PURCHASE AGREEMENT
Exhibit 4.1
THIS PURCHASE AGREEMENT (the “Agreement”) is entered into as of the 31st day of
January, 2007, by and between Xxxx Industries, Inc., a California corporation (the “Company”), and
Newcastle Partners, L.P., a Texas limited partnership (the “Purchaser”).
R E C I T A L S :
WHEREAS, in consideration of $10,000,000, the Company proposes to issue to the
Purchaser, and the Purchaser desires to purchase, a $10,000,000 convertible promissory note in the
form attached as Exhibit A (the “Note”).
NOW, THEREFORE, in consideration of the foregoing recital and the mutual promises hereinafter
set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE
1.1 Authorization of Transaction. On or prior to the closing of the transactions
contemplated in this Agreement (the “Closing”), the Company shall have authorized the sale and
issuance to the Purchaser of the Note and, subject to obtaining Shareholder Approval (as defined
below), all of the shares of the Company’s common stock (the “Common Stock”), issuable upon
conversion of the Note (collectively, the “Shares”).
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at the Closing, the
Company hereby agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase
from the Company, the Note for an aggregate purchase price of $10,000,000 (the “Purchase Price”).
SECTION 2. CLOSING, DELIVERY AND PAYMENT
2.1 Closing. The Closing shall take place at 10:00 a.m. on the date hereof at the offices of
the Maker’s legal counsel, Manatt in Los Angeles, California, or at such other time or place as
the Company and the Purchaser may mutually agree (the “Closing Date”). At the Closing, subject to
the terms and conditions hereof, the Company will issue, sell and deliver to the Purchaser the
Note, against payment of the Purchase Price by certified check or wire transfer of immediately
available funds. At that time, the Company and the Purchaser shall also execute the Security
Agreement in the form attached as Exhibit B and the Registration Rights Agreement in the form
attached as Exhibit C (the “Registration Rights Agreement”).
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as of the Closing Date, and
agrees, as follows:
3.1 Organization, Good Standing and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of California. The
Company’s only active subsidiaries are the subsidiaries listed on Schedule 3.1 (the
“Subsidiaries”). Except as indicated on Schedule 3.1, each Subsidiary is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization. Each of
the Company and the Subsidiaries has all requisite corporate power and authority to own and
operate its respective properties and assets and to carry on its respective business as presently
conducted and as presently proposed to be conducted. The Company has all requisite corporate
power and authority to execute and deliver this Agreement, the Note, the Security Agreement and
the Registration Rights Agreement (together, the “Transaction Documents”), to issue and sell the
Shares upon conversion of the Note (subject to obtaining Shareholder Approval) and to carry out
the provisions of the Transaction Documents. Each of the Company and the Subsidiaries is duly
qualified and is authorized to do business and is in good standing in each jurisdiction in which
the nature of its respective activities and of its respective properties (both owned and leased)
makes such qualification necessary, except for those jurisdictions in which failure to be so
qualified would not have a material adverse effect on the Company or its business, taken as a
whole.
3.2 Capitalization. The Company is authorized to issue 35,000,000 shares of Common Stock, of
which 8,593,224 shares are issued and outstanding as of the date hereof, and 1,000,000 shares of
preferred stock. Except as set forth on Schedule 3.2 or in the Company’s current, quarterly,
annual and other periodic filings (the “SEC Reports”) with the U.S. Securities and Exchange
Commission (the “Commission”), there are no outstanding options, warrants or other rights to
acquire any of the Company’s capital stock, or securities convertible, exercisable or exchangeable
for the Company’s capital stock or for securities themselves convertible, exercisable or
exchangeable for the Company’s capital stock (together, “Convertible Securities”). Except as set
forth on Schedule 3.2 or in the SEC Reports, the Company has no agreement or commitment to sell or
issue any shares of capital stock or Convertible Securities. All issued and outstanding shares of
the Company’s capital stock (i) have been duly authorized and validly issued, (ii) are fully paid
and nonassessable, (iii) are free from any preemptive and cumulative voting rights and (iv) were
issued pursuant to an effective registration statement filed with the Commission and applicable
state securities authorities or pursuant to valid exemptions under federal and state securities
laws. Except as set forth on Schedule 3.2 or in the SEC Reports, there are no outstanding rights
of first refusal or proxy or shareholder agreements of any kind relating to any of the Company’s
securities to which the Company or any of its executive officers and directors is a party or as to
which the Company otherwise has knowledge. When issued in compliance with the provisions of the
Note, the Shares will be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances; provided, however, that the Shares may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or as otherwise required
by such laws at the time a transfer is proposed.
3.3 Authorization; Binding Obligations. All corporate action on the part of the Company, its
officers and directors (including a special committee of independent directors) necessary for the
authorization of the Transaction Documents and the performance of all obligations of the Company
hereunder and thereunder at the Closing, including the authorization, sale, issuance and delivery
of the Shares upon conversion of the Note, has been taken, and no further corporate action is
required to be taken except for the Shareholder Approval. The Transaction Documents, when
executed and delivered, will be valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application affecting enforcement
of creditors’ rights, (ii) according to general principles of equity that restrict the
availability of equitable remedies and (iii) to the
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extent that the enforceability of the indemnification provisions of the Registration Rights
Agreement may be limited by applicable laws. The issuance and sale of the Shares upon conversion
of the Note are not and will not be subject to any preemptive rights or rights of first refusal.
3.4 Financial Statements. The audited consolidated balance sheets at December 31, 2005 of
the Company and the audited consolidated statements of operations, cash flows and stockholders’
equity of the Company for the year ended December 31, 2005 and the unaudited consolidated balance
sheet at, and the unaudited consolidated statements of operations and cash flows for the nine
months ended, September 30, 2006 of the Company (all of the foregoing together, the “Financial
Statements,” with September 30, 2006 being the “Latest Statement Date” and the consolidated
financial statements at and for the nine months ended September 30, 2006 being the “Latest
Financial Statements”), as contained in the SEC Reports, fairly present the consolidated financial
condition, results of operations and cash flows of the Company and its Subsidiaries on a
consolidated basis as of the respective dates and for the respective periods covered thereby
(subject, in the case of unaudited financial statements, to normal year-end audit adjustments) and
have been prepared in accordance with generally accepted accounting principles in the United
States applied on a consistent basis (except as may be indicated in the notes thereto) and the
rules and regulations of the Commission.
3.5 Liabilities. Except as reflected or expressly reserved in the Latest Financial
Statements, permitted by the Senior Credit Agreement (as defined in the Note) or disclosed on
Schedule 3.5, neither the Company nor any Subsidiaries has any material liabilities or obligations
and there is no known basis for any material contingent liabilities, except current liabilities
incurred after the Latest Statement Date in the ordinary course of business of the Company and
the Subsidiaries.
3.6 Certain Agreements and Actions. Except to the extent permitted by the Senior Credit
Agreement (as defined in the Note) or as disclosed on Schedule 3.6 or in the SEC Reports, since
the Latest Statement Date, neither the Company nor any Subsidiary has (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any class or series of
its capital stock, (ii) incurred any indebtedness for money borrowed or any other material
liabilities out of the ordinary course of business, (iii) made any loans or advances to any
person, other than ordinary advances for travel or entertainment expenses, or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than in the ordinary course of
business. “Person” shall mean an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or any other entity.
3.7 Obligations of or to Related Parties. Except as disclosed on Schedule 3.7 or in the SEC
Reports, there are no obligations of the Company or any Subsidiary to executive officers,
directors, 1% or greater shareholders or key employees (listed in the Company’s most recent proxy
materials) of the Company or any Subsidiary or to any members of their immediate families or other
affiliates, other than (i) for accrued salaries, (ii) reimbursement for expenses reasonably
incurred on behalf of the Company or any Subsidiary and (iii) for other standard employee benefits
made generally available to all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company). Except as disclosed on
Schedule 3.7 or in the SEC Reports, none of the executive
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officers, directors, 1% or greater shareholders or key employees (listed in the Company’s
most recent proxy materials) of the Company or any Subsidiary, or any members of their immediate
families or other affiliates, are indebted to the Company or any Subsidiary or have any direct or
indirect ownership interest in any firm, corporation or other entity with which the Company or any
Subsidiary is affiliated or with which the Company or any Subsidiary has a business relationship,
or any firm, corporation or other entity that competes with the Company or any Subsidiary. Except
as disclosed in the SEC Reports, no executive officer, director, 1% or greater shareholder or key
employee (listed in the Company’s most recent proxy materials) of the Company or any Subsidiary,
or, to the Company’s knowledge, any member of their immediate families or other affiliates, is,
directly or indirectly, interested in or a party to any material contract with the Company or any
Subsidiary. Except to the extent permitted by the Senior Credit Agreement (as defined in the
Note) or as disclosed on Schedule 3.7 or in the SEC Reports, neither the Company nor any
Subsidiary is a guarantor or indemnitor of any indebtedness or obligation of any other person,
other than the Company or its Subsidiaries. The representations contained in this Section 3.7
shall not be deemed to apply to the Purchaser or any of its affiliates.
3.8 No Material Adverse Change. Since the Latest Statement Date, and except as disclosed in
the SEC Reports, there has not been any material adverse change in the business, assets,
liabilities, condition (financial or otherwise), operations or prospects of the Company, and no
event has occurred or circumstance exists that may result in such a material adverse change.
3.9 Title to Properties and Assets; Liens. Except to the extent permitted by the Senior
Credit Agreement (as defined in the Note) or as set forth on Schedule 3.6 or Schedule 3.9 or in
the SEC Reports, each of the Company and its Subsidiaries has good and marketable title to its
properties and assets, including the properties and assets reflected in the Latest Financial
Statements, and good title to its leasehold estates, in each case subject to no mortgage, pledge,
lien, lease, encumbrance or charge, other than (i) those resulting from taxes that have not yet
become delinquent, (ii) minor liens and encumbrances that do not materially detract from the value
of the property subject thereto or materially impair the operations of the Company or any
Subsidiary and (iii) those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures and other properties owned, leased or used by the
Company or any Subsidiary are in good operating condition and repair and are reasonably fit and
usable for the purposes for which they are being used, reasonable wear and tear excepted.
3.10 Intellectual Property. Except as set forth on Schedule 3.10 or in the SEC Reports, each
of the Company and its Subsidiaries owns or licenses all trademarks, service marks, trade names,
copyrights, trade secrets, information and other proprietary rights and processes necessary for
its business as now conducted and as proposed to be conducted, without any known infringement of
the rights of others.
3.11 Compliance with Other Instruments. Except as disclosed in Schedule 3.11 or the SEC
Reports, neither the Company nor any Subsidiary is in violation or default of any term of its
Articles of Incorporation or Bylaws, or of any provision of any mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any judgment, decree,
order, writ, statute, rule or regulation applicable to the Company or any
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Subsidiary that would materially and adversely affect the business, assets, liabilities,
condition (financial or otherwise), operations or prospects of the Company. The execution and
delivery of, and the performance of and compliance with the transactions contemplated by, the
Transaction Documents, and the issuance and sale of the Shares upon conversion of the Note, will
not, with or without the passage of time or giving of notice or both, result in any such material
violation, or be in conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets
of the Company or any Subsidiary or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to the Company or any
Subsidiary, the business or operations of the Company or any Subsidiary or any of the assets or
properties of the Company or any Subsidiary.
3.12 Litigation. Except as disclosed in the SEC Reports, Schedule 3.5 or Schedule 3.12,
there is no action, suit, proceeding or investigation pending or, to the Company’s knowledge,
currently threatened against the Company that questions the validity of this Agreement or the
other agreements contemplated hereby or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby. Except as disclosed
in the SEC Reports, Schedule 3.5 or Schedule 3.12, there is no action, suit, proceeding or
investigation pending or, to the Company’s knowledge, currently threatened against the Company or
any Subsidiary that could result, either individually or in the aggregate, in any material adverse
change in the business, assets, liabilities, condition (financial or otherwise), operations or
prospects of the Company, or in any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. Except as disclosed in the SEC
Reports, Schedule 3.5 or Schedule 3.12, neither the Company nor any Subsidiary is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
3.13 Tax Returns and Payments. Except as disclosed on Schedule 3.13, each of the Company and
its Subsidiaries has filed all tax returns (federal, state and local) required to be filed by it.
All taxes shown to be due and payable on such returns, any assessments imposed, and, to the
Company’s knowledge, all other taxes due and payable by the Company or any Subsidiary on or before
the Closing have been paid or will be paid prior to the time they become delinquent. The Company
has not been advised (i) that any of the tax returns of the Company or any Subsidiary have been or
are being audited as of the date hereof or (ii) of any deficiency in assessment or proposed
judgment to federal, state or other taxes of the Company or any Subsidiary. The Company has no
knowledge of any liability of any tax to be imposed upon the properties or assets of the Company
or any Subsidiary as of the date of this Agreement that is not adequately provided for.
3.14 Employees. Neither the Company nor any Subsidiary has any collective bargaining
agreements with any of its employees. There is no labor union organizing activity pending or, to
the Company’s knowledge, threatened with respect to the Company or any Subsidiary. Except as set
forth on Schedule 3.14 or in the SEC Reports, no executive officer or key employee (listed in the
Company’s most recent proxy materials) has any agreement or contract, written or verbal, regarding
his employment. Except as disclosed on Schedule 3.14 or in the SEC Reports, neither the Company
nor any Subsidiary is a party to or bound by any currently effective deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the
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Company’s knowledge, no employee of the Company or any Subsidiary, nor any consultant with
whom the Company or any Subsidiary has contracted, is in violation of any material term of any
employment or consulting agreement with the Company or any Subsidiary. Except as disclosed on
Schedule 3.14 or in the SEC Reports, no executive officer or key employee (listed in the Company’s
most recent proxy materials) of the Company or any Subsidiary has been granted the right to
continued employment by the Company or any Subsidiary or to any material compensation following
termination of employment with the Company or any Subsidiary. The Company is not aware that any
executive officer or key employee (listed in the Company’s most recent proxy materials), or that
any group of executive officers or key employees (listed in the Company’s most recent proxy
materials), intends to terminate his or their employment with the Company or any Subsidiary, nor
does the Company or any Subsidiary have a present intention to terminate the employment of any
executive officer, key employee (listed in the Company’s most recent proxy materials) or group of
executive officers or key employees (listed in the Company’s most recent proxy materials).
3.15 Registration Rights. Except as disclosed on Schedule 3.15 or required pursuant to the
Registration Rights Agreement, the Company is presently not under any obligation, and has not
granted any rights, to register (as defined in the Registration Rights Agreement) any of the
Company’s presently outstanding securities or any of its securities that may hereafter be issued.
3.16 Compliance with Laws; Permits. Except as disclosed in Schedule 3.16 or the SEC Reports,
neither the Company nor any Subsidiary is in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its properties that
would materially and adversely affect the business, assets, liabilities, condition (financial or
otherwise), operations or prospects of the Company. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no registrations, filings,
notices or declarations are required to be filed in connection with the execution and delivery of,
and the performance of the transactions contemplated by, the Transaction Documents or the issuance
of the Shares upon conversion of the Note, except such as have been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as will be filed in a
timely manner. Each of the Company and the Subsidiaries has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being conducted by it, the
lack of which could materially and adversely affect the business, assets, liabilities, condition
(financial or otherwise), operations or prospects of the Company, and the Company believes it can
(and covenants to Purchaser that it will) obtain any similar authority for the conduct of its
business as planned to be conducted.
3.17 Environmental and Safety Laws. Except as disclosed in Schedule 3.17 or the SEC Reports,
to the Company’s knowledge, neither the Company nor any Subsidiary is in violation of any
applicable statute, law or regulation relating to the environment or occupational health and
safety, and, to the Company’s knowledge, no material expenditures are or will be required in order
to comply with any such existing statute, law or regulation.
3.18 Private Offering. Assuming the truth and accuracy of the representations and warranties
of the Purchaser contained in Section 4, the offer, sale and issuance of the Note (and the Shares
issuable upon conversion of the Note) will be exempt from the registration
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requirements of the Securities Act of 1933, as amended (the “Securities Act”), and will have
been registered or qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of the State of Texas.
3.19 Full Disclosure. None of the Transaction Documents nor the SEC Reports contains any
untrue statement of a material fact nor omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the circumstances in which
they were made. There are no facts that (individually or in the aggregate) materially adversely
affect the business, assets, liabilities, condition (financial or otherwise), operations or
prospects of the Company that have not been set forth in the Transaction Documents, the SEC
Reports or in other documents delivered to the Purchaser or its attorneys or agents in connection
herewith.
3.20 Investment Company Act. The Company is not, and will not use the proceeds from the Note
in a manner so as to become, an “investment company,” within the meaning of the Investment Company
Act of 1940, as amended.
3.21 American Stock Exchange Compliance. The Company’s Common Stock is registered pursuant
to Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is
listed on the American Stock Exchange (the “Amex”). The Company has taken no action designed to,
or likely to have the effect of, and the transactions contemplated by this Agreement will not have
the effect of, terminating the registration of the Common Stock under Section 12(b) of the
Exchange Act or de-listing of the Common Stock from the Amex. Except as disclosed in Schedule
3.21 or the SEC Reports, the Company has not received any notification that the Commission, the
Amex or any other self-regulatory organizational body is contemplating terminating such
registration or listing.
3.22 Reporting Status. The Company has filed all documents that the Company was required to
file under the Exchange Act during the 12 months preceding the date of this Agreement. The SEC
Reports complied in all material respects with the applicable requirements of the Securities Act
or the Exchange Act, as the case may be, and the applicable rules and regulations promulgated
thereunder as of their respective filing dates, and the information contained therein as of the
date thereof did not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has disclosed in Item 4 of
the Company’s Report on Form 10-Q for the quarter ended September 30, 2006 the effectiveness of
its disclosure controls and procedures. The Company is not aware of any material weaknesses (as
defined in Section 404 of the Xxxxxxxx-Xxxxx Act) in its internal controls.
3.23 No Manipulation of Price. Neither the Company nor, to the knowledge of the Company, any
agent or other person acting on behalf of the Company has taken or will, in violation of
applicable law, take any action designed to or that might reasonably be expected to cause or
result in, or which has constituted, stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the securities issued or issuable in connection with the
transactions contemplated hereunder.
3.24 Foreign Corrupt Practices; Xxxxxxxx-Xxxxx.
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(a) Neither the Company nor, to the knowledge of the Company, any agent or other person
acting on behalf of the Company has (i) directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or
domestic political activity, (ii) made any direct or indirect unlawful payment to foreign or
domestic government officials or employees or to any foreign or domestic political parties or
campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the
Company (or made by any person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(b) The Company, to its knowledge, is in compliance in all material respects with the
provisions of the Xxxxxxxx-Xxxxx Act of 2002 (and related rules of the Commission) that are
applicable to it as of the Closing Date.
3.25 No Material Transactions or Events. As of the Closing Date, the Company is not aware of
any pending or proposed merger, acquisition or disposition of assets that support 20% or more of
current revenues, or revenue shortfall against publicly issued Company guidance, other than as
previously disclosed in the SEC Reports or in a publicly disseminated press release.
3.26 Acknowledgment Regarding the Purchaser’s Purchase of the Note. The Company acknowledges
that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by the Purchaser or any of its representatives or agents
in connection with the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Purchaser’s purchase of the Note. The Company further represents to
the Purchaser that the Company’s decision to enter into the Transaction Documents has been based
solely on the independent evaluation by the Company and its representatives.
3.27 No General Solicitation. Neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or sale of the Note
and the Shares.
3.28 No Integrated Offering. None of the Company, its Subsidiaries, any of their affiliates,
or any person acting on their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that would require
registration of any of the Note or the Shares under the Securities Act or cause this offering to
be integrated with prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the securities of the
Company are listed or designated.
3.29 Off-Balance Sheet Arrangements. There is no material transaction, arrangement or other
relationship between the Company and an unconsolidated or other off-balance sheet entity that is
required to be disclosed by the Company in its Exchange Act filings and is not so disclosed
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as of the Closing Date, and
agrees, as follows:
4.1 Investment Representations. The Purchaser understands that neither the offer nor the
sale of the Note or the Shares has been registered under the Securities Act. The Purchaser also
understands that the Note is being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon the Purchaser’s representations contained in
the Agreement. The Purchaser hereby represents and warrants as follows:
(a) Purchaser Bears Economic Risk. The Purchaser 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 and has the
capacity to protect its own interests. The Purchaser must bear the economic risk of this
investment indefinitely unless the Note (or the Shares) is subsequently registered pursuant to the
Securities Act, or an exemption from registration is available. Except as contemplated by the
Registration Rights Agreement, the Purchaser has no present intention of selling or otherwise
transferring the Note or the Shares, or any interest therein. The Purchaser also understands that
there is no assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow the Purchaser to transfer all
or any portion of the Note or the Shares under the circumstances, in the amounts or at the times
the Purchaser might propose.
(b) Acquisition for Own Account. Except as contemplated by the Registration Rights Agreement,
the Purchaser is acquiring the Note and the Shares for the Purchaser’s own account for investment
only, and not with a view towards their public distribution.
(c) Purchaser Can Protect Its Interest. By reason of its, or of its management’s business or
financial experience, the Purchaser has the capacity to protect its own interests in connection
with the transactions contemplated in this Agreement, the Note and the Registration Rights
Agreement. Further, the Purchaser is aware of no publication of any advertisement or general
solicitation in connection with the transactions contemplated in the Agreement.
(d) Accredited Investor. The Purchaser is an accredited investor within the meaning of
Regulation D of the Securities Act.
(e) Residence. The Purchaser is organized under the laws of the State of Texas and its
principal office is located in the State of Texas.
(f) Rule 144. The Purchaser acknowledges and agrees that the Note and, if issued, the Shares
must be held indefinitely unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. The Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits limited resale of shares
purchased in a private placement subject to the satisfaction of specified conditions.
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(g) Access To Information. The Purchaser has had an opportunity to discuss the Company’s
business, management and financial affairs with the Company’s management and to review the
Company’s facilities. The Purchaser acknowledges that the Company has given the Purchaser access
to the corporate records and accounts of the Company, has made its officers and representatives
available for interview by the Purchaser and has furnished the Purchaser with all documents and
other information requested by the Purchaser to make an informed decision with respect to the
purchase of the Note.
4.2 Transfer Restrictions. The Purchaser acknowledges and agrees that the Note and, if
issued, the Shares are subject to restrictions on transfer and will bear restrictive legends.
4.3 Organization; Authorization; Binding Obligations. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws of the State of
Delaware. The Purchaser has all requisite limited partnership power and authority to execute and
deliver this Agreement and the Registration Rights Agreement and to carry out its obligations
under the provisions of such documents. This Agreement and the Registration Rights Agreement,
when executed and delivered, will be valid and binding obligations of the Purchaser enforceable
against the Purchaser in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting
enforcement of creditors’ rights, (ii) according to general principles of equity that restrict the
availability of equitable remedies and (iii) to the extent that the enforceability of the
indemnification provisions of the Registration Rights Agreement may be limited by applicable laws.
SECTION 5. CONDITIONS FOR CLOSING
5.1 Conditions for the Company to Satisfy. The obligation of the Purchaser to purchase the
Note as contemplated by this Agreement is subject to satisfaction of the following contingencies
at or prior to Closing:
(a) The Company shall have obtained all consents and approvals from third parties,
governmental authorities and self-regulatory organizations required in connection herewith.
(b) The Company shall have executed and delivered to the Purchaser at Closing the Transaction
Documents.
(c) The Company’s board of directors shall have approved the Charter Exemption Resolution.
SECTION 6. COVENANTS
6.1 Use of Proceeds. The Company will use the proceeds from the sale of the Note in
connection with the acquisition of Skytel business and other general corporate purposes.
6.2 Listing. The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is then listed
(subject to official notice of issuance) and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Registrable Securities from time to time
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issuable under the terms of the Transaction Documents. The Company shall maintain the Common
Stock’s authorization for listing on the Amex; provided, however, that the Company makes no
covenant regarding applicable listing standards based on the trading price of the Common Stock.
Neither the Company nor any of its Subsidiaries shall take any action that would be reasonably
expected to result in the delisting or suspension of the Common Stock on the Amex.
6.3 No Integrated Offering. None of the Company, its Subsidiaries, their affiliates or any
person acting on their behalf will take any action or steps referred to in Section 3.28 that would
require registration of any of the Note or the Shares under the Securities Act or cause the
offering of the Note or the Shares to be integrated with other offerings.
6.4 Reservation of Shares. The Company shall take all action, including, without limitation,
using reasonable best efforts to obtain Shareholder Approval, necessary to have authorized, and
reserved for the purpose of issuance, the number of Shares issuable pursuant to the terms of the
Note.
6.5 Shareholder Approval. The Company shall provide each shareholder entitled to vote at the
annual meeting of shareholders of the Company (the “Shareholder Meeting”), which shall be promptly
called and held not later than May 31, 2007 (the “Shareholder Meeting Deadline”), a proxy
statement, substantially in the form which will have been reviewed by the Purchaser and its
counsel, soliciting each such shareholder’s affirmative vote at the Shareholder Meeting for
approval of a resolution providing for the Company’s issuance of all of the Shares as described in
the Transaction Documents (including all Shares issuable under the Note) in accordance with
applicable law and the rules and regulations of the Amex (such affirmative approval of such matter
or matters being referred to herein as the “Shareholder Approval”), and the Company shall use its
reasonable best efforts to solicit its shareholders’ approval of such resolution and use its
reasonable best efforts to cause the Board of Directors of the Company (including a special
committee of independent directors) to recommend to the shareholders that they approve such
resolution. The Company shall be obligated to seek to obtain the Shareholder Approval by the
Shareholder Meeting Deadline. In the event that the shareholders fail to approve the matter or
matters referred to in the first sentence of this Section 6.5 at the 2007 annual meeting (or any
subsequent meeting), the Company shall seek approval for the matters set forth at each subsequent
shareholder meeting until such matters are approved.
6.6 Board Resolution. Prior to the closing of the transactions contemplated hereunder, the
Company’s Board of Directors shall pass a resolution (the “Charter Exemption Resolution”), in a
manner that complies with Article Seven, Section 2(a) of the Company’s Restated Articles of
Incorporation and otherwise satisfactory to Purchaser, exempting all transactions (whether or not
related to the transactions contemplated hereunder), including but not limited to equity sales and
acquisition transactions, involving Purchaser or any affiliate thereof occurring subsequent to the
date hereof from the special shareholder voting requirements of Article Seven of the Company’s
Restated Articles of Incorporation.
6.7 Certain Governance Provisions. So long as Purchaser beneficially owns 5% (which shall be
deemed to include, for the avoidance of doubt, all shares of Common Stock
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issuable upon the conversion of the Note) of the shares of Common Stock outstanding,
Purchaser shall have the following governance and other rights:
(a) Purchaser shall have the right, in its sole discretion, to designate two (2) individuals
to the Company’s Board of Directors (each, a “Purchaser Designee”); it being further agreed that
(1) Purchaser Designees shall be removable by, and only by, Purchaser at any time in Purchaser’s
discretion (and neither the Board of Directors nor any other shareholder or shareholders shall have
the right to remove any Purchaser Designee) and (2) Purchaser shall have the right in its sole
discretion to designate any replacement for any Purchaser Designee, including to designate any
director to fill any vacancy created by the removal, death, retirement or disqualification (or
other cause) of any Purchaser Designee. The Company shall take any and all action necessary so
that promptly following the closing hereunder, the Company’s Board of Directors shall consist of
six directors, of which two (2) shall be designees of Purchaser.
(b) All standing committees of the Board of Directors of the Company shall include at least
one designee of Purchaser, as determined by Purchaser; provided that the foregoing right shall not
apply in respect of any committee of the Board of Directors on which all Purchaser Designees shall
be prohibited under the applicable SEC or exchange rules.
(c) Any increase in the size of the Company’s Board of Directors in excess of six shall
require the consent of Purchaser.
(d) Purchaser shall have pre-emptive rights to acquire Common Stock (or other securities) on
the same terms offered to any other purchaser or potential purchaser to maintain the percentage
level of Purchaser’s beneficial ownership of Common Stock (giving effect to the transactions
contemplated hereunder, including any conversion of the Note) in the event of any issuance or
proposed issuance of equity or equity linked securities by the Company.
(e) The Company’s bylaws shall provide that (i) Purchaser is exempted from the advance notice
requirements set forth in 2.01(h)(1) and 2.10 of the Company’s bylaws and (ii) Purchaser’s written
consent shall be required to amend the foregoing exemption. Prior to or promptly following the
closing of the transactions contemplated hereunder, the Company’s Board of Directors shall approve
amendments to the Company’s bylaws to give effect to the foregoing.
(f) Purchaser and its affiliates (including any further acquisitions of Common Stock thereby)
shall be exempted from the provisions of any shareholder rights agreement or plan or similar
defensive mechanism adopted by the Company.
The Company, including its Board of Directors, agrees to take all such actions as shall be required
to give full effect to the foregoing rights, including (1) taking all actions to ensure that the
Company’s governing documents are not at any time inconsistent with the foregoing provisions and
(2) if necessary, soliciting proxies from the shareholders of the Company eligible to vote for the
election of Purchaser Designees.
6.8 Further Assurances. Except to the extent permitted by the Senior Credit Agreement (as
defined in the Note), each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably request
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in order to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby, including, without limitation, to enable the
full conversion of the Note.
SECTION 7. MISCELLANEOUS
7.1 Governing Law. This Agreement shall be governed by the laws of the State of Texas,
without regard to conflicts of law principles. EACH OF THE PARTIES TO THIS AGREEMENT CONSENTS TO
SUBMIT TO THE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF TEXAS,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AGREES THAT ALL CLAIMS
IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT, AND AGREES
NOT TO BRING ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY OTHER
COURT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES NOT TO ASSERT IN ANY ACTION OR PROCEEDING
ARISING OUT OF RELATING TO THIS AGREEMENT THAT THE VENUE IS IMPROPER, AND WAIVES ANY DEFENSE OF
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING SO BROUGHT AND WAIVES ANY BOND,
SURETY OR OTHER SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO.
7.2 Survival. The representations, warranties, covenants and agreements made herein shall
survive any investigation made by the parties and the closing of the transactions contemplated
hereby until the earlier to occur of (a) the Maturity Date (as defined in the Note) of the Note
and (b) the payment (or conversion) in full of the principal amount of the Note and any accrued
but unpaid interest thereon; provided that, notwithstanding anything to the contrary, the
provisions set forth in Section 6.7 hereof shall survive in accordance with the express terms of
Section 6.7. All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each person who shall be a holder of the Note or the Shares from time to time. The
Company shall not assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Purchaser. The Purchaser may assign some or all of its rights hereunder
(other than the rights set forth in Section 6.7 hereof, except Section 6.7(f) which exemption
shall continue to apply to any transferee of the Note in respect of Shares issuable thereunder)
without the consent of the Company in connection with a transfer by the Purchaser of any of the
Notes or the Shares.
7.4 Entire Agreement. The Transaction Documents and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof and no party shall be liable or bound
to the other in any manner by any representations, warranties, covenants and agreements,
except as specifically set forth herein and therein.
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7.5 Severability. The invalidity, illegality or unenforceability of one or more of the
provisions of this Agreement in any jurisdiction shall not affect the validity, legality or
enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality
or enforceability of this Agreement, including any such provision, in any other jurisdiction, it
being intended that all rights and obligations of the parties hereunder shall be enforceable to
the fullest extent permitted by law.
7.6 Amendment and Waiver. This Agreement may be amended or modified, and any provision
hereunder may be waived, only upon the written consent of the Company and the Purchaser.
7.7 Notices. All notices, requests, consents and other communications hereunder shall be
made in writing and shall be deemed given (i) when made if made by hand delivery, (ii) one
business day after being deposited with an overnight courier if made by courier guaranteeing
overnight delivery, (iii) on the date indicated on the notice of receipt if made by first-class
mail, return receipt requested or (iv) on the date of confirmation of receipt of transmission by
facsimile, addressed as follows:
| (a) | if to the Company, at | |||
| Xxxx Industries, Inc. | ||||
| 0000 Xxxxxxxx Xxxxxxxx | ||||
| Xxxxx 0000 | ||||
| Xxxxxxxxxxxx, Xxxxxxx 00000 | ||||
| Facsimile: (000) 000-0000 | ||||
| Attention: Chief Financial Officer | ||||
| with a copy to: | ||||
| Manatt, Xxxxxx & Xxxxxxxx, LLP | ||||
| 00000 Xxxx Xxxxxxx Xxxxxxxxx | ||||
| Xxx Xxxxxxx, XX 00000 | ||||
| Facsimile: (000) 000-0000 | ||||
| Attention: Xxxx Xxxxxx, Esq. | ||||
| (b) | if to the Purchaser, in care of: | |||
| Newcastle Partners, L.P. | ||||
| 000 Xxxxxxxx Xxxxx, Xxxxx 0000 | ||||
| Xxxxxx, XX 00000 | ||||
| Facsimile: (000) 000-0000 | ||||
| Attention: Xxxx X. Xxxxx, Esq. |
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7.8 Indemnification by the Company. The Company agrees to indemnify and hold the Purchaser
harmless against any loss, liability, damage or expense (including reasonable legal fees and
costs) that the Purchaser may suffer, sustain or become subject to as a result of or in connection
with the breach by the Company of any representation, warranty, covenant or agreement of the
Company contained in any of the Transaction Documents; provided, however, that no indemnification
shall be required hereunder for the negligence or willful misconduct of the Purchaser or breach by
the Purchaser of any of the representations and warranties set forth in Section 4 hereof. In case
any such action is brought against the Purchaser, the Company will be entitled to participate in
and assume the defense thereof with counsel reasonably satisfactory to the Purchaser, and after
notice from the Company to the Purchaser of its election to assume the defense thereof, the
Company shall not be responsible for any legal or other expenses subsequently incurred by the
Purchaser in connection with the defense thereof; provided, that if the Purchaser shall have
reasonably concluded that there may be one or more legal defenses available to the Purchaser which
conflict in any material respect with those available to the Company, the Company shall not have
the right to assume the defense of such action on behalf of the Purchaser and the Company shall
reimburse the Purchaser for that portion of the fees and expenses of one counsel retained by the
Purchaser.
7.9 Expenses. The Company agrees to pay or reimburse the Purchaser for its reasonable legal
fees and expenses incurred by Purchaser in connection with the negotiation and execution of the
Transaction Documents and any and all expenses that Purchaser may incur after the date hereof in
connection with the granting of any waiver with respect to, the modification of any of the terms
or provisions of, or the enforcement of any of the Transaction Documents.
7.10 Titles and Subtitles. The titles of the sections and subsections of the Agreement are
for convenience of reference only and are not to be considered in construing this Agreement.
7.11 Counterparts. This Agreement may be delivered via facsimile or other means of
electronic communication, and may be executed in counterparts, each of which shall be an original,
but all of which together shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have hereunto affixed their signatures.
| Xxxx Industries, Inc. | Newcastle Partners, L.P. | |||||||||
| By: Newcastle Capital Management, L.P. | ||||||||||
| its General Partner | ||||||||||
By
|
/s/ Xxxx X. Xxxxxxx | By | /s/ Xxxx Xxxxxxx | |||||||
Its
|
Chief Executive Officer | Its | Chief Executive Officer | |||||||
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