===============================================================================
JD AMERICAN WORKWEAR, INC.
--------------------------------------
SECURITIES PURCHASE AGREEMENT
--------------------------------------
2,500 SHARES OF SERIES B 12% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
AND
799,000 DETACHED TEN-YEAR STOCK PURCHASE WARRANTS
Dated as of April 9, 1998
===============================================================================
TABLE OF CONTENTS
Page
----
1. Authorization of Securities 1
2. Sale and Purchase of Securities 2
3. Closing 2
4. Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities 2
4.1 Register of Securities 2
4.2 Restrictions on Transfer 2
4.3 Removal of Transfer Restrictions 4
5. Representations and Warranties by the Company 4
5.1 Organization, Standing, etc 4
5.2 Qualification 5
5.3 Capital Stock 5
5.4 Securities 6
5.5 Indebtedness for Borrowed Money 7
5.6 Shareholder List 7
5.7 Corporate Acts and Proceedings 7
5.8 Compliance with Laws and Other Instruments 7
5.9 Binding Obligations 8
5.10 Securities Laws 8
5.11 No Brokers or Finders 9
5.12 Financial Statements 9
5.13 Absence of Undisclosed Liabilities 9
5.14 Changes 9
5.15 Material Agreements of the Company 10
5.16 Employees 11
5.17 Tax Returns and Audits 12
5.18 Patents and Other Intangible Assets 13
5.19 Employment Benefit Plans--ERISA 15
5.20 Title to Property and Encumbrances; Leases 15
5.21 Condition of Properties 15
5.22 Insurance Coverage 15
5.23 Litigation 16
5.24 Financial Projections 16
5.25 Registration Rights 16
5.26 Licenses 16
5.27 Interested Party Transactions 17
5.28 Minute Books and Check Authorizations 17
5.29 Financial Statements in Public Filings 17
5.30 Commission Reports and Other Documents 17
5.31 Customer Orders 18
5.32 Disclosure 18
6. Conditions of Parties' Obligations 18
6.1 Conditions of Investor's Obligations at the Closing 18
6.2 Conditions of Company's Obligations 21
7. Affirmative Covenants 21
7.1 Maintain Corporate Rights and Facilities 21
7.2 Maintain Insurance 21
7.3 Pay Taxes and Other Liabilities 22
7.4 Records and Reports 22
7.5 Preparation of Budget 24
7.6 Notice of Litigation and Disputes 24
7.7 Directors' Meetings 24
7.8 Conduct of Business 25
7.9 Replacement of Certificates 25
7.10 Compliance with Section 6 25
7.12 Securities Law Filings 25
7.13 Composition of the Board of Directors; Compensation Committee 25
7.14 Compliance With Certificate and Bylaws 26
7.15 Internal Accounting Controls 26
7.16 Use of Proceeds 26
7.17 Union Matters 26
7.18 Dividends 27
7.19 PIK Dividends and Dividend Warrants 27
7.20 Escrow of Certain Proceeds 27
8. Negative Covenants 28
8.1 Senior or Parity Securities 28
8.2 Private Offerings 28
8.3 Changes in Type of Business 28
8.4 Loans; Guarantees 28
8.5 Restrictive Agreements 28
9. Enforcement 29
9.1 Remedies at Law or in Equity 29
9.2 Cumulative Remedies 29
9.3 No Implied Waiver 29
10. Rights of First Refusal 30
10.1 Subsequent Offerings 30
10.2 Exercise of Rights 30
10.3 Issuance of Equity Securities to Other Persons 30
10.4 Termination of Right of First Refusal 30
10.5 Excluded Securities 30
11. Definitions 31
12. Miscellaneous 37
12.1 Waivers and Amendments 37
12.2 Effect of Waiver or Amendment 37
12.3 Rights of Holders Inter Se 38
12.4 Notices 38
12.5 Survival of Representations and Warranties, etc 39
12.6 Severability 40
12.7 Parties in Interest 40
12.8 Headings 40
12.9 Choice of Law 40
12.10 Expenses 40
12.11 Counterparts 41
12.12 Authorship 41
12.13 Entire Agreement 41
LIST OF ANNEXES
Annex A Certificate
Annex B The Investor Warrant Certificate
Annex C The Dividend Warrant Certificate
Annex 5.5 Schedule of Indebtedness for Borrowed Money
Annex 5.6 Schedule of Holders of Common Stock, Options and Warrants
Annex 5.11 Schedule of Brokers or Finders
Annex 5.12 Financial Statements
Annex 5.13 Schedule of Special Liabilities
Annex 5.14 Schedule of Changes
Annex 5.15 Schedule of Material Agreements
Annex 5.16 Schedule of Designated Key Employee's Outside Commitments
Annex 5.18 Schedule of Patents and Other Intangible Assets
Annex 5.23 Schedule of Litigation
Annex 5.25 Schedule of Registration Rights
Annex 5.27 Schedule of Interested Party Transactions
Annex 5.31 Schedule of Customer Orders
Annex 6.1(f) Opinion of the Company's Counsel
Annex 6.1(k) Stockholders Agreement
Annex 6.1(l) Registration Rights Agreement
Annex 6.1(m) Escrow Agreement
Annex 7.16 Use of Proceeds
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
April 9, 1998 between JD AMERICAN WORKWEAR, INC., a Delaware corporation (the
"Company"), and THE UNION LABOR LIFE INSURANCE COMPANY, a Maryland corporation
("Ullico" or the "Investor").
THE PARTIES hereby agree as follows:
1. Authorization of Securities.
(a) Preferred Stock. The Company has authorized the issue and
sale of 3,200 shares of its Series B 12% Cumulative Convertible Preferred
Stock, $.001 par value (the "Preferred Stock"), having the powers, designation,
preferences and relative, participating, optional and other special rights and
the qualifications, limitations and restrictions set forth in the Company's
Certificate of Designation of the Preferred Stock (hereinafter referred to as
the "Certificate"), a copy of which is attached hereto as Annex A. The
Preferred Stock is convertible into the Company's common stock, $.002 par
value, which class of shares is sometimes referred to herein as the "Common
Stock". The Common Stock into which the Preferred Stock is convertible is
sometimes referred to herein as the "Conversion Stock".
(b) Warrants.
(i) The Company has authorized the issuance of a detached
ten-year Stock Purchase Warrant to purchase 799,000 shares of the Common Stock
at an exercise price of $.01 per share (the "Investor Warrants").
(ii) The Company has authorized the issuance of detached
ten-year dividend warrants (the "Dividend Warrants") to purchase a total of
213,552 shares of Common Stock at an exercise price of $.01 per share. The
Dividend Warrants are issuable to the holders of the Preferred Stock in
accordance with Section 2(a)(iii) of the Certificate.
(iii) The Investor Warrants and the Dividend Warrants are
referred to herein collectively as the "Warrants". The Investor Warrants shall
be evidenced by certificates substantially in the form of Annex B (the
"Investor Warrant Certificate"). The Dividend Warrants shall be evidenced by
certificates substantially in the form of Annex C (the "Dividend Warrant
Certificate," and, together with the Investor Warrant Certificate, the "Warrant
Certificates"). The Common Stock issuable upon exercise of the Warrants is
sometimes referred to herein as the "Warrant Stock". The Preferred Stock, the
Conversion Stock, the Warrant Stock and the Warrants are sometimes referred to
herein individually and collectively as the "Securities".
2. Sale and Purchase of Securities. Upon the terms and subject to the
conditions herein contained, the Company agrees to sell to Investor, and
Investor agrees to purchase from the Company, at the Closing (as hereinafter
defined) on the Closing Date (as hereinafter defined) 2,500 shares of Preferred
Stock and the Investor Warrant at a total price of $2,500,000 (the "Purchase
Payment").
3. Closing. The closing of the sale to and purchase by Investor of the
Preferred Stock and the Investor Warrants (the "Closing") shall occur at the
offices of Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, 000 Xxxx Xxxxxx, Xxxxxx-Xxxxx
Xxxxx, Xxx Xxxx, X.X. 00000-0000, at the hour of 4:00, Eastern time, on April
9, 1998, or at such different time or day as Investor and the Company shall
agree (the "Closing Date"). At the Closing, the Company will deliver to
Investor a certificate evidencing the Preferred Stock and a Warrant Certificate
evidencing the Investor Warrants, each of which shall be registered in
Investor's name, against delivery to the Company of payment by check or wire
transfer in an amount equal to the Purchase Payment less $1,750,000 less
expenses of this transaction to be delivered to Marine Midland Bank, N.A.,
pursuant to the Escrow Agreement by and among the Company, Investor and Marine
Midland Bank, N.A. Bank, dated April 9, 1998.
4. Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities.
4.1 Register of Securities. The Company or its duly appointed
agent shall maintain a separate register for the Securities, in which it shall
register the issue and sale of all such shares and the Warrants. All transfers
of the Securities shall be recorded on the register maintained by the Company
or its agent, and the Company shall be entitled to regard the registered holder
of the Securities as the actual holder of the Securities so registered until
the Company or its agent is required to record a transfer of such Securities on
its register. Subject to Section 4.2(c) hereof, the Company or its agent shall
be required to record any such transfer when it receives the Security to be
transferred duly and properly endorsed by the registered holder thereof or by
its attorney duly authorized in writing.
4.2 Restrictions on Transfer.
(a) Investor understands and agrees that the Securities it
will be acquiring have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and that accordingly they will not be fully
transferable except as permitted under various exemptions contained in the
Securities Act or applicable state securities laws, or upon satisfaction of the
registration and prospectus delivery requirements of the Securities Act or
registration or qualification requirements under applicable state securities
laws. Investor acknowledges that it must bear the economic risk of its
investment in the Securities for an indefinite period of time (subject,
however, to the Company's obligation to redeem the Preferred Stock in
accordance with the Certificate and to the Company's obligation to effect the
registration of the Conversion Stock and the Warrant Stock under the Securities
Act in accordance with the Registration Rights Agreement (as hereinafter
defined)) since they have not been registered under the Securities Act and
therefore cannot be sold unless they are subsequently registered or an
exemption from registration is available.
(b) Investor hereby represents and warrants to the Company
that (i) it is acquiring the Securities it has agreed to purchase for
investment purposes only, for its own account, and not as nominee or agent for
any other Person (as hereinafter defined), and not with the view to, or for
resale in connection with, any distribution thereof within the meaning of the
Securities Act, and (ii) it is an "accredited investor" within the meaning of
Rule 501(a) of the Commission under the Securities Act.
(c) Investor hereby agrees with the Company as follows:
(i) Subject to Section 4.3 hereof, the certificates
evidencing the Securities it has agreed to purchase, and each certificate
issued in transfer thereof, will bear the following legend:
"The securities evidenced by this certificate have not
been registered under the Securities Act of 1933 and
have been taken for investment purposes only and not
with a view to the distribution thereof, and, except as
stated in an agreement between the holder of this
certificate, or its predecessor in interest, and the
issuer corporation, such securities may not be sold or
transferred unless there is an effective registration
statement under such Act covering such securities or
the issuer corporation receives an opinion of counsel
(which may be counsel for the issuer corporation)
stating that such sale or transfer is exempt from the
registration and prospectus delivery requirements of
such Act."
(ii) The certificates representing such Securities,
and each certificate issued in transfer thereof, will also bear any legend
required under any applicable state securities law.
(iii) Absent an effective registration statement under
the Securities Act, covering the disposition of the Securities which Investor
acquires, Investor will not sell, transfer, assign, pledge, hypothecate or
otherwise dispose of any or all of the Securities without first providing the
Company with an opinion of counsel (which may be counsel for the Company) to
the effect that such sale, transfer, assignment, pledge, hypothecation or other
disposition will be exempt from the registration and the prospectus delivery
requirements of the Securities Act and the registration or qualification
requirements of any applicable state securities laws, except that no such
registration or opinion shall be required with respect to (A) a transfer not
involving a change in beneficial ownership, or (B) the distribution of
Securities by such Investor to any of its partners, or retired partners, or to
the estate of any of its partners or retired partners, or (C) a sale to be
effected in accordance with Rule 144 of the Commission under the Securities Act
(or any comparable exemption).
(iv) Investor consents to the Company's making a
notation on its records or giving instructions to any transfer agent of the
Securities in order to implement the restrictions on transfer of the Securities
mentioned in this subsection (c).
4.3 Removal of Transfer Restrictions. Any legend endorsed on a
certificate evidencing a Security pursuant to Section 4.2(c)(i) hereof and the
stop transfer instructions and record notations with respect to such Security
shall be removed and the Company shall issue a certificate without such legend
to the holder of such Security (a) if such Security is registered under the
Securities Act, or (b) if such Security may be sold under Rule 144(k) of the
Commission under the Securities Act or (c) if such holder provides the Company
with an opinion of counsel (which may be counsel for the Company) reasonably
acceptable to the Company to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act.
5. Representations and Warranties by the Company. In order to induce
Investor to enter into this Agreement and to purchase the Preferred Stock and
the Investor Warrant, the Company hereby covenants with, and represents and
warrants to, the Investor as follows:
5.1 Organization, Standing, etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite power and authority to carry on its
business, to own and hold its properties and assets, to enter into this
Agreement, the Warrant Certificates and the Registration Rights Agreement, to
issue the Securities and to carry out the provisions hereof and thereof, and
the terms of the Certificate and the Securities. The copies of the Certificate
of Incorporation, Certificate of Designation of the Company's Series A
Preferred Stock and Bylaws of the Company which have been delivered to Investor
prior to the execution of this Agreement are true and complete and have not
been amended or repealed. The Company has no Subsidiaries (as hereinafter
defined) or direct or indirect interest (by way of stock ownership or
otherwise) in any firm, partnership, corporation, association or business
enterprise.
5.2 Qualification. The Company is duly qualified, licensed or
domesticated as a foreign corporation in good standing in each jurisdiction
wherein the nature of its activities or its properties owned or leased makes
such qualification, licensing or domestication necessary.
5.3 Capital Stock. The authorized capital stock of the Company
consists of 4,500,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock, of which 600 shares have been designated Series A 10% Mandatorily
Convertible Preferred Stock (the "Series A Preferred Stock"), and the Company
has no authority to issue any other capital stock. Three hundred thirteen (313)
shares of Series A Preferred Stock are issued and outstanding and 1,964,898
shares of Common Stock are issued and outstanding, and all such shares of
Common Stock and Series A Preferred Stock are duly authorized, validly issued,
fully paid and nonassessable. The offer, issuance and sale of such shares of
Common Stock and Series A Preferred Stock were (a) made in accordance with or
were exempt from the registration and prospectus delivery requirements of the
Securities Act, (b) registered or qualified (or were exempt from registration
or qualification) under the registration or qualification requirements of all
applicable state securities laws, and (c) accomplished in conformity with all
other federal and applicable state securities laws, rules and regulations. The
Company has (A) reserved a total of 250,000 shares of Common Stock for issuance
to employees under a 1995 stock option plan , under which options to purchase a
total of 250,000 shares have been granted, 12,500 of which are unexercised; (B)
reserved a total of 360,545 shares of Common Stock for issuance upon exercise
of outstanding "A" Warrants issued by the Company; (C) reserved a total of
360,545 shares of Common Stock for issuance upon the exercise of outstanding
"B" Warrants issued by the Company, (D) reserved a total of 465,648 shares of
Common Stock for issuance upon the exercise of outstanding Consultant Warrants
issuable at $4.00 per share, (E) reserved a total of 88,889 shares of Common
Stock for issuance upon conversion of the 11% Convertible Notes issued by the
Company, (F) reserved a total of 112,500 shares of Common Stock for issuance
upon exercise of outstanding Class PW Warrants issued in conjunction with the
11% Convertible Notes, (G) reserved a total of 68,550 shares of Common Stock
for issuance upon exercise of outstanding Class W Warrants issued in
conjunction with 12% Convertible Notes, (H) reserved a total of 32,777 shares
of Common Stock for issuance upon exercise of outstanding Underwriter Purchase
Options, (I) reserved a total of 50,000 shares of Common Stock for issuance
upon exercise of the outstanding Consultant Warrants issuable at $1.50 per
share, and (J) reserved a total of 313,000 shares of Common Stock for issuance
upon conversion of the Series A Preferred Stock. Except as expressly provided
in the preceding sentence or the Certificate, the Company has no outstanding
subscription, option, warrant, call, contract, demand, commitment, convertible
security or other instrument, agreement or arrangement of any character or
nature whatsoever under which the Company is or may be obligated to issue
Common Stock, preferred stock or other Equity Security (as hereinafter defined)
of any kind. Neither the offer nor the issuance or sale of the Securities
constitutes or will constitute an event, under any Equity Security or any
anti-dilution or similar provision of any agreement or instrument to which the
Company is a party or by which it is bound or affected, which shall either
increase the number of shares or units of Equity Securities issuable upon
conversion of any Equity Securities (whether stock or Indebtedness for Borrowed
Money (as hereinafter defined)) or upon exercise of any warrant or right to
subscribe to or purchase any stock or similar security (including Indebtedness
for Borrowed Money), or decrease the consideration per share or unit of Equity
Security to be received by the Company upon such conversion or exercise.
5.4 Securities.
(a) Preferred Stock. The Preferred Stock is duly authorized
and, when issued and paid for pursuant to the terms of this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable, will have the
rights, preferences and privileges specified in the Certificate and will be
free and clear of all Liens (as hereinafter defined) and restrictions, other
than Liens that might have been created by Investor and restrictions on
transfer imposed by (i) Sections 4.2 and 4.3 hereof, (ii) applicable state
securities laws and (iii) the Securities Act; and the Conversion Stock is duly
authorized and has been reserved for issuance upon conversion of the Preferred
Stock and, when issued upon conversion in accordance with the terms of the
Certificate, will be duly authorized, validly issued, fully paid and
nonassessable Common Stock and free and clear of all Liens and restrictions,
other than Liens that might have been created by Investors and restrictions
imposed by (i) Sections 4.2 and 4.3 hereof, (ii) applicable state securities
laws and (iii) the Securities Act.
(b) Warrants. The Warrants are duly authorized and when
issued pursuant to this Agreement and, in the case of the Dividend Warrants,
the Certificate will be validly issued, and have the rights and privileges
specified in the Warrant Certificate and are free and clear of all Liens and
restrictions, other than Liens that might have been created by Investor and
restrictions on transfer imposed by (i) Sections 4.2 and 4.3 hereof, (ii) the
applicable state securities laws and (iii) the Securities Act, and the Warrant
Stock is duly authorized and has been reserved for issuance upon exercise of
the Warrants and, when issued in accordance with the terms of the Warrant
Certificates and payment of the purchase price therefor has been made to the
Company, will be duly authorized, validly issued fully paid and nonassessable
Common Stock and free and clear of all Liens and restrictions, other than Liens
that might have been created by Investor and restrictions imposed by (i)
Sections 4.2 and 4.3 hereof, (ii) applicable state securities laws and (iii)
the Securities Act.
5.5 Indebtedness for Borrowed Money. The Company has no
Indebtedness for Borrowed Money except as disclosed on the Balance Sheet (as
hereinafter defined) or on Annex 5.5 hereto.
5.6 Shareholder List. Annex 5.6 hereto contains a true and
complete list of the names and addresses of the stockholders of record, as of
February 20, 1998, of the outstanding Common Stock and of the holders of all
outstanding options, warrants or other rights to purchase Common Stock, as well
as a list of the names, addresses, beneficial ownership of the outstanding
Common Stock, the price paid per share and the form of payment therefor for
each officer, director, current or former consultant or holder of at least 3%
or more of the outstanding Common Stock (or securities representing the right
to purchase or acquire upon conversion at least 3% or more of the outstanding
Common Stock). With respect to holders of Common Stock, Annex 5.6 contains a
true and complete description of the number of shares held by each such holder
and the date such shares were purchased. With respect to each outstanding
option, Annex 5.6 sets forth the date of grant, the number of shares subject
thereto, the exercise price, vesting schedule and expiration date. With respect
to warrants, Annex 5.6 sets forth the date of issue of each warrant, the number
of shares of Common Stock subject to the warrant, the exercise price and
expiration date. No holder of Common Stock or any other security of the Company
or any other Person is entitled to any preemptive right, right of first refusal
or similar right as a result of the issuance of the Securities or otherwise.
Except as disclosed in Annex 5.6, there is no voting trust, agreement or
arrangement among any of the beneficial holders of Common Stock of the Company
affecting the exercise of the voting rights of such stock.
5.7 Corporate Acts and Proceedings. All corporate acts and
proceedings required for the authorization, execution and delivery of this
Agreement, the Warrant Certificates and the Registration Rights Agreement, the
offer, issuance and delivery of the Securities and the performance of this
Agreement, the Warrant Certificates, the Registration Rights Agreement (except
to the extent that additional Board action may be required to effect a
Securities Act registration) and the terms of the Certificate have been
lawfully and validly taken or will have been so taken prior to the Closing.
5.8 Compliance with Laws and Other Instruments. The business and
operations of the Company have been and are being conducted in accordance with
all applicable federal, state and local laws, rules and regulations, except to
the extent that noncompliance with laws, rules and regulations would not,
individually or in the aggregate, have a Material Adverse Effect (as
hereinafter defined) on the Company. The execution and delivery by the Company
of this Agreement, the Warrant Certificates and the Registration Rights
Agreement and the performance of this Agreement, the Warrant Certificates and
the Registration Rights Agreement and the terms of the Certificate (a) will not
require from the Board or stockholders of the Company any consent or approval
that has not been validly and lawfully obtained (except to the extent that
additional Board action may be required to effect a Securities Act
registration), (b) will not require any authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality of government,
except such as shall have been lawfully and validly obtained prior to the
Closing (except for filing a Form D with the Commission within 15 days of the
Closing Date and in the case of any registration required by the Registration
Rights Agreement, proceedings under the Securities Act or state blue sky laws
to register Common Stock under the Securities Act), (c) will not cause the
Company to violate or contravene (i) any provision of law, (ii) any rule or
regulation of any agency or government, domestic or foreign, (iii) any order,
writ, judgment, injunction, decree, determination or award, or (iv) any
provision of the Certificate of Incorporation, the Certificate of Designation
for the Series A Preferred Stock (the "Series A Certificate") or Bylaws of the
Company, (d) will not violate or be in conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under,
any indenture, loan or credit agreement, note agreement, deed of trust,
mortgage, security agreement or other agreement, lease or instrument,
commitment or arrangement to which the Company is a party or by which the
Company or any of its properties, assets or rights is bound or affected, to the
extent that such violation, conflict, breach or default would (individually or
in the aggregate) have a Material Adverse Effect and (e) will not result in the
creation or imposition of any Lien. The Company is not in violation of, or
(with or without notice or lapse of time or both) in default under, any term or
provision of its Certificate of Incorporation, the Series A Certificate or
Bylaws or of any indenture, loan or credit agreement, note agreement, deed of
trust, mortgage, security agreement or other agreement, lease or other
instrument, commitment or arrangement to which the Company is a party or by
which any of the Company's properties, assets or rights is bound or affected.
The Company is not subject to any restriction of any kind or character which
has or may have a Material Adverse Effect on the Company or which prohibits the
Company from entering into this Agreement or would prevent or make burdensome
its performance of or compliance with all or any part of this Agreement, the
Warrant Certificates, the Registration Rights Agreement or the Certificate or
the consummation of the transactions contemplated hereby or thereby.
5.9 Binding Obligations. This Agreement, the Registration Rights
Agreement, the Warrant Certificates and the Certificate constitute the legal,
valid and binding obligations of the Company and are enforceable against the
Company in accordance with their respective terms, except as such enforcement
is limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.
5.10 Securities Laws. Subject to the accuracy of Investor's
representations and warranties in Section 4.2(b), the offer, issue and sale of
the Securities are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
5.11 No Brokers or Finders. Except as provided in Annex 5.11, no
Person has, or as a result of the transactions contemplated herein will have,
any right or valid claim against the Company or any Investor for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity.
5.12 Financial Statements. Attached hereto as Annex 5.12 are (a)
the Company's unaudited balance sheet (the "Balance Sheet") as of November 30,
1997 (the "Balance Sheet Date") and the unaudited statements of income, cash
flow and stockholders' equity for the 9-month period then ended, and (b) the
Company's audited balance sheet as of February 28, 1997 and the audited
statements of income, cash flow and stockholders' equity for the twelve-month
period then ended. These financial statements (i) are in accordance with the
books and records of the Company, (ii) present fairly the financial condition
of the Company at the Balance Sheet Date and other dates therein specified and
the results of its operations and cash flow for the periods therein specified,
and (iii) have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior accounting periods.
Specifically, but not by way of limitation, the Balance Sheet discloses all of
the debts, liabilities and obligations of any nature (whether absolute,
accrued, contingent or otherwise and whether due or to become due) of the
Company at the Balance Sheet Date which must be disclosed on a balance sheet in
accordance with generally accepted accounting principles.
5.13 Absence of Undisclosed Liabilities. Except as disclosed on
Annex 5.13 hereto, the Company has no material obligation or liability (whether
accrued, absolute, contingent, liquidated or otherwise, whether due or to
become due, whether or not known to the Company) arising out of any transaction
entered into at or prior to the Closing, or any act or omission to act at or
prior to the Closing, or any state of facts existing at or prior to the
Closing, including taxes with respect to or based upon the transactions or
events occurring at or prior to the Closing, and including without limitation
unfunded past service liabilities under any pension, profit sharing or similar
plan, except (a) to the extent set forth on or reserved against in the Balance
Sheet, and (b) current liabilities incurred and obligations under agreements
entered into, in the usual and ordinary course of business, since the Balance
Sheet Date, none of which (individually or in the aggregate) has a Material
Adverse Effect on the Company.
5.14 Changes. Since the Balance Sheet Date as to clauses (a) and
(c) below and since one year prior to the Balance Sheet Date as to the
remaining clauses of this Section 5.14, except as disclosed on Annex 5.14
hereto, the Company has not (a) incurred any debts, obligations or liabilities,
absolute, accrued, contingent or otherwise, whether due or to become due,
except current liabilities incurred in the usual and ordinary course of
business, none of which (individually or in the aggregate) materially and
adversely affects the business, finances, properties or prospects of the
Company, (b) made or suffered any changes in its contingent obligations by way
of guaranty, endorsement (other than the endorsement of checks for deposit in
the usual and ordinary course of business), indemnity, warranty or otherwise,
(c) discharged or satisfied any Liens other than those securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the usual and ordinary course of business, (d) mortgaged, pledged or
subjected to Lien any of its assets, tangible or intangible, (e) sold,
transferred or leased any of its assets except in the usual and ordinary course
of business, (f) canceled or compromised any debt or claim, or waived or
released any right, of material value, (g) suffered any physical damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the properties, business or prospects of the Company, (h)
entered into any transaction other than in the usual and ordinary course of
business except for this Agreement, (i) encountered any labor difficulties or
labor union organizing activities, (j) except in the usual and ordinary course
of business, made or granted any wage or salary increase or entered into any
employment agreement, (k) issued or sold any shares of capital stock or other
securities or granted any options with respect thereto, or modified any Equity
Security, except to the extent disclosed on Annex 5.6 hereto, (l) declared or
paid any dividends on or made any other distributions with respect to, or
purchased or redeemed, any of its outstanding Equity Securities, (m) suffered
or experienced any change in, or condition affecting, its condition (financial
or otherwise), properties, assets, liabilities, business operations, results of
operations or prospects other than changes, events or conditions in the usual
and ordinary course of its business, none of which (either by itself or in
conjunction with all such other changes, events and conditions) has been
materially adverse, (n) made any change in the accounting principles, methods
or practices followed by it or depreciation or amortization policies or rates
theretofore adopted, or (o) entered into any agreement, or otherwise obligated
itself, to do any of the foregoing.
5.15 Material Agreements of the Company. Except as expressly set
forth in this Agreement, the Balance Sheet or as disclosed on Annex 5.15
hereto, the Company is not a party to any written or oral agreement, instrument
or arrangement not made in the ordinary course of business that is material to
the Company and the Company is not a party to any written or oral (a) agreement
with any labor union, (b) agreement for the purchase of fixed assets or for the
purchase of materials, supplies or equipment in excess of normal operating
requirements, (c) agreement for the employment of any officer, individual
employee or other Person on a full time basis or any agreement with any Person
for consulting services, (d) bonus, pension, profit sharing, retirement, stock
purchase, stock option, deferred compensation, medical, hospitalization or life
insurance (other than group medical, hospitalization or insurance plans
applicable to all employees in which benefit levels are not related to
compensation) or similar plan, contract or understanding with respect to any or
all of the employees of the Company or any other Person, (e) indenture, loan or
credit agreement, note agreement, deed of trust, mortgage, security agreement,
promissory note or other agreement or instrument relating to or evidencing
Indebtedness for Borrowed Money or subjecting any asset or property of the
Company to any Lien or evidencing any Indebtedness, (f) guaranty of any
Indebtedness, (g) lease or agreement under which the Company is lessee of or
holds or operates any property, real or personal, owned by any other Person
under which payments to such Person exceed $ 25,000 per annum, (h) lease or
agreement under which the Company is lessor or permits any Person to hold or
operate any property, real or personal, owned or controlled by the Company, (i)
agreement granting any preemptive right, right of first refusal or similar
right to any Person, (j) agreement or arrangement with any Affiliate (as
hereinafter defined) or any "associate" (as this term is defined in Rule 405 of
the Commission under the Securities Act) of the Company or any officer,
director or shareholder of the Company, (k) agreement obligating the Company to
pay any royalty or similar charge for the use or exploitation of any tangible
or intangible property, (l) agreement or license under which the Company has
granted or transferred to any Person , or under which any Person has granted or
transferred to the Company, the right to exploit or otherwise use any patent,
trademark, service xxxx, copyright, trade name, trade secret, Company
Technology (as hereinafter defined) or other intangible asset, (m) covenant not
to compete or other restriction on its ability to conduct a business or engage
in any other activity, (n) agreement to register securities under the
Securities Act, or (o) agreement, instrument or other commitment or arrangement
with any Person continuing for a period of more than three months from the
Closing Date which involves an expenditure or receipt by the Company in excess
of $25,000. For purposes of the next preceding sentence, "material" shall mean
an obligation which by its terms calls for aggregate payments by the Company in
excess of $25,000. The Company has furnished to Investor true and complete
copies of all agreements and other documents requested by Investor or its
special counsel or other authorized representative. All parties having material
contractual arrangements with the Company are in substantial compliance
therewith, and none is in default in any material respect thereunder. The
Company does not have outstanding any power of attorney.
5.16 Employees. The following individuals (collectively,
"Designated Key Employees") are in the employ of the Company: Xxxxx X. XxXxxxx,
Xxxxxx X. Xxxx and Xxxxxxx X. Xxxxxxxx. To the best of the Company's knowledge,
no Designated Key Employee of the Company has any plans to terminate his or her
employment with the Company, and the Company has no intention of terminating
the employment of any Designated Key Employee. Except as set forth in Annex
5.16 hereto, to the best of the Company's knowledge after reasonable inquiry,
no Designated Key Employee or any other employee of the Company is a party to
or is otherwise bound by any agreement or arrangement (including, without
limitation, any license, covenant, or commitment of any nature), or subject to
any judgment, decree, or order of any court or administrative agency, (a) that
would conflict with such employee's obligation diligently to promote and
further the interests of the Company or (b) that would conflict with the
Company's business as now conducted or as proposed to be conducted. No
Designated Key Employee has any direct or indirect equity interest (by way of
stock ownership or otherwise) in any firm, partnership, corporation,
association or business enterprise, other than any such interest (i) in a
corporation which is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act and (ii) which does not, alone or in the aggregate
with other such interests, exceed one percent (1%) of the equity of such
corporation. The Company has complied in all material respects with all laws
relating to the employment of labor, including provisions relating to wages,
hours, equal opportunity, collective bargaining and payment of Social Security
and other taxes, and the Company has encountered no material labor
difficulties. Except as disclosed on Annex 5.15 hereto or pursuant to ordinary
arrangements for employment compensation, the Company is not under any
obligation or liability to any officer, director, employee or Affiliate of the
Company.
5.17 Tax Returns and Audits. All required federal, state and local
tax returns of the Company have been accurately prepared and duly and timely
filed, and all federal, state and local taxes required to be paid with respect
to the periods covered by such returns have been paid. The Company is not and
has not been delinquent in the payment of any tax, assessment or governmental
charge. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns nor any state income or franchise tax
returns has ever been audited by governmental authorities. The reserves for
taxes, assessments and governmental charges reflected on the Balance Sheet are
and will be sufficient for the payment of all unpaid taxes, assessments and
governmental charges payable by the Company with respect to the period ended on
the Balance Sheet Date. Since the Balance Sheet Date, the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations
for such period. The Company has withheld or collected from each payment made
to each of its employees, the amount of all taxes (including, but not limited
to, federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositaries.
5.18 Patents and Other Intangible Assets.
(a) Annex 5.18 contains a true and complete list of all
patents (including all reissues, divisions, continuations and extensions
thereof), patent applications, trademarks, trademark registrations,
servicemarks, trade names, copyrights, licenses and rights with respect to the
foregoing and other such property owned or used by the Company (the "Company
Intellectual Property") and, unless otherwise indicated on such Schedule such
Company Intellectual Property has been duly registered in, filed in or issued
by the United States Copyright Office or the United States Patent and Trademark
Office, the appropriate offices in the various States of the United States and
the appropriate offices of such other jurisdictions where such registration,
filing or issuance is required for the conduct of the business of the Company.
The Company (i) owns or has the right to use, free and clear of all Liens,
claims and restrictions, all patents, trademarks, service marks, trade names,
copyrights, licenses and rights with respect to the foregoing, used in or
necessary for the conduct of its business as now conducted or proposed to be
conducted, (ii) is not infringing upon or otherwise acting adversely to the
right or claimed right of any Person under or with respect to any patent,
trademark, service xxxx, trade name, copyright or license with respect thereto
and (iii) is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, service xxxx, trade name, copyright
or other intangible asset, with respect to the use thereof or in connection
with the conduct of its business or otherwise. The Company has not made any
claim of a violation or infringement by others of its rights to or in
connection with the Company Intellectual Property and knows of no basis for the
making of any such claim. There are no interferences or other contested
proceedings in the United States Copyright Office, the United States Patent and
Trademark Office or any federal, state or local court or before any other
governmental agency or tribunal, relating to any of the Company Intellectual
Property, nor to Company's knowledge are any such interferences or proceedings
threatened.
(b) The Company owns and has the unrestricted right to use
all product rights, manufacturing rights, trade secrets, including know-how,
negative know-how, formulas, patterns, compilations, programs, devices,
methods, techniques, processes, inventions, designs, technical data, computer
software, and all information that derives independent economic value, actual
or potential, from not being generally known or known by competitors and which
the Company has taken reasonable steps to maintain in secret (all of the
foregoing of which are collectively referred to herein as "Company Technology")
required for or incident to the conduct of the Company's business, as it is
presently conducted and as it is proposed to be conducted, in each case free
and clear of any right, Lien or claim of others, including without limitation
former employers of its employees.
(c) Since its organization, the Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all Company Technology and all Inventions (as defined below). Since its
organization, each of the Company's employees and other Persons who, either
alone or in concert with others, developed, invented, discovered, derived, or
designed Company Technology or Inventions, or who has knowledge of or access to
information about Company Technology or Inventions, has entered into a written
agreement with the Company which provides that (i) this Company Technology,
other information and Inventions are proprietary to the Company and are not to
be divulged, misused or misappropriated, and (ii) this Company Technology,
other information and Inventions are to be disclosed by such employees and such
Persons to the Company and transferred by them to the Company, without any
further consideration being given therefor by the Company, together with all of
such employee's or other Person's right, title and interest in and to such
Company Technology, other information and Inventions and all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to such Company Technology, other information and Inventions. As used
herein, "Inventions" means all inventions, developments and discoveries which
during the period of an employee's or other Person's service to the Company he
or she makes or conceives of, either solely or jointly with others, that relate
to any subject matter with which his or her work for the Company may be
concerned, or relate to or are connected with the business, products, services
or projects of the Company, or relate to the actual or demonstrably anticipated
research or development of the Company or involve the use of the Company's
time, material, facilities or trade secret information.
(d) The Company has not sold, transferred, assigned,
licensed or subjected to any Lien, any Company Technology, trade secret,
know-how, invention, design, process, computer software or technical data, or
any interest therein, necessary or useful for the development, manufacture,
use, operation or sale of any product or service presently under development or
manufactured, sold or rendered by the Company.
(e) No director, officer, employee, agent or shareholder of
the Company owns or has any right in the or Company Technology, or any patents,
trademarks, service marks, trade names, copyrights, licenses or rights with
respect to the foregoing, or any inventions, developments, or discoveries used
in or necessary for the conduct of the Company's business as now conducted or
as proposed to be conducted.
(f) The Company has not received any communication alleging
or stating that the Company or any Designated Key Employee has violated or
infringed, or by conducting business as proposed, would violate or infringe,
any patent, trademark, service xxxx, trade name, copyright, trade secret,
proprietary right, process or other intellectual property of any other Person.
5.19 Employment Benefit Plans--ERISA. The Company does not
maintain or make contributions to any pension, profit sharing or other employee
retirement benefit plan. The Company has no material liability with respect to
any such plan (including, without limitation, any unfunded liability or any
accumulated funding deficiency) or any material liability to the Pension
Benefit Guaranty Corporation or under Title IV of the Employee Retirement
Income Security Act of 1974, as amended, with respect to a multi-employer
pension benefit plan, nor would the Company have any such liability if any such
plan were terminated or if the Company withdrew, in whole or in part, from any
multi-employer plan.
5.20 Title to Property and Encumbrances; Leases. The Company has
good and marketable title to all of its properties and assets, including
without limitation the properties and assets reflected in the Balance Sheet and
the properties and assets used in the conduct of its business, except for
properties disposed of in the ordinary course of business since the Balance
Sheet Date and except for properties held under valid and subsisting leases
which are in full force and effect and which are not in default, subject to no
Lien, except those which are shown and described on the Balance Sheet and
except for Permitted Liens (as hereinafter defined). All material leases under
which the Company is lessee of any real or personal property are valid,
enforceable and effective in accordance with their terms (subject to the laws
of bankruptcy, insolvence and other similar laws affecting the enforcement of
creditors' rights generally); there is not under any such lease any existing or
claimed default by the Company or event or condition which with notice or lapse
of time or both would constitute a default by the Company. No lease under which
the Company is lessee of any real property contains any provision which either
(i) treats a sale or transfer of any or all of the outstanding stock of the
Company or a merger of the Company with another Person as an assignment of the
Company's leasehold interest, or (ii) otherwise requires the consent of the
lessor in the event of any such sale, transfer or merger.
5.21 Condition of Properties. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair and are adequate and
sufficient for the Company's business.
5.22 Insurance Coverage. There is in full force and effect one or
more policies of insurance issued by insurers of recognized responsibility,
insuring the Company and its properties and business against such losses and
risks, and in such amounts, as are customary in the case of corporations of
established reputation engaged in the same or similar business and similarly
situated. The Company has not been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that it will be unable to
renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable as those presently in effect, other than possible
increases in premiums that do not result from any act or omission of the
Company.
5.23 Litigation. Except as disclosed on Annex 5.23 hereto, there
is no legal action, suit, arbitration or other legal, administrative or other
governmental investigation, inquiry or proceeding (whether federal, state,
local or foreign) pending or threatened against or affecting (i) the Company or
its properties, assets or business (existing or contemplated), or (ii) any
Designated Key Employee, before any court or governmental department,
commission, board, bureau, agency or instrumentality or any arbitrator. After
reasonable investigation, neither the Company nor any Designated Key Employee
of nor attorney for the Company is aware of any fact which might result in or
form the basis for any such action, suit, arbitration, investigation, inquiry
or other proceeding. Neither the Company nor any Designated Key Employee is in
default with respect to any order, writ, judgment, injunction, decree,
determination or award of any court or of any governmental agency or
instrumentality (whether federal, state, local or foreign).
5.24 Financial Projections. The Company has heretofore furnished
to Investor a copy of its Financial Projections dated January 1998 (which
Financial Projections are referred to herein as the "Projections"), copies of
which have been initialed by the Company and Investor for purposes of
identification. While the Company does not warrant that it will achieve the
financial projections appearing in the Projections, the Projections disclose
all material assumptions used in the preparation of these projections; all such
assumptions are reasonable; the Company has a reasonable basis for making these
projections; the Company has no reason to believe that the Company will be
unable to meet these projections; and these projections fairly present the
information which they purport to show.
5.25 Registration Rights. Except as set forth in Annex 5.25
hereto, the Company has not agreed to register under the Securities Act any of
its authorized or outstanding securities.
5.26 Licenses. The Company possesses from the appropriate agency,
commission, board and governmental body and authority, whether state, local or
federal, all material licenses, permits, authorizations, approvals, franchises
and rights which are necessary for the Company to engage in the business
currently conducted by it and proposed to be conducted, including without
limitation the development, manufacture, use, sale and marketing of its
existing and proposed products and services; and all such certificates,
licenses, permits, authorizations and rights are in full force and effect, and,
to the best of the Company's knowledge, will not be revoked, canceled,
withdrawn, terminated or suspended.
5.27 Interested Party Transactions. Except as disclosed on Annex
5.27 hereto, no officer, director or shareholder of the Company or any
Affiliate or "associate" (as this term is defined in Rule 405 of the Commission
under the Securities Act) of any such Person or the Company has or has had,
either directly or indirectly, (a) an interest in any Person which (i)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (ii) purchases from or
sells or furnishes to the Company any goods or services, or (b) a beneficial
interest in any transaction, contract or agreement to which the Company is a
party or by which it may be bound or affected.
5.28 Minute Books and Check Authorizations. The minute books of
the Company provided to Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, special counsel
for the Investor, contain all resolutions adopted by directors and shareholders
since the incorporation of the Company and fairly and accurately reflect, in
all material respects, all matters and transactions referred to in such
minutes. The Board has adopted, and there is in full force and effect, a policy
which prohibits the issuance of any check or draft by the Company in any amount
in excess of $10,000 on any deposit account of the Company unless the same has
been signed by two officers of the Company who have been so authorized by
action of the Board.
5.29 Financial Statements in Public Filings. All consolidated
financial statements of the Company (including notes to such financial
statements) included in the Company's Annual report on Form 10-KSB for the
fiscal year ended February 28, 1997 (the "Year End Financial Statements") filed
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the unaudited financial statements of the Company included in
Reports on Form 10-QSB for the quarters ended May 31, August 31, and November
30 (the "Interim Financial Statements") filed pursuant to the Exchange Act (a)
are in accordance with the books and records of the Company, (b) present fairly
the consolidated financial position, results of operations, changes in
shareholders' equity, and cash flow (as applicable) of the Company as of the
respective dates and for the respective periods indicated, except, in the case
of the Interim Financial Statements, for normal year-end audit adjustments, and
(c) except for the absence of footnotes in the Interim Financial Statements,
have been prepared in conformity with generally accepted accounting principles
applied in all material respects on a consistent basis through all the periods
involved. The Company has no material liabilities that are required by
generally accepted accounting principles to be disclosed on a balance sheet
other than (i) those disclosed in the Year End Financial Statements or the
Interim Financial Statements, and (ii) those arising in the ordinary course of
business since November 30, 1997.
5.30 Commission Reports and Other Documents. Each registration
statement, proxy statement or report filed with the Commission and not
withdrawn by the Company since January 11, 1996, on the date of effectiveness
in the case of such registration statements, or on the date of filing in the
case of such reports, or on the date of mailing in the case of such proxy
statements, (x) complied as to form in all material respects with the
requirements of the applicable statute (Securities Act in the case of
registration statements and Exchange Act in the case of proxy statements and
reports), rules and regulations of the Commission, and (y) 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. Since January 11,
1996, the Company has filed all reports required to be filed by it with the
Commission, and all such reports complied as to form in all material respects
with the applicable requirements of law. All financial statements and schedules
included in the documents referred to in the preceding sentence were prepared
in accordance with GAAP (except for the absence of footnotes in the Interim
Financial Statements included in such documents), applied in all material
respects on a consistent basis except as noted therein, and fairly present the
information purported to be shown therein.
5.31 Customer Orders. Annex 5.31 attached hereto contains a true
and complete list, as of March 31, 1998, of all open or unfulfilled customer
"cutting ticket" requests or orders made, taken or entered into by the Company
in excess of $25,000 per customer. Such list identifies the name of the
customer party, when such customer "cutting ticket" request or order was taken
or entered into, and the dollar amount related thereto. Each customer "cutting
ticket" request or order included in Annex 5.31 and any customer "cutting
ticket" request or order made, taken or entered into by the Company since March
31, 1998, were made, taken or entered into in the ordinary course of business,
consistent with the Company's past practices.
5.32 Disclosure. There is no fact which the Company has not
disclosed to the Investor in writing which materially and adversely affects
nor, insofar as the Company can now foresee, will materially and adversely
affect, the properties, business, prospects, results of operation or condition
(financial or other) of the Company or the ability of the Company to perform
its obligations under this Agreement, the Warrant Certificate, or the
Registration Rights Agreement or observe the terms of the Certificate. The
information contained in the Projections, in this Agreement and in any writing
furnished pursuant hereto or in connection herewith is true, complete and
correct, and such information does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or herein or necessary to make the statements therein or herein not misleading.
6. Conditions of Parties' Obligations.
6.1 Conditions of Investor's Obligations at the Closing. The
obligation of Investor to purchase and pay for the Preferred Stock and the
Investor Warrants is subject to the fulfillment prior to or on the Closing Date
of the following conditions, any of which may be waived in whole or in part by
Investor.
(a) No Errors, etc. The representations and warranties of
the Company under this Agreement shall be deemed to have been made again on the
Closing Date and shall then be true, complete and correct.
(b) Compliance with Agreement. The Company shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it on or before the Closing Date.
(c) No Default. There shall not exist on the Closing Date
any Default (as hereinafter defined) or Event of Default (as hereinafter
defined) or any event or condition which, with the giving of notice or lapse of
time or both, would constitute a Default or Event of Default.
(d) Certificate of Officer. The Company shall have
delivered to Investor a certificate dated the Closing Date, executed by its
President, certifying the satisfaction of the conditions specified in
subsections (a), (b) and (c) of this Section 6.1.
(e) Certificate of Designated Key Employees. The Company
shall have delivered to Investor a certificate dated the Closing Date, executed
by the Designated Key Employees, certifying, to the best of their knowledge,
upon having made a reasonable investigation sufficient to express an informed
view, the satisfaction of the conditions specified in subsections (a), (b) and
(c) of this Section 6.1.
(f) Opinion of the Company's Counsel. The Investors shall
have received from Xxxx Xxxxx Xxxx & XxXxxx LLP, a limited liability
partnership, counsel for the Company, a favorable opinion dated the Closing
Date substantially in the form of Annex 6.1(f) hereto.
(g) Certificate. The Certificate shall have been filed with
the Secretary of State of the State of Delaware and a copy of the Certificate
certified by the Secretary of State of the State of Delaware shall have been
delivered to special counsel for the Investor, Paul, Hastings, Xxxxxxxx &
Xxxxxx LLP.
(h) Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under applicable
state securities laws shall have been obtained for the lawful execution,
delivery and performance of this Agreement and the performance of the
Certificate, including without limitation the offer, sale, issue and delivery
of the Securities.
(i) Supporting Documents. Investor shall have received the
following:
(1) Copies of resolutions of the Board, certified by
the Secretary of the Company, authorizing and approving the Certificate and the
execution, delivery and performance of this Agreement, the Warrant
Certificates, the Escrow Agreement and the Registration Rights Agreement and
the performance of the Certificate, and all other documents and instruments to
be delivered pursuant hereto and thereto;
(2) A certificate of incumbency executed by the
Secretary of the Company certifying the names, titles and signatures of the
officers authorized to execute the documents referred to in subparagraph (1)
above and further certifying that the Certificate of Incorporation, Series A
Certificate and Bylaws of the Company delivered to the Investor at the time of
the execution of this Agreement have been validly adopted and have not been
amended or modified, except to the extent provided in the Certificate; and
(3) Such additional supporting documentation and
other information with respect to the transactions contemplated hereby as the
Investor or its special counsel, Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, may
reasonably request.
(j) Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions, shall be satisfactory in
form and substance to Investor and to its special counsel, Paul, Hastings,
Xxxxxxxx & Xxxxxx LLP.
(k) Stockholders Agreement. Xxxxx X. XxXxxxx, Xxxxxx X.
Xxxx, Xxxxxxx X. Xxxxxxxx, Xxxxxx XxXxxxx, Xxxxxxx XxXxxxx and Xxxxx Xxxxxxxx
(the "Senior Executives"), Investor and the Company shall have entered into a
Stockholders Agreement substantially in the form of Annex 6.1(k) hereto (the
"Stockholders Agreement") and the certificates evidencing the Common Stock held
by the Senior Executives shall have been endorsed with the legend required by
the Stockholders Agreement.
(l) Registration Rights Agreement. The Company and the
Investor shall have entered into a Registration Rights Agreement substantially
in the form of Annex 6.1(l) hereto (the "Registration Rights Agreement").
(m) Escrow Agreement. The Company, Investor and Marine
Midland Bank, N.A. (the "Escrow Agent") shall have entered into an Escrow
Agreement substantially in the form of Annex 6.1(m) hereto (the "Escrow
Agreement") and the Company shall have deposited with the Escrow Agent the sum
of $1,750,000 less expenses of this transaction (the "Escrow Amount").
(n) Consent of the Holders of the Series A Preferred Stock.
The holders of a majority of the Series A Preferred Stock shall have consented
to the issuance of the Preferred Stock in accordance with the terms of the
Series A Certificate of Designation.
(o) Closing Fees and Expenses. The Company shall have paid
Investor a Closing Fee of $50,000 and also have paid the fees and expenses of
Investor's counsel and consulting fees and other reasonable expenses incurred
by the Investor to investigate and evaluate the Company and its business
prospects.
(p) Waiver of Piggy Back Registration Rights. The Company
has provided the Investor with copies of written waivers from holders of
Consultant Warrants with respect to such warrants' "piggy back" registration
rights in connection with any registration of the Conversion Stock or Warrant
Stock. The Company shall use its best efforts to obtain written waivers of
"piggy back" registration rights with respect to the Company's Class PW
Warrants and Class W Warrants in connection with any registration of the
Conversion Stock or Warrant Stock.
(q) Waiver of Severance Trigger. The Company has provided
the Investor with a copy of a written waiver executed by Xxxxx X. XxXxxxx to
the effect that this Agreement and the transactions contemplated hereby shall
not result in any severance payment to him under his employment agreement with
the Company or otherwise.
6.2 Conditions of Company's Obligations. The Company's obligation
to issue and sell the Preferred Stock and the Investor Warrants to Investor on
the Closing Date is subject to the fulfillment prior to or at the Closing Date
of the conditions precedent specified in paragraphs (g), (h) and (n) of Section
6.1 hereof.
7. Affirmative Covenants. The Company agrees that unless the Holders
of a Majority of the Restricted Stock (as hereinafter defined) otherwise agree
in writing, so long as Investor is a Holder of Restricted Stock, the Company
(and each of its Subsidiaries unless the context otherwise requires) will do
the following:
7.1 Maintain Corporate Rights and Facilities. Maintain and
preserve its corporate existence and all rights, franchises and other authority
adequate for the conduct of its business; maintain its properties, equipment
and facilities in good order and repair; and conduct its business in an orderly
manner without voluntary interruption. ` 7.2 Maintain Insurance.
(a) Maintain in full force and effect a policy or policies
of insurance issued by insurers of recognized responsibility, insuring it and
its properties and business against such losses and risks, and in such amounts,
as are customary in the case of corporations of established reputation engaged
in the same or a similar business and similarly situated;
(b) Within thirty (30) days after the Closing Date obtain,
and thereafter maintain in full force and effect policies of term life
insurance issued by issuers of recognized responsibility, in the amount of $2
million on the life of Xxxxx X. XxXxxxx with the Company as the sole
beneficiary and so long as he is an employee of the Company.
7.3 Pay Taxes and Other Liabilities. Pay and discharge, before
the same become delinquent and before penalties accrue thereon, all taxes,
assessments and governmental charges upon or against it or any of its
properties, and all its other material liabilities at any time existing, except
to the extent and so long as (i) the same are being contested in good faith and
by appropriate proceedings in such manner as not to cause any materially
adverse effect upon its financial condition or the loss of any right of
redemption from any sale thereunder, and (ii) it shall have set aside on its
books reserves (segregated to the extent required by generally accepted
accounting principles) deemed by it adequate with respect thereto.
7.4 Records and Reports. Accurately and fairly maintain its books
of account in accordance with generally accepted accounting principles, as
approved from time to time by a majority of the Board and its independent
certified public accountants; employ a firm of independent certified public
accountants, which firm is either one of the five largest national accounting
firms or which is approved by the Holders of the Majority of the Restricted
Stock, to make annual audits of its accounts in accordance with generally
accepted auditing standards; permit Investor and its representatives to have
access to and to examine its properties, books and records (and to copy and
make extracts therefrom) at such reasonable times and intervals as Investor may
request and to discuss its affairs, finances and accounts with its officers and
auditors, all to such reasonable extent and at such reasonable times and
intervals as Investor may request; and the Company shall also furnish each
Holder of the Securities:
(a) As soon as available, and in any event within thirty
(30) days after the close of each monthly accounting period, financial
statements prepared on a consolidated basis (together with consolidating
statements in support thereof) consisting of a balance sheet of the Company as
of the end of such monthly accounting period and statements of income,
stockholders' equity and cash flow for such monthly accounting period, and for
the portion of the Company's fiscal year ending with the last day of such
monthly accounting period, setting forth in comparative form (i) the figures
for such period, figures for the corresponding periods of the previous fiscal
year and the budgeted figures for such periods prepared and submitted pursuant
to Section 7.5 hereof, and (ii) as of the end of each fiscal quarter, the
figures for such quarter, the figures for the corresponding quarter of the
preceding fiscal year and the budgeted figures for such current quarter
prepared and submitted pursuant to Section 7.5 hereof, all in reasonable
detail, prepared and certified by the chief executive officer or the chief
financial officer of the Company as fairly presenting the financial condition
as of the balance sheet date and results of operations and cash flows for the
period then ended in accordance with GAAP consistently applied, subject to
normal year end adjustments which in the aggregate shall not be material;
(b) As soon as available, and in any event within ninety
(90) days after the close of each fiscal year of the Company (commencing with
the year ended February 28, 1998), financial statements prepared on a
consolidated basis (together with consolidating statements in support thereof)
consisting of a balance sheet of the Company, as of the end of such fiscal
year, together with statements of income, stockholders' equity and cash flow
for such fiscal year, setting forth in comparative form the figures for such
fiscal year and for the previous fiscal year, all in reasonable detail, and
duly certified by an opinion unqualified as to scope of a firm of independent
certified public accountants, which firm is one of the four or five largest
national accounting firms, to the effect that such financial statements fairly
present the financial condition as of the balance sheet date and results of
operations and cash flows for the twelve-month period then ended in accordance
with GAAP consistently applied;
(c) So long as any Preferred Stock or any of the Warrants
remain outstanding, promptly upon learning of the occurrence of a Default or an
Event of Default or a condition or event which with the giving of notice or the
lapse of time, or both, would constitute a Default or an Event of Default, a
certificate signed by the chief executive officer or chief financial officer of
the Company describing such Default, Event of Default or condition or event and
stating what steps are being taken to remedy or cure the same;
(d) Promptly upon the receipt thereof by the Company or the
Board, copies of all reports, all management letters and other detailed
information submitted to the Company or the Board by independent accountants in
connection with each annual or interim audit or review of the accounts or
affairs of the Company made by such accountants;
(e) Promptly after the same are available, copies of all
such proxy statements, financial statements and reports as the Company shall
send to its stockholders, and promptly upon the transmission thereof copies of
all registration statements, notifications, proxy statements, reports and other
documents and writings which the Company may file with or furnish to the
Commission or any governmental authority at any time substituted therefor; and
(f) With reasonable promptness, such other information
relating to the finances, properties, business and affairs of the Company and
each Subsidiary (as hereinafter defined), as Investor reasonably may request
from time to time.
7.5 Preparation of Budget. Within sixty (60) days after the
Closing Date, for the Company's partial fiscal year ending after the Closing
Date, and at least thirty (30) days prior to the beginning of each subsequent
fiscal year, prepare and submit to the Board, and furnish to Investor a copy
of, an annual plan for such year which shall include monthly capital and
operating expense budgets, cash flow statements and profit and loss and
quarterly balance sheet projections, itemized in such detail as the Board may
request. A majority of the members of the Board shall approve such budgets,
statements and projections. Each annual plan shall be modified as often as
necessary, but in any event every six (6) months, to reflect material changes
required as a result of operating results and other events that occur, or may
be reasonably expected to occur, during the year covered by the annual plan,
and copies of these modifications shall be submitted to and approved by the
Board and furnished to Investor. The Company may dispense with any six-month
modification if the Board reasonably determines that no material change is
required in the budget for that six-month fiscal period.
7.6 Notice of Litigation and Disputes. Promptly notify Investor
of each legal action, suit, arbitration or other administrative or governmental
investigation or proceeding (whether federal, state, local or foreign)
instituted or threatened against the Company which could materially and
adversely affect its condition (financial or otherwise), properties, assets,
liabilities, business, operations or prospects, or of any occurrence or dispute
which involves a reasonable likelihood of any such action, suit, arbitration,
investigation or proceeding being instituted.
7.7 Directors' Meetings. Hold meetings of the Board at least once
every two (2) months; give Investor at least five (5) days' notice of, and
permit an officer or other representative of Investor or any Person designated
by Investor to attend as an observer, all meetings of the Board and all
meetings of committees of the Board; furnish Investor and its designated
representative with a complete and accurate copy of the minutes and other
records of all meetings and other proceedings of the Board and its committees
as well as of the written consents of members of the Board by which action is
taken by the Board or any committee without a meeting, and minutes and written
consents relating to action taken by the shareholders of the Company; provided,
that, if a meeting of the Board or any committee thereof is required to be held
on shorter notice than five (5) days, waiver of the notice contained in this
Section 7.7 shall not be unreasonably withheld; and also furnish Investor and
its designated representative with a complete and accurate copy of the minutes
of the meetings and the written consents with respect to action taken without a
meeting of the board of directors and committees of each Subsidiary and of the
stockholders of each Subsidiary. The Company will pay the reasonable
out-of-pocket expenses of such Persons in attending such meetings.
7.8 Conduct of Business. Conduct its business in accordance with
all applicable provisions of federal, state, local and foreign law.
7.9 Replacement of Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any certificate representing any of the Securities, issue a new
certificate representing such Securities in lieu of such lost, stolen,
destroyed, or mutilated certificate.
7.10 Compliance with Section 6. Use its best efforts to cause the
conditions specified in Sections 6.1 and 6.2 hereof to be met by the Closing
Date.
7.11 Stockholders Agreement. To the extent that it may lawfully do
so, purchase all shares of Common Stock which it is entitled to purchase under
the Stockholders Agreement, and take all lawful action necessary or advisable
to enforce its rights under such Stockholders Agreement.
7.12 Securities Law Filings. Make all filings necessary to perfect
in a timely fashion exemptions from (i) the registration and prospectus
delivery requirements of the Securities Act and (ii) the registration or
qualification requirements of all applicable securities or blue sky laws of any
state or other jurisdiction, for the issuance of the Securities to Investor.
7.13 Composition of the Board of Directors; Compensation
Committee.
(a) At all times cause at least one Person designated by
the Holders of a Majority of the Restricted Stock to be elected as and remain a
director of the Company, and reimburse such Person so designated for his
out-of-pocket expenses in connection with attending meetings of the Board and
all committees thereof and all expenses otherwise incurred in fulfilling his
duty as director.
(b) The Board shall establish a compensation committee of
three directors (the "Compensation Committee"), one member of which shall be
selected by the Holders of a Majority of the Preferred Stock, and the other two
members of which shall be selected by the Board. All action taken by the
Compensation Committee shall require the unanimous vote or written consent of
all of the three members. All matters affecting compensation of any officer or
director of the Corporation or any Subsidiary or any employee of or consultant
or advisor to the Corporation or any Subsidiary whose annual base compensation
is at least $50,000 shall require approval of the Compensation Committee in
order to be effective. No option or warrant to purchase Common Stock, stock
appreciation right, phantom stock (or similar payment) or stock issuance to any
officer, director or employee of the Corporation shall be granted, effected,
modified or accelerated unless the same has been approved by the Compensation
Committee. In addition, the Compensation Committee shall have the exclusive
authority to administer and take all action permitted or required to be taken
by the Board or any committee of the Board under all stock option plans of the
Company and under any other plan or arrangement that provides for the issuance
of Common Stock, stock appreciation rights, phantom stock or other similar
benefits to any employee of or any advisor or consultant to the Corporation or
any Subsidiary.
7.14 Compliance With Certificate and Bylaws. Perform and observe
all requirements of the Warrant Certificate, the Company's Bylaws and
Certificate of Incorporation and the Certificate, including without limitation
its obligations to the Holders of Securities set forth in the Certificate, the
Company's Certificate of Incorporation, the Warrant Certificate and Bylaws.
7.15 Internal Accounting Controls. Devise and maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements, and
to maintain accountability for assets, (c) access to assets is permitted only
in accordance with management's general or specific authorization, and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
7.16 Use of Proceeds. Use the proceeds from the sale of the
Preferred Stock and the Warrants hereunder substantially as set forth in Annex
7.16 hereof.
7.17 Union Matters.
(a) So long as Investor is a Holder of Securities, in every
case where the choice of shippers is controlled by the Company, the Company
will cause all products ordered by its customers to be shipped by shippers that
have recognized one or more unions as the collective bargaining representative
of some or all of its workers; provided that exceptions will be permitted if
Investor is satisfied there is no viable union transportation option available.
(b) So long as Investor is a Holder of Securities:
(1) In the event of any attempt by any union to
organize or seek to represent employees of the Company or any of its
Affiliates, the Company will recognize the union as the representative of its
workers upon a showing of majority support through a formal gathering of cards
for the union in an appropriate unit.
(2) In connection with any organizing done by a
union, the Company recognizes the right of its employees to choose their
bargaining representative without interference from their employer (the Company
or its Affiliates). Accordingly, the Company and its officers, directors,
employees and agents shall refrain, and shall cause its Affiliates to refrain,
from its or their support of or opposition to the union and from actively
campaigning in opposition to the designation of such union as the
representative of such employees.
7.18 Dividends. The Company shall pay to the holders of record of
the Preferred Stock when and as declared by the Board, and out of any funds
legally available therefor, cumulative cash dividends at the rate and in the
manner provided in the Certificate.
7.19 PIK Dividends and Dividend Warrants. If the Company chooses
to pay PIK Dividends (as defined in Section 2(a)(iii) of the Certificate) in
the manner permitted in and provided by the Certificate, then concurrently with
each PIK Dividend, the Company shall issue to the holders of the Preferred
Stock issued on the Closing Date, ratably in proportion to the number of shares
held, Dividend Warrants representing the right to purchase in the aggregate
53,388 shares of Common Stock, appropriately increased to adjust for the effect
of antidilution provisions of the Series A Preferred Stock triggered upon
issuance of the PIK Dividend and Dividend Warrant. For purposes of illustration
only, and ignoring the effects of any antidilution caused by events other than
as contemplated by this transaction (i) if in the first six month period the
Company elects to pay PIK Dividends, it shall deliver to the Investor 150
shares of Series B Preferred Stock (((2,500*$1,000*6%)/$1000)=150) convertible
into 30,000 shares of Common Stock and Dividend Warrants representing the right
to purchase 54,000 shares of Common Stock (the additional 612 Dividend Warrants
to adjust for the effect of anitdilution provisions of the Series A Preferred
Stock) and (ii) if in the second six month period the Company elects to pay PIK
Dividends, it shall deliver to the Investor 159 shares of Series B Preferred
Stock (((2,650*$1,000*6%)/$1000)=159) convertible into 31,800 shares of Common
Stock and Dividend Warrants representing the right to purchase 54,000 shares of
Common Stock (the additional 612 Dividend Warrants to adjust for the effect of
anitdilution provisions of the Series A Preferred Stock).
7.20 Escrow of Certain Proceeds. As provided in Section 6.1(m),
the Company has deposited the Escrow Amount with the Escrow Agent. The Escrow
Amount shall be released to the Company if, but only if, all of the following
conditions are satisfied: (i) the Company shall have delivered to Investor its
audited financial statements for the fiscal year ended February 28, 1998 no
later than May 29, 1998, (ii) such financial statements shall meet the
requirements of Section 7.4(b) and shall be accompanied by both the opinion of
the Company's auditing firm with respect to such financial statements (as
required by Section 7.4(b)) and a certificate of the chief executive officer
and chief financial officer of the Company certifying that such financial
statements fairly present the financial condition of the Company as February
28, 1998 and the results of its operations and cash flows in accordance with
GAAP consistently applied, and (iii) in Investor's sole judgment the financial
condition, results of operations and cash flows of the Company reflected in
these financial statements are in material conformity with the information
previously furnished to Investor with respect to these financial matters. If
any of these conditions is not satisfied, then the Company will promptly give
written instructions to the Escrow Agent to pay over to Investor the entire
Escrow Amount, and Investor will give written instructions to the Escrow Agent
to pay over to the Company all income earned on the funds in escrow. Such
payments shall not result in any rescission or cancellation of the Preferred
Stock or Investor Warrants and shall not affect Investor's rights under or with
respect to this Agreement, the Securities, the Certificate or the Ancillary
Agreements.
8. Negative Covenants. The Company agrees that unless the Holders of a
Majority of the Restricted Stock otherwise agree in writing, so long as
Investor is a Holder of Securities, the Company (and each of its Subsidiaries
unless the context otherwise requires) will not do any of the following:
8.1 Senior or Parity Securities. So long as any Preferred Stock
remains outstanding, issue, assume or suffer to exist (a) any security that is
senior to or on a parity with the Preferred Stock, or (b) any Indebtedness for
Borrowed Money that is an Equity Security or is issued with an Equity Security.
8.2 Private Offerings. Except in a public offering registered
under the Securities Act, issue or sell any Equity Security unless each issuee
and purchaser agrees in writing with the Company not to offer to sell, sell,
make any short sale of, loan, grant any option for the purpose of, or otherwise
dispose of, any Equity Security for at least the same period as shall be
required of officers and directors of the Company prior to and after the
closing of any public offering of securities of the Company registered under
the Securities Act, except that the Board shall have the right to dispense with
this requirement in the case of sales of Common Stock to individuals who are
not directors or officers of the Company and who purchase less than one-tenth
of one percent (0.1%) of the then fully diluted Common Stock outstanding.
8.3 Changes in Type of Business. Make any substantial change in
the character of its business.
8.4 Loans; Guarantees. Make any loan or advance to any Person,
including, without limitation any employee or director of the Company or any
Subsidiary, except advances for travel and entertainment expenses and similar
expenditures in the ordinary course of business or under the terms of an
employee stock option plan or stock purchase agreement approved by the
Corporations Committee; or guarantee, directly or indirectly, any Indebtedness
except for trade accounts of the Company or any Subsidiary arising in the
ordinary course of business.
8.5 Restrictive Agreements. Enter into or become a party to any
agreement or instrument which by its terms would violate or be in conflict with
or restrict the Company's performance of, its obligations under this Agreement,
the Warrant Certificates, the Certificate, the Registration Rights Agreement,
the Escrow Agreement or the Stockholders Agreement.
9. Enforcement.
9.1 Remedies at Law or in Equity. If any Default shall occur or
if any representation or warranty made by or on behalf of the Company in this
Agreement or in any certificate, report or other instrument delivered under or
pursuant to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the Closing Date or the
Subsequent Closing Date or as of the date it was made, furnished or delivered,
the Holder of any Security may proceed to protect and enforce its rights by
suit in equity or action at law, whether for the specific performance of any
term contained in this Agreement, or any of the Warrant Certificates, the
Registration Rights Agreement or the Escrow Agreement (the "Ancillary
Agreements") or the Certificate or for an injunction against the breach of any
such term or in aid of the exercise of any power granted in this Agreement or
the Certificate, or to enforce any other legal or equitable right of such
Holder of any such Securities, or to take any one or more of such actions. In
the event a Holder brings such an action against the Company, the Holder shall
be entitled to recover from the Company all fees, costs and expenses of
enforcing any right of such Holder under or with respect to this Agreement, any
Ancillary Agreement or the Certificate, including without limitation such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
9.2 Cumulative Remedies. None of the rights, powers or remedies
conferred upon any Holder of Preferred Stock, Warrants or Common Stock shall be
mutually exclusive, and each such right, power or remedy shall be cumulative
and in addition to every other right, power or remedy, whether conferred hereby
or any Ancillary Agreement or by the Certificate or now or hereafter available
at law, in equity, by statute or otherwise.
9.3 No Implied Waiver. Except as expressly provided in this
Agreement, no course of dealing between the Company and Investor or the Holder
of any Security and no delay in exercising any such right, power or remedy
conferred hereby or any Ancillary Agreement or by the Certificate or now or
hereafter existing at law in equity, by statute or otherwise, shall operate as
a waiver of, or otherwise prejudice, any such right, power or remedy.
10. Rights of First Refusal.
10.1 Subsequent Offerings. Investor shall have the right of first
refusal to purchase all (or any part of all) Equity Securities that the Company
may, from time to time, propose to sell and issue after the Closing Date, other
than the Equity Securities excluded by Section 10.5 hereof.
10.2 Exercise of Rights. If and each time the Company proposes to
issue any Equity Securities, it shall give Investor written notice of its
intention, describing the Equity Securities, the price, and the general terms
and conditions upon which the Company proposes to issue the same. Investor
shall have thirty-five (35) days from the giving of such notice to agree to
purchase Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased.
10.3 Issuance of Equity Securities to Other Persons. If Investor
fails to exercise in full the rights of first refusal within such thirty-five
(35)-day period by giving the agreement referred to in Section 10.2, the
Company shall have sixty (60) days thereafter to complete the sale of the
Equity Securities in respect of which Investor's rights were not exercised, at
a price and upon general terms and conditions no more favorable to the
purchasers thereof than specified in the Company's notice to the Investors
pursuant to Section 10.2 hereof. If the Company has not sold all of these
Equity Securities within such sixty (60) days, the Company shall not thereafter
issue or sell any of such Equity Securities, without first offering such
securities to Investor in the manner provided above.
10.4 Termination of Right of First Refusal. The rights of first
refusal established by this Section 10 shall terminate upon the closing of an
underwritten public offering of Common Stock made pursuant to an effective
registration statement under the Securities Act in which the obligation of the
underwriters is to take all of such stock being offered if any is taken. Such a
firmly underwritten public offering that raises at least $10 million of gross
proceeds for the account of the Company and has a per share price to the public
for the Common Stock of at least 200% of the "Conversion Price" of the
Preferred Stock (as this quoted term is defined in the Certificate) immediately
prior to the closing of such public offering, is herein called a "Qualified
Offering."
10.5 Excluded Securities. The rights of first refusal established
by this Section 10 shall have no application to any of the following Equity
Securities: (A) the first 250,000 shares of Common Stock sold to employees or
directors of advisors under plans approved by the Compensation Committee of the
Company upon the exercise of stock options or pursuant to stock purchase
agreements, which options and agreements are approved by the Board and, as to
options granted issued after the Closing Date, the Compensation Committee, and
the options to purchase such shares, (B) the 360,545 shares of Common Stock
issuable upon exercise of the "A" Warrants referred to in Section 5.3; (C) the
360,545 shares of Common Stock issuable upon exercise of the "B" Warrants
referred to in Section 5.3, (D)the 369,024 shares of Common Stock issuable upon
exercise of the Consultant Warrants referred to in Section 5.3, (E) the 88,889
shares of Common Stock issuable upon conversion of the 11% Convertible Notes
referred to in Section 5.3, (F) the 112,500 shares of Common Stock issuable
upon exercise of the Class PW Warrants issued in conjunction with 11%
Convertible Notes referred to in Section 5.3, (G) the 68,550 shares of Common
Stock issuable upon exercise of the Class W Warrants issued in conjunction with
12% Convertible Notes referred to in Section 5.3 , (H) the 32,777 shares of
Common Stock issuable upon exercise of the outstanding Underwriter Purchase
Options referred to in Section 5.3, (I) the 62,500 shares of Common Stock
issuable upon exercise of Consultant Warrants referred to in Section 5.3, (J)
the 313,000 shares of Common Stock issuable upon conversion of the Series A
Preferred Stock referred to in Section 5.3, (K) the Conversion Stock, (L) the
Warrant Stock, (M) stock issued pursuant to any rights or agreements including,
without limitation, convertible securities, options and warrants, provided that
the rights of first refusal established by this Section 10 applied with respect
to the initial sale or grant by the Company of such rights or agreements, or by
virtue of this Section 10.5 the rights of first refusal did not apply to such
rights or agreements, (N) each Equity Security issued for a consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination, (O) any Equity Security that is issued by the Company as part of
an underwritten public offering referred to in Section 10.4 hereof, (P) shares
of Common Stock issued in connection with any stock split, stock dividend or
reverse stock split, and (Q) any Equity Security which the Holders of a
Majority of the Restricted Stock agree in writing shall not be subject to this
Section 10.
11. Definitions. Unless the context otherwise requires, the terms
defined in this Section 11 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined in this Section
11 and those accounting terms used in this Agreement not defined in this
Section 11 shall, except as otherwise provided for herein, be construed in
accordance with those generally accepted accounting principles that the Company
is required to employ by the terms of this Agreement. If and so long as the
Company has any Subsidiary, the accounting terms defined in this Section 11 and
those accounting terms appearing in this Agreement but not defined in this
Section 11 shall be determined on a consolidated basis for the Company and each
of its Subsidiaries, and the financial statements and other financial
information to be furnished by the Company pursuant to this Agreement shall be
consolidated and presented with consolidating financial statements of the
Company and each of its Subsidiaries.
"Affiliate" shall mean any Person which directly or indirectly controls,
is controlled by, or is under common control with, the indicated Person.
"Agreement" shall mean this Agreement, as the same may be amended,
modified or restated from time to time.
"Ancillary Agreement" shall have the meaning assigned to it in Section
9.1 hereof.
"Balance Sheet" and "Balance Sheet Date" shall have the meanings assigned
to these terms in Section 5.12 hereof.
"Board" shall mean the Board of Directors of the Company.
"Certificate" shall have the meaning assigned to it in Section 1(a)
hereof.
"Closing" and "Closing Date" shall have the meaning assigned to these
terms in Section 3.
"Common Stock" shall have the meaning assigned to it in Section 1(a)
hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Company" shall have the meaning assigned to it in the introductory
paragraph of this Agreement.
"Company Intellectual Property" shall have the meaning assigned to it in
Section 5.18(a) hereof.
"Company Technology" shall have the meaning assigned to it in Section
5.18(b) hereof.
"Compensation Committee" shall have the meaning assigned to it in Section
7.13(b).
"Conversion Stock" shall have the meaning assigned to it in Section 1(a)
hereof.
"Default" shall mean a material default or failure in the due observance
or performance of any covenant, condition or agreement on the part of the
Company or any of its Subsidiaries to be observed or performed under the terms
of this Agreement or the Certificate, if such default or failure in performance
shall remain unremedied for ten (10) days.
"Designated Key Employees" shall have the meaning assigned to it in
Section 5.16 hereof.
"Dividend Warrants" shall have the meaning assigned to it in Section
1(b).
"Equity Security" shall mean any stock or similar security of the Company
or any security (whether stock or Indebtedness for Borrowed Money) convertible
or exchangeable, with or without consideration, into or for any stock or
similar security, or any security (whether stock or Indebtedness for Borrowed
Money) carrying any warrant or right to subscribe to or purchase any stock or
similar security, or any such warrant or right.
"Escrow Agent," "Escrow Agreement" and "Escrow Amount" and shall have the
respective meanings assigned to those terms in Section 6.1(m) hereof.
"Event of Default" shall mean (a) the failure of either the Company or
any Subsidiary to pay any Indebtedness for Borrowed Money, or any interest or
premium thereon, within ten (10) days after the same shall become due, whether
such Indebtedness shall become due by scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise, (b) an event of default
under any agreement or instrument evidencing or securing or relating to any
such Indebtedness, or (c) the failure of either the Company or any Subsidiary
to perform or observe any material term, covenant, agreement or condition on
its part to be performed or observed under any agreement or instrument
evidencing or securing or relating to any such Indebtedness when such term,
covenant or agreement is required to be performed or observed.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"GAAP" means United States generally accepted accounting principles
applied on a basis consistent with all prior periods. "Holder" of any Security
shall mean the record or beneficial owner of such Security. A Holder of
Preferred Stock or Warrants shall be treated as the Holder of the Restricted
Stock underlying the Preferred Stock or the Warrants, as the case may be.
"Holders of a Majority of the Restricted Stock" shall mean the Person or
Persons who are the Holders of greater than 50% of the Restricted Stock.
"Indebtedness" of the Company or any Subsidiary means, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable, (iii) all obligations of such Person
under a lease that would be treated as a "capital lease" under GAAP, (iv) all
obligations of such Person as lessor under a sale/leaseback agreement, (v) all
obligations of such Person evidenced by a promissory note, bond, debenture or
similar written obligation to pay money, (vi) all obligations that are secured
by a Lien (other than a Permitted Lien) on any property or asset owned by such
Person whether or not such Person has assumed responsibility for such
obligations, and (vi) all obligations of any Person (other than the Company or
any Subsidiary) of the type referred to in any of the preceding clauses (i)
through (vi) if the Company or any Subsidiary has guaranteed or otherwise
become contingently liable for the payment or performance thereof; provided
that obligations between the Company and any of its wholly-owned Subsidiaries
or between any such wholly-owned Subsidiaries shall not constitute
"Indebtedness".
"Indebtedness for Borrowed Money" shall mean (a) Indebtedness of the type
referred to in clauses (i), (ii), (v) and (vi) of the definition of
Indebtedness, and (b) all obligations of any Person (other than the Company or
any Subsidiary) of the type referred to in any of the preceding clauses (i)
through (vi) if the Company or any Subsidiary has guaranteed or otherwise
become contingently liable for the payment or performance thereof.
"Interim Financial Statements" shall have the meaning assigned to it in
Section 5.29 hereof.
"Inventions" shall have the meaning assigned to in Section 5.18(c)
hereof.
"Investor" shall have the meaning assigned to it in the introductory
paragraph of this Agreement.
"Investor Warrant" shall have the meaning assigned to it in Section 1(b).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest in respect of such asset. For the purposes of this Agreement, any
Person shall be deemed to own subject to a Lien any asset which it has acquired
or holds subject to the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention agreement relating to
such asset.
"Material Adverse Effect" on the Company means a material adverse effect,
or any condition, situation or set of circumstances that could reasonably be
expected to have a material adverse effect, on the Company and its
Subsidiaries, taken as a whole, or the business, assets, properties, condition
(financial and other), operations or prospects of the Company and its
Subsidiaries taken as a whole.
"Permitted Lien" means (i) any Lien securing a tax, assessment or other
governmental charge or levy or the claim of a materialman, mechanic, carrier,
warehouseman or landlord for labor, materials, supplies or rentals or any
similar Lien arising under law and not under contract or (ii) any Lien
consisting of a deposit or pledge made in the ordinary course of business in
connection with, or to secure payment of, obligations under workers'
compensation, unemployment insurance or similar legislation; provided, that in
the case of (i) and (ii), either (a) the obligation secured by such Lien is not
yet due, or (b) the obligation is being contested in good faith by appropriate
proceedings and an appropriate reserve has been established therefor.
"Person" shall include any natural person, corporation, trust,
association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
"Preferred Stock" shall have the meaning assigned to it in Section 1(a)
hereof.
"Purchase Payment" shall have the meaning assigned to it in Section 2
hereof.
"Qualified Offering" shall have the meaning assigned to it in Section
10.4.
"Registration Rights Agreement" shall have the meaning assigned to it in
Section 6.1(l) hereof.
"Restricted Stock" shall mean (a) all Common Stock owned now or in the
future by the Investors, (b) the Common Stock issued or issuable upon
conversion of the Preferred Stock and/or the Warrants, whether owned by the
Investors or not, and (c) any securities issued or issuable with respect to
such Common Stock by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger or consolidation or
reorganization; provided, however, that shares of Common Stock shall only be
treated as Restricted Stock if and so long as they have not been (i) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect to such Common Stock are removed upon the consummation of such
sale and the seller and purchaser of such Common Stock receive an opinion of
counsel for the Company, which shall be in form and content reasonably
satisfactory to the seller and buyer and their respective counsel, to the
effect that such Common Stock in the hands of the purchaser is freely
transferable without restriction or registration under the Securities Act in
any public or private transaction.
"Securities" shall have the meaning assigned to it in Section 1 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Executive" shall have the meaning assigned to it in Section
6.1(k).
"Series A Certificate" shall have the meaning assigned to it in Section
5.8 hereof.
"Series A Preferred Stock" shall have the meaning assigned to it in
Section 5.3 hereof.
"Stockholders Agreement" shall have the meaning assigned to it in Section
6.1(k) hereof.
"Subsidiary" shall mean any corporation, association or other business
entity at least 50% of the outstanding voting stock of which is at the time
owned or controlled directly or indirectly by the Company or by one or more of
such subsidiary entities or both, where "voting stock" means any shares of
stock having general voting power in electing the board of directors
(irrespective of whether or not at the time stock of any other class or classes
has or might have voting power by reason of any contingency).
"ULLICO" shall have the meaning assigned to it in the introductory
paragraph of this Agreement.
"Warrants" shall have the meaning assigned to it in Section 1(b) hereof.
"Warrant Certificate" shall have the meaning assigned to it in Section
1(b) hereof.
"Warrant Stock" shall have the meaning assigned to it in Section 1(b)
hereof. "Year End Financial Statements" shall have the meaning assigned to it
in Section 5.29 hereof.
12. Miscellaneous.
12.1 Waivers and Amendments. With the written consent of the
Holders of a Majority of the Restricted Stock, the obligations of the Company
and the rights of the Holders of the Securities under this Agreement may be
waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board,
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of any supplemental agreement or modifying in any manner the
rights and obligations hereunder of the Holders of the Securities and the
Company; provided, however, that no such waiver or supplemental agreement shall
(a) affect any of the rights of any Holder of a Security created by the
Certificate or by the statutory corporate law of the state of incorporation of
the Company without compliance with all applicable provisions of the
Certificate and such statutory corporate law, or (b) reduce the aforesaid
proportion of Restricted Stock, the Holders of which are required to consent to
any waiver or supplemental agreement, without the consent of the Holders of all
of the Restricted Stock. Upon the effectuation of each such waiver, consent or
agreement of amendment or modification, the Company shall promptly give written
notice thereof to the Holders of the Restricted Stock who have not previously
consented thereto in writing. Neither this Agreement nor the Certificate, nor
any provision hereof or thereof, may be amended, waived, discharged or
terminated orally or by course of dealing, but only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in this Section 12.1.
Specifically, but without limiting the generality of the foregoing, the failure
of Investor at any time or times to require performance of any provision hereof
or of the Certificate by the Company shall in no manner affect the right of
Investor at a later time to enforce the same. No waiver by any party of the
breach of any term or provision contained in this Agreement or the Certificate,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in the Agreement or Certificate.
12.2 Effect of Waiver or Amendment. Investor and each Holder of
Securities acknowledge that by operation of Section 12.1 hereof the Holders of
a Majority of the Restricted Stock will, subject to the limitations contained
in such Section 12.1, have the right and power to diminish or eliminate certain
rights of such Investor under this Agreement.
12.3 Rights of Holders Inter Se. Each Holder of Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights which such Holder may have by reason of this Agreement or any Security,
including, without limitation, the right to consent to the waiver of any
obligation of the Company under this Agreement and to enter into an agreement
with the Company for the purpose of modifying this Agreement or any agreement
effecting any such modification, and such Holder shall not incur any liability
to any other Holder or Holders of Securities with respect to exercising or
refraining from exercising any such right or rights.
12.4 Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to the Company to:
JD American Workwear, Inc.
00 Xxx Xxxx Xxxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxx 00000
Attention: Xx. Xxxxx X. XxXxxxx, President and Chief Executive Officer
Telecopier: (000) 000-0000
with a copy to
Xxxxxx X. XxXxxxx, Esq.
Xxxx Xxxxx Xxxx & XxXxxx LLP
Xxx Xxxxxxxxxx Xxxxx
Xxxxxx, XX 00000-0000
Telecopier: (000) 000-0000
if to Investor to:
The Union Labor Life Insurance Company
000 Xxxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attention: Xx. Xxxxxxx X. Xxxxx, Senior Vice President
Telecopier: (000) 000-0000
with a copy to:
Xxxx X. Xxxxxx, Esq.
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Telecopier: (000) 000-0000
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. Any notice, request, consent or other communication hereunder shall be
deemed to have been given and received on the day on which it is delivered (by
any means including personal delivery, overnight air courier, United States
mail) or telecopied (or, if such day is not a business day or if the notice,
request, consent or communication is not telecopied during business hours of
the intended recipient, at the place of receipt, on the next following business
day).
12.5 Survival of Representations and Warranties, etc. All
represen-tations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by or on behalf of Investor, and the sale and
purchase of the Securities and payment therefor. All statements contained in
any certificate, instrument or other writing delivered by or on behalf of the
Company pursuant hereto or in connection with or contemplation of the
transactions herein contemplated shall constitute representations and
warranties by the Company hereunder. Any claim against the Company based upon
any inaccuracy in any of the representations or breach of any of the warranties
hereunder must be asserted against the Company, either by written notice given
to the Company specifying with reasonable particularity the claimed inaccuracy
or breach or by institution of an action at law or suit in equity against the
Company and the serving of the process and complaint with respect thereto upon
the Company, within forty-eight (48) months from the Closing Date.
12.6 Severability. Should any one or more of the provisions of
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
12.7 Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by the Holder or Holders at the time of any of the Securities.
Subject to the immediately preceding sentence, this Agreement shall not run to
the benefit of or be enforceable by any Person other than a party to this
Agreement and its successors and assigns.
12.8 Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
12.9 Choice of Law. It is the intention of the parties that the
internal substantive laws, and not the laws of conflicts, of New York should
govern the enforceability and validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties.
12.10 Expenses. The Company agrees, whether or not the transactions
contemplated hereby are consummated, to pay, and hold Investor and the Holders
of the Securities harmless from liability for the payment of, (i) the fees and
expenses of their special counsel arising in connection with the preparation,
negotiation and execution of this Agreement, the Ancillary Agreements and the
Certificate and consummation of the transactions contemplated hereby, (ii) the
fees and expenses incurred with respect to any amendments to this Agreement,
the Warrant Certificate or the Certificate proposed by the Company (whether or
not the same become effective), (iii) if Investor or other Holder of Securities
desires to sell or otherwise transfer any or all of the Securities held by it
and counsel for the Company declines to render a legal opinion to Investor or
such Holder, without cost or expense to such Investor or Holder, whether or not
registration under the Securities Act will be required for such sale or
transfer, the fees and expenses of counsel for Investor or such Holder in
rendering such an opinion, (iv) the fees and expenses of one firm of counsel
for any Holder or Holders of Securities who may be deemed to be Affiliates of
the Company for reviewing any registration statement or prospectus to be filed
under the Securities Act, or any amendments or supplements thereto, unless such
registration statement is being prepared and effected in accordance with the
Registration Rights Agreement and such Holder or Holders are participating as
selling shareholders in such registration, (v) the fees and expenses incurred
in connection with any requested waiver of the right of any Holder of
Securities or the consent of any Holder of Securities to contemplated acts of
the Company not otherwise permissible by the terms of this Agreement, any of
the Ancillary Agreements, the Warrant Certificate or the Certificate, (vi)
stamp and other taxes, excluding income taxes, which may be payable with
respect to the execution and delivery of this Agreement or the issuance,
delivery or acquisition of the Preferred Stock and the Warrants or upon the
conversion of the Preferred Stock or exercise of the Warrants, (vii) the fees
and expenses incurred in respect of the enforcement of the rights granted under
this Agreement, the Ancillary Agreements or the Certificate, and (viii) all
costs of the Company's performance of and compliance with this Agreement, the
Ancillary Agreement, the Warrant Certificate and the Certificate.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
12.12 Authorship. This Agreement shall not be construed for or
against any party by reason of the authorship or claimed authorship of any
provision of this Agreement or by reason of the status of the respective
parties.
12.13 Entire Agreement. This Agreement and any agreement, document
or instrument referred to herein constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof, and
supersede all other prior agreements or undertakings with respect thereto, both
written and oral.
[SIGNATURE PAGE OF SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective duly authorized officers as of the day and year
first above written.
JD AMERICAN WORKWEAR, INC.
By: /s/ XXXXX X. XXXXXXX
Xxxxx X. XxXxxxx, President and Chief
Executive Officer
THE UNION LABOR LIFE INSURANCE COMPANY
By: /s/ XXXXXXX X. XXXXXXXX
Name: Xxxxxxx X. Xxxxxxxx
Title: Vice President--Investments
