EXHIBIT 10.2
DESA HOLDINGS CORPORATION
PURCHASE AGREEMENT
17,400.17827 Shares of Series C
12% Senior Redeemable Exchangeable
Pay-In-Kind Stock
Warrants to Purchase 260,212
Shares of Common Stock
638,693 Shares of Common Stock
DATED October 9, 1998
TABLE OF CONTENTS
Page
Section 1. Authorization and Closing.......................................................................1
1.01 Authorization of Securities............................................................1
1.02 Purchase and Sale of the Series C Preferred, Warrants, and the
Voting Common..........................................................................1
1.03 The Closing............................................................................2
Section 2. Conditions of Each Purchaser's Obligation at the Closing........................................2
2.01 Representations and Warranties; Covenants..............................................2
2.02 Stockholders Agreement.................................................................2
2.03 Tagalong Agreement.....................................................................2
2.04 Sale of Purchased Securities to Each Purchaser.........................................3
2.05 Securities Law Compliance..............................................................3
2.06 Senior Documents.......................................................................3
2.07 Opinion of the Company's Counsel.......................................................3
2.08 Closing Documents......................................................................3
2.09 Proceedings............................................................................4
2.10 Expenses...............................................................................4
2.11 Compliance with Applicable Laws........................................................4
2.12 Waiver.................................................................................4
Section 3. Covenants.......................................................................................5
3.01 Financial Statements and Other Information.............................................5
3.02 Inspection of Property.................................................................7
3.03 Attendance at Board Meetings...........................................................7
3.04 Affirmative Covenants..................................................................8
3.05 Series C Preferred and Exchange Note Covenants.........................................9
3.06 Allocation of the Purchase Price......................................................19
3.07 Current Public Information............................................................19
Section 4. Transfer of Purchased Securities...............................................................19
4.01 General Provisions....................................................................19
4.02 Rule 144A.............................................................................19
4.03 Legend Removal........................................................................19
Section 5. Representations and Warranties of the Company..................................................20
5.01 Organization, Corporate Power and Licenses............................................20
5.02 Capital Stock and Related Matters.....................................................20
5.03 Series C Preferred, Warrants, Warrant Stock and Common Stock..........................21
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Page
5.04 Subsidiaries; Investments.............................................................21
5.05 Authorization; No Breach..............................................................22
5.06 Financial Statements..................................................................22
5.07 Absence of Undisclosed Liabilities....................................................23
5.08 No Material Adverse Change............................................................23
5.09 Absence of Certain Developments.......................................................23
5.10 Tax Matters...........................................................................24
5.11 Contracts and Commitments.............................................................25
5.12 Intellectual Property Rights..........................................................26
5.13 Litigation, etc.......................................................................26
5.14 Brokerage.............................................................................26
5.15 Governmental Consent, etc.............................................................27
5.16 Insurance.............................................................................27
5.17 Employees.............................................................................27
5.18 Compliance with Laws..................................................................27
5.19 Affiliated Transactions...............................................................27
5.20 Disclosure............................................................................28
5.21 Knowledge.............................................................................28
Section 6. Representations and Warranties of Sellers......................................................28
6.01 Organization and Good Standing........................................................28
6.02 Execution of Agreement................................................................28
6.03 Authorization; No Breach..............................................................28
6.04 Ownership of Purchased Securities.....................................................29
Section 7. Representations and Warranties of Purchasers...................................................29
7.01 Purchaser's Investment Representations................................................29
7.02 Organization and Good Standing........................................................29
7.03 Execution of Agreement................................................................29
7.04 Authorization; No Breach..............................................................29
Section 8. Definitions....................................................................................30
8.01 Definitions...........................................................................30
Section 9. Miscellaneous..................................................................................33
9.01 Expenses..............................................................................33
9.02 Remedies..............................................................................34
9.03 Legend................................................................................34
9.04 Consent to Amendments.................................................................34
9.05 Survival of Representations and Warranties............................................34
9.06 Treatment of the Preferred Stock......................................................35
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Page
9.07 Successors and Assigns................................................................35
9.08 Capital and Surplus; Special Reserves.................................................35
9.09 Severability..........................................................................35
9.10 Counterparts..........................................................................35
9.11 Descriptive Headings; Interpretation..................................................35
9.12 Governing Law.........................................................................36
9.13 Notices...............................................................................36
9.14 No Strict Construction................................................................36
9.15 Indemnification.......................................................................36
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DESA HOLDINGS CORPORATION
PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 9, 1998, by and among JWC
Equity Funding, Inc. ("JWC"), and UBS Capital LLC ("UBS") (UBS and JWC
collectively, "Sellers"), and the Persons listed on the Schedule of Purchasers
attached hereto (collectively referred to herein as the "Purchasers" and
individually as a "Purchaser") and Desa Holdings Corporation (the "Company").
Except as otherwise indicated herein, capitalized terms used herein are defined
in Section 7 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
1.01 Authorization of Securities.
The Company has issued to Sellers an aggregate of 18,849.84110
shares of Series C 12% Senior Redeemable Exchangeable Pay-In-Kind Preferred
Stock (the "Series C Preferred") of which 17,600 shares were issued as part of
the recapitalization of the Company on November 26, 1997, and the balance of
which shares were issued to Sellers as a paid-in-kind dividend as of June 30,
1998.
Together with the Series C Preferred purchased as part of the
recapitalization, the Sellers also acquired warrants to purchase an aggregate of
463,231.9468 shares of the nonvoting common stock, par value $.01 per share, of
the Company. Through purchases in the recapitalization and subsequent
transactions, the Sellers also hold an aggregate of 3,986,995.9831 shares of the
common stock, par value $.01 per share, of the Company (the "Voting Common").
1.02 Purchase and Sale of the Series C Preferred, Warrants,
and the Voting Common. Subject to the terms and conditions set forth in this
Agreement, and in reliance on the representations and warranties contained
herein, at the Closing, Sellers shall sell, transfer, assign and deliver to each
Purchaser and, each Purchaser shall purchase from Sellers the number of shares
of Series C Preferred and Voting Common, along with warrants to purchase the
number of warrant shares of the non-voting common stock, par value $.01 per
share, of the Company set forth opposite such Purchaser's name on the Schedule
of Purchasers attached hereto (the "Original Purchased Securities"). In
consideration for the Original Purchased Securities, Purchasers shall pay to
Sellers the purchase price set forth opposite such Purchaser's name on the
Schedule of Purchasers on the Closing Date (the "Purchase Price"). Each purchase
of Original Purchased Securities hereunder by a Purchaser constitutes a separate
purchase and each Purchaser and each Seller shall not be jointly or otherwise
responsible for any Original Purchased Securities not set forth opposite such
Purchaser's and Seller's name on the Schedule of Purchasers and Sellers attached
hereto. At the Closing (as defined herein), the Company agrees to issue to each
Purchaser warrants, in the form of Exhibit A (the "Warrants"), to purchase
shares of Voting Stock (the "Warrant Shares") as set forth
opposite such Purchaser's name on the Schedule of Purchasers and Sellers
attached hereto, in exchange for the warrants purchased by the Purchasers from
the Sellers herein (the Original Purchased Securities plus the Warrants to
Purchase Warrant Shares, collectively, the "Purchased Securities").
1.03 The Closing. Subject to satisfaction of the conditions
and upon the terms hereunder, the closing of the separate purchases and sales of
the Purchased Securities (the "Closing") shall take place at 10:00 a.m. (C.S.T.)
on October 9, 1998, or at such other place or on such other date as may be
mutually agreeable to each Purchaser. At the Closing, each Seller shall deliver
stock certificates and warrants evidencing the Original Purchased Securities
being sold by such Seller, together with instruments of transfer duly endorsed,
and the Company shall deliver to each Purchaser stock certificates and warrants
evidencing the Original Purchased Securities to be purchased by such Purchaser,
registered in such Purchaser's or its nominee's name, upon payment of the
Purchase Price thereof by wire transfer of immediately available funds to
accounts specified by the Sellers to the Purchasers in writing prior to the
Closing, in the aggregate amount set forth opposite such Purchaser's name on the
Schedule of Purchasers.
At the Closing, the Company will deliver to the Purchasers the
Warrants, registered in such Purchaser's or its nominee's name, as set forth
opposite such Purchaser's name on the Schedule of Purchasers and Sellers
attached hereto, against delivery to the Company by the Purchasers of the
warrants purchased by them herein.
Section 2. Conditions of Each Purchaser's Obligation at the Closing. In
the event that any of the following conditions are not satisfied, then no
Purchaser shall be obligated to proceed with the purchase of the Purchased
Securities. The obligation of each Purchaser to purchase and pay for the
Purchased Securities at the Closing is subject to the satisfaction as of the
Closing of the following conditions:
2.01 Representations and Warranties; Covenants. The
representations and warranties contained in Section 5 and Section 6 hereof shall
be true and correct in all material respects at and as of the Closing as though
then made, except to the extent of changes caused by the transactions expressly
contemplated herein, and Sellers and the Company shall have performed in all
material respects all of the covenants required to be performed by such party
hereunder prior to the Closing.
2.02 Stockholders Agreement. The Company, the Purchasers,
Sellers and each other holder of capital stock of the Company shall have entered
into an Amended and Restated Stockholders Agreement in form and substance as set
forth in Exhibit B attached hereto (the "Amended Stockholders Agreement"), and
the Amended Stockholders Agreement shall be in full force and effect as of the
Closing without further amendment or modification.
2.03 Tagalong Agreement. The Company, X.X. Childs Equity
Partners, L.P. and the Purchasers shall have entered into a Preferred Stock
Tagalong Agreement in form and substance
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as set forth in Exhibit C attached hereto (the "Preferred Tagalong Agreement"),
and the Preferred Tagalong Agreement shall be in full force and effect as of the
Closing without further amendment or modification.
2.04 Sale of Purchased Securities to Each Purchaser. Sellers
shall have simultaneously sold to each Purchaser the Purchased Securities to be
purchased by such Purchaser hereunder at the Closing and shall have received
payment therefor in full.
2.05 Securities Law Compliance. Sellers and the Company shall
have made all filings under all applicable federal and state securities laws
necessary to consummate the sale of the Purchased Securities pursuant to this
Agreement in compliance with such laws.
2.06 Senior Documents. The Company shall be in compliance in
all material respects with each and every provision of the Senior Credit
Facility and the Senior Subordinated Note Indenture.
2.07 Opinion of the Company's Counsel. Each Purchaser shall
have received from Xxxxxxxx & Worcester LLP, counsel for JWC and the Company, an
opinion addressed to each Purchaser, dated the date of the Closing that is in
form and substance as set forth in Exhibit D hereto.
2.08 Closing Documents. (i) At or before the Closing, JWC
shall have delivered to each Purchaser all of the following documents:
(a) an Officer's Certificate (or equivalent
document), dated the date of the Closing, certifying its
compliance with the conditions specified in Sections 2.01 and
2.05;
(b) certified copies of the resolutions duly adopted
by its board of directors (or equivalent body) authorizing the
execution, delivery and performance of this Agreement and each
of the other agreements and documents contemplated hereby; and
(c) such other documents relating to the transactions
contemplated hereby as any Purchaser or its special counsel
may reasonably request.
(ii) at or before the Closing, UBS shall have delivered to
each Purchaser all of the following documents:
(a) an Officer's Certificate (or equivalent
document), dated the date of the Closing, certifying its
compliance with the conditions specified in Sections 2.01 and
2.05;
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(b) an Officer's Certificate (or equivalent document)
certifying that all limited liability company action required
to duly authorize the execution, delivery and performance of
this Agreement and each of the other agreements and documents
contemplated hereby by UBS has been taken; and
(c) such other documents relating to the transactions
contemplated hereby as any Purchaser or its special counsel
may reasonably request.
(iii) At or before the Closing, the Company shall have
delivered to each Purchaser all of the following documents:
(a) an Officer's Certificate, dated the date of the
Closing, certifying its compliance with the conditions
specified in Sections 2.01, 2.05 and 2.06;
(b) certified copies of the resolutions duly adopted
by the Company's board of directors authorizing the execution,
delivery and performance of this Agreement and each of the
other agreements and documents contemplated hereby;
(c) copies of all third party and governmental
consents, approvals and filings required in connection with
the consummation of the transactions hereunder (including,
without limitation, all blue sky law filings and waivers of
all preemptive rights and rights of first refusal); and
(d) such other documents relating to the transactions
contemplated hereby as any Purchaser or its special counsel
may reasonably request.
2.09 Proceedings. All corporate and other proceedings taken or
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and its special counsel.
2.10 Expenses. At the Closing, the Company shall have
reimbursed the Purchasers for the fees and expenses of their special counsel as
provided in Section 9.01 hereof.
2.11 Compliance with Applicable Laws. The purchase of
Purchased Securities by each Purchaser hereunder shall not be prohibited by any
applicable law or governmental rule or regulation and shall not subject such
Purchaser to any penalty, liability or, in such Purchaser's sole judgment, other
onerous condition under or pursuant to any applicable law or governmental rule
or regulation, and the purchase of the Purchased Securities by each Purchaser
hereunder shall be permitted by laws, rules and regulations of the jurisdictions
and governmental authorities and agencies to which such Purchaser is subject.
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2.12 Waiver. Any condition specified in this Section 2 may be
waived if consented to by each Purchaser; provided that no such waiver shall be
effective against any Purchaser unless it is set forth in a writing executed by
such Purchaser.
Section 3. Covenants.
3.01 Financial Statements and Other Information. The Company
covenants that it shall deliver to each Purchaser (so long as such Purchaser
holds any Series C Preferred or Exchange Notes) and to each Holder of at least
10% of the outstanding shares of Series C Preferred or Exchange Notes:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period ending after the date hereof
(other than the last month of each fiscal year), unaudited consolidated
statements of income and cash flows of the Company and its Subsidiaries
for such monthly period and for the period from the beginning of the
fiscal year to the end of such month, and unaudited consolidated
balance sheets of the Company and its Subsidiaries as of the end of
such monthly period, setting forth in each case comparisons to the
Company's annual budget and to the corresponding period in the
preceding fiscal year, and all such statements shall, except as
otherwise noted therein, be prepared in accordance with generally
accepted accounting principles, consistently applied (subject to normal
year-end adjustments and the addition of footnotes) and shall be
certified by the Company's chief financial officer;
(ii) within 45 days after the end of each fiscal quarter
ending after the date hereof, an Officer's Certificate stating that
neither the Company nor any of its Subsidiaries is in default under any
of its agreements evidencing indebtedness in an amount greater than $10
million or, if any such default exists, specifying the nature and
period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(iii) within 90 days after the end of each fiscal year ending
after the date hereof, consolidated statements of income and cash flows
of the Company and its Subsidiaries for such fiscal year, and
consolidated balance sheets of the Company and its Subsidiaries as of
the end of such fiscal year, setting forth in each case comparisons to
the Company's annual budget and to the preceding fiscal year,
accompanied by a report, without material qualification, of an
independent accounting firm of recognized national standing to the
effect that such financial statements have been prepared, except as may
be otherwise noted therein, in accordance with generally accepted
accounting principles consistently applied; provided, however, that if
the Company is required to file a Form 10-K, delivery of a copy thereof
shall satisfy this Section 3.01(iii);
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(iv) within 90 days after the commencement of each fiscal
year, projected monthly balance sheets and statements of income for
such fiscal year prepared by management of the Company;
(v) promptly upon the discovery thereof, notice of any
litigation or administrative proceeding to which the Company or any of
its subsidiaries shall have hereafter become a party which has or is
reasonably likely to have a material adverse effect on the business,
assets or financial condition of the Company and its subsidiaries taken
as a whole;
(vi) promptly upon any executive officer of the Company
obtaining knowledge of any default, on the part of the Company or any
of its Subsidiaries, with respect to indebtedness for borrowed money
involving in excess of $25,000,000 in principal amount, a notice
specifying the nature and period of existence and the action the
Company or any of its subsidiaries has taken, is taking or proposes to
take with respect thereto;
(vii) within ten days after transmission thereof, copies of
all financial statements, proxy statements, reports and any other
general written communications which the Company sends to its
stockholders and copies of all registration statements and all reports
on Form 10-K, 10-Q or 8-K (or such successor forms as may be adopted)
which it files with the Securities and Exchange Commission or with any
securities exchange on which any of its securities are then listed;
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any
Person entitled to receive information under this Section 3.01 may
reasonably request.
The Company acknowledges that each of the financial statements referred to in
Section 3.01 shall be true and correct in all material respects as of the dates
and for the periods stated therein, subject in the case of the unaudited
financial statements to changes resulting from normal year-end adjustments.
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, each Person entitled to receive information
regarding the Company and its Subsidiaries pursuant to this Agreement, including
without limitation, Sections 3.01, 3.02 and 3.03 hereof, agrees to keep
confidential the information obtained by it hereunder, except such information
and materials as (A) are or become generally available to the public other than
as a result of a disclosure in violation of this Agreement, (B) was
independently acquired or developed by such Person without violating any of its
obligations under this Agreement, or (C) becomes available to such Person on a
nonconfidential basis from a person who is not and was not to such Person's
knowledge bound by a confidentiality obligation to the Company, or is not and
was not otherwise prohibited from transmitting such information or materials to
such Person. Notwithstanding the foregoing, each of the Purchasers shall have
the right to disclose such information or materials to (i) any prospective
purchaser of Purchased Securities owned by such Purchaser; provided that such
prospective
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purchaser shall have executed and delivered a confidentiality and nondisclosure
agreement in form and substance reasonably satisfactory to the Company and (ii)
to such Purchaser's Affiliates, accountants, lawyers, bankers and other
professionals, as reasonably necessary and (iii) as required by applicable law.
Each of the Purchasers acknowledges that securities laws prohibit any person who
has received material non-public information regarding the Company or its
subsidiaries from purchasing or selling securities of the Company or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities. Each of the Purchasers agrees that it will not, at any time that it
has received material non-public information regarding the Company or its
subsidiaries, purchase or sell securities of the Company in violation of such
securities laws or communicate such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities in violation of such securities laws.
3.02 Inspection of Property. The Company covenants with each
Purchaser that, for so long as such Purchaser and its Affiliates hold in the
aggregate at least one quarter (1/4) of the number of shares (subject to
appropriate adjustment to reflect any split or combination of shares) of Series
C Preferred (or the equivalent in principal amount of Exchange Notes) originally
purchased by them hereunder, or, if earlier, until the Public Float Date (as
defined in the Amended Stockholders Agreement), the Company shall permit any
representatives who are designated by such Purchaser upon reasonable notice, at
reasonable intervals, and during normal business hours, at such Purchaser's
expense, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of the Company and its Subsidiaries
with the directors and executive officers and independent accountants of the
Company and its Subsidiaries; provided, however, that the right to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with such
accountants shall exist only when the Company is not a reporting company under
the Securities Act of 1934. The presentation of an executed copy of this
Agreement by any Purchaser to the Company's independent accountants shall
constitute the Company's permission to its independent accountants to
participate in discussions with such Persons.
3.03 Attendance at Board Meetings. The Company covenants with
each Purchaser that, (i) for so long as such Purchaser and its Affiliates hold
in the aggregate at least one-quarter (1/4) of the number of shares (subject to
appropriate adjustment to reflect any split or combination of shares) of Series
C Preferred (or the equivalent in principal amount of Exchange Notes) originally
purchased by them hereunder, or, if earlier, until the Public Float Date (as
defined in the Amended Stockholders Agreement), and (ii) at any time, prior to
or after the Public Float Date, during which the right of the holders of Series
C Preferred to elect a director pursuant to Section 6(c) of the Certificate
shall have been suspended pursuant to Section 6(c)(v) of the Certificate and
during which such Purchaser or its Affiliates hold any shares of Series C
Preferred, the Company shall give such Purchaser notice of each meeting of its
board of directors and each committee thereof at the same
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time and by the same means as such notice is provided to members of the board or
such committee, and the Company shall permit a single representative of such
Purchaser and its Affiliates to attend as an observer all meetings of its board
of directors and all committees thereof; and each such representative shall be
given the opportunity to listen to telephonic meetings. Any such representative
shall recuse himself or herself from any such meeting during the board of
directors' or the committee's discussions, deliberations and voting on matters
with respect to which the board of directors or the committee determines, in
good faith, such representative's presence presents a conflict of interest. Each
representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the directors. If the Company takes any action by
written consent in lieu of a meeting of its board of directors or of any
committee thereof, the Company shall give a copy thereof to each such
representative promptly following the effective date of such consent.
3.04 Affirmative Covenants. The Company covenants with the
Holders that so long as any Series C Preferred or Exchange Notes remains
outstanding, the Company shall, and shall cause each Subsidiary to:
(i) cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses
where failure to so comply would have a material adverse effect on the
financial condition, assets or business of the Company and its
Subsidiaries taken as a whole;
(ii) maintain and keep its properties in good repair, working
order and condition, and from time to time make all repairs, renewals
and replacements which in the reasonable opinion of the Company are
necessary, so that its businesses may be properly and advantageously
conducted at all times;
(iii) pay and discharge when payable all taxes, assessments
and governmental charges imposed upon its properties or upon the income
or profits therefrom (in each case before the same becomes delinquent
and before penalties accrue thereon) and all material claims for labor,
materials or supplies which if unpaid would by law become a Lien upon
any of its property unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on
its books with respect thereto;
(iv) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably
be expected to have a material adverse effect upon the financial
condition, assets, or business of the Company and its Subsidiaries
taken as a whole;
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(v) apply for and continue in force with good and responsible
insurance companies such types and amounts of insurance as the
Company's executive officers, after consultation with an accredited
insurance broker, shall have determined to be necessary or appropriate
to protect the Company from the insurable hazards or risks associated
with the conduct of the Company's business, except that the Company or
any Subsidiary may effect worker's compensation or similar insurance in
respect of operations in any state or other jurisdiction either through
an insurance fund operated by such state or other jurisdiction or by
causing to be maintained a system or systems of self-insurance which is
in accord with applicable laws;
(vi) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each case are required in accordance with
generally accepted accounting principles, consistently applied.
3.05 Series C Preferred and Exchange Note Covenants.
Notwithstanding anything to the contrary in the Certificate, including the
Exchange Note attached as Exhibit A to the Certificate, the Purchasers or
Holders (as designated) shall have additional and independent rights as set
forth in the following covenants:
(i) Payment Covenant. In addition to and without limiting in
any way the obligations of the Company under the Certificate or the
Exchange Notes, the Company covenants with the Purchasers that all
amounts actually paid after the date hereof in cash by the Company in
respect of the Series C Preferred or the Exchange Notes to any
Purchaser (or its Affiliates) shall be paid by wire transfer.
(ii) Notice Covenant. In addition to and without limiting in
any way the obligations of the Company set forth in Section 4(b)(i) of
the Certificate or Section 2.2(a) of the Exchange Note, the Company
covenants with the Holders that notice of Change of Control shall be
given to the holders of Series C Preferred or Exchange Notes not less
than thirty (30) days prior to such Change of Control, to the extent
the Company has knowledge of the matters to be set forth therein. Such
notice shall set forth, in addition to the statements described in
Sections 4(b)(i)(A), (B), and (C) of the Certificate or Sections
2.2(a)(i), (ii), and (iii) of the Exchange Note, the Company's
calculation and estimate of the amount of Cash Available for Redemption
as of the date of the Change of Control if any Senior Subordinated
Notes will remain outstanding after such Change of Control; provided,
however, that any failure to give or receive such notice or any defect
therein shall not affect the legality or validity or effectiveness of
any such Change of Control.
(iii) Repurchase Covenants. In addition to and without
limiting in any way the obligations of the Company under the
Certificate or the Exchange Notes, the Company covenants with the
Holders that, in the event of a Change of Control (as defined in the
Senior Subordinated Note Indenture), to the extent that the Company may
do so in compliance with
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and without causing (with or without the lapse of time or the giving of
notice or both) a breach or violation of or default or event of default
under any law or any note, bond, debenture, indenture or other
agreement or instrument governing indebtedness for borrowed money of
the Company or Desa International, Inc. at the time applicable to the
Company or Desa International, Inc. (including, without limitation, the
Senior Subordinated Note Indenture, the Credit Agreement, dated as of
November 26, 1997, among Desa International, Inc., the Company, the
banks, financial institutions and other institutional lenders listed on
the signature pages thereof as the initial lenders, the initial issuing
bank and the swing line bank named therein, NationsBank, N.A., as
administrative agent, UBS Securities LLC as co- arranger and
documentation agent and NationsBanc Xxxxxxxxxx Securities, Inc. as co-
arranger and syndication agent, as amended and in effect from time to
time (the "Credit Agreement"), and any indentures, credit or loan
agreements hereafter executed in connection with any refinancing or
replacement of the Senior Subordinated Note Indenture or the Credit
Agreement):
(a) Offer to Repurchase.
(I) Initial Offer to Repurchase. Within 10
business days after a Change of Control (as defined
in the Senior Subordinated Note Indenture), the
Company shall, unless the Company shall have
theretofore given notice of either the optional
redemption by the Company of all of the outstanding
shares of Series C Preferred pursuant to Section
4(a)(i) of the Certificate or of all of the Exchange
Notes pursuant to Section 2.1 of the Exchange Notes,
make an Offer to Repurchase. On the Repurchase Date
specified in such Offer to Repurchase, the Company
shall (A) accept for payment the lesser of
(i) all of the shares of Series C
Preferred or Exchange Notes validly tendered
by each Holder thereof pursuant to such
Offer to Repurchase on or prior to the
Expiration Date for such Offer to Repurchase
and
(ii) such number of shares of Series
C Preferred or Exchange Notes held of record
by such Holder as shall equal the product of
(a) all of the shares of Series C Preferred
Stock or Exchange Notes validly tendered by
such Holder in accordance with such Offer to
Repurchase multiplied by (b) a fraction, the
numerator of which shall be equal to the
Cash Available for Repurchase, determined as
provided in this Section as of such
Repurchase Date, and the denominator of
which shall be equal to the aggregate of the
Repurchase Price, as of such Repurchase Date
for all of the shares of Series C Preferred
Stock or Exchange Notes so validly tendered
by Holders of Series C Preferred Stock or
Exchange Notes;
- 10 -
(B) pay to the Holders thereof the Repurchase Price
therefor in cash; (C) cancel and retire each
surrendered certificate representing shares of Series
C Preferred or Exchange Note validly tendered; and,
(D) in case fewer than all the shares represented by
any certificate validly tendered pursuant to such
Offer to Repurchase are to be repurchased, issue a
new certificate representing the remaining shares or,
in case less than all of the outstanding principal
amount of any Exchange Note validly tendered pursuant
to such Offer to Repurchase is to be repurchased, the
Company shall, at its option, either return to the
Holder thereof such Exchange Note with appropriate
notation of payment or issue a new Exchange Note or
Notes to such Holder in an aggregate principal amount
equal to the then unpaid principal amount hereof, in
either case without cost to the Holder hereof.
(II) Subsequent Offers to Repurchase. Within
10 business days after each June 30th and December
31st occurring at least three months after such
Change of Control (as defined in the Senior
Subordinated Note Indenture), unless none of the
Series C Preferred or Exchange Notes shall remain
outstanding, the Company shall make an Offer to
Repurchase. On the Repurchase Date specified in such
Offer to Repurchase, the Company shall (A) accept for
payment the lesser of
(i) all of the shares of Series C
Preferred or Exchange Notes validly tendered
by each Holder thereof pursuant to such
Offer to Repurchase on or prior to the
Expiration Date for Offer to Repurchase and
(ii) such number of shares of Series
C Preferred or Exchange Notes held of record
by such Holder as shall equal the product of
(a) all of the shares of Series C Preferred
Stock or Exchange Notes validly tendered by
such Holder in accordance with such Offer to
Repurchase multiplied by (b) a fraction, the
numerator of which shall be equal to the
Cash Available for Repurchase, determined as
provided in this Section as of such
Repurchase Date, and the denominator of
which shall be equal to the aggregate of the
Repurchase Price, as of such Repurchase
Date, for all of the shares of Series C
Preferred Stock or Exchange Notes validly
tendered by Holders of Series C Preferred
Stock or Exchange Notes;
(B) pay to the Holders thereof the Repurchase Price
therefor in cash; (C) cancel and retire each
surrendered certificate representing shares of Series
C Preferred or Exchange Note validly tendered; and,
(D) in case fewer than all the shares represented by
any certificate validly tendered pursuant to such
Offer to Repurchase are to be repurchased, issue a
new certificate
- 11 -
representing the remaining shares or, in case less
than all of the outstanding principal amount of any
Exchange Note validly tendered pursuant to such Offer
to Repurchase is to be repurchased, the Company
shall, at its option, either return to the Holder
thereof such Exchange Note with appropriate notation
of payment or issue a new Exchange Note or Notes to
such Holder in an aggregate principal amount equal to
the then unpaid principal amount hereof, in either
case without cost to the Holder hereof.
(III) The Company acknowledges and agrees
that notwithstanding anything to the contrary under
this Section 3.05(iii):
(A) if at any Repurchase Date for
any Offer to Repurchase (x) there is not in
force or effect any note, bond, debenture,
indenture or other agreement or instrument
governing indebtedness for borrowed money of
the Company or Desa International, Inc.
applicable to the Company or Desa
International, Inc. (including, without
limitation, the Senior Subordinated Note
Indenture and the Credit Agreement) or (y)
one or more notes, bonds, debentures,
indentures or other agreements or
instruments governing indebtedness for
borrowed money of the Company or Desa
International, Inc. is in force and effect,
but no such note, bond, debenture or other
agreement or instrument restricts or
prohibits the purchase, redemption or other
acquisition or retirement for value of the
Series C Preferred or Exchange Notes, then
in either case (x) or (y) the Company will
be obligated on and subject to the
provisions of this Section 3.05(iii) to
accept for payment the lesser of
(i) all of the shares of
Series C Preferred or Exchange Notes
validly tendered by each Holder
thereof pursuant to such Offer to
Repurchase on or prior to the
Expiration Date for such Offer to
Repurchase and
(ii) such number of shares
of Series C Preferred or Exchange
Notes held of record by such Holder
as shall equal the product of (a)
all of the shares of Series C
Preferred Stock or Exchange Notes
validly tendered by such Holder in
accordance with such Offer to
Repurchase multiplied by (b) a
fraction, the numerator of which
shall be equal to the maximum dollar
amount of shares of Series C
Preferred or the Exchange Notes that
the Company could, on such date,
purchase, redeem or otherwise
acquire or retire for value without
causing (with or without the lapse
of time or the giving of notice or
both) a breach or violation of or
default or
- 12 -
event of default under any law, and
the denominator of which shall be
equal to the aggregate of the
Repurchase Price, as of such
Repurchase Date, for all of the
shares of Series C Preferred Stock
or Exchange Notes validly tendered
by Holders of Series C Preferred
Stock or Exchange Notes; and
(IV) For purposes of this Section
3.05(iii)(a):
(A) "Cash Available for Repurchase"
shall mean, as of any date, the maximum
dollar amount of shares of Series C
Preferred or the Exchange Notes that the
Company could, on such date, purchase,
redeem or otherwise acquire or retire for
value without causing (with or without the
lapse of time or the giving of notice or
both) a breach or violation of or default or
event of default under any law or any note,
bond, debenture, indenture or other
agreement or instrument governing
indebtedness for borrowed money of the
Company or Desa International, Inc. at the
time applicable to the Company or Desa
International, Inc. (including, without
limitation, the Senior Subordinated Note
Indenture, the Credit Agreement and any
indentures, credit or loan agreements
hereafter executed in connection with any
refinancing or replacement of the Senior
Subordinated Note Indenture or the Credit
Agreement).
(B) "Offer to Repurchase" shall mean
a written offer to each registered Holder of
Series C Preferred or Exchange Notes at such
Holder's address appearing in the records of
the Company on the date of the Offer to
Repurchase, offering to purchase in cash all
outstanding shares of Series C Preferred or
Exchange Notes, on and subject to the terms
and provisions of this Section, at the
Repurchase Price, and unless otherwise
required by applicable law, each Offer to
Repurchase shall specify an expiration date
(the "Expiration Date") of such Offer to
Repurchase which shall be, subject to any
contrary requirements of applicable law, not
less than 30 days or more than 60 days after
the date of such Offer to Repurchase, and a
settlement date (the "Repurchase Date") for
purchase of the Series C Preferred or
Exchange Notes within five business days
after the Expiration Date, and shall (i)
include written notice of the occurrence of
such Change of Control, (ii) specify the
place at which certificates for shares of
Series C Preferred Stock or Exchange Notes
may be surrendered for repurchase pursuant
to such Offer to Repurchase and the
Expiration Date and Repurchase Date for such
Offer to Repurchase, (iii) set forth the
aggregate number of shares of Series C
Preferred or aggregate principal amount of
Exchange Notes outstanding at the date of
such
- 13 -
Offer to Repurchase, (iv) set forth the
Company's estimate of the amount of Cash
Available for Repurchase as of the date of
such Offer to Repurchase and calculation
thereof (to the extent applicable) and (v)
state that each Holder electing to tender
any shares of Series C Preferred or Exchange
Note pursuant to such Offer to Repurchase
will be required to surrender such the
certificate representing such shares or such
note at the place or places specified in
such Offer to Repurchase prior to the close
of business on the Expiration Date (such
certificate or note being, if the Company so
requires, duly endorsed by, or accompanied
by a written instrument of transfer in form
satisfactory to the Company duly executed
by, the Holder thereof or his attorney duly
authorized in writing).
(C) "Repurchase Price" shall mean,
as of any particular Repurchase Date, an
amount equal to, (i) in the case of any
share of Series C Preferred, as of any
particular Repurchase Date, the Liquidation
Value (as defined in the Certificate) of
such share of Series C Preferred Stock or,
(ii) in the case of any Exchange Note, as of
any particular Repurchase Date, the
outstanding principal amount of such
Exchange Note, without premium, but together
with all accrued and unpaid interest
thereon.
(V) Notwithstanding anything under Section
3.05 to the contrary, the Company acknowledges and
agrees that nothing in this Section 3.05 shall, or
shall be construed to, limit the Company's
obligations under this Section 3.05(iii) to
repurchase shares of Series C Preferred or Exchange
Notes by reason of the amount of cash or cash
equivalents held by the Company or Desa
International, Inc. on any Repurchase Date or the
undrawn amount available to the Company or Desa
International, Inc. as of any Repurchase Date under
any credit or loan agreements, as amended and in
effect from time to time, to which the Company or
Desa International, Inc.
may be a party as borrower.
(iv) Remedies Covenant. In addition to any remedies set forth
in the Certificate and Exchange Note but subject to Section 6(c)(v) of
the Certificate, the Purchasers shall have the right to pursue all
remedies at law or equity for any failure to redeem Series C Preferred
or Exchange Note in accordance with the Certificate or Exchange Note
and this Agreement.
(v) Voting Covenants.
In addition to and without limiting in any way the obligations
of the Company under the Certificate or the Exchange Note, the Company covenants
with the Holders that the Company shall not:
- 14 -
(a) without the prior written consent of the Holders
who hold at least 75% of the then outstanding Series C
Preferred or Exchange Notes, directly or indirectly declare or
pay any dividends or make any distributions upon any Junior
Security (other than legally issued dividends payable in
Junior Securities);
(b) without the prior written consent of the Holders
who hold at least 75% of the then outstanding Series C
Preferred or Exchange Notes, directly or indirectly redeem,
purchase or otherwise acquire, or permit any Subsidiary to
redeem, purchase or otherwise acquire, any Junior Security or
directly or indirectly redeem, purchase or make any payments
with respect to any stock appreciation rights, phantom stock
plans or similar rights or plans other than any redemption or
purchase in Junior Securities; provided, however, that the
Company shall be allowed to repurchase, redeem or acquire any
Junior Security from employees or former employees of Desa
International, Inc. in an aggregate amount not to exceed the
sum of $500,000 in any fiscal year; provided, however, that
proceeds used to redeem or acquire any Junior Security from
employees or former employees of Desa International, Inc.
shall be excluded to the extent of the aggregate cash proceeds
received by the Company or Holdings from any reissuance of
Junior Securities during the same fiscal year.
(c) without the prior written consent of the Holders
who hold at least 75% of the then outstanding Series C
Preferred or Exchange Notes, liquidate, dissolve or effect a
consolidation, merger, combination, recapitalization or any
other form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership
or any other non-corporate entity which is treated as a
partnership for federal income tax purposes) in which the
rights of the Holders under the Certificate, this Agreement or
the Exchange Notes, as in effect immediately prior to such
transaction, are adversely affected, provided, however, that
no such vote shall be required with respect to such
transaction if the Company has redeemed or redeems, to the
extent requested by the holders of Series C Preferred or
Exchange Notes, Series C Preferred at the Redemption Price or
the outstanding principal amount of Exchange Notes plus all
accrued and unpaid interest due under the Exchange Note, with
such redemptions to be fully paid in cash before such
transaction is effectuated or concurrently therewith.
(d) without the prior written consent of the Holders
of at least 75% of the then outstanding Series C Preferred,
except as expressly contemplated by this Agreement, (1)
increase the number of authorized shares of Series C Preferred
or (2) authorize or issue any additional shares of Series C
Preferred (other than as provided in Section 2(a) of the
Certificate) or (3) authorize, issue or enter into any
agreement providing for the issuance (contingent or otherwise)
of any Senior Securities or Parity Securities (as each such
term is defined in the Certificate), or any security or
obligations convertible into any Senior Securities or Parity
Securities (other than shares of Series C Preferred issued as
provided in Section 2(a) of the
- 15 -
Certificate) or (4) otherwise adversely affect or otherwise
impair the rights or the relative preferences and priorities
of the holders of Series C Preferred.
(e) Notwithstanding anything to the contrary in the
Certificate, so long as any Series C Preferred remains
outstanding, the Company shall not, without the prior written
consent of the holders of 100% of the then outstanding Series
C Preferred:
(1) change (A) the rate or time of payment of any
dividends on, or (B) the time or amount of any redemption of,
or (C) the amount of any payments upon liquidation of the
Company with respect to, or (D) the priorities afforded by the
provisions of Section 2(d) of the Certificate for the benefit
of, shares of Series C Preferred or (2) amend Section 4(b),
4(c) or 6 of the Certificate.
(vi) Director Election Covenants.
(a) The Company covenants with the Holders that,
following the occurrence of each Voting Rights Triggering
Event and until the expiration of the corresponding Default
Period (as defined in the Certificate), upon the written
request of the Holders who hold a majority of the Series C
Preferred at the time outstanding, the Company shall as soon
as reasonably practicable, but in any event within 5 business
days following such written request, increase the number of
directors of the Company by one (1) and fill the vacancy
created by such increase with the individual designated by the
Holders in the foregoing written request; provided, however,
that the Company shall have no obligations to create and fill
such an additional vacancy during the term of office of any
director designated in writing pursuant to this Section
3.05(vi)(a) or elected by the Holders pursuant to Section 6(c)
of the Certificate.
(b) The Company further covenants with the Holders
that, in the event that the term of office of the director
elected pursuant to Section 6(c) of the Certificate has been
terminated pursuant to Section 6(c)(v) of the Certificate, and
if the action, lawsuit or other proceeding that caused the
termination of such director's term shall no longer be
continuing but a Default Period shall be continuing, upon the
written request of the Holders who hold a majority of the
Series C Preferred at the time outstanding, the Company shall
as soon as reasonably practicable, but in any event within 5
business days following such written request, increase the
number of directors of the Company by one (1) and fill the
vacancy created by such increase with the individual
designated by the Holders in the foregoing written request.
(c) The Holders covenant with the Company that the
Holders shall cause any individual designated by them pursuant
to either of the foregoing paragraphs (a) and (b) to resign
immediately from the Board of Directors (I) as a condition
- 16 -
precedent to the exercise of their right under Section 6(c) of
the Certificate to vote their shares of Series C Preferred
Stock, together with the holders of any Parity Securities (as
defined in the Certificate) upon which like voting rights have
been conferred and are exercisable, to elect, as a class, an
additional one (1) director, (II) upon the commencement of any
action, lawsuit or other proceeding of a type described in
Section 6(c)(v) of the Certificate or (III) upon the
expiration of all then existing Default Periods. The Holders
and the Company hereby acknowledge and agree that (x) the
resignation of any such individual pursuant to this clause (c)
shall not disqualify such individual from serving on the Board
of Directors if subsequently designated by the Holders
pursuant to paragraph (a) or (b) of this Section 3.05(vi) or
subsequently elected to do so pursuant to Section 6(c) of the
Certificate and (y) the resignation of any such individual
pursuant to clause (I) of this paragraph (c) may be made
subject to and effective only upon the taking of office as a
director of the individual elected pursuant to Section 6(c) of
the Certificate.
(vii) Other Covenants. The Company covenants with the
Purchasers that copies of all notices required under the Certificate
shall also be given to the Purchasers in accordance with the notice
provisions herein as long as they hold Series C Preferred.
(viii) Repurchase/Prepayment Covenants.
(a) Series C Preferred. Notwithstanding any provision
of the Certificate to the contrary, the Company shall have the
right to repurchase, by delivery of not less than ten (10) and
not more than thirty (30) Business Days' prior written notice
to the holders of record of the Series C Preferred, and all
holders shall be required to sell to the Company (pro rata
according to their then current holdings), all or any part of
the outstanding shares of the Series C Preferred in increments
of 500 shares (unless all of the outstanding shares of the
Series C Preferred are being so repurchased) at a price per
share equal to the Redemption Price. Such notice shall specify
the Redemption Price and the place at which and the date,
which date shall be a Business Day, on which the shares so
called for repurchase shall be repurchased (the "Series C
Payment Date") and shall specify the shares called for
repurchase. On the Series C Payment Date for any shares of
Series C Preferred, the holders of such shares shall surrender
the certificate or certificates for such shares at the
principal office of the Company during regular business hours,
together with stock powers therefor duly endorsed in blank,
against payment by the Company of the Redemption Price, which
shall be paid in cash on the Series C Payment Date, assuming
such surrender occurs on the Series C Payment Date. From and
after the Series C Payment Date for any shares of Series C
Preferred, dividends on such shares so repurchased shall cease
to accrue, such shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as
stockholders of the Company with respect to shares so
repurchased shall cease (including any right to receive
dividends otherwise payable on any Dividend Reference Date
that accrued from the
- 17 -
Series C Payment Date to such Dividend Reference Date);
provided, that if the Company has withheld payment of the
Redemption Price from any Holder because certificates
representing such Holder's shares to be so repurchased have
not been surrendered at the Company's principal office
together with a stock power duly endorsed in blank, then such
Holder's right to receive the Redemption Price, without
interest, upon such surrender shall not cease; and provided,
further, that to the extent the Company defaults in the
payment of the Redemption Price on the Series C Payment Date
(or, if applicable, on a later date on which a Holder
surrenders certificates and duly endorsed stock powers), the
Series C Preferred shall remain outstanding. In case fewer
than all the shares represented by any such certificate are to
be repurchased, a new certificate shall be issued representing
the unrepurchased shares, without cost to the Holder thereof.
The Holders acknowledge and agree that the Company's
withholding of the Repurchase Price in respect of shares of
Series C Preferred pending surrender of stock certificates
representing such shares and duly endorsed stock powers as
described above shall not constitute a default in the payment
of the Redemption Price.
(b) Exchange Notes. Notwithstanding any provision of
the Exchange Note to the contrary, the Company shall have the
right to repay, by delivery of not less than ten (10) and not
more than thirty (30) Business Days' prior written notice to
the holders of record of the Exchange Notes, all or any part
of the outstanding Exchange Notes in increments of $500,000 in
principal amount of Exchange Notes, pro rata according to the
then current holdings of the holders of record of the Exchange
Notes, (unless all of the outstanding Exchange Notes are being
so prepaid), without premium but together with accrued and
unpaid interest thereon through the date of prepayment. Such
notice shall specify the place at which and the date, which
date shall be a Business Day, on which the Exchange Notes to
be so prepaid shall be prepaid (the "Prepayment Date") and
shall specify the Exchange Notes and the principal amount
thereof to be so prepaid. On the Prepayment Date for any
Exchange Note, the holder of such Exchange Note shall
surrender such Exchange Notes against payment by the Company,
which shall be made in cash on the Prepayment Date, of the
principal amount thereof to be so prepaid together with
accrued and unpaid interest thereon through the Prepayment
Date. In case less than all of the outstanding principal
amount of an Exchange Note is to be prepaid, the Company
shall, at its option, either return to the holder thereof such
Exchange Note with appropriate notation of payment or issue a
new Exchange Note to such holder in an aggregate principal
amount equal to the then unpaid principal amount thereof,
without cost to the holder thereof.
(c) The Company agrees that tendering of an affidavit
by a Holder, and an indemnity reasonably satisfactory to the
Company, that the certificates for such Series C Preferred or
Exchange Notes that are to be surrendered by that Holder on a
Series C Payment Date or Prepayment Date pursuant to Section
3.05(viii) have
- 18 -
been lost, stolen, destroyed or mutilated shall be tantamount
to surrender under Section 3.05(viii). The Company
acknowledges and agrees that the failure of the Company to
accept such an affidavit and such an indemnity tendered in
accordance with this section shall not constitute a failure of
the Holder to surrender its Series C Preferred or Exchange
Notes hereunder.
(ix) Dividend Accrual Covenant. Until the Repurchase Price or
Redemption Price is paid in full in cash, the shares of Series C
Preferred to be repurchased under this Agreement or redeemed under the
Certificate from any Holder shall remain outstanding and continue to
accrue dividends as provided in Section 2 of the Certificate unless the
Company has withheld such payment from Holder pending such Holder's
surrender to the Company of certificates representing the shares to be
redeemed or repurchased hereunder together with stock power therefor
duly endorsed.
(x) Authorization Covenant. The Company covenants to take all
actions necessary, and to seek all approvals and consents thereto, to
authorize and make effective an amendment to the Company's Charter, in
substantially the form of Exhibit E hereto, providing for an increase
in the number of authorized shares that are designated as Series C
Preferred from 40,000 shares to 75,000 shares, and the Holders covenant
to vote all shares of Series C Preferred and Voting Common held by them
in favor of such amendment.
3.06 Allocation of the Purchase Price. The Purchasers and the
Company acknowledge and agree that, as of the Closing, the fair market value of
the Series C Preferred shares purchased herein is $17,562,904.67 and the fair
market value of the warrants purchased herein is $415,054.86. The Purchasers and
the Company covenant and agree to allocate the Purchase Price between the shares
of Series C Preferred purchased herein and the warrants purchased herein in
accordance with such fair market values for all tax and financial accounting
purposes, including without limitation, the preparation and filing of all tax
returns.
3.07 Current Public Information. At all times after the
Company has filed a registration statement with the Securities and Exchange
Commission pursuant to the requirements of either the Securities Act or the
Securities Exchange Act, the Company shall file all reports required to be filed
by it under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Purchased Securities
may reasonably request, all with a view toward making available to such holders
the benefits of Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the Securities and Exchange
Commission. Upon request, the Company shall deliver to any holder of Purchased
Securities a written statement as to whether it has complied with such
requirements.
- 19 -
Section 4. Transfer of Purchased Securities.
4.01 General Provisions. The Purchasers and the Company
acknowledge and agree that Purchased Securities, Exchange Notes and Warrant
Shares are transferable only pursuant to (i) public offerings registered under
the Securities Act, (ii) Rule 144 or Rule 144A of the Securities and Exchange
Commission (or any similar rule or rules then in force) if such rule is
available and (iii) any other legally available means of transfer.
4.02 Rule 144A. Upon the request of any Purchaser, the Company
shall promptly supply to such Purchaser or its prospective transferees all
information regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities and Exchange Commission.
4.03 Legend Removal. Any legend endorsed on a certificate or
instrument evidencing a security pursuant to Section 9.03 hereof shall be
removed, and the Company shall issue a certificate or instrument without such
legend to the holder of such security, (a) if such security is being disposed of
pursuant to an effective registration under the Securities Act and any
applicable state acts, or (b) if such holder provides the Company with an
opinion of counsel satisfactory to the Company to the effect that a sale,
transfer, assignment, offer, pledge or distribution (including pursuant to Rule
144 or any similar rule then in effect) for value of such security may be made
without registration and that such legend is not required to satisfy the
applicable exemption from registration.
Section 5. Representations and Warranties of the Company. As a material
inducement to the Purchasers to enter into this Agreement and purchase the
Purchased Securities hereunder, the Company hereby represents and warrants that:
5.01 Organization, Corporate Power and Licenses. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of Delaware and is qualified to do business in every jurisdiction in which
its ownership of property or conduct of business requires it to qualify except
where the failure to do so would not have a material adverse effect on the
financial condition, assets or business of the Company or its Subsidiaries. The
Company possesses all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses in all material respects as now conducted
and presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement. The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
- 20 -
5.02 Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 50,000,000
shares of Voting Common Stock, of which 15,548,692.4204 shares will be
issued and outstanding, 1,813,037.6020 shares will be reserved, and
32,638,269.9776 shares will be authorized, unreserved and unissued; (b)
3,000,000 shares of Nonvoting Common Stock will be authorized, of which
90,603.6022 will be issued and outstanding, and 2,909,396.3978
unreserved and unissued; (c) 2,000,000 shares of Preferred Stock, of
which (1) 465,000 shares have been designated Series A Cumulative
Redeemable Preferred Stock, none of which are issued and outstanding
(2) 265,000 shares have been designated Series B Cumulative Redeemable
Preferred Stock, none of which are issued and outstanding, and (3)
40,000 shares have been designated Series C Preferred, of which
18,849.84110 will be issued and outstanding, and 21,150.15890 will be
authorized, unreserved and unissued. As of the Closing, neither the
Company nor any Subsidiary shall have outstanding any stock or
securities convertible or exchangeable for any shares of its capital
stock or containing any profit participation features, nor shall it
have outstanding any rights or options to subscribe for or to purchase
its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or
phantom stock plans, except as set forth on the attached
"Capitalization Schedule." The Capitalization Schedule accurately sets
forth the following information with respect to all outstanding options
and rights to acquire the Company's capital stock: the holder, the
number of shares covered, the exercise price and the expiration date.
As of the Closing, neither the Company nor any Subsidiary shall be
subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any
warrants, options or other rights to acquire its capital stock, except
as set forth on the Capitalization Schedule and except pursuant to the
Certificate. As of the Closing, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and
nonassessable.
(ii) Except as contained in the Amended Stockholders Agreement
and the Tagalong/Dragalong Agreement, there are no statutory or
contractual stockholders preemptive rights or rights of refusal with
respect to the purchase and sale of the Purchased Securities hereunder
or the exercise of the Warrants. The Company has not violated any
applicable federal or state securities laws in connection with the
offer, sale or issuance of any of its capital stock, and the offer and
sale of the Purchased Securities hereunder do not require registration
under the Securities Act or any applicable state securities laws. There
are no agreements between the Company's stockholders with respect to
the voting or transfer of the Company's capital stock, except for the
Amended Stockholders Agreement, the Tagalong/Dragalong Agreement and
certain stock options issued to certain members of the Company's
management.
5.03 Series C Preferred, Warrants, Warrant Stock and Common
Stock. The Series C Preferred and Common Stock are duly authorized, validly
issued and outstanding, fully
- 21 -
paid, and nonassessable, and the shares of Warrant Stock issuable upon exercise
of the Warrants have been reserved for issuance based upon the initial purchase
price, and when issued and paid for upon exercise of the Warrants in accordance
with the terms thereof will be duly authorized, validly issued and outstanding,
fully paid, and nonassessable. The Warrants and the certificates representing
the Series C Preferred to be delivered by the Company hereunder, and the
certificates representing the Warrant Stock to be delivered upon exercise of the
Warrants, will be genuine, and the Company has no knowledge of any fact which
would impair the validity thereof.
5.04 Subsidiaries; Investments. The attached "Subsidiary
Schedule" correctly sets forth the name of each Subsidiary, the jurisdiction of
its incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and as presently proposed to be conducted and is qualified
to do business in every jurisdiction in which its ownership of property or the
conduct of business requires it to qualify except where failure to do so would
not have a material adverse effect on the financial condition, assets or
business of the Company and its Subsidiaries taken as a whole. All of the
outstanding shares of capital stock of each Subsidiary are validly issued, fully
paid and nonassessable, and all such shares are owned by the Company or another
Subsidiary free and clear of any Lien and not subject to any option or right to
purchase any such shares. Except as set forth on the Subsidiary Schedule,
neither the Company nor any Subsidiary owns or holds the right to acquire any
shares of stock or any other security or interest in any other Person.
5.05 Authorization; No Breach. The execution, delivery and
performance of this Agreement, the Warrants, the Amended Stockholders Agreement,
the Exchange Notes and all other agreements contemplated hereby to which the
Company is a party have been duly authorized by the Company. This Agreement, the
Warrants, the Amended Stockholders Agreement, the Exchange Notes, the
Certificate and all other agreements contemplated hereby to which the Company is
a party each constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally, and except for
judicial limitations on the enforcement of the remedy of specific performance
and other equitable remedies. Except as set forth on the "No Breach; Consents"
Schedule, the execution and delivery by the Company of this Agreement, the
Stockholders Agreement and all other agreements contemplated hereby to which the
Company is a party, the offering and sale of the Purchased Securities hereunder,
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company and each Seller, do not and could not reasonably be
expected to (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation of
any lien, security interest, charge or encumbrance upon the Company's or any
Subsidiary's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice or declaration to, or filing with, any court or
administrative
- 22 -
or governmental body or agency pursuant to, (A) the charter or bylaws of the
Company or any Subsidiary, or (B) any law, statute, rule or regulation to which
the Company or any Subsidiary is subject, or (C) any agreement, instrument,
order, judgment or decree to which the Company or any Subsidiary is subject,
except in the case of clauses (B) and (C) only, for such conflicts, breaches,
defaults, encumbrances, rights, violations and requirements which would not have
a material adverse effect on the financial condition, assets or business of the
Company and its Subsidiaries taken as a whole.
5.06 Financial Statements. Attached hereto as the "Financial
Statements Schedule" are the following financial statements:
(i) the audited consolidated balance sheets of the Company and
its Subsidiaries as of February 28, 1998, and the related statements of
income and cash flows (or the equivalent) for the respective
twelve-month periods then ended; and
(ii) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of May 31, 1998 (the "Latest Balance Sheet"),
and the related statements of income and cash flows (or the equivalent)
for the three-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
except that the unaudited financial statements have not been prepared in
accordance with generally accepted accounting principles and are subject to
normal year-end audit adjustments.
5.07 Absence of Undisclosed Liabilities. Except as set forth
on the attached "Liabilities Schedule," the Company and its Subsidiaries do not
have any obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Closing, or any
action or inaction at or prior to the Closing, or any state of facts existing at
or prior to the Closing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit), (iii) other
liabilities and obligations expressly disclosed in the other Schedules to this
Agreement, and (iv) liabilities and obligations which would not reasonably be
expected to have a material adverse effect upon the financial condition, assets
or business of the Company and its Subsidiaries taken as a whole.
5.08 No Material Adverse Change. Since February 28, 1998,
there has been no material adverse change in the financial condition, operating
results, assets, operations, business
- 23 -
prospects, employee relations or customer or supplier relations of the Company
and its Subsidiaries taken as a whole.
5.09 Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached "Developments Schedule," since the date of
the Latest Balance Sheet, neither the Company nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities
or any capital stock or other equity securities or any
securities convertible, exchangeable or exercisable into any
capital stock or other equity securities;
(b) borrowed any amount or incurred or become subject
to any liabilities, except current liabilities incurred in the
ordinary course of business and liabilities under contracts
entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any
obligation or liability, other than current liabilities paid
in the ordinary course of business;
(d) declared or made any payment or distribution of
cash or other property to its stockholders with respect to its
capital stock or other equity securities or purchased or
redeemed any shares of its capital stock or other equity
securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other
equity securities);
(e) mortgaged or pledged any of its properties or
assets or subjected them to any Lien, except Liens for current
property taxes not yet due and payable and Liens incurred in
the ordinary course of business involving assets not material
in the aggregate;
(f) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business, or canceled
any debts or claims;
(g) sold, assigned or transferred any patents or
patent applications, trademarks, service marks, trade names,
corporate names, copyrights or copyright registrations, trade
secrets or other intangible assets, or disclosed any
proprietary confidential information to any Person;
(h) suffered any extraordinary losses or waived any
rights of value, other than any waiver of rights of value in
the ordinary course of business consistent with past practice;
- 24 -
(i) made capital expenditures or commitments therefor
that aggregate in excess of $1,500,000;
(j) made any loans or advances to, guarantees for the
benefit of any Persons in excess of $500,000 in the aggregate;
(k) suffered any damage, destruction or casualty loss
exceeding in the aggregate $500,000, whether or not covered by
insurance; or
(l) entered into any other transaction other than in
the ordinary course of business or entered into any other
material transaction, whether or not in the ordinary course of
business.
5.10 Tax Matters.
(i) Except as set forth on the attached "Taxes Schedule": the
Company and each Subsidiary have filed all Tax Returns which they are
required to file under applicable laws and regulations; all such Tax
Returns are complete and correct in all material respects and have been
prepared in compliance with all applicable laws and regulations in all
material respects; the Company and each Subsidiary in all material
respects have paid all Taxes due and owing by them (whether or not such
Taxes are required to be shown on a Tax Return), except such as are
being contested in good faith in appropriate proceedings, and have
withheld and paid over to the appropriate taxing authority all Taxes
which they are required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third party; neither the
Company nor any Subsidiary has waived any statute of limitations with
respect to any Taxes or agreed to any extension of time with respect to
any Tax assessment or deficiency; the accrual for Taxes on the Latest
Balance Sheet would be adequate to pay all Tax liabilities of the
Company and its Subsidiaries if their current tax year were treated as
ending on the date of the Latest Balance Sheet (excluding any amount
recorded which is attributable solely to timing differences between
book and Tax income); since the date of the Latest Balance Sheet, the
Company and its Subsidiaries have not incurred any liability for Taxes
other than in the ordinary course of business; the assessment of any
additional Taxes for periods for which Tax Returns have been filed by
the Company and each Subsidiary shall not exceed the recorded liability
therefor on the Latest Balance Sheet (excluding any amount recorded
which is attributable solely to timing differences between book and Tax
income); the federal income Tax Returns of the Company and its
Subsidiaries have been audited and closed and/or the applicable statute
of limitations with respect thereto has expired for all tax years
through fiscal year 1994; no foreign, federal, state or local tax
audits or administrative or judicial proceedings are pending or being
conducted with respect to the Company, any Subsidiary, no information
related to Tax matters has been requested by any foreign, federal,
state or local taxing authority and 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
- 25 -
taxing authority; and the Company or Subsidiaries are unaware of any
material unresolved questions or claims concerning the Company's or
Subsidiary's Tax liability.
(ii) "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. "Tax Return" means any
return, information report or filing with respect to Taxes, including
any schedules attached thereto and including any amendment thereof.
"Affiliated Group" means any affiliated group as defined in I.R.C.
ss.1504 that has filed a consolidated return for federal income tax
purposes (or any similar group under state, local or foreign law) for a
period during which any of the Company or any of its Subsidiaries was a
member.
5.11 Contracts and Commitments.
(i) Except to the extent not reasonably likely to result in a
material adverse effect on the business, assets or financial condition
of the Company and its Subsidiaries taken as a whole or as set forth on
Schedule __: (a) all of the Company's contracts, agreements and
instruments are valid, binding and enforceable in accordance with their
respective terms; (b) the Company and each Subsidiary have performed
all obligations required to be performed by them and are not in default
under or in breach of nor in receipt of any written claim of default or
breach under any contract, agreement or instrument to which the Company
or any Subsidiary is subject; (c) no event has occurred which with the
passage of time or the giving of notice or both would result in a
default, breach or event of noncompliance by the Company or any
Subsidiary under any contract, agreement or instrument to which the
Company or any Subsidiary is subject; and (d) neither the Company nor
any Subsidiary has knowledge of any breach or threatened breach by the
other parties to any contract, agreement, instrument or commitment to
which it is a party;
(ii) The Purchasers' special counsel has been supplied with or
given access in a data room to a true and correct copy of each of the
material written instruments, plans, contracts and agreements and an
accurate description of each contract and agreement which are referred
to on the Due Diligence Requests, together with all amendments, waivers
or other changes thereto as of June 22, 1998.
5.12 Intellectual Property Rights.
There have been no written claims made against the Company or
any Subsidiary which have not been resolved asserting the invalidity, misuse or
unenforceability of any of material Intellectual Property Rights, and, to the
Company's knowledge, there are no grounds for the same,
- 26 -
neither the Company nor any Subsidiary has received any written notices of, and
is not aware of any facts which indicate a likelihood of, any infringement or
misappropriation by, or conflict with, any third party with respect to such
material Intellectual Property Rights (including, without limitation, any demand
or request that the Company or any Subsidiary license any rights from a third
party) and the conduct of the Company's and each Subsidiary's business, to the
Company's knowledge, has not infringed, misappropriated or conflicted with and
does not infringe, misappropriate or conflict with any Intellectual Property
Rights of other Persons, nor would any future conduct as presently contemplated
infringe, misappropriate or conflict with any Intellectual Property Rights of
other Persons except for such infringements, misappropriations or conflicts as,
singly or in the aggregate, do not and are not reasonably likely to result in a
material adverse effect on the business, assets or financial condition of the
Company and its Subsidiaries taken as a whole or as set forth on Schedule __.
5.13 Litigation, etc. Except as set forth on the attached
"Litigation Schedule," and except for those matters which, if resolved adversely
to the Company or any Subsidiary, would not have a material adverse effect on
the business, assets or financial condition of the Company and its Subsidiaries
taken as a whole, there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any Subsidiary at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality (including, without limitation, any actions, suit,
proceedings or investigations with respect to the transactions contemplated by
this Agreement); neither the Company nor any Subsidiary is subject to any
arbitration proceedings under collective bargaining agreements or otherwise or,
to the best of the Company's knowledge, any governmental investigations or
inquiries.
5.14 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon any Seller or the Company or any Subsidiary. The Company shall pay, and
hold each Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
5.15 Governmental Consent, etc. Except as provided on the
"Government Consent" Schedule, permit, consent, approval or authorization of, or
declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the other agreements contemplated hereby, or the consummation by
the Company of any other transactions contemplated hereby or thereby.
5.16 Insurance. Since February 28, 1998, neither the Company
nor any Subsidiary is in default in any material respect with respect to its
obligations under any insurance policy maintained by it, and neither the Company
nor any Subsidiary has been denied insurance coverage. The insurance coverage of
the Company and its Subsidiaries is customary for corporations of similar size
engaged in similar lines of business.
- 27 -
5.17 Employees. The Company is not aware that any executive or
key employee of the Company or any Subsidiary or any group of employees of the
Company or any Subsidiary has any plans to terminate employment with the Company
or any Subsidiary. The Company is not aware that it or any Subsidiary has any
material labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither the Company, its Subsidiaries nor, to the best of
the Company's knowledge, any of their employees is subject to any noncompete or
similar covenants or agreements that materially conflict with the present or
proposed business activities of the Company and its Subsidiaries, except as
described on the "Employees" Schedule.
5.18 Compliance with Laws. Neither the Company nor any
Subsidiary has violated any law or any governmental regulation or requirement
which violation has had since February 28, 1998 or would reasonably be expected
to have a material adverse effect upon the financial condition, assets, or
business of the Company and its Subsidiaries taken as a whole, and neither the
Company nor any Subsidiary has received written notice of any such violation. To
the Company's knowledge, neither the Company nor any Subsidiary is subject to
any liability (contingent or otherwise) or corrective or remedial obligation
arising under any federal, state, local or foreign law, rule or regulation
(including the common law) relating to or regulating health, safety, pollution
or the protection of the environment ("Environmental Laws") except as described
on the "Environmental Safety" Schedule. Without limiting the generality of the
foregoing, (i) to the Company's knowledge, the Company and each Subsidiary have
obtained all material permits, licenses and authorizations required under, and
have complied in all material respects with, all Environmental Laws; and (ii) to
the Company's knowledge, no written notice has been received by the Company or
any Subsidiary regarding any violation of, or any claim, liability or corrective
or remedial obligation under, any Environmental Laws, except as set forth on the
"Environmental Safety" Schedule.
5.19 Affiliated Transactions. Except as set forth on the
attached "Affiliated Transactions Schedule," no officer, director, employee,
stockholder or Affiliate of the Company or any Subsidiary or any individual
related by blood, marriage or adoption to any such individual or any entity in
which any such Person or individual owns any beneficial interest, is a party to
any agreement, contract, commitment currently in effect or transaction with the
Company or any Subsidiary since February 28, 1998 or has any material interest
in any material property used by the Company or any Subsidiary.
5.20 Disclosure. Neither this Agreement nor any of the
exhibits or schedules hereto contain any untrue statement of a material fact or
omit a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.
5.21 Knowledge. As used in this Section 5, the terms
"knowledge" or "aware" shall mean and include (i) the actual knowledge or
awareness of the executive officers and directors of the Company and its
Subsidiaries and (ii) the knowledge or awareness which an executive officer
- 28 -
or director of the Company or its Subsidiaries would have obtained in the
conduct of his business after making reasonable inquiry and reasonable diligence
with respect to the particular matter in question.
Section 6. Representations and Warranties of Sellers. Each Seller
hereby represents and warrants to the Purchasers as to itself only as follows:
6.01 Organization and Good Standing. Such Seller is a
corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
6.02 Execution of Agreement. Such Seller has the corporate or
limited liability company, as the case may be, power and authority to enter into
and perform its obligations under this Agreement. The execution and delivery of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary corporate or limited liability
company action, as the case may be, on the part of such Seller. This Agreement
has been duly executed and delivered by such Seller. This Agreement constitutes
the legal, valid and binding obligation of such Seller, enforceable against it
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, and except for judicial limitations
on the enforcement of the remedy of specific performance and other equitable
remedies.
6.03 Authorization; No Breach. The execution and delivery by
such Seller of this Agreement, and all other agreements contemplated hereby to
which such Seller is a party, do not and could not reasonably be expected to (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's or any Subsidiary's
capital stock or assets pursuant to, (iv) give any third party the right to
modify, terminate or accelerate any obligation under, (v) result in a violation
of, or (vi) require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, (A) the
organizational documents of such Seller or (B) any law, statute, rule or
regulation to which such Seller is subject, or (C) any agreement, instrument,
order, judgment or decree to which such Seller is subject except, in the case of
clauses (B) and (C) only, for such conflicts, breaches, defaults, encumbrances,
rights, violations and requirements which would not have a material adverse
effect on the financial condition, assets or business of the Company and its
Subsidiaries taken as a whole.
6.04 Ownership of Purchased Securities. Such Seller has good
and marketable title to the Purchased Securities to be sold, assigned,
transferred and delivered by it pursuant to this Agreement, free and clear of
any and all encumbrances, except as set forth in Schedule ___. Upon the sale,
assignment, transfer and delivery of such Purchased Securities to the Purchasers
at the Closing, such Seller will have sold, assigned, transferred and conveyed
to the Purchasers all of its
- 29 -
right, title and interest in and to such Purchased Securities, free and clear of
any and all encumbrances and other restrictions, except as set forth on Schedule
____.
Section 7. Representations and Warranties of Purchasers. Each Purchaser
hereby represents and warrants to the Sellers as to itself only as follows:
7.01 Purchaser's Investment Representations. Such Purchaser is
acquiring the Purchased Securities purchased hereunder or acquired herein for
its own account with the present intention of holding such securities for
purposes of investment, and that it has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein shall
prevent any Purchaser and subsequent holders of Purchased Securities from
transferring such securities in compliance with the provisions of Section 9.07
hereof.
7.02 Organization and Good Standing. Such Purchaser is a
corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
7.03 Execution of Agreement. Such Purchaser has the corporate
or limited liability company, as the case may be, power and authority to enter
into and perform its obligations under this Agreement. The execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate or
limited liability company action, as the case may be, on the part of such
Purchaser. This Agreement has been duly executed and delivered by such
Purchaser. This Agreement constitutes the legal, valid and binding obligation of
such Purchaser, enforceable against it in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally, and
except for judicial limitations on the enforcement of the remedy of specific
performance and other equitable remedies.
7.04 Authorization; No Breach. The execution and delivery by
such Purchaser of this Agreement, and all other agreements contemplated hereby
to which such Purchaser is a party, do not and shall not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in a violation of, or (iv) require any
authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, (A) the organizational documents of such Purchaser or (B)
any law, statute, rule or regulation to which such Purchaser is subject, or (C)
any agreement, instrument, order, judgment or decree to which such Purchaser is
subject.
Section 8. Definitions.
8.01 Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
- 30 -
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Business Day" shall mean any day, other than a Saturday,
Sunday or legal holiday, on which banks in New York, New York and Boston,
Massachusetts are permitted to be open for business.
"Certificate" shall mean the Certificate of Designation of the
Company for Preferred Stock filed on November 26, 1997 with the Secretary of
State for the State of Delaware.
"Change of Control" shall have the same meaning as in the
Certificate.
"Default Period" shall have the same meaning as in the
Certificate.
"Dividend Reference Date" shall have the same meaning as in
the Certificate.
"Due Diligence Requests" shall mean the memorandum dated May
27, 1998 summarizing the requests for documents produced by the Purchasers.
"Exchange Notes" shall have the same meaning as the term
"Notes" in Section 5(a) of the Certificate.
"Holder" means, at a particular time, a Person who is a
registered holder on the books of the Company of any shares of Series C
Preferred or any Exchange Notes as of such time.
"Indebtedness" means at a particular time, without
duplication, (i) any indebtedness for borrowed money or issued in substitution
for or exchange of indebtedness for borrowed money, (ii) any indebtedness
evidenced by any note, bond, debenture or other debt security, (iii) any
indebtedness for the deferred purchase price of property or services with
respect to which a Person is liable, contingently or otherwise, as obligor or
otherwise (other than trade payables and other current liabilities incurred in
the ordinary course of business), (iv) any commitment by which a Person assures
a creditor against loss (including, without limitation, contingent reimbursement
obligations with respect to letters of credit), (v) any indebtedness guaranteed
in any manner by a Person (including, without limitation, guarantees in the form
of an agreement to repurchase or reimburse), (vi) any obligations under
capitalized leases with respect to which a Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or with respect to which
obligations a Person assures a creditor against loss, (vii) any indebtedness
secured by a Lien on a Person's assets and (viii) any unsatisfied obligation for
"withdrawal liability" to a "multi employer plan" as such terms are defined
under ERISA.
- 31 -
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Interest Payment Date" shall have the same meaning as in the
Certificate.
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"I.R.C." means the Internal Revenue Code of 1986, as amended,
and any reference to any particular I.R.C. section shall be interpreted to
include any revision of or successor to that section regardless of how numbered
or classified.
"IRS" means the United States Internal Revenue Service.
"Junior Securities" shall mean (i) any shares of the Voting
Common and the nonvoting common stock of the Company and any other class or
series of stock of the Company which, by the terms of the Certificate of
Incorporation of the Company or of the instrument by which the Board of
Directors of the Company, acting pursuant to authority granted in such
Certificate of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall be junior to the Series C Preferred in respect of the
right to receive dividends or to participate in any distribution of assets
(including but not limited to any distribution of assets in connection with the
liquidation of the Company) other than by way of dividends, and (ii) any options
or warrants or similar securities or rights to acquire from the Company any
securities described in clause (i) of this definition.
"Liens" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Company, any
Subsidiary or any Affiliate, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
other than to reflect ownership by a third party of property leased to the
Company or any Subsidiaries under a lease which is not in the nature of a
- 32 -
conditional sale or title retention agreement, or any subordination arrangement
in favor of another Person (other than any subordination arising in the ordinary
course of business).
"Officer's Certificate" means a certificate signed by the
Company's president or its chief financial officer, stating that (i) the officer
signing such certificate has made or has caused to be made such investigations
as are necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means shares of any class or series of
preferred stock of the Company, whether now authorized and existing or hereafter
authorized and existing.
"Purchase Price" shall mean the price paid for the Purchased
Securities identified on Schedule ___ hereto.
"Redemption Price" shall have the same meaning as in the
Certificate; provided that the Repurchase Date and Series C Payment Date shall
be a Redemption Date under the Certificate.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental
body or agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal law then in force.
"Senior Credit Facility" means any note, debenture, indenture
or instrument governing indebtedness for borrowed money of the Corporation,
payment under which shall be senior to the Series C Preferred or Exchange Notes.
"Senior Subordinated Note Indenture" shall have the same
meaning as in the Certificate.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned
- 33 -
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity
"Tagalong/Dragalong Agreement" means the Amended and Restated
Tagalong/ Dragalong Agreement by and between JWC Equity Funding, Inc. and UBS
Capital LLC dated August 19, 1998.
"Voting Rights Triggering Event" shall have the same meaning
as in the Certificate.
"Warrant Shares" means (i) the Common Stock issued or issuable
upon exercise of the Warrants and (ii) any Common Stock issued or issuable with
respect to the securities referred to above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 9. Miscellaneous.
9.01 Expenses. The Company shall pay, (i) the reasonable fees
and expenses of one special counsel to the Purchasers arising in connection with
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement which shall be payable at the
Closing or, if the Closing does not occur for a reason other than a breach by a
Purchaser, payable upon demand, (ii) the reasonable fees and expenses of one
counsel to the Purchasers incurred with respect to any amendments or waivers
(whether or not the same become effective) under or in respect of this
Agreement, the agreements contemplated hereby to which the Purchasers are a
party, (iii) stamp and other taxes which may be payable in respect of the
execution and delivery of this Agreement or the issuance, delivery or
acquisition of any shares of Purchased Securities or any shares issuable upon
exercise of the Warrants, (iv) the reasonable fees and expenses of one counsel
to the Purchasers incurred with respect to the enforcement of the rights granted
to the Purchasers under this Agreement in the event of a breach by the Company.
9.02 Remedies. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other
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security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
9.03 Legend. Each certificate or instrument representing
Purchased Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The transfer
of the securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of October 9,
1998 and as amended and modified from time to time, between the issuer
(the "Company") and certain investors. A copy of such conditions shall
be furnished by the Company to the holder hereof upon written request
and without charge."
9.04 Consent to Amendments. Except as otherwise expressly
provided herein, (i) the provisions of this Agreement that are for the benefit
of the Purchasers, as distinguished from those provisions that are for the
benefit of Holders, may be amended or waived only with the consent of the
Company, on the one hand, and the Purchasers and any of their Affiliates to whom
the Purchasers shall have transferred Purchased Securities or Exchange Notes, on
the other hand, and (ii) the other provisions of this Agreement may be amended
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, only if the Company consented thereto
and has obtained the written consent of the Holders of at least 75% of the
outstanding Series C Preferred or Exchange Notes; provided, however, that any
amendment to Section 3.05(v)(e) shall require the written consent of the Holders
of 100% of the outstanding Series C Preferred; provided, further, that at such
time as there is no Series C Preferred or Exchange Note outstanding, all of the
provisions of this Agreement (other than Section 9.05, those representations and
warranties that shall be surviving as of such time pursuant to Section 9.05 and
the indemnification obligations under Section 9.15 in respect of such
representations and warranties) shall terminate. No other course of dealing
between the Company and the holder of any Series C Preferred or Exchange Notes
or any delay in exercising any rights hereunder or under the Amended Certificate
of Designation shall operate as a waiver of any rights of any such holders.
9.05 Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of one (1) year following the Closing, regardless of any investigation
made by any Purchaser or on its behalf, except that the representations in
Sections 5.05 (the first and second sentences and clause (vi)(A) of the third
sentence thereof), 5.10, 6.02, 6.03 (clause (vi)(A) only), and 6.04 shall
survive until the expiration of the applicable statute of limitations.
9.06 Treatment of the Preferred Stock. The Company covenants
and agrees that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
- 35 -
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports.
9.07 Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not; provided, however, that no provisions of this Agreement, including
without limitation, Sections 3.01 and 3.03 which are for the benefit of any
Purchaser as a "Purchaser" (as opposed to provisions for the benefit of
"Holders") under this Agreement shall be assignable (other than by operation of
law); and further provided, further, that the covenants set forth in Section
3.02 shall be assignable, in whole but not in part, by a Purchaser and its
Affiliates to an assignee so long as such assignee holds at least one-quarter
(1/4) of the number of shares (subject to appropriate adjustment to reflect any
split or combination of shares) of Series C Preferred (or the equivalent in
principal amount of Exchange Notes) originally purchased by such Purchaser. In
addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a Holder
are also for the benefit of, and enforceable by, to the extent permitted herein,
any subsequent Holder.
9.08 Capital and Surplus; Special Reserves. The Company agrees
that the capital of the Company (as such term is used in Section 154 of the
General Corporation Law of Delaware) in respect of the Series C Preferred and
Common Stock (including the Warrant Shares), purchased or issuable, issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement.
9.09 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.10 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
9.11 Descriptive Headings; Interpretation. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a substantive part of this Agreement. The use of the word "including"
in this Agreement shall be by way of example rather than by limitation.
9.12 Governing Law. The corporate law of the State of Delaware
shall govern all issues and questions concerning the relative rights and
obligations of the Company and its stockholders.
- 36 -
All other issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Delaware or any other juris
diction) that would cause the application of the laws of any jurisdiction other
than the State of Delaware.
9.13 Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to each Purchaser at the address
indicated on the Schedule of Purchasers and to the Company at the address
indicated below:
Desa Holdings Corporation
c/o X. X. Childs Associates, L.P.
Xxx Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, XX 00000
Attention: President
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9.14 No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
9.15 Indemnification.
(i) Sellers' Indemnification. In consideration of the
Purchasers' execution and delivery of this Agreement and purchasing the
Purchased Securities hereunder, each Seller, as to itself, shall
defend, protect, indemnify and hold harmless each Purchaser and each
other holder of Purchased Securities and all of their officers,
directors, employees and agents (including, without limitation, those
retained in connection with the transactions contem plated by this
Agreement) (collectively, the "Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including
reasonable fees and disbursements of one counsel (the "Indemnified
Liabilities"), incurred by the Indem nitees or any of them as a result
of, or arising out of, or relating any breach of any
- 37 -
representation made by such Seller hereunder in respect of which the
Indemnitee shall have given notice to such Seller.
(ii) The Company's Indemnification. In consideration of the
Purchasers' execution and delivery of this Agreement and purchasing
the Purchased Securities hereunder and in addition to all of the
Company's other obligations under this Agreement, the Company shall
defend, protect, indemnify and hold harmless each Purchaser and each
other holder of Purchased Securities and all of their officers,
directors, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Indemnitees") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including
reasonable fees and disbursements of one counsel (the "Indemnified
Liabilities"), incurred by the Indemnitees or any of them as a result
of, or arising out of, or relating any breach of any representation or
covenant made by the Company hereunder in respect of which the
Indemnitee shall have given notice to the Company.
(iii) Notice of Claims. If an Indemnitee believes that it has
suffered or incurred any Indemnified Liability, it shall notify the
indemnifying party promptly in writing, and in any event within any
applicable time period specified in Section 9.05, describing such
Indemnified Liability, all with reasonable particularity and containing
a reference to the provisions of this Agreement in respect of which
such Indemnified Liability shall have occurred. If any legal action is
instituted by a third party with respect to which an Indemnitee intends
to claim any liability or expense as Indemnified Liability under this
Section, such Indemnitee shall promptly notify the indemnifying party
of such legal action.
(iv) Defense of Third Party Claims. The indemnifying party
shall have the right to conduct and control, through counsel of its own
choosing, reasonably acceptable to the Indemnitees, any third party
legal action or other claim, but any Indemnitee may, at its election,
participate in the defense thereof at its sole cost and expense;
provided, however, that if the indemnifying party shall fail to defend
any such legal action or other claim, then the Indemnitees may defend,
through counsel of their own choosing, such legal action or other
claim, and (so long as it gives the indemnifying party at least thirty
(30) days' written notice of the terms of any proposed settlement
thereof and permits the indemnifying party to then undertake the
defense thereof) settle such legal action or other claim, and to
recover from the indemnifying party the amount of such settlement or of
any judgment and any other Indemnified Liabilities incurred in
connection therewith. The indemnifying party shall not compromise or
settle any such legal action or other claim without the prior written
consent of the Indemnitee, which consent shall not be unreasonably
withheld.
- 38 -
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
DESA HOLDINGS CORPORATION
By /s/___________________________
Its ______________________________
JWC EQUITY FUNDING, INC.
By /s/___________________________
Its ______________________________
UBS CAPITAL LLC
By /s/___________________________
Its ______________________________
XXXXXXX NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc., as attorney in fact,
on behalf of Xxxxxxx National Life
Insurance Company
By /s/___________________________
Its ______________________________
OLD HICKORY FUND I, LLC
By: PPM America, Inc., its manager
By /s/___________________________
Its ______________________________
RELIASTAR FINANCIAL CORP.
By /s/___________________________
Its ______________________________
- 39 -
SCHEDULE OF PURCHASERS AND SELLERS
SELLERS
-------------------------------------------------------------------------------------------------------
JWC Equity Funding, Inc. UBS Capital LLC
---------------------------------------------------- -------------------------------------------------
Warrants Warrants
to to
Shares of Shares of Purchase Shares of Shares of Purchase
Voting Series C Warrant Purchase Voting Series C Warrant Purchase
PURCHASERS Common Preferred Shares Price Common Preferred Shares Price
------------------------- ----------- ---------- ----------- --------- ---------- ----------- ----------- --------
Xxxxxxx National Life
Insurance Company, PPM
America, Inc., as attorney
in fact, on behalf of
Xxxxxxx National Life
Insurance Company 369,424.716 9,600.34202 143,568.402 100,581.284 2,613.83358 39,088.598
Old Hickory Fund I,
LLC, PPM America, Inc.,
its manager 5,625.402 146.19810 2,186.652 1,531.598 39.80377 595.348
ReliaStar Financial Corp. 126,961.794 3,930.00000 58,771.578 34,567.206 1,070.00000 16,001.422
- 40 -
LIST OF EXHIBITS
Exhibit A - Warrants
Exhibit B - Amended Stockholders Agreement
Exhibit C - Preferred Tagalong Agreement
Exhibit D - Sullivan & Worcester LLP Opinion
Exhibit E - Amendment to the Company's Charter
[Exhibits have not been
included and are available upon request]
- 41 -
LIST OF DISCLOSURE SCHEDULES
[Disclosure schedules have not been
included and are available upon request]
- 42 -
