TERM DEBT - CONVERTIBLE DEBT EXCHANGE AGREEMENT
Exhibit
10.1
TERM
DEBT - CONVERTIBLE DEBT EXCHANGE AGREEMENT
This TERM DEBT – CONVERTIBLE DEBT
EXCHANGE AGREEMENT (this "Agreement") is
entered into as of March 31, 2010, by and between Zanett, Inc., a Delaware
corporation (the "Company") and
Rockport Investments Ltd. (the "Investor").
WHEREAS, on February 28, 2010,
the Investor and Xxxxx Xxxxxxxx ("Xx. Xxxxxxxx")
entered into an arrangement whereby (i) the Investor agreed to purchase from Xx.
Xxxxxxxx, and Xx. Xxxxxxxx agreed to sell to the Investor, those two certain
promissory notes held by Xx. Xxxxxxxx in an aggregate principal amount equal to
$5,325,000 (the "Promissory Notes"),
and (ii) the Investor agreed to assume from Xx. Xxxxxxxx, and Xx. Xxxxxxxx
agreed to assign to the Investor, all of Xx. Xxxxxxxx'x rights under that
certain line of credit to extend credit to the Company up to $3,000,000 (the
"Line of
Credit"), in each case extinguishing in full all obligations owing by the
Company to Xx. Xxxxxxxx thereunder in favor of repayment obligations owing to
the Investor.
WHEREAS, the Company wishes to
refinance its obligations now owing to the Investor in respect of the Promissory
Notes and the Line of Credit in a transaction with the Investor in which the
Company will issue convertible debt of the Company to the Investor (the "Company Convertible
Debt") in exchange for the Promissory Notes and the Line of Credit, on
the terms and conditions set forth herein;
NOW, THEREFORE, in
consideration of the foregoing recitals and for good and other valuable
consideration hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE
I
EXCHANGE
OF PROMISSORY NOTES AND LINE OF CREDIT
FOR
COMPANY CONVERTIBLE DEBT
Section
1.1 Authorization. The Company has
authorized the issuance of the Company Convertible Debt to the Investor as
contemplated hereby.
Section
1.2 Issuance
of Convertible Debt and Delivery of Promissory Note and Line of
Credit. Subject to
Section 5.1 hereof, at the Closing (as defined in Section 1.3 below), the
Company shall issue to the Investor the Company Convertible Debt in the
aggregate principal amount of Seven Million One Hundred Thirty One Thousand Nine
Hundred Eighty Three Dollars and No Cents ($7,131,983.00) and the Investor shall
deliver to the Company the Promissory Notes and the agreement evidencing the
Line of Credit. The issuance of the Company Convertible Debt shall be
deemed to be made in full and indefeasible satisfaction of the Company's
obligations under the Promissory Notes and the Line of Credit.
C.G.
______
D.H.
______
Section
1.3 Closing. The
closing of the issuance of the Company Convertible Debt and the exchange of the
Promissory Note and Line of Credit pursuant to this Agreement (the "Closing") shall take
place at the offices of the Company at 10:00 a.m. local time, on March 31, 2010,
or such earlier date upon which each of the conditions set forth in Sections
5.1(a) and 5.1(b) have been satisfied or waived, or at such other time or place
as the Company and the Investor may mutually agree (such date is hereinafter
referred to as the "Closing
Date").
ARTICLE
II
AMENDMENT
OF PROMISSORY NOTES AND LINE OF CREDIT; FORBEARANCE
Section
2.1 Amendment
of Promissory Notes.
(a)
Section 1 of the Promissory Note issued by Zanett Commercial
Solutions, Inc., a wholly-owned subsidiary of the Company, to the Investor (as
successor to Xx. Xxxxxxxx) on March 15, 2009 in the aggregate principal amount
of $4,575,000 is hereby amended and restated in its entirety to read as
follows:
"1. Maturity
Date. The principal balance of this Note and all accrued
interest thereon shall be due and payable on March 31, 2010 (the "Maturity Date")."
(b)
Section 1 of the Promissory Note issued by Zanett
Commercial Solutions, Inc., a wholly-owned subsidiary of the Company, to the
Investor (as successor to Xx. Xxxxxxxx) on March 15, 2009 in the aggregate
principal amount of $750,000 is hereby amended and restated in its entirety to
read as follows:
"1. Maturity
Date. The principal balance of this Note and all accrued
interest thereon shall be due and payable on March 31, 2010 (the "Maturity
Date")."
(c)
Section 2 of the Loan Agreement between the Company and the
Investor (as successor to Xx. Xxxxxxxx) effective as of February 21, 2007 is
hereby amended and restated in its entirety to read as follows:
"2. Maturity
Date. The outstanding balance of this Note and all accrued
interest thereon shall be due and payable on March 31, 2010 (the "Maturity
Date")."
Section
2.2 Forbearance. The
Investor agrees that until April 1, 2010, it shall not exercise or attempt to
exercise any right or remedy otherwise available to the Investor as an unsecured
creditor of the Company, including, without limitation filing any action or
proceeding against the Company (the forbearance from such actions by the
Investor being herein referred to as the “Forbearance
Covenant”). The Company expressly acknowledges and agrees,
however, that from and after April 1, 2010 (unless the Closing shall have
occurred), the Investor shall have the right, at any time and from time to time,
to exercise any and all rights and remedies available to it under the Promissory
Notes and the agreement evidencing the Line of Credit (subject to any applicable
subordination agreement), at law and in equity, to the same extent as the
Investor would be entitled if the Forbearance Covenant had never been part of
this Agreement.
C.G.
______
D.H.
______
2
ARTICLE
III
The Company hereby represents and
warrants to the Investor, as of the date of this Agreement and as of the Closing
Date, as follows:
Section
3.1 Organization;
Requisite Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate
power and authority (a) to own and lease its properties and assets and to carry
on its business as now conducted and as presently proposed to be conducted, (b)
to execute and deliver this Agreement, the promissory note evidencing the
Company Convertible Debt (the "Convertible Note")
and any other agreements, documents and instruments to be delivered by the
Company that are contemplated in, or delivered pursuant to, this Agreement or
the Convertible Note, (c) to issue the Company Convertible Debt and (d) to carry
out the provisions of this Agreement and the Convertible Note. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties makes such qualification necessary, except for those
jurisdictions in which a failure to be so qualified or authorized would not have
a material adverse effect on the properties, assets, liabilities, financial
condition, business, operations of the Company (a "Material Adverse
Effect").
3
4
ARTICLE
IV
The Investor hereby represents and
warrants to the Company, as of the date of this Agreement and as of the Closing
Date, as follows:
(a)
The Investor has substantial experience in evaluating
and investing in private placement transactions of securities in companies
similar to the Company so that it is capable of evaluating the merits and risks
of its investment in the Company. The Investor must bear the economic
risk of this investment indefinitely unless the Company Convertible Debt and/or
the common stock issuable upon conversion of the Company Convertible Debt are
registered pursuant to the Securities Act and applicable state securities laws,
or an exemption from registration is available.
(b)
The Investor is acquiring the Company Convertible Debt for the
Investor’s own account for investment only, and not with a view towards their
distribution other than in compliance with all applicable securities
laws.
(c)
The Investor has had an opportunity to ask questions and
receive answers from representatives of the Company concerning the terms and
conditions of the investment, the business, operations, financial condition and
prospects of the Company and all other matters deemed relevant to the
Investor. The Investor has independently evaluated the transactions
contemplated by this Agreement and has reached its own decision to enter into
this Agreement. However, notwithstanding the Investor’s
investigation, the Investor is relying on the representations, warranties and
covenants of the Company set forth herein in making this investment.
C.G.
______
D.H.
______
5
(d)
The Investor is an “accredited investor” within the meaning of
Regulation D under the Securities Act.
ARTICLE
V
(i) The
representations and warranties made by the Company in Article II hereof shall
have been true and correct on and as of the date hereof and shall be true and
correct as of the Closing Date as if made on the Closing Date, and the Company
shall have performed and complied with all covenants and provisions of this
Agreement required to be performed or complied with by it at or prior to the
Closing.
(ii) (A)
No law, statute, rule, regulation or restriction shall have been promulgated,
enacted or entered that restrains, enjoins, prevents, prohibits or otherwise
makes illegal the issuance or transfer, as applicable, of the Company
Convertible Debt, the performance by the Investor and the Company of any of
their respective obligations under this Agreement or the Convertible Note or the
consummation of the transactions contemplated hereby or thereby; (B) no
preliminary or permanent injunction or other order shall have been issued and
remain in effect by any court or Governmental Entity that restrains, enjoins,
prevents, prohibits or otherwise makes illegal the issuance or transfer, as
applicable, of the Company Convertible Debt, the performance by the Investor or
the Company of any of their obligations under this Agreement or the Convertible
Note or the consummation of the transactions contemplated hereby or thereby; and
(C) no court or Governmental Entity shall have instituted any action, suit,
proceeding or investigation that seeks to restrain, enjoin, prevent, prohibit or
otherwise make illegal the issuance or transfer, as applicable, of the Company
Convertible Debt, the performance by the Investor or the Company of any of their
obligations under this Agreement or the Convertible Note or the consummation of
the transactions contemplated hereby or thereby.
C.G.
______
D.H.
______
6
(iii) The
Company shall have duly authorized the issuance of the Company Convertible Debt
and delivered the executed Convertible Note to the Investor at the Closing,
reflected on the books and records of the Company, contingent on approval by the
Company's common stockholders of the transactions contemplated by this Agreement
and the issuance of the Company Convertible Debt to the Investor at the
Company's 2010 Annual Meeting of Stockholders (if the Company's common stock is
then-listed on a national securities exchange).
(iv) The
Company shall have obtained any and all consents, permits and waivers, including
those from NASDAQ or any other national securities exchange, necessary or
appropriate for consummation of the transactions contemplated by this Agreement
and the Convertible Note, each in form and substance reasonably satisfactory to
the Investor, and shall have provided copies of all such consents, permits and
waivers to the Investor at or prior to the Closing; provided, however, that
approval by the Company's stockholders of the transactions contemplated by this
Agreement and the issuance of the Company Convertible Debt to the Investor shall
not be required until the Company's 2010 Annual Meeting of Stockholders (and
only shall it be required if the Company's common stock is then-listed on a
national securities exchange).
(i) The
representations and warranties made by the Investor in Article III hereof shall
have been true and correct on and as of the date hereof and shall be true and
correct as of the Closing Date as if made on the Closing Date, and the Investor
shall have performed and complied with all covenants and provisions of this
Agreement required to be performed or complied with by them at or prior to the
Closing.
(ii) (A)
No law, statute, rule, regulation or restriction shall have been promulgated,
enacted or entered that restrains, enjoins, prevents, prohibits or otherwise
makes illegal the issuance or transfer, as applicable, of the Company
Convertible Debt, the performance by the Investor and the Company of any of
their respective obligations under this Agreement of the Convertible Note or the
consummation of the transactions contemplated hereby or thereby; (B) no
preliminary or permanent injunction or other order shall have been issued and
remain in effect by any court or Governmental Entity that restrains, enjoins,
prevents, prohibits or otherwise makes illegal the issuance or transfer, as
applicable, of the Company Convertible Debt, the performance by the Investor or
the Company of any of their obligations under this Agreement or the Convertible
Note or the consummation of the transactions contemplated hereby or thereby; and
(C) no court or Governmental Entity shall have instituted any action, suit,
proceeding or investigation that seeks to restrain, enjoin, prevent, prohibit or
otherwise make illegal the issuance of the Company Convertible Debt, the
performance by the Investor or the Company of any of their obligations under
this Agreement or the Convertible Note or the consummation of the transactions
contemplated hereby or thereby.
C.G.
______
D.H.
______
7
(iii) The
Company shall have received an agreement, in form and substance acceptable to
it, among the Company, Xx. Xxxxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxxx Xxxxxxx and
Xxxxxx Xxxxxxx, executed by all parties, pursuant to which each of them agree to
vote all of the voting interests in the Company owned by them "FOR" the
transactions contemplated by this Agreement and the issuance of the Company
Convertible Debt to the Investor at the Company's 2010 Annual Meeting of
Stockholders, if the Company's common stock is then-listed on a national
securities exchange (the "Transaction Approval
Agreement"), in the form attached hereto as Exhibit
A.
(iv) The
Company shall have received an agreement, in form and substance acceptable to
it, among the Company, the Investor and Xxxxxxx Xxxxxxxx, executed by all
parties, pursuant to which the Investor appoints Xxxxxxx Xxxxxxxx as its proxy
to vote in his discretion on all matters all of the votes which the Investor has
the right to vote at all meetings of stockholders of the Company so long as any
amounts remaining outstanding under the Company Convertible Debt (the "Voting Agreement"),
in the form attached hereto as Exhibit
B.
(v) The
Company shall have received a copy of the Subordination Agreement (as defined
below) among the Company, Bank of America, N.A. and the Investor, executed by
all parties.
ARTICLE
VI
8
ARTICLE
VII
Section
7.1 Governing
Law. This Agreement
shall be construed in accordance with and governed by the laws of the State of
Delaware (without giving effect to any conflicts or choice of law provisions
that would cause the application of the domestic substantive laws of any other
jurisdiction). None of the parties hereto has agreed with or
represented to any other party that the provisions of this section will not be
fully enforced in all instances.
9
(a) if
to the Company, to:
Zanett,
Inc.
000
Xxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx Xxxx,
XX 00000
Attention:
Xxxxxxx Xxxxxxxx
with a
copy (which copy shall not constitute notice) to:
Drinker
Xxxxxx & Xxxxx LLP
One Xxxxx
Square
00xx &
Xxxxxx Xxxxxxx
Xxxxxxxxxxxx,
XX 00000
Facsimile:
(000) 000-0000
Attention:
Xxxxxxx X. Xxxxxxx, Esq.
(b) if
to the Investor, to the address on file with the Company.
Notices
shall be deemed given upon the earlier to occur of (i) receipt by the party to
whom such notice is directed; (ii) if sent by facsimile machine, the day (other
than a Saturday, Sunday or legal holiday in the jurisdiction to which such
notice is directed) such notice is sent if sent (as evidenced by the facsimile
confirmed receipt) prior to 5:00 p.m. U.S. Eastern Time, or the day (other than
a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is
directed) after which such notice is sent if sent after 5:00 p.m. U.S. Eastern
Time; (iii) if sent by overnight delivery service, the first business day
(other than a Saturday, Sunday or legal holiday in the jurisdiction to which
such notice is directed) following the day the same is deposited with the
commercial carrier or U.S. Postal Service; or (iv) if sent by first class mail,
registered or certified, postage prepaid, the fifth day (other than a Saturday,
Sunday or legal holiday in the jurisdiction to which such notice is directed)
following the day the same is deposited with the U.S. Postal
Service. Each party, by notice duly given in accordance herewith, may
specify a different address for the giving of any notice hereunder.
C.G.
______
D.H.
______
10
Section
7.10 Survival. The
representations and warranties made herein and in other documents delivered
pursuant hereto shall survive the closing of the transactions contemplated
hereby for a period of 12 months. The covenants and agreements made
herein and in other documents delivered pursuant hereto shall survive the
closing of the transactions contemplated hereby
indefinitely. Anything in this Agreement to the contrary
notwithstanding, the representations and warranties of the Company hereunder
shall not be affected by any investigation of the Company made by the Investor
or their respective agents or representatives.
[Signature
Page Follows]
C.G.
______
D.H.
______
12
IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the date first above
stated.
| COMPANY: | |
|
ZANETT,
INC.
|
|
|
By:
|
|
|
Name: Xxxxxxx
X. Xxxxxxxx
Title: Chief
Executive Officer
|
|
|
INVESTOR:
ROCKPORT
INVESTMENTS LTD.
|
|
|
By:
|
|
|
Name:
Title:
|
|
[Signature
Page to Term Debt – Convertible Debt Exchange Agreement]
C.G.
______
D.H.
______
13
EXHIBIT
A
Transaction
Approval Agreement
C.G.
______
D.H.
______
14
EXHIBIT
B
Voting
Agreement
C.G.
______
D.H.
______
15