EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
February 26, 2001, by and among DAMARK International, Inc., a Minnesota
corporation, with headquarters located at 0000 Xxxxxxxx Xxxxxx Xxxxx,
Xxxxxxxxxxx, Xxxxxxxxx 00000 (the "COMPANY"), and the investors listed on the
Schedule of Buyers attached hereto (individually, a "BUYER" and collectively,
the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("REGULATION D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 ACT");
B. The Company shall issue as of the Closing (as defined
below) an aggregate of $20 million principal amount (the "Purchase Price") of
its 10% Senior Convertible Notes of the Company due August 26, 2001 (the "SENIOR
CONVERTIBLE NOTES") in the form attached hereto as Exhibit A, which shall be
convertible into either (i) shares of the Company's Class A Common Stock, $.01
par value per share (the "COMMON STOCK") (as converted, the "NOTE CONVERSION
SHARES") or (ii), subject to the satisfaction of certain conditions set forth in
Section 4 of the Senior Convertible Notes, shares of the Company's Series E
Convertible Preferred Stock, $.01 par value per share (the "SERIES E PREFERRED
STOCK") which, in accordance with the terms of the Company's Certificate of
Designations, Preferences and Rights in the form attached hereto as EXHIBIT B
(the "CERTIFICATE OF DESIGNATIONS") shall be convertible into shares of the
Company's Common Stock (as converted, the "PREFERRED CONVERSION SHARES") (the
Senior Convertible Notes, together with the Note Conversion Shares, the Series E
Preferred Stock, and the Preferred Conversion Shares, shall hereafter be
collectively referred to as the "SECURITIES")
C. The Buyers wish to purchase, upon the terms and conditions
stated in this Agreement, an aggregate of up to $20 million of Senior
Convertible Notes, in the respective amounts set forth opposite each Buyer's
name on the Schedule of Buyers; and
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Buyers hereby agree as
follows:
1. PURCHASE AND SALE OF SENIOR CONVERTIBLE NOTES.
a. PURCHASE OF SENIOR CONVERTIBLE NOTES. Subject to
the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company an aggregate of up to $20 million of the Senior
Convertible Notes, in the respective amounts set forth under the column entitled
"Principal Amount" opposite each Buyer's name on the Schedule of Buyers (the
"INITIAL CLOSING"). On the Closing Date (as defined below) the Company shall
deliver to each Buyer a Convertible Note in the principal amount which such
Buyer is then purchasing (as indicated under the column entitled "Principal
Amount" opposite such Buyer's name on the Schedule of Buyers), duly executed on
behalf of the Company and registered in the name of such Buyer or its designee.
If fewer than an aggregate of $20 million of Senior Convertible Notes are issued
and sold by the Company at the Initial Closing, then, subject to the terms and
conditions of this Agreement, the Company may issue and sell, at a subsequent
closing or closings taking place no later than March 8, 2001, additional Senior
Convertible Notes (not to exceed $20 million in the aggregate with the Senior
Convertible Notes purchased at the Initial Closing) to such persons or entities
as the Company may determine. Any such issuance and sale shall be upon the same
terms and conditions as those contained herein, and such persons or entities
shall execute and deliver counterparts of and shall become parties to the
applicable Transaction Documents (as defined below). The Initial Closing and
subsequent closings are referred to herein as a "Closing".
b. CLOSING DATE. The date and time of the Closing
(the "INITIAL CLOSING DATE") shall be 10:00 a.m. Eastern Standard Time on
February 26, 2001, and of any subsequent closings shall be on the date or dates
agreed to by the Company and the applicable Buyers, but not later than March 8,
2001, in each case subject to notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below (or such later
date as is mutually agreed to by the Company and the Buyers). The Initial
Closing shall occur on the Initial Closing Date at the offices of Xxxxxxx Xxxx &
Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. The Initial Closing Date
and any subsequent closing dates shall each be referred to as a "CLOSING DATE."
c. FORM OF PAYMENT; ESCROW. On the Closing Date, each
Buyer shall pay the Company Payment Amount set forth opposite such Buyer's name
on the Schedule of Buyers, by wire transfer to the Company of immediately
available funds in accordance with the Company's written wire instructions
provided in writing to the Buyers at least one day prior to the Closing Date. On
the Escrow Funding Date, each Buyer shall fund the Escrow Payment Amount set
forth opposite such Buyer's name on the Schedule of Buyers, less any fees and
expenses due such Buyer, including, without limitation, the fees set forth in
Section 7(m) and the expenses set forth in section 4(h), by wire transfer to the
Escrow Agent pursuant to the Escrow Agreement in accordance with the Escrow
Agent's written wire instructions provided in writing to the Buyers at least one
day prior to the Escrow Execution Date. The "Escrow Funding Date" shall mean the
date of the execution of the escrow agreement in form mutually acceptable to the
Company and Buyers (the "Escrow Agreement") by and among the escrow agent (the
"Escrow Agent"), the Company and the Buyers party thereto.
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2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. INVESTMENT PURPOSE. Such Buyer (i) is purchasing
the Senior Convertible Notes and (ii) upon conversion of the Senior Convertible
Notes will acquire the Note Conversion Shares or the Preferred Conversion
Shares, as the case may be, then issuable for its own account for investment
only and not with a present view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c. RELIANCE ON EXEMPTIONS. Such Buyer understands
that the Senior Convertible Notes are being offered and sold to it in reliance
on specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Senior Convertible
Notes.
d. INFORMATION. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Senior Convertible Notes which have been specifically requested by such Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Senior Convertible Notes or the fairness or suitability of the investment in
the Securities nor have such authorities passed upon or endorsed the merits of
the offering of the Senior Convertible Notes.
f. TRANSFER OR RESALE. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that
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such Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such
securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("RULE 144"); (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
g. LEGENDS. Such Buyer understands that the
certificates or other instruments representing the Senior Convertible Notes and
the Series E Preferred Stock and, until such time as the sale of the Note
Conversion Shares and the Preferred Conversion Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Note Conversion Shares and the Preferred
Conversion Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Securities upon which it is
stamped, if (i) any such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of such Securities may be made without
registration under the 1933 Act, or (iii) any of the Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. Each Buyer
acknowledges, covenants and agrees to sell any of the Securities represented by
a certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act. In the event the above legend is removed from any of the Securities, the
Company may, upon reasonable advance notice to the holder, require that the
above legend be placed on any of the Securities that cannot then be sold
pursuant to an effective registration statement or Rule 144(k) under the 1933
Act (or any successor rule thereto).
h. AUTHORIZATION; ENFORCEMENT. This Agreement has
been duly and validly authorized, executed and delivered on behalf of such Buyer
and is a valid and binding
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agreement of such Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ITS
SUBSIDIARIES.
The Company and its subsidiaries represent, warrant
and agree to each of the Buyers that:
a. ORGANIZATION AND QUALIFICATION. The Company and
its subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect and all of which
jurisdictions in which either the Company or its subsidiaries is or believes it
should be duly qualified is set forth on Schedule 3(a) hereto. "MATERIAL ADVERSE
EFFECT" means any material adverse effect on (i) the business, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company and its subsidiaries individually and taken as a whole,
(ii) on the ability of the Company to perform its obligations under this
Agreement, the Senior Convertible Notes, the Certificate of Designations, the
Escrow Agreement and the Registration Rights Agreement (the foregoing documents
shall be collectively referred to as the "Transaction Documents") or under the
agreements or instruments to be entered into or filed in connection herewith or
therewith, or (iii) the Securities.
b. AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER
INSTRUMENTS. Other than the receipt of the Required Shareholder Approval (as
defined in the Senior Convertible Notes), (i) the Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Senior Convertible Notes, the Escrow Agreement and the
Registration Rights Agreement, to issue, sell and perform its obligations with
respect to the Senior Convertible Notes and the Series E Preferred Stock in
accordance with the terms hereof, the Senior Convertible Notes, the Certificate
of Designations, as applicable, and to issue the Note Conversion Shares, the
Series E Preferred Stock and the Preferred Conversion Shares, as the case may
be, in accordance with the Senior Convertible Notes and the Certificate of
Designations, (ii) the execution and delivery of the Transaction Agreements by
the Company and the consummation by it of the transactions contemplated thereby,
including, without limitation, the issuance of the Senior Convertible Notes and
the reservation for issuance and the issuance of the Note Conversion Shares, the
issuance of the Series E Preferred Stock and the reservation for issuance and
issuance of Preferred Conversion Shares have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders, (iii) the
Transaction Documents, other than the Escrow Agreement, have been duly executed
and delivered by the Company and the Escrow Agreement will be duly executed and
delivered by the Company on the Escrow Funding Date,
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and (iv) the Transaction Documents constitute, or in the case of the Escrow
Agreement will constitute, the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, (v) prior to the
Closing Date, the Certificate of Designations will have been filed with the
Secretary of State of the State of Minnesota and be in effect and (vi) this
Agreement, the Senior Convertible Notes and the Registration Rights Agreement
are in full force and effect, on the Escrow Funding Date the Escrow Agreement
will be in full force and effect, and upon filing, the Certificate of
Designations shall be in full force and effect, enforceable against the Company
in accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. CAPITALIZATION AND INDEBTEDNESS. As of the date
hereof and immediately prior to the issuance of the Senior Convertible Notes
hereunder, the authorized capital stock of the Company consists of 20,000,000
shares of Common Stock, of which as of the date hereof, 5,864,352 shares are
issued and outstanding, 2,000,000 shares of Class B Common Stock (the "Class B
Common Stock"), of which as of the date hereof, no shares are issued and
outstanding, 2,400,000 shares of Series A Convertible Preferred Stock ("Series A
Preferred Stock"), of which as of the date hereof, no shares are issued and
outstanding, 1,650,000 shares of Series B Convertible Non-Voting Preferred Stock
("Series B Preferred Stock"), of which as of the date hereof, no shares are
issued and outstanding, 400,000 shares of Series C Junior Participating
Preferred Stock ("Series C Preferred Stock") of which as of the date hereof no
shares are issued and outstanding and 200,000 shares of Series D Convertible
Preferred Stock ("Series D Preferred Stock"), of which as of the date hereof,
200,000 shares are issued and outstanding (and collectively with the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock called
the "Company Preferred"). All of the outstanding shares have been validly issued
and are fully paid and nonassessable. No shares of Common Stock, Class B Common
Stock or Company Preferred are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company. Except
as set forth on Schedule 3(c), as of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
(ii) there are no outstanding debt securities, notes, credit agreements, or
other agreements, documents or instruments evidencing indebtedness of the
Company or any of its subsidiaries or by which the Company or any of its
subsidiaries is or may become bound, (iii) there are no amounts outstanding
under, and there will be no amounts due upon termination of, that certain Credit
Agreement between Bank of America, N.A. and the Company (the "Revolving Credit
Facility"), dated as of July 28, 2000, (iv) there are no financing statements
filed in connection with the Company or any of its subsidiaries and (v) there
are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement). Except as set forth on
Schedule 3(c), there are no securities or instruments containing anti-dilution
or similar provisions that will be triggered by the issuance of any of the
Securities as described in this Agreement. The Company has furnished to the
Buyer true and correct copies of
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the Company's articles of incorporation, as amended and as in effect on the date
hereof (the "CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock, Class B Common Stock or
Company Preferred Stock and the material rights of the holders thereof in
respect thereto.
d. ISSUANCE OF SECURITIES. The Securities are duly
authorized and, upon issuance in accordance with the terms of the applicable
Transaction Documents, each of the Securities shall be (i) validly issued, fully
paid and non-assessable, (ii) free from all taxes, liens and charges with
respect to the issue thereof, and shall not be subject to preemptive rights or
other similar rights of shareholders of the Company and (iii) the Series E
Preferred Stock shall be entitled to the rights and preferences set forth in the
Certificate of Designations. An aggregate of 2,000,000 shares of Common Stock
have been authorized and reserved by the Company to provide for the issuance of
the Note Conversion Shares and the Preferred Conversion Shares and from and
after the date of the Required Shareholder Approval (as defined in the Senior
Convertible Notes), 8,000,000 shares of Common Stock will be authorized and
reserved by the Company to provide for the issuance of the Note Conversion
Shares and the Preferred Conversion Shares. Upon conversion, in accordance with
the Senior Convertible Notes, (A) the Note Conversion Shares will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock or (B) and in accordance with the
Certificate of Designations, the Series E Preferred Stock will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all the
rights set forth in the Certificate of Designation, and upon conversion of the
Series E Preferred Stock, the Preferred Conversion Shares will be validly
issued, fully paid and non assessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock.
e. NO CONFLICTS. The execution, delivery and
performance of the Transaction Documents and the consummation by the Company of
the transactions contemplated thereby (including, without limitation, the
issuance of the Securities) will not (i) result in a violation of the Bylaws,
the Certificate of Incorporation and the Certificate of Designations,
Preferences and Rights of any outstanding series of Preferred Stock of the
Company or any of its subsidiaries, or (ii) except as disclosed in Schedule
3(e), violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including U.S. federal and state securities laws and regulations and the rules
and regulations of the principal market or exchange on which the Common Stock is
traded or listed) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected. Neither the Company nor any of its subsidiaries is in violation of
any term of or in default under its Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
Preferred Stock or By-laws or their organizational charter or by-laws,
respectively, or in violation of any term of or in default under any contract,
agreement, mortgage, indebtedness,
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indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries except where such
defaults and violations would not in the aggregate have a Material Adverse
Effect. The business of the Company and its subsidiaries is not being conducted
in violation of any law, ordinance or regulation of any governmental entity
except where such violations would not in the aggregate have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required
under the 1933 Act, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental or regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by any of the
Transaction Documents in accordance with the terms hereof or thereof. The
Company is not in violation of the listing requirements of the NASDAQ National
Market and does not reasonably anticipate that the Common Stock will be delisted
by the NASDAQ National Market in the foreseeable future. The Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since
December 31, 1998 the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company (i) has delivered or made available to each Buyer
or its representative true and complete copies of the SEC Documents to the
extent that each Buyer or its representative has requested any such SEC
Documents from the Company and (ii) agrees to deliver or make available to each
Buyer or its representative true and complete copies of any additional SEC
Documents, upon request. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to any Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are
or were made, not misleading.
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g. ABSENCE OF CERTAIN CHANGES. Except as expressly
set forth in Schedule 3(g) since December 31, 1999, there has been no material
adverse change and no material adverse development in the business, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company and its subsidiaries taken as a whole. The Company has
not taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or its
subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
h. ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or its subsidiaries or their respective directors or
officers, or the Common Stock, wherein an unfavorable decision, ruling or
finding would, to the knowledge of the Company, individually or in the
aggregate, have a Material Adverse Effect. Schedule 3(h) contains a complete
list and summary description of any pending, or to the knowledge of the Company,
threatened proceeding against or affecting the Company or any of its
subsidiaries, without regard to whether it could have a Material Adverse Effect.
i. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF THE
SECURITIES. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation by the Company and its representatives.
j. 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 under the 0000 Xxx) in connection with the offer or sale of any
of the Securities offered hereby.
k. NO INTEGRATED OFFERING. Neither the Company, nor
any of its affiliates, nor any person acting on its or 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 Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ").
l. EMPLOYMENT MATTERS; ERISA MATTERS. The Company and
its subsidiaries are in compliance with all federal, state, local and foreign
laws and regulations
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respecting employment and employment practices, terms and conditions of
employment and wages and hours except where failure to be in compliance would
not have a Material Adverse Effect. There are no pending investigations
involving the Company or any of its subsidiaries by the U.S. Department of Labor
or any other governmental agency responsible for the enforcement of such
federal, state, local or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any of its subsidiaries
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or any of its subsidiaries. Except as set forth in
Schedule 3(l), no representation question exists respecting the employees of the
Company or any of its subsidiaries, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or any of its
subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
its subsidiaries. No material labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the knowledge of the Company, is imminent.
Schedule 3(l) sets forth a list of every employee benefit plan (whether or not
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained or contributed to by the Company or any of member of its
controlled group (determined in accordance with Section 4001(a)(14) of ERISA)
(collectively the "Plans"). Except for such failures that would not,
individually or in the aggregate, result in a Material Adverse Effect, each of
the Plans have been maintained and administered in accordance with their terms,
ERISA, the Internal Revenue Code of 1986, as amended (the "CODE") and other
applicable laws. None of the Plans is subject to Title IV of ERISA and no Plan
is a multiemployer plan (within the meaning of Section 3(37) of ERISA). Each
Plan intended to qualify under Section 401(a) or 501(c)(9) of the Code has
received a favorable determination or approval letter from the Internal Revenue
Service regarding its qualification under such section and no event has occurred
which cause any such Plan to lose its qualification.
m. INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess the requisite rights or licenses to use all
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights (collectively
"INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective businesses
as now conducted and as presently contemplated to be operated in the future.
None of the Intellectual Property Rights or other intellectual property rights
have expired or terminated, or are expected to expire or terminate in the near
future. The Company and its subsidiaries do not have any knowledge of any event,
fact or circumstance relating to (i) any infringement by the Company or its
subsidiaries of any trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other similar
rights of others, or of any such development of similar or identical trade
secrets or technical information by others or (ii) any person or entity now
infringing any Intellectual Property Rights or other similar rights or any such
development of similar or identical trade secrets or technical information owned
or used by the Company or any of its subsidiaries or (iii) any person or entity
now infringing any Intellectual Property Rights or other similar rights or any
such development of similar or identical trade secrets or other infringement.
There is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its subsidiaries
regarding any
10
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets or other similar rights of others, or
of any such development of similar or identical trade secrets or technical
information by others. The Company and its subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.
n. ENVIRONMENTAL LAWS. (i) The Company and its
subsidiaries (A) are in compliance with any and all Environmental Laws, (B) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses, and (C)
are in compliance with all terms and conditions of any such permit, license or
approval, except in each case where the failure of the Company and its
subsidiaries would not, individually or in the aggregate, have a Material
Adverse Effect. With respect to the Company and/or its subsidiaries (A) there
are no past or present releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under any Environmental Law in any material respect and (B) neither
the Company nor any of its subsidiaries has received any notice with respect to
the foregoing, nor is any action pending or to the Company's knowledge,
threatened in connection with the foregoing. The term "ENVIRONMENTAL LAWS" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, to the knowledge of the Company,
no Hazardous Materials are contained on or about any real property currently
owned, leased or used by the Company or any of its Subsidiaries, and no
Hazardous Materials were released on or about any real property previously
owned, leased or used by the Company or any of its subsidiaries during the
period the property was owned, leased or used by the Company or any of its
subsidiaries.
(iii) To the knowledge of the Company, there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its subsidiaries that are not in compliance with
applicable law.
o. TITLE. The Company and its subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(o) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
11
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
p. INSURANCE. The Company and each of its
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as is prudent and customary in
the businesses in which the Company and its subsidiaries are engaged. Neither
the Company nor any such subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not individually or in the
aggregate have a Material Adverse Effect.
q. REGULATORY PERMITS; COMPLIANCE. The Company and
its subsidiaries possess all franchises, grants, authorizations, licenses
permits, easements, consents, certificates, approvals and orders necessary to
own, lease and operate its properties and to conduct their respective businesses
as currently being conducted (collectively, the "COMPANY PERMITS"). There is no
action pending, or to the knowledge of the Company, threatened regarding the
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits except where such violation would not in the
aggregate have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has received any notification with respect to possible conflicts,
defaults, or violations of applicable laws.
r. INTERNAL ACCOUNTING CONTROLS. The Company and each
of its subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
s. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which has or is expected in the future individually or in the aggregate to have
a Material Adverse Effect. Neither the Company nor any of its subsidiaries is a
party to any contract or agreement which has or is expected to have a Material
Adverse Effect.
t. TAX STATUS. Except as set forth on Schedule 3(t),
the Company and each of its subsidiaries has made or filed all federal, state
and foreign income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent that
the Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges shown or
determined to be due on
12
such returns, reports and declarations, except those being contested in good
faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. Except as set for on Schedule 3(t),
there are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any foreign,
federal, state or local tax. The Company has not been notified that any of its
tax returns is currently being audited by any taxing authority.
u. CERTAIN TRANSACTIONS. Except as set forth on
Schedule 3(u) or disclosed in the SEC Documents and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors or employees of the Company or any of its
subsidiaries is presently a party to any transaction with the Company or any
subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
v. S-3 REGISTRATION. The Company is currently
eligible to register secondary offerings of securities, including the resale of
the Note Conversion Shares and Preferred Conversion Shares, on a registration
statement on Form S-3 under the 1933 Act.
w. DISCLOSURE. All information relating to or
concerning the Company or any of its subsidiaries set forth in this Agreement
and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
any of its subsidiaries or its or their business, properties, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
x. INVESTMENT COMPANY STATUS. The Company is not and
upon consummation of the sale of the Securities will not be an "investment
company," a company controlled by an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended.
y. FOREIGN CORRUPT PRACTICES. Neither the Company nor
any of its subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the
13
Company or any subsidiary has, in the course of his actions for, or on behalf
of, the Company or any subsidiary used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
z. SOLVENCY. The Company individually and together
with its subsidiaries on a consolidated basis (both before and after giving
effect to the transactions contemplated by the Transaction Documents) is solvent
(i.e., its assets have a fair market value in excess of the amount required to
pay its probable liabilities on its existing debts as they become absolute and
matured) and currently the Company has no information that would lead it to
reasonably conclude that the Company would not have, nor does it intend to take
any action that would impair, its ability to pay its debts from time to time
incurred in connection therewith as such debts mature. Notwithstanding the
foregoing, the Investors have been provided with information from the Company
regarding the current financial condition of the Company in connection with
certain events surrounding the Company's senior debt facility.
aa. RIGHTS PLAN. The issuance of the Senior
Convertible Notes, the Series E Preferred Stock and the reset provisions under
Section 3.11 of the warrants issued by the Company dated September 29, 2000 to
the Series D Purchasers (as defined in Section 4(i) below) shall not trigger any
provision set forth in the Company's Shareholder Rights Plan dated April 16,
1998, as amended.
4. COVENANTS AND AGREEMENTS.
a. BEST EFFORTS. Each party shall use its best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. FORM D. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date.
c. REPORTING STATUS. Until the earlier of (i) six
months after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Note Conversion Shares and
Preferred Conversion Shares, without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on which
(A) the Investors shall have sold all the Note Conversion Shares and Preferred
Conversion Shares and (B) none of the Securities are outstanding (the
"REGISTRATION PERIOD"), the Company (x) shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise
permit such
14
termination and (y) will use its best efforts and take all necessary action to
maintain its ability and eligibility to register secondary offerings of
securities on Form S-3.
d. USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Senior Convertible Notes for general corporate purposes and
shall not otherwise, directly or indirectly, use such proceeds for any loan to
or investment in any other corporation, partnership, enterprise or other person
(except in connection with its direct or indirect subsidiaries) or for the
repurchase, redemption, or retirement of any capital stock of the Company.
e. FINANCIAL INFORMATION. The Company agrees to file
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act.
The financial statements of the Company will be prepared in accordance with
generally accepted accounting principles, consistently applied except as stated
therein, and will fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries and results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to omission of footnotes and normal year-end audit
adjustments). The Company agrees to send the following to each Investor (as that
term is defined in the Registration Rights Agreement) during the Registration
Period: (i) within five (5) days after the filing thereof with the SEC, a copy
of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any
Current Reports on Form 8-K and any registration statements or amendments filed
pursuant to the 1933 Act; (ii) within one (1) day after release thereof, copies
of all press releases issued by the Company or any of its subsidiaries; and
(iii) copies of any notices and other information made available or given to the
shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders.
f. RESERVATION OF SHARES. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than 150% of the number of shares of Common Stock necessary
to provide for the issuance of (i) the Note Conversion Shares and (ii) the
Preferred Conversion Shares PROVIDED, HOWEVER, that such shares of Common Stock
so reserved shall be allocated for issuance upon conversion of Series E
Preferred Stock pro rata among the Holders of Series E Preferred Stock based on
the number of Series E Preferred Stock held by such Holder relative to the total
number of outstanding Series E Preferred Stock and the issuance of such shares
may be subject to the receipt of the Required Shareholder Approval.
Notwithstanding the foregoing, until such time as the Company has obtained the
Required Shareholder Approval (as defined in the Senior Convertible Note), the
Company at all times shall have authorized, and reserved for the purpose of
issuance, as many shares of Common Stock as are available for reservation, which
shall be on the date hereof 2,000,000 shares, as is necessary to provide for the
issuance of (i) the Note Conversion Shares and (ii) the Preferred Conversion
Shares.
g. LISTING. The Company shall promptly secure the
listing of the Note Conversion Shares, and the Preferred Conversion Shares, upon
the Nasdaq National Market ("NASDAQ") (subject to official notice of issuance)
and shall maintain, so long as any Buyer owns any of the Securities, the listing
of all Note Conversion Shares and the Preferred Conversion Shares from time to
time issuable under the terms of the Transaction Documents on
15
each national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed. The Company shall promptly provide
to each Buyer copies of any notices it receives from NASDAQ regarding the
continued eligibility of the Common Stock for listing on NASDAQ or other
principal exchange or quotation system on which the Common Stock is listed or
traded except to the extent that such notices would constitute material non
public information which, according to applicable law, rule or regulation should
have been disclosed publicly by the Company but which has not been so disclosed
as of such date. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(g).
h. EXPENSES. The Company shall each pay its and shall
reimburse each Buyer for its respective costs and expenses (including attorneys'
fees and expenses) incurred in connection with the negotiation, investigation,
preparation, execution, delivery and performance of the Transaction Documents
and the agreements and documents referred to therein. In addition to the
foregoing, the Company agrees to pay on demand all reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of counsel to the
Buyers) incurred by the Buyers in connection with the enforcement of the Buyers'
rights and/or the collection of all amounts due under the Transaction Documents
and the agreements and documents referred to therein.
i. ADDITIONAL ISSUANCES OF SECURITIES.
(i) RIGHT OF FIRST REFUSAL. If at any time
on or before the one year anniversary of the Closing Date, the Company shall
desire to issue any Common Stock or other equity security or any other security
convertible, exchangeable or exercisable for Common Stock (including any debt
financing with an equity component) or any other right to acquire any Common
Stock (the "CONVERTIBLE SECURITIES") pursuant to Section 4(2) of the 1933 Act or
an offering of equity securities (including any debt security with an equity
component) under Regulation D or Regulation S of the 1933 Act or in any other
private placement (other than (1) pursuant to Company authorized stock option
plans, (2) pursuant to Section 4(p) below), or (3) pursuant to a Strategic
Financing (as defined in the Certificate of Designations for Series E Preferred
Stock), then the Company shall first comply with the terms of this Section 4(i).
(ii) NOTICE REQUIREMENTS. The Company shall
notify, or cause to be notified, the Buyers, by certified mail return receipt
requested, not less than five (5) business days prior to the time the Company
intends to consummate such issuance (the "ISSUANCE NOTICE"). The Issuance Notice
shall set forth all of the terms of such proposed issuance.
(iii) EXERCISE OF RIGHT OF FIRST REFUSAL.
The right of first refusal provided for in this Section 4(i) may be exercised by
the Buyers by delivery of a written notice to the Company (the "EXERCISE
NOTICE"), within five (5) business days following receipt of the Issuance Notice
(the "REFUSAL PERIOD"). The Exercise Notice shall state that the Buyers agree to
purchase all and only all of the proposed issuance of such Common Stock or
Convertible Securities on terms set forth in the Issuance Notice.
16
(iv) RIGHT TO ISSUE SECURITIES. After
expiration of the Refusal Period, if the provisions of this Section 4(i) have
been complied with in all respects by the Company and no Exercise Notice has
been given, or if given, the Buyers have not agreed to purchase all of the
securities set forth in the Issuance Notice, the Company shall have the right
for forty-five (45) calendar days following the termination of the Refusal
Period to issue such securities, or any portion thereof not being purchased by
the Buyers, as the case may be, specified in the Issuance Notice on the terms
described in the Issuance Notice without further notice to the Buyers, but after
such forty-five (45) calendar days, no such issuance may be made without again
giving notice to the Buyers and complying with all of the requirements of this
Section 4(i).
(v) For so long as any Buyer beneficially
owns any Securities, the Company will not issue any Senior Convertible Notes or
Series E Preferred Stock other than to the Buyers as contemplated hereby.
(vi) For purposes hereof, each Buyer and
Series D Purchaser (as defined below) shall have the right to purchase its pro
rata share of the proposed issuance. If any Buyer or Series D Purchaser elects
not to fully exercise such right, the other Buyers and Series D Purchasers shall
have the right to purchase such unelected portion. Pro rata share shall be
determined, as to the Buyers, on the original principal amount of the Senior
Convertible Notes purchased by each Buyer under this Agreement and, as to the
Series D Purchasers, on the stated value of the Series D Preferred Shares (as
defined below) purchased by each Series D Purchaser under the Series D Purchase
Agreement (as defined below). The term "SERIES D PURCHASE AGREEMENT" means the
Securities Purchase Agreement dated September 29, 2000 by and among the Company
and the investors listed on the Schedule of Buyers attached thereto
(individually a "SERIES D PURCHASER" and collectively the "SERIES D PURCHASERS")
pursuant to which the Company issued on September 29, 2000 an aggregate of
200,000 of its Series D Preferred Stock, stated value $100 per share, having the
terms set forth in the Certificate of Designations filed by the Company with the
Minnesota Secretary of State on September 29, 2000 (the "SERIES D PREFERRED
SHARES").
j. DILUTIVE EFFECT. The Company understands and
acknowledges that the number of Note Conversion Shares and Preferred Conversion
Shares respectively, will increase in certain circumstances. The Company further
acknowledges and agrees that its obligation to issue Note Conversion Shares and
Preferred conversion Shares, as applicable, is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
k. DISCLOSURE. From and after the date hereof, the
Company will not provide to any Buyer any material non-public information which,
according to applicable law, rule or regulation should be disclosed publicly by
the Company but which has not been so disclosed.
l. CORPORATE EXISTENCE. So long as any Buyer
beneficially owns any Securities, the Company shall maintain its corporate
existence in good standing under the laws of the jurisdiction in which it is
incorporated and shall not sell all or substantially all of the Company's
assets, except in the event of (i) a Major Transaction (as defined in the Senior
17
Convertible Notes and the Certificate of Designations) where the surviving or
successor entity in such transaction redeems all of the then outstanding Senior
Convertible Notes or Series E Preferred Stock, as the case may be, in accordance
with and subject to the terms of the Senior Convertible Notes and the
Certificate of Designations, or (ii) a merger or consolidation or sale of all or
substantially all of the Company's assets for cash, or, if for securities, where
the surviving or successor entity in such transaction either (x) redeems all of
the then outstanding Senior Convertible Notes or Series E Preferred Stock, as
the case may be, in accordance with and subject to the terms of the Senior
Convertible Notes and the Certificate of Designations applicable to such
transactions, or (y) (A) assumes the Company's obligations hereunder and under
the agreements and instruments entered into in connection herewith and (B) is a
publicly traded corporation whose common stock is listed for trading on the
American Stock Exchange, NASDAQ or the New York Stock Exchange.
m. COMPLIANCE WITH LAW. The Company will conduct its
business in compliance with all applicable laws, rules, ordinances and
regulations of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal environmental laws
and regulations except where the failure to comply with which would have a
Material Adverse Effect.
n. INSURANCE. The Company shall maintain liability,
casualty and other insurance (subject to customary deductions and retentions)
with responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size to the Company.
o. NO INTEGRATION. The Company will not conduct any
future offering that will be integrated with the issuance of the Securities for
purposes of the rules promulgated by the SEC or NASDAQ.
p. FILING OF FORM 8-K. On or before the second (2nd)
business day following the Closing Date the Company shall file a Current Report
on Form 8-K with the SEC describing the terms of the transactions contemplated
by this Agreement and including as exhibits to such Current Report on Form 8-K
this Agreement, the Transaction Documents in the form required by the 1934 Act.
q. CLASS B COMMON STOCK. So long as any Securities
are outstanding, the Company shall not issue any shares of Class B Common Stock.
r. BOARD DESIGNEE. Upon sixty-one (61) days prior
written notice to the Company, Xxxxx Trading ("XXXXX") shall have the right to
demand that the Company shall appoint a designee of Xxxxx to the Company's Board
of Directors (the "XXXXX DESIGNEE").
s. TRANSFER AGENT INSTRUCTIONS. By no later than
March 8, 2001, the Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT D attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
18
t. RELEASE OF SECURITY INTEREST. Each Buyer hereby
agrees that, if the Company satisfies the condition set forth in Section
4(b)(viii) of the Senior Convertible Notes, the Buyers shall release any and all
liens and security interests granted pursuant to Section 12 of the Senior
Convertible Notes and such Section 12 shall thereafter be of no further force
and effect.
u. PUT RIGHT. The Company hereby agrees that in the
event that the Transfer Agent Instructions in the form attached as EXHIBIT D are
not executed by the Company's transfer agent on or before March 8, 2001, then
the Buyers shall have the right to put back their Senior Convertible Notes to
the Company and receive a return of their investments plus interest at the rate
of 10%.
v. REVOLVING CREDIT FACILITY NOTICE. By no later than
February 28, 2001, the notice to permanently terminate the Commitment (as
defined in the Revolving Credit Facility) under the Revolving Credit Facility
pursuant to Section 2.05 of the Revolving Credit Facility, shall have been
delivered to Bank of America, N.A., together with a copy to each Buyer.
w. SERIES B PREFERRED STOCK. So long as the Series E
Preferred Stock is outstanding, the Company shall not issue or authorize any
additional shares of its Series B Preferred Stock on or after March 8, 2001.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent (in the form attached hereto as EXHIBIT D) to issue certificates,
or at a Buyer's request, to electronically issue such shares (e.g., through DWAC
or DTC) (such electronic issuance to be made only if such shares have been
registered under the 1933 Act), registered in the name of each Buyer or its
respective nominee(s), for the Note Conversion Shares, and the Preferred
Conversion Shares in such amounts as specified from time to time by each Buyer
to the Company in accordance with the terms of and upon conversion of the Senior
Convertible Notes and the Series E Preferred Stock (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). Prior to registration of the Note Conversion Shares and
the Preferred Conversion under the 1933 Act, such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction with respect to the Securities other than (i) the
Irrevocable Transfer Agent Instructions referred to in first sentence of this
paragraph and (ii) stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Note Conversion Shares and the Preferred Conversion
Shares, prior to registration thereof under the 1933 Act), will be given by the
Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in the Transaction Documents. Nothing in this Section 5 shall affect in
any way each Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of any of the Securities. If a Buyer provides the
Company with an opinion of counsel, in a generally acceptable form, that
19
registration of a resale by such Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Note Conversion Shares and the Preferred Conversion Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by such Buyer. The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Senior Convertible Notes to each Buyer at the Closing is subject to the
satisfaction, with respect to each Buyer, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
a. Such Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company the
purchase price for the Senior Convertible Notes being purchased by such Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Senior
Convertible Notes at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
a. The Company and each other Buyer shall have
executed each of the Transaction Documents (to the extent a party thereto) and
delivered the same to such Buyer.
20
b. The Company shall have executed and delivered to
such Buyer the Senior Convertible Note purchased by such Buyer at the Closing.
c. The Certificate of Designations shall have been
executed by the Company and filed with the Secretary of State of the State of
Minnesota, and a copy thereof certified by such Secretary shall have been
delivered to such Buyer.
d. The Common Stock shall be listed and authorized
for trading on the Nasdaq National Market, and trading in the Common Stock
issuable upon conversion of the Senior Convertible Note and the Series E
Preferred Stock to be traded on the Nasdaq National Market shall not have been
suspended by the SEC or NASDAQ.
e. The representations and warranties of the Company
in the Transaction Documents shall be true and correct in all material respects
(except to the extent that any of such representations and warranties is already
qualified as to materiality, in which case such representations and warranties
shall be true and correct without further qualification) as of the date when
made and as of the Closing Date as though made at that time (except for
individual representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including, without
limitation, an update as of the Closing Date regarding the representation
contained in Section 3(c) above.
f. Each Buyer shall have received the opinion of
Xxxxxx Xxxxxxxx & Xxxxxx, dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the form of
EXHIBIT E attached hereto.
g. The Board of Directors of the Company shall have
adopted the resolutions in substantially the form of EXHIBIT F attached hereto.
h. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock solely for the purpose
of effecting the conversion of (i) the Senior Convertible Notes, shares of
Common Stock to provide for the issuance of the Note Conversion Shares and (ii)
the Series E Preferred Stock, the Preferred Conversion Shares, in accordance
with the terms of the Transaction Documents.
i. Xxxx Xxxx shall have resigned from the Company as
chief executive officer and shall have agreed, immediately upon the request of
Xxxxxx Xxxxxxxx, Chairman, to resign as a director.
j. Xxxx Xxxx shall have delivered to the Company his
irrevocable proxy to vote in favor of the transactions contemplated by the
Required Shareholder Approval (as defined in the Senior Convertible Notes)
substantially in the form of Exhibit G attached hereto.
21
k. The Company shall appoint Xxxxxx Xxxxxxxx shall
have been appointed as Chairman, President and Chief Executive Officer of the
Company.
l. The transactions contemplated hereby shall not
violate any law, regulation or order then in effect and applicable to Buyers or
the Company.
m. The Company shall have paid such Buyer a fee in
cash, equal to 2% of the face amount of the Senior Convertible Note purchased by
it hereunder.
8. INDEMNIFICATION. In consideration of each Buyer's execution
and delivery of this Agreement and acquiring the 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 Buyer and each
other holder of 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 "BUYER
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 Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "BUYER INDEMNIFIED
LIABILITIES"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) subject to Section 9(i), any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Certificate of Designations, the Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in this Agreement, the Certificate of Designations, the
Warrants or the Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby, or (c) unless such claims
arise from a breach or default thereunder by the Buyer Indemnitees, the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the Buyer
Indemnitees, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Senior
Convertible Notes. To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Buyer Indemnified
Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws.
b. COUNTERPARTS. This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each and delivered to the other party; provided that a facsimile signature shall
be considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
22
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement
supersedes all other prior oral or written agreements among the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the documents referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the Company and the Buyers holding fifty-one percent (51%) of the outstanding
principal amount of the Senior Convertible Notes or the Series E Preferred
Stock, as applicable.
f. NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement shall be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile;
(iii) three days after being sent by U.S. certified mail, return receipt
requested, or (iv) one day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. For purposes of consent under Section 4 (i)(ii), notice shall be delivered
only by U.S. certified mail, return receipt requested. The addresses and
facsimile numbers for such communications shall be:
23
if to the Company:
DAMARK International, Inc.
000 Xxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxxxxx, Xxxxxxxxx 00000
Telephone: 000.000.0000
Facsimile: 952.258.2010
Attention: Xxxxxx Xxxxxxxx, President
with a copy to:
Xxxxxx, Xxxxxxxx and Xxxxxx, P.A.
5500 Xxxxx Fargo Center
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 612-375-1143
Attention: Xxxxx X. Xxxxxx
If to the Transfer Agent:
Xxxxx Fargo Shareowner Services
000 Xxxxx Xxxxxxx Xxxxxxxx Xxxxxx
Xxxxx Xx. Xxxx, Xxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Shareowner Relations
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with copies to such Buyer's counsel as set
forth on the Schedule of Buyers:
Each party shall provide five days' prior written notice to
the other party of any change in address or facsimile number.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Securities. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the Buyers. A Buyer may assign some or all of its
rights hereunder without the consent of the Company, provided, however, that any
such assignment shall not release such Buyer from its obligations hereunder
unless such obligations are assumed by such assignee.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
24
i. SURVIVAL. The representations and warranties of
the Company and the Buyers contained in Sections 3 and 2, respectively, shall
survive the Closing until two years after the Closing Date. The agreements and
covenants set forth in Sections 4, 5 and 8, shall survive the Closing. Each
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. PUBLICITY. The Company and each Buyer shall have
the right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated by the Transaction
Documents; PROVIDED, HOWEVER, that the Company shall be entitled, without the
prior approval of any Buyer, to make any press release or other public
disclosure with respect to such transactions as is required by applicable law
and regulations (although each Buyer shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release and shall be provided with a copy thereof), but only to the extent
required by such law or regulation.
k. FURTHER ASSURANCES. 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 in order to
carry out the intent and accomplish the purposes of this Agreement, the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby.
l. NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
m. EQUITABLE RELIEF. The Company recognizes that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under the Transaction Documents, any remedy at law may prove to be
inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages.
n. CONSENT TO JURISDICTION. The parties hereto
expressly submit themselves to the exclusive jurisdiction of the state and
federal courts of New York in any action or proceeding relating to the
Transaction Documents or any of the other documents contemplated thereby or any
of the transactions contemplated thereby. Each party hereby irrevocably waives,
to the fullest extent permitted by law, any objection that it may now or
hereafter have to the laying of venue of any such action, suit or proceeding
brought in such a court and any claim that any such action, suit or proceeding
brought in such a court has been brought in an inconvenient forum. The parties
hereto irrevocably and unconditionally consent to the service of process of any
of the aforementioned courts in any such action, suit or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, at
their respective addresses set forth or provided for herein, such service to
become effective 10 days after such mailing. Nothing herein shall affect the
right of any party to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against the other parties in any
other jurisdiction.
25
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
DAMARK INTERNATIONAL, INC. XXXXX TRADING
By: By:
---------------------------------- -----------------------------------
Name: Xxxxxx Xxxxxxxx Name:
Its: President Its:
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By:
-----------------------------------
Name:
Its:
WOODVILLE LLC
By:
-----------------------------------
Name:
Its:
CALM WATERS PARTNERSHIP
By:
-----------------------------------
Name:
Its:
--------------------------------------
Xxxxxx X. Xxxxxx
26
SCHEDULE OF BUYERS
Amount Paid
On Escrow Funding
Principal Amount Amount Paid Date to Escrow
of Senior At Closing Agent prior to
Convertible Notes to Company (the netting of fees
Investor Address, (the "Principal "Company Payment (the "Escrow Investor's Advisor
Telephone and Amount") Amount") Payment Amount") and Legal Counsel Address
Investor Name Facsimile Number
---------------------- ------------------------ ----------------- ------------------- ------------------- -------------------------
Xxxxx Trading c/o Staro Asset $2,500,000 $1,760,000 $740,000 Xxxxxxx Xxxxx, Esq.
(Wisconsin) Management Xxxxxxx Xxxx & Xxxxx LLP
0000 Xxxx Xxxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxxxxx, XX 00000 Xxx Xxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
Shepherd Investments c/o Staro Asset $2,500,000 $1,760,000 $740,000 Xxxxxxx Xxxxx, Esq.
International, Ltd. Management Xxxxxxx Xxxx & Xxxxx LLP
(British Virgin 0000 Xxxx Xxxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxxxxxx) Xxxxxx, XX 00000 Xxx Xxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000 ]
Xxxxx-Xxxxxx, Inc.
000 Xxxxx 0xx Xxxxxx
Xxxxxxxxx LLC Suite 2800 $2,000,000 $1,408,000 $592,000
Xxxxxxxxxxx, XX 00000
Attention: Xxxx Xxxxx
Fax: (000) 000-0000
Strong Capital
Management
Calm Waters 100 Heritage Reserve $7,000,000 $4,928,000 $2,072,000
Partnership Xxxxxxxxx Xxxxx, XX
00000
Attention: Xxxxxx Xxxxxx
Fax: (000) 000-0000
Strong Capital
Management
Xxxxxx X. Xxxxxx 100 Heritage Reserve $200,000 $140,800 $59,200
Xxxxxxxxx Xxxxx, XX
00000
Attention: Xxxxxx Xxxxxx
Fax: (000) 000-0000
27
List of Exhibits
----------------
Exhibit A Form of Convertible Note
Exhibit B Form of Certificate of Designations
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Transfer Agent Instructions
Exhibit E Form of Opinion of Xxxxxx Xxxxxxxx & Xxxxxx
Exhibit F Form of Resolutions of Board
Exhibit G Form of Voting Agreement
List of Schedules
-----------------
3(a) List of Subsidiaries & Jurisdictions of Due Qualification
3(c) Capitalization and Indebtedness
3(e) No Conflicts
3(g) Certain Changes
3(h) Litigation
3(l) Employment; ERISA
3(o) Title
3(t) Tax Status
3(u) Certain Transactions
28
