
agreement relating to the relationship of any such employee with the Company or
any previous employer. The Company has no collective bargaining agreements with
any of its employees and to the best of the Company's knowledge there is no
labor union organizing activity pending or threatened with respect to the
Company. Except as set forth on the Schedule of Exceptions, there is no pension,
health, profit sharing, bonus, stock purchase, stock option, hospitalization,
insurance, severance, or any other employee benefit or welfare benefit plan with
respect to any officer or employee of the Company. Other than as set forth on
the Schedule of Exceptions, the employment of each officer and employee of the
Company is terminable at the will of the Company. To the Company's knowledge,
the Company has complied in all material respects with all applicable state and
federal equal employment opportunity and other laws related to employment.
2.15 Insurance. The Company has adequate insurance, with financially
sound and reputable insurers, with respect to its properties that are of a
character customarily insured by entities engaged in the same or a similar
business similarly situated, against loss or damage of the kinds customarily
insured against by such entities, which insurance is of such types (including
public liability and errors and omissions insurance) as are customarily carried
under similar circumstances by such other entities. No policy of insurance held
by the Company has been cancelled nor has any requested coverage been refused by
the Company's insurance carrier.
2.16 Registration Rights. Except as required by the Investor Rights
Agreement (as described herein) or as set forth in the Schedule of Exceptions,
the Company is not under any obligation to register (as defined in the Investor
Rights Agreement) any of its presently outstanding securities or any of its
securities which may hereafter be issued.
2.17 Governmental Consents. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with, any governmental authority, required on the part of the Company
in connection with the valid execution and delivery of this Agreement and the
offer, sale or issuance of the Securities, or the consummation of any other
transaction contemplated hereby have been obtained, or will be effective at the
Closing, except for notices required or permitted to be filed with certain state
and federal securities commissions after the Closing, which notices will be
filed on a timely basis.
2.18 Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 3.3 hereof, the offer, issue,
and sale of the Securities are and will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as
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amended (the "1933 Act"), and have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit, or
qualification requirements of all applicable state securities laws.
2.19 Operating Rights. To the knowledge of the Company, the Company
has all operating authority, licenses, franchises, permits, certificates,
consents, rights and privileges (collectively "Licenses") as are necessary or
appropriate to the operation of its business as now conducted and, except as set
forth in the Schedule of Exceptions, as proposed to be conducted. To the
knowledge of the Company, such Licenses are in full force and effect, no
violations have been or are expected to have been recorded in respect of any
such Licenses, and no proceeding is pending or threatened that could result in
the revocation or limitation of any of such Licenses. The Company has conducted
its business so as to comply in all material respects with all such Licenses.
2.20 Protection of Proprietary Information.
(a) The Company has taken all reasonable security measures to
protect the secrecy, confidentiality, and value of all trade secrets, know-how,
inventions, designs, processes, and technical data required to conduct its
business.
(b) Each officer, employee, or consultant of the Company has
signed a proprietary information agreement substantially in the Company's
standard form of such agreement, each of which agreements remains in full force
and effect as of the date hereof. To the best of the Company's knowledge, none
of the Company's current or former officers, employees, or consultants is or
will be in violation thereof, and the Company will use its best efforts to
prevent any such violation.
2.21 Rights in Proprietary Information. To the knowledge of the
Company, the Company has sufficient right, title and interest in and to all
proprietary rights necessary for its business as now conducted, without any
known conflict or infringement of the rights of others. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, or other proprietary rights of any other
person or entity, nor does the Company have reason to believe that it has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, or other proprietary rights of
any person or entity.
2.22 Minute Books. The minute books of the Company made available to
the Purchaser's counsel for review contain a complete summary of all meetings of
and actions by directors and stockholders of the Company, from the time of
incorporation to the date hereof, and reflect all transactions referred to in
such minutes accurately in all material respects.
2.23 Voting Agreements. There exists no voting agreements or voting
trusts involving shares of the Company's stock or any stockholder of the
Company, other than those included in the Investor Rights Agreement.
2.24 Full Disclosure. Neither this Agreement, the representations and
warranties by the Company contained herein, the Exhibits hereto, the Investor
Rights Agreement or any Ancillary Agreement, nor any other written statement or
certificate delivered or to be furnished to the Purchaser in connection herewith
or therewith, when read together, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to the
Company which has not been
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disclosed to Purchaser that would materially adversely affect the Company's
business or financial condition or its ability to perform its obligations under
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Purchaser hereby represents and warrants to the Company as follows:
3.1 Legal Power. It has the requisite legal power to enter into this
Agreement, the Investor Rights Agreement, the Loan Facility and any Ancillary
Agreement, to purchase the Debentures, the Debenture Warrant and the Shares and
to carry out and perform its obligations under the terms of this Agreement, the
Investor Rights Agreement, the Loan Facility and any Ancillary Agreement.
3.2 Due Execution. This Agreement has been duly authorized, executed
and delivered by it, and, upon due execution and delivery by the Company, this
Agreement, the Investor Rights Agreement and any Ancillary Agreement, will be
valid and binding agreements of it enforceable in accordance with their
respective terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and subject to the availability of
equitable remedies.
3.3 Representations.
(a) It is acquiring the Securities for its own account, not as
nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the 1933 Act.
(b) It understands that (i) the Securities have not been
registered under the 1933 Act by reason of a specific exemption therefrom, that
they must be held by it indefinitely, and that it must, therefore, bear the
economic risk of such investment indefinitely, unless a subsequent disposition
thereof is registered under the 1933 Act or is exempt from such registration;
(ii) the Debentures, the Shares, the Loan Facility, the Debenture Warrants, and
each certificate representing the Underlying Common Stock will be endorsed with
the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR RULE 144A
OR THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE 1933 ACT."
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Shares, the Loan Facility, the Debentures, the Debenture
Warrants or the Underlying Common Stock unless the conditions specified in the
foregoing legend are satisfied; provided, however, that no such opinion of
counsel shall be necessary if the sale, transfer or assignment is made pursuant
to SEC Rule 144 or Rule 144A and Purchaser provides the Company with evidence
reasonably satisfactory to the Company and its counsel that the proposed
transaction satisfies the requirements of Rule 144 or Rule 144A. The Company
agrees to remove the foregoing legend from any securities if the
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requirements of SEC Rule 144(k) (or any successor rule or regulation) apply with
respect to such securities and the Company and its counsel are provided with
reasonably satisfactory evidence that the requirements of Rule 144(k) apply.
(c) It has not been offered the Securities by any form of
advertisement, articles, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio.
(d) It is an "accredited investor" within the meaning of Rule
501 of Regulation D of the 1933 Act.
(e) It was not formed for the specific purpose of acquiring the
Securities offered hereunder.
4. CERTAIN COVENANTS.
4.1 Access and Information. The Company shall permit Purchaser and
its representatives to have access, upon reasonable advance notice, to the real
property owned or leased by the Company and to the offices of the Company, and
shall furnish, or cause to be furnished, to Purchaser any financial and
operating data and other information that is available with respect to the
business and properties of the Company, including, but not limited to, all
books, records and contracts, as Purchaser shall from time to time request.
4.2 Confidentiality. Each party acknowledges that it may have access
to various items of proprietary and confidential information of the other in the
course of investigations and negotiations prior to Closing. Each party agrees
that any such information received from the other party shall be kept
confidential and shall not be used for any purpose other than to facilitate the
consummation of the transactions contemplated herein. Confidential and
proprietary information shall include any business or other information which is
delivered by one party to the other, unless such information (i) is already
public knowledge, (ii) becomes public knowledge through no fault, action or
inaction of the receiving party or (iii) was known by the receiving party, or
any of its directors, officers, employees, representatives, agents or advisors,
as applicable, prior to the disclosure of such information by the disclosing
party to the receiving party. No party hereto, nor its respective officers,
directors, employees, accountants, attorneys, or agents, as applicable, shall
intentionally disclose the existence or nature of, or any of the terms and
conditions relating to, the transactions referred to herein, to any third person
without the written consent of all other parties.
4.3 Public Disclosure. Except as may be required to comply with the
requirements of applicable law or the rules and regulations of a stock exchange
upon which the securities of a party may be listed, no press release or similar
public announcement or communication will be made or caused to be made
concerning the execution or performance of this Agreement unless specifically
approved in advance by all parties hereto; provided, however, that to the extent
that either party to this Agreement is required by law or the rules and
regulations of any stock exchange upon which the securities of one of the
parties is listed to make such a public disclosure, such public disclosure shall
only be made after prior consultation with the other party to this Agreement.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Obligations of Purchaser at the Closing.
Purchaser's obligation to purchase the Shares and enter into the Loan Facility
at the Closing is subject to the
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fulfillment to the Purchaser's satisfaction, at or prior to the Closing, of the
following conditions, any of which may be waived by Purchaser:
(a) Approval by Board of Directors of Purchaser. The Board of
-------------------------------------------
Directors of Purchaser shall have approved the execution and performance of this
Agreement and all documents related thereto;
(b) Approval by Stockholders of the Company. The Company shall
---------------------------------------
seek a written consent from a majority of the Stockholders of the Company
approving an amendment of the Company's Certificate of Incorporation to increase
the authorized capital from 16,000,000 shares of Common Stock authorized to
50,000,000 shares of Common Stock authorized;
(c) Delivery of the Debentures, the Debenture Warrants, the
-------------------------------------------------------
Shares and the Loan Facility. The Company shall have delivered to Purchaser the
----------------------------
Debentures, the Debenture Warrants, the Shares and the Loan Facility;
(d) Certificate of Secretary. The Company shall have delivered
------------------------
to Purchaser a certificate of the Secretary of the Company, dated as of the
Closing Date, certifying a copy of the resolutions of the board of directors of
the Company authorizing the execution and performance of this Agreement and all
documents related thereto, and that such resolutions were duly adopted and are
in full force and effect;
(e) Certificate of Officers. Each of the representations and
-----------------------
warranties of the Company contained in this Agreement shall be true in all
material respects when made and as of the Closing Date, in each case with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties that are made
as of a specific date need be true in all material respects only as of such
date); each of the covenants, conditions and agreements of the Company to be
performed on or prior to the Closing Date shall have been duly performed in all
material respects; and Purchaser shall have received at the Closing a
certificate to the foregoing effect, dated as of the Closing Date and executed
on behalf of the Company by its President and its Chief Financial Officer;
(f) Due Diligence; Financial Verification. Purchaser shall have
-------------------------------------
completed to its satisfaction its due diligence investigation of the Company,
including financial and legal due diligence;
(g) Fiduciary Cash. The Company shall have, as of the date of
--------------
the Closing, Fiduciary Cash equal to or greater than Fiduciary Obligations, as
calculated in accordance with California Department of Insurance Regulations;
(h) Opinion of Counsel. Purchaser shall have received from
------------------
Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP, counsel to the Company, an opinion
letter substantially in the form attached hereto as Exhibit E, addressed to
---------
Purchaser, dated the date of the Closing;
(i) Certificate of Designation. The Certificate of Designation,
--------------------------
in the form set forth as Exhibit B hereto, shall have been filed with the
---------
Secretary of State of the State of Delaware;
(j) Investor Rights Agreement. The Company and Purchaser shall
-------------------------
have entered into the Investor Rights Agreement in the form of Exhibit F
---------
attached hereto;
11
(k) Other Documents; Consents. Purchaser shall have received
-------------------------
such other documents and instruments as Purchaser or Purchaser's counsel
reasonably may request to better evidence or effectuate the transactions
contemplated hereby, including but not limited to, all consents required on the
part of the Company in connection with the valid execution and delivery of this
Agreement and the offer, sale or issuance of the Securities, or the consummation
of any other transaction contemplated hereby; and
(l) No Material Adverse Change. Since December 31, 1999, there
--------------------------
shall not have been (i) any condition, event or occurrence which individually or
in the aggregate, has had a Material Adverse Effect on the Company; (ii) any
condition, event or occurrence which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect with respect to the
Company; or (iii) any condition, event or occurrence which, individually or in
the aggregate, could reasonably be expected to prevent or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement or perform its obligations hereunder.
5.2 Conditions to Obligations of the Company at the Closing. The
Company's obligation to issue and sell the Shares and enter into the Loan
Facility under this Agreement is subject to the fulfillment to the Company's
satisfaction, at or prior to the Closing, of the following conditions, any of
which may be waived by the Company:
(a) Total Purchase Price. Purchaser shall have delivered the
--------------------
Total Purchase Price to the Company in the manner set forth in Section 1.5
above;
(b) Certificate of Secretary. Purchaser shall have delivered to
------------------------
the Company a certificate of the Secretary of the Purchaser, dated as of the
Closing Date, certifying a copy of the resolutions of the board of directors of
the Purchaser authorizing the execution and performance of this Agreement and
all documents related thereto, and that such resolutions were duly adopted and
are in full force and effect;
(c) Certificate of Officers. Each of the representations and
-----------------------
warranties of Purchaser contained in this Agreement shall be true in all
material respects when made and as of the Closing Date, in each case with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties that are made
as of a specific date need be true in all material respects only as of such
date); each of the covenants, conditions and agreements of Purchaser to be
performed on or prior to the Closing Date shall have been duly performed in all
material respects; and the Company shall have received at the Closing a
certificate to the foregoing effect, dated as of the Closing Date and executed
on behalf of Purchaser by its President or any of its Vice Presidents and its
Secretary or any of its Assistant Secretaries; and
(d) Other Documents; Consents. The Company shall have received
-------------------------
such other documents and instruments as the Company or Company's counsel
reasonably may request to better evidence or effectuate the transactions
contemplated hereby, including but not limited to, all consents required on the
part of the Purchaser in connection with the valid execution and delivery of
this Agreement and the consummation of any other transaction contemplated
hereby.
6. TERMINATION.
6.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by the mutual agreement of the Company and Purchaser;
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(b) by either the Company or Purchaser, by giving written notice
of such termination to the other party, if such other party shall breach any of
its material obligations or agreements under this Agreement and such breach
shall be incapable of cure or has not been cured within thirty (30) days
following the giving of written notice of such breach to the breaching party;
(c) by either the Company or Purchaser, by giving written notice
of such termination to the other party, if there shall be in effect any law or
regulation that prohibits the consummation of the Closing or if consummation of
the Closing would violate any non-appealable final order, decree or judgment of
any court or governmental body having competent jurisdiction; or
(d) by either the Company or Purchaser, by giving written notice
of such termination to the other party, if the Closing shall not have occurred
on or prior to March 15, 2000.
6.2 Effect of Termination. In the event of the termination of this
Agreement in accordance with Section 6.1 hereof, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability to
the other party hereto or their respective Affiliates, directors, officers or
employees, except for the obligations of the parties hereto contained in this
Section 6.2 and Sections 4.2 and 4.3 hereof, and except that nothing herein will
relieve any party from liability for any breach of this Agreement prior to such
termination.
7. INDEMNIFICATION.
7.1 Survival. Unless otherwise set forth in this Agreement, the
warranties, representations and agreements of the Company and Purchaser
contained herein shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Company or Purchaser.
7.2 Indemnification by the Company. The Company shall indemnify and
hold harmless Purchaser against any and all losses, liabilities, claims and
expenses, including reasonable attorneys' fees ("Losses"), sustained by
Purchaser resulting from, arising out of, or connected with any inaccuracy in,
breach of, or nonfulfillment of any representation, warranty, covenant or other
obligation of the Company contained in this Agreement. Notwithstanding the
foregoing, the Company shall not be liable for any of Purchaser's lost profits
or any incidental or consequential damages.
7.3 Indemnification by Purchaser. Purchaser shall indemnify and hold
harmless the Company against any and all Losses sustained by the Company
resulting from, arising out of, or connected with any inaccuracy in, breach of,
or nonfulfillment of any representation, warranty, covenant or agreement made by
or other obligation of Purchaser contained in this Agreement. Notwithstanding
the foregoing, Purchaser shall not be liable for any of the Company's lost
profits or any incidental or consequential damages.
8. MISCELLANEOUS.
8.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
8.2 Attorneys' Fees. In the event that any party to this Agreement
institutes any legal proceeding to enforce any of the provisions of this
Agreement, then the prevailing party in such
13
proceeding shall be entitled to collect and receive its reasonable attorneys'
fees and costs, through and including all appeals, and the other party shall pay
for same.
8.3 Arbitration; Venue and Jurisdiction. The parties hereto agree
that any dispute arising out of or relating to this Agreement or the breach,
termination or the validity hereof, shall be settled by binding arbitration in
accordance with the rules of the American Arbitration Association ("AAA") by a
neutral arbitrator who shall be a former superior court or appellate court judge
or justice with experience in resolving business disputes. The arbitration shall
be governed by the California Code of Civil Procedure Section 1280 et seq. and
the parties intend this procedure to be specifically enforceable in accordance
with such provisions. Judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The parties agree that the
judgment or decision of the arbitrator shall be final and binding. The parties
agree that the venue for the arbitration shall be in the County of San Diego,
California. The arbitrator shall be required to follow the applicable law as set
forth in the governing law section of this Agreement. The arbitrator shall award
reasonable attorneys' fees and costs of arbitration to the prevailing party in
such arbitration. The parties hereto consent to the personal jurisdiction of any
court in the County of San Diego, California for the enforcement of this
agreement to arbitrate and any award granted pursuant to said arbitration or
settlement of any dispute related hereto.
8.4 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
8.5 Entire Agreement. This Agreement, the Exhibits hereto, and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and supersedes all prior agreements and understandings, oral or written, with
respect to such matters, including, but not limited to, the Letter Agreement;
provided, however, that Paragraph 1(g) of the Letter Agreement shall remain in
effect in accordance with its terms. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
8.6 Separability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.7 Amendment and Waiver. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance, either retroactively or prospectively, and either
for a specified period of time or indefinitely), only with the written consent
of the Company and Purchaser.
8.8 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or on the third day following mailing by registered or
certified mail, return receipt requested, postage prepaid, addressed: (a) if to
Purchaser, at its address set forth at the end or this Agreement, or at such
other address as Purchaser shall have furnished to the Company in writing in
each case with a copy to Xxxxx Xxxxxxxx, Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx, 000
Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, or (b) if to
the Company, at its address as set forth at the end of this
14
Agreement, or at such other address as the Company shall have furnished to the
Purchasers in writing, in each case with a copy to A. Xxxx Xxxxxx, Sheppard,
Mullin, Xxxxxxx & Xxxxxxx LLP, Xxxx Xxxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000.
8.9 Finders' Fees.
(a) The Company (i) represents and warrants that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement, and (ii) hereby agrees to indemnify and to hold Purchaser harmless of
and from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses,
including reasonable attorneys' fees, of defending against such liability or
asserted liability) for which the Company or any of its employees or
representatives is responsible.
(b) Purchaser (i) represents and warrants that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement, other than Xxxxx & Company, who shall be paid by Purchaser, and (ii)
hereby agrees to indemnify and to hold the Company harmless of and from any
liability for any commission or compensation in the nature of a finder's fee to
any broker or other person or firm (and the costs and expenses, including
reasonable attorneys' fees, of defending against such liability or asserted
liability) for which such Purchaser or any of its employees or representatives
are responsible.
8.10 Fees and Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, the parties shall bear their own respective expenses (including,
but not limited to, all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred in
connection with this Agreement and the transactions contemplated hereby.
8.11 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
8.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
15
The foregoing Securities Purchase Agreement is hereby executed as of the
date first above written.
000 Xxxx Xxx Xxxxxx, Xxxxx 0000 XXXX XXXXX XXXXXXX HOLDING, INC.
Xxx Xxxxx, Xxxxxxxxxx 00000
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Xxxxxxx X. Xxxx,
President and Chief Executive Officer
0000 Xxxxxx Xxxxxx, Xxxxx 000 XXXXXX PACIFIC UNDERWRITERS, INC.
Xxxxxxx, Xxxxxxxxxx 00000
By: /s/ Xxxxx X. Xxxxxxxx
-----------------------------------
Xxxxx X. Xxxxxxxx,
President and Chief Executive Officer
16
