EXHIBIT 10.26
LIFE TIME FITNESS, INC. (FORMERLY KNOWN AS FCA, LTD.)
SECOND AMENDMENT AND WAIVER RELATING TO
STOCK PURCHASE AGREEMENT
DATED DECEMBER 9, 1998
July 19, 2000
To Each of the Persons (the "Purchasers")
Named in Schedule A to the Stock
Purchase Agreement dated December 9, 1998
Ladies and Gentlemen:
Each of you is named as a Purchaser in the Stock Purchase Agreement
dated December 9, 1998 and amended by the First Amendment and Waiver relating to
Stock Purchase Agreement dated December 9, 1998 (the "First Amendment") among
FCA, Ltd. (now known as LIFE TIME FITNESS, Inc.), a Minnesota corporation (the
"Company"), and the Purchasers named therein (the "1998 Agreement"), relating to
the sale by the Company to such Purchasers of shares of series B convertible
preferred stock (the "Series B Preferred Stock") and warrants to purchase shares
of common stock of the Company (the "1998 Warrants").
The Company is a party to a Stock Purchase Agreement dated May 7, 1996,
as amended by the First Amendment and Waiver relating to Stock Purchase
Agreement dated May 7, 1996, as amended by the Second Amendment and Waiver
relating to Stock Purchase Agreement dated May 7, 1996 and as amended by the
Third Amendment and Waiver relating to Stock Purchase Agreement dated May 7,
1996 (the "1996 Agreement") relating to the sale by the Company to the
Purchasers named therein of 958,487 shares of series A convertible preferred
stock (the "Series A Preferred Stock"). The Company is a party to a Stock
Purchase Agreement dated August 16, 2000, as amended by the First Amendment and
Waiver relating to Stock Purchase Agreement dated August 16, 2000 (the "2000
Agreement") relating to the sale by the Company to the Purchasers named therein
of 4,500,000 shares of series C convertible preferred stock (the "Series C
Preferred Stock"). The Company has entered into a Stock Purchase Agreement dated
July 19, 2001 (the "2001 Agreement") relating to the sale by the Company to the
Purchasers named therein of up to 2,000,000 shares of series D convertible
preferred stock (the "Series D Preferred Stock"). Section 7A.13 of the 2001
Agreement provides that it is a condition to closing the transaction
contemplated by the 2001 Agreement that the 1998 Agreement be amended and the
rights of first refusal of the Purchasers under the 1998 Agreement be waived as
provided below.
The shares of Common Stock into which the Series B Preferred Stock is
convertible are hereinafter sometimes referred to as the "Conversion Stock"; the
shares of Common Stock into which the Series A Preferred Stock is convertible
are hereinafter
sometimes referred to as the "Series A Conversion Stock"; the shares of Common
Stock into which the Series C Preferred Stock is convertible are hereinafter
sometimes referred to as the "Series C Conversion Stock"; the shares of Common
Stock into which the Series D Preferred Stock is convertible are hereinafter
sometimes referred to as the "Series D Conversion Stock"; the shares of Common
Stock issuable upon exercise of the 1998 Warrants are hereinafter sometimes
referred to as the "1998 Warrant Stock"; and the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock are hereinafter collectively referred to as the "Preferred Stock".
All defined terms used herein which are not otherwise defined herein
shall have the meanings set forth in the 1998 Agreement.
1. Amendments to the 1998 Agreement. In connection with and as an
inducement to the closing of the transactions contemplated by the 2001
Agreement, each of you by executing this amendment and waiver (the "Amendment")
hereby consents to the following amendments to the 1998 Agreement, such
amendments to be effective from and after the Closing referred to in the 2001
Agreement:
A. The term "Certificate", wherever used in the 1998 Agreement, shall
be amended to mean the Amendment and Restatement of the Statement of Designation
of Rights, Preferences and Limitations of Series B Convertible Preferred Stock
as amended and restated in connection with the issuance of the Series D
Preferred Stock and the 2001 Agreement.
B. Section 9.2 of the 1998 Agreement is hereby amended in its entirety
as follows:
"9.2 Future Registration Rights. Except for any registration
expressly permitted by Section 10 hereof, the 1998 Agreement, the 2000 Agreement
and the 2001 Agreement, the Company will not, without the prior approval of the
Purchasers, agree with the holders of any securities issued or to be issued by
the Company to register such securities under the Securities Act nor will it
grant any incidental registration rights."
C. Section 10.2 of the 1998 Agreement is hereby amended and restated in
its entirety as follows:
10.2 Incidental Registration. Each time the Company shall determine
to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection
with the proposed offer and sale for cash of any of its
securities by it or any of its security holders (other than
registration statements on forms that do not permit the
inclusion of shares by the Company's security holders), the
Company will give written notice of its determination to all
record holders of Purchased Stock not theretofore registered
under the Securities Act and sold. Upon the written request of
a record holder of any shares of Purchased Stock given within
30 days after the date of any such notice from the Company,
the Company
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will, except as herein provided, cause all such shares of
Purchased Stock, the record holders of which have so requested
registration thereof, to be included in such registration
statement, all to the extent requisite to permit the sale or
other disposition by the prospective seller or sellers of the
Purchased Stock to be so registered; provided, however, that
nothing herein shall prevent the Company from, at any time,
abandoning or delaying any such registration initiated by it;
provided further, however, that if the Company determines not
to proceed with a registration after the registration
statement has been filed with the Commission and the Company's
decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold
by the Company, the Company shall promptly complete the
registration for the benefit of those selling security holders
who wish to proceed with a public offering of their securities
and who bear all expenses in excess of $25,000 incurred by the
Company as the result of such registration after the Company
has decided not to proceed. Notwithstanding the foregoing, the
Company shall not be in default of its obligation to include
the Purchased Stock in a registration if such registration is
being made at the request of the holders of Series B Preferred
Stock, Series B Conversion Stock, the 1998 Warrants and the
1998 Warrant Stock pursuant to the 1998 Agreement, Series C
Preferred Stock and the Series C Conversion Stock pursuant to
the 2000 Agreement, Series D Preferred Stock and the Series D
Conversion Stock pursuant to the 2001 Agreement and the
Purchased Stock is excluded from such registration pursuant to
the terms of the 1998 Agreement, the 2000 Agreement or the
2001 Agreement. If any registration pursuant to this Section
10.2 shall be underwritten in whole or in part, the Company
may require that the Purchased Stock requested for inclusion
pursuant to this Section 10.2 be included in the underwriting
on the same terms and conditions as the securities otherwise
being sold through the underwriters. If in the good faith
judgment of the managing underwriter of such public offering
the inclusion of all of the Purchased Stock originally covered
by a request for registration and all other Securities
originally covered by a request for registration pursuant to
the 1998 Agreement, the 2000 Agreement or the 2001 Agreement
would reduce the number of shares to be offered by the Company
or interfere with the successful marketing of the shares of
stock offered by the Company, the number of shares of
Purchased Stock and such other Securities otherwise to be
included in the underwritten public offering may be reduced
pro rata (by number of shares) among the holders thereof
requesting such registration. Those shares of Purchased Stock
which are thus excluded from the underwritten public offering
shall be withheld from the market by the holders thereof for a
period, not to exceed 90 days, which the managing underwriter
reasonably determines is necessary in order to effect the
underwritten public offering.
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D. Section 11.2 of the 1998 Agreement is hereby amended in its entirety
as follows:
"11.2 Remedies Upon Events of Default. Upon the occurrence of an Event
of Default of the type specified in (i) paragraphs (a), (b), (d) or (g) of
Section 11.1, and (ii) paragraph (f) of Section 11.1 if the representation or
warranty at issue was made with reckless disregard for the truth or falsity
thereof, and so long as such Event of Default continues unremedied, then, unless
such Event of Default shall have been waived by the holders of sixty percent of
the Series A Preferred Stock and Series B Preferred Stock then outstanding, the
holders of at least sixty percent of the Series A Preferred Stock and the Series
B Preferred Stock then outstanding may require the Company immediately to redeem
all shares of Series A Preferred Stock and Series B Preferred Stock then
outstanding as provided in Section 4(b) of the Certificate and the Amendment and
Restatement of the Statement of Designation of Rights, Preferences and
Limitations of Series A Convertible Preferred Stock (the "Series A
Certificate"), as the case may be, and thereupon the Company shall be obligated
to redeem all shares of Series A Preferred Stock and Series B Preferred Stock
then outstanding. Upon the occurrence of any Event of Default hereunder, unless
such Event of Default shall have been waived by the holders of at least sixty
percent of the Series A Preferred Stock and Series B Preferred Stock then
outstanding and a majority of the Series C Preferred Stock and Series D
Preferred Stock then outstanding, voting together as a class, the holders of the
Preferred Stock then outstanding shall be entitled to designate a majority of
the Board of Directors of the Company as provided in Section 2(c) of the
Certificate, the Series A Certificate, the Amendment and Restatement of the
Statement of Designation of Rights, Preferences and Limitations of Series C
Convertible Preferred Stock or the Statement of Designation of Rights,
Preferences and Limitations of Series D Convertible Preferred Stock, as the case
may be."
E. Section 13.1 of the 1998 Agreement is hereby amended in its entirety
as follows:
"13.1 "Additional Shares of Common Stock" shall mean all shares of
Common Stock of the Company issued by the Company on or after the Closing Date,
except the Conversion Stock, the 1998 Warrant Stock, the Series B Conversion
Stock, the Series C Conversion Stock and the Series D Conversion Stock."
F. Section 13.13 of the 1998 Agreement is hereby amended in its
entirety as follows:
"13.17 "Securities" shall mean the Preferred Shares, the Conversion
Stock, the 1998 Warrants, the 1998 Warrant Stock, the Series B Preferred Stock,
the Series B Conversion Stock, the Series C Preferred Stock, the Series C
Conversion Stock, the Series D Preferred Stock, the Series D Conversion Stock,
and any stock or other securities of the Company issued in a stock split or
reclassification of, or a stock dividend or other distribution on or in
substitution or exchange for, or otherwise in connection with, any of the
foregoing securities, or in a merger or consolidation involving the Company or a
sale of all or substantially all of the Company's assets."
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2. Waiver of Right of First Refusal. In connection with the closing
of the transactions contemplated by the 2001 Agreement, each of you by executing
this Amendment hereby waives the Company's compliance with the requirements of,
and any and all of your rights under, Section 8.17 of the 1998 Agreement with
respect to the issuance and sale of the shares of Series D Preferred Stock and
the Series D Conversion Stock.
3. Consent to the 2001 Agreement. By executing this Amendment, each
of you hereby consents to the transactions contemplated by the 2001 Agreement.
4. Consent to Grant of Registration Rights. In connection with the
closing of the transactions contemplated by the 2001 Agreement, each of you by
executing this Amendment hereby consents to the grant of the registration rights
in Section 10 of the 2001 Agreement pursuant to your right to approve of the
grant of such registration rights pursuant to Section 9.2 of the 1998 Agreement.
5. Effect of Amendment. Except as amended hereby, the 1998 Agreement
shall continue in full force and effect in accordance with its terms.
[SIGNATURE PAGES FOLLOW]
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
Very truly yours,
LIFE TIME FITNESS, INC. (formerly FCA, Ltd.)
By_________________________________________
Its______________________________________
[AMENDMENT TO 1998 AGREEMENT]
The foregoing Agreement is hereby accepted
as of the date first above written.
NORWEST EQUITY PARTNERS V, LP
A MINNESOTA LIMITED PARTNERSHIP
By:ITASCA PARTNERS V, LLP
Its: General Partner
By_________________________________________
Its_______________________________________
NORWEST EQUITY PARTNERS VI, LP
A MINNESOTA LIMITED PARTNERSHIP
By: ITASCA LBO VI, LP
Its: General Partner
By_________________________________________
Its_______________________________________
[AMENDMENT TO 1998 AGREEMENT]
MINNESOTA PRIVATE EQUITY FUND, LP
By: EQUITY RESEARCH, INC.
Its: General Partner
By_________________________________________
Its_______________________________________
[AMENDMENT TO 1998 AGREEMENT]
XXXXX XXXXXXX INVESTORS-FUND XI, L.P.
By: THE PIPER FUND-FUND XI, L.P.
Its: Managing Partner
By________________________________________________
Managing Director of Xxxxx Xxxxxxx Inc., as
Managing Partner of the Piper Fund-Fund XI, L.P.
[AMENDMENT TO 1998 AGREEMENT]
____________________________
Xxx Xxxxxxxxx
[AMENDMENT TO 1998 AGREEMENT]
XXXXX AND XXXXX XXXXXXX JT TEN:
______________________________
Xxxxx Xxxxxxx
______________________________
Xxxxx Xxxxxxx
[AMENDMENT TO 1998 AGREEMENT]
XXXXX XXXXXXX INC.
as custodian FBO Xxxxx X. Xxxxxxx
By________________________________________
Its______________________________________
[AMENDMENT TO 1998 AGREEMENT]
ANTARES LEVERAGED CAPITAL CORP.
By________________________________________
Its______________________________________
[AMENDMENT TO 1998 AGREEMENT]
LIFE TIME FITNESS, INC. (FORMERLY KNOWN AS FCA, LTD.)
FIRST AMENDMENT AND WAIVER RELATING TO
STOCK PURCHASE AGREEMENT
DATED DECEMBER 9, 1998
August 16, 2000
To Each of the Persons (the "Purchasers")
Named in Schedule A to the Stock
Purchase Agreement dated December 9, 1998
Ladies and Gentlemen:
Each of you is named as a Purchaser in the Stock Purchase Agreement
dated December 9, 1998 among FCA, Ltd. (now known as LIFE TIME FITNESS, Inc.), a
Minnesota corporation (the "Company"), and the Purchasers named therein (the
"1998 Agreement"), relating to the sale by the Company to such Purchasers of
shares of series B convertible preferred stock (the "Series B Preferred Stock")
and warrants to purchase shares of common stock of the Company (the "1998
Warrants").
The Company is a party to a Stock Purchase Agreement dated May 7, 1996,
as amended by the First Amendment and Waiver relating to Stock Purchase
Agreement dated May 7, 1996 (the "1996 Agreement") relating to the sale by the
Company to the Purchasers named therein of 958,487 shares of series A
convertible preferred stock (the "Series A Preferred Stock"). The Company has
entered into a Stock Purchase Agreement dated August 16, 2000 (the "2000
Agreement") relating to the sale by the Company to the Purchasers named therein
of 4,500,000 shares of series C convertible preferred stock (the "Series C
Preferred Stock"). Section 7A.13 of the 2000 Agreement provides that it is a
condition to closing the transaction contemplated by the 2000 Agreement that the
1998 Agreement be amended and the rights of first refusal of the Purchasers
under the 1998 Agreement be waived as provided below.
The shares of Common Stock into which the Series B Preferred Stock is
convertible are hereinafter sometimes referred to as the "Conversion Stock"; the
shares of Common Stock into which the Series A Preferred Stock is convertible
are hereinafter sometimes referred to as the "Series A Conversion Stock"; the
shares of Common Stock into which the Series C Preferred Stock is convertible
are hereinafter sometimes referred to as the "Series C Conversion Stock"; the
shares of Common Stock issuable upon exercise of the 1998 Warrants are
hereinafter sometimes referred to as the "1998 Warrant Stock"; and the shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
are hereinafter collectively referred to as the "Preferred Stock".
All defined terms used herein which are not otherwise defined herein
shall have the meanings set forth in the 1998 Agreement.
1. Amendments to the 1998 Agreement. In connection with and as an
inducement to the closing of the transactions contemplated by the 2000
Agreement, each of you by executing this amendment and waiver (the "Amendment")
hereby consents to the following amendments to the 1998 Agreement, such
amendments to be effective from and after the Closing referred to in the 2000
Agreement:
A. The term "Certificate", wherever used in the 1998 Agreement, shall
be amended to mean the Statement of Designation of Rights, Preferences and
Limitations of Series B Convertible Preferred Stock as amended and restated in
connection with the issuance of the Series C Preferred Stock and the 2000
Agreement.
B. Section 5.23(b) of the 1998 Agreement is hereby amended in its
entirety as follows:
"(b) To the Company's knowledge, no Hazardous Substances have ever been
buried, spilled, leaked, discharged, emitted, generated, stored, used or
released, and no Hazardous Substances are now present, in, on, or under the Real
Estate except for immaterial quantities stored or used by the Company in the
ordinary course of its business and in accordance with all applicable
Environmental Laws."
C. Section 5.23(c) of the 1998 Agreement is hereby amended in its
entirety as follows:
"(c) To the Company's knowledge, the Real Estate is not being used, and
the Real Estate has never been used, in connection with the business of
manufacturing, storing or transporting Hazardous Substances, and no RCRA
Hazardous Wastes have been treated, stored or disposed of on the Real Estate."
D. Section 5.23(d) of the 1998 Agreement is hereby amended in its
entirety as follows:
"(d) To the Company's knowledge, there are not now and never have been
any underground or aboveground storage tanks or other containment facilities of
any kind on the Real Estate which contain or ever did contain any Hazardous
Substances."
E. Section 5.23(f) of the 1998 Agreement is hereby amended in its
entirety as follows:
"(f) The Company has delivered to the Purchasers true and complete
copies of all material reports, authorizations, permits, licenses, disclosures
and other documents in its possession, custody or control describing or relating
in any way to the Real Estate which describe, mention or discuss the status
thereof with respect to any Environmental Law."
F. Section 8.9 of the 1998 Agreement is hereby amended in its entirety
as follows:
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"8.9 Directors' and Shareholders' Meetings. The holders of the
Preferred Shares shall have the right to elect directors of the Company as set
forth in the Certificate.
The Company shall reimburse such holders of Preferred Shares for the
reasonable out-of-pocket expenses incurred by them or the directors elected by
them pursuant to the Certificate in connection with the attending of meetings by
their director designees or carrying out any other duties by such director
designees that may be specified by the Board of Directors; shall pay such
director designees the same directors' fees paid to the other investor-designee
non-employee directors (other than Xxxx X. Xxxx) of the Company (it being
understood that the Company's stock option plan may provide for stock option
grants to only those non-employee directors who, together with their affiliates,
do not own more than one percent of outstanding capital stock of the Company);
and shall maintain as part of its Articles of Incorporation or Bylaws a
provision for the indemnification of its directors to the full extent permitted
by law.
The Company agrees, as a general practice, to hold a meeting of its
Board of Directors at least once every three months, and during each year to
hold its annual meeting of shareholders on or approximately on the date provided
in its Bylaws."
G. Section 8.17 of the 1998 Agreement is hereby amended in its entirety
as follows:
"8.17 Right of First Refusal. If the Company should decide to issue and
sell additional shares of any capital stock of the Company or any warrants,
securities convertible into capital stock of the Company or other rights to
subscribe for or to purchase any capital stock of the Company, other than (a)
shares of Common Stock sold to the public pursuant to a registration statement
filed under the Securities Act, if such offering is underwritten on a firm
commitment basis, (b) shares of Common Stock awarded or issued upon the exercise
of options granted pursuant to employee and consultant benefit plans adopted by
the Company, and the grant of such options themselves, provided that the
aggregate number of shares thus awarded and issued and issuable pursuant to the
exercise of all such options shall not be in excess of 1,242,000 (appropriately
adjusted to reflect stock splits, stock dividends, reorganizations,
consolidations and similar changes hereafter effected), (c) shares of Preferred
Stock, (d) shares of Common Stock issued upon conversion of the Preferred Stock
or exercise of the 1998 Warrants, (e) dividends payable in Common Stock, and (f)
warrants issued in connection with bona fide financing transactions (including,
without limitation, equipment financing arrangements and bank lines of credit)
with conventional institutional lenders entered into in the ordinary course of
their business and shares of Common Stock issued upon exercise of such warrants
(provided that the aggregate number of shares thus issued on exercise and
covered by unexercised warrants shall not be in excess of 600,000 (appropriately
adjusted to reflect stock splits, stock dividends, reorganizations,
consolidations and similar changes hereafter effected)) (all such capital stock,
warrants, securities convertible into capital stock and other rights, other than
securities referred to in (a), (b), (c), (d), (e) and (f) above, being
hereinafter sometimes
3
collectively referred to as "Additional Securities"), the Company shall first
offer to sell to each of the Purchasers, upon the same terms and conditions as
the Company is proposing to issue and sell such Additional Securities to others,
such Purchaser's pro rata share (as defined below) of such Additional
Securities. Such offer shall be made by written notice given to each such
Purchaser and specifying therein the amount of the Additional Securities being
offered, the purchase price and other terms of such offer. Such Purchaser shall
have a period of 45 days from and after the effective date of such notice within
which to accept such offer. If a Purchaser elects to accept such offer in whole
or in part, such Purchaser shall so accept by written notice to the Company
given within such 45-day period. If a Purchaser fails to accept such offer in
whole or in part within such 45-day period, any of such Additional Securities
not purchased by such Purchaser pursuant to such offer may be offered for sale
to others by the Company for a period of 120 days from the last day of such
45-day period, but only on terms and conditions no more favorable to the third
party purchasers than those set forth in the initial offer to such Purchaser,
free and clear of the restrictions imposed by this Article 8.17.
For purposes of the previous paragraph, a Purchaser's "pro rata share"
is the number of shares of Additional Securities (rounded to the nearest whole
share) as is equal to the product of (a)(i) the number of shares of Common Stock
issued, or issuable upon the exercise or conversion of rights, options or other
convertible securities without the payment of any additional cash consideration
or with the payment of a nominal cash consideration, as the case may be
(collectively, "Fully Paid Securities"), to such Purchaser immediately prior to
the issuance of the Additional Securities being offered divided by (ii) the
total number of Fully Paid Securities issued or issuable by the Company
immediately prior to the issuance of the Additional Securities, multiplied by
(b) the entire offering of Additional Securities."
H. Section 9.2 of the 1998 Agreement is hereby amended in its entirety
as follows:
"9.2 Future Registration Rights. Except for any registration expressly
permitted by Section 10 hereof, the 1998 Agreement and the 2000 Agreement, the
Company will not, without the prior approval of the Purchasers, agree with the
holders of any securities issued or to be issued by the Company to register such
securities under the Securities Act nor will it grant any incidental
registration rights."
I. Subparagraph (e) of Section 9.3 of the 1998 Agreement is hereby
amended in its entirety as follows:
(e) except for securities excepted from the definition of
Additional Securities by clauses (a), (b), (c), (d), (e) and
(f) of the first paragraph of Section 8.17 hereof, issue (A)
any additional capital stock of the Company of any class other
than Common Stock, or securities convertible into any such
class or (B) any options, warrants or other rights to purchase
capital stock of the Company of any class other than Common
Stock, or securities convertible into shares of any such
class; or
4
J. Subparagraph (b) of Section 9.3 of the 1998 Agreement is hereby
amended in its entirety as follows:
(b) make or permit any Subsidiary to make loans or advances to any
person (including without limitation to any officer, director
or shareholder of the Company or any Subsidiary), firm,
association or corporation, except loans and advances to the
Company and its wholly-owned Subsidiaries and advances to
suppliers and employees made in the ordinary course of
business (provided that the outstanding balance of loans and
advances to employees of the Company or any Subsidiary shall
not at any time exceed $250,000 in the aggregate or $50,000
for any one individual); or
K. Section 10.2 of the 1998 Agreement is hereby amended and restated in
its entirety as follows:
10.2 Incidental Registration. Each time the Company shall determine
to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection
with the proposed offer and sale for cash of any of its
securities by it or any of its security holders (other than
registration statements on forms that do not permit the
inclusion of shares by the Company's security holders), the
Company will give written notice of its determination to all
record holders of Purchased Stock not theretofore registered
under the Securities Act and sold. Upon the written request of
a record holder of any shares of Purchased Stock given within
30 days after the date of any such notice from the Company,
the Company will, except as herein provided, cause all such
shares of Purchased Stock, the record holders of which have so
requested registration thereof, to be included in such
registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or
sellers of the Purchased Stock to be so registered; provided,
however, that nothing herein shall prevent the Company from,
at any time, abandoning or delaying any such registration
initiated by it; provided further, however, that if the
Company determines not to proceed with a registration after
the registration statement has been filed with the Commission
and the Company's decision not to proceed is primarily based
upon the anticipated public offering price of the securities
to be sold by the Company, the Company shall promptly complete
the registration for the benefit of those selling security
holders who wish to proceed with a public offering of their
securities and who bear all expenses in excess of $25,000
incurred by the Company as the result of such registration
after the Company has decided not to proceed. Notwithstanding
the foregoing, the Company shall not be in default of its
obligation to include the Purchased Stock in a registration if
such registration is being made at the request of the holders
of Series B Preferred Stock, Series B Conversion Stock, the
1998 Warrants and the 1998 Warrant Stock pursuant to the 1998
Agreement, Series C Preferred Stock and the Series C
Conversion Stock pursuant to the 2000 Agreement
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and the Purchased Stock is excluded from such registration
pursuant to the terms of the 1998 Agreement or the 2000
Agreement. If any registration pursuant to this Section 10.2
shall be underwritten in whole or in part, the Company may
require that the Purchased Stock requested for inclusion
pursuant to this Section 10.2 be included in the underwriting
on the same terms and conditions as the securities otherwise
being sold through the underwriters. If in the good faith
judgment of the managing underwriter of such public offering
the inclusion of all of the Purchased Stock originally covered
by a request for registration and all other Securities
originally covered by a request for registration pursuant to
the 1998 Agreement or the 2000 Agreement would reduce the
number of shares to be offered by the Company or interfere
with the successful marketing of the shares of stock offered
by the Company, the number of shares of Purchased Stock and
such other Securities otherwise to be included in the
underwritten public offering may be reduced pro rata (by
number of shares) among the holders thereof requesting such
registration. Those shares of Purchased Stock which are thus
excluded from the underwritten public offering shall be
withheld from the market by the holders thereof for a period,
not to exceed 90 days, which the managing underwriter
reasonably determines is necessary in order to effect the
underwritten public offering.
L. Subparagraph (g) of Section 11.1 of the 1998 Agreement is hereby
amended in its entirety as follows:
(f) if default shall be made in the Company's obligation to redeem
the Preferred Stock (as hereinafter defined), as required by
the applicable Certificate of Designation, whether or not
funds are legally available therefor, provided, however, that
it shall not be an Event of Default if the Company's failure
to so redeem the Preferred Stock results from the failure of
the holders of Preferred Stock entitled to vote on or consent
to such redemption to give their consent to the redemption and
the Company otherwise has funds legally available to redeem
the Preferred Stock; or
M. Section 11.2 of the 1998 Agreement is hereby amended in its
entirety as follows:
"11.2 Remedies Upon Events of Default. Upon the occurrence of an Event
of Default of the type specified in (i) paragraphs (a), (b), (d) or (g) of
Section 11.1, and (ii) paragraph (f) of Section 11.1 if the representation or
warranty at issue was made with reckless disregard for the truth or falsity
thereof, and so long as such Event of Default continues unremedied, then, unless
such Event of Default shall have been waived by the holders of sixty percent of
the Series A Preferred Stock and Series B Preferred Stock then outstanding, the
holders of at least sixty percent of the Series A Preferred Stock and the Series
B Preferred Stock then outstanding may require the Company immediately to redeem
all shares of Series A Preferred Stock and Series B Preferred Stock then
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outstanding as provided in Section 4(b) of the Certificate and the Amendment and
Restatement of the Statement of Designation of Rights, Preferences and
Limitations of Series B Convertible Preferred Stock (the "Series B
Certificate"), as the case may be, and thereupon the Company shall be obligated
to redeem all shares of Series A Preferred Stock and Series B Preferred Stock
then outstanding. Upon the occurrence of any Event of Default hereunder, unless
such Event of Default shall have been waived by the holders of at least sixty
percent of the Series A Preferred Stock and Series B Preferred Stock then
outstanding and a majority of the Series C Preferred Stock then outstanding, the
holders of the Preferred Stock then outstanding shall be entitled to designate a
majority of the Board of Directors of the Company as provided in Section 2(c) of
the Certificate, the Series B Certificate or the Series C Certificate, as the
case may be."
N. Section 13.1 of the 1998 Agreement is hereby amended in its entirety
as follows:
"13.1 "Additional Shares of Common Stock" shall mean all shares of
Common Stock of the Company issued by the Company on or after the Closing Date,
except the Conversion Stock, the 1998 Warrant Stock, the Series B Conversion
Stock and the Series C Conversion Stock."
O. Section 13.13 of the 1998 Agreement is hereby amended in its
entirety as follows:
"13.17 "Securities" shall mean the Preferred Shares, the Conversion
Stock, the 1998 Warrants, the 1998 Warrant Stock, the Series B Preferred Stock,
the Series B Conversion Stock, the Series C Preferred Stock, the Series C
Conversion Stock, and any stock or other securities of the Company issued in a
stock split or reclassification of, or a stock dividend or other distribution on
or in substitution or exchange for, or otherwise in connection with, any of the
foregoing securities, or in a merger or consolidation involving the Company or a
sale of all or substantially all of the Company's assets."
2. Waiver of Right of First Refusal. In connection with the closing of
the transactions contemplated by the 2000 Agreement, each of you by executing
this Amendment hereby waives the Company's compliance with the requirements of,
and any and all of your rights under, Section 8.17 of the 1998 Agreement with
respect to the issuance and sale of the shares of Series C Preferred Stock and
the Series C Conversion Stock.
3. Consent to the 2000 Agreement. By executing this Amendment, each of
you hereby consents to the transactions contemplated by the 2000 Agreement.
4. Consent to Grant of Registration Rights. In connection with the
closing of the transactions contemplated by the 2000 Agreement, each of you by
executing this Amendment hereby consents to the grant of the registration rights
in Section 10 of the 2000 Agreement pursuant to your right to approve of the
grant of such registration rights pursuant to Section 9.2 of the 1998 Agreement.
7
5. Consent to Employee Loans. Each of you by executing this Amendment
hereby consents to the loans made to employees of the Company listed on Exhibit
A to this Amendment.
6. Effect of Amendment. Except as amended hereby, the 1998 Agreement
shall continue in full force and effect in accordance with its terms.
[SIGNATURE PAGES FOLLOW]
8
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
Very truly yours,
LIFE TIME FITNESS, INC. (formerly FCA, Ltd.)
By________________________________________
Its______________________________________
[AMENDMENT TO 1998 AGREEMENT]
9
The foregoing Agreement is hereby accepted
as of the date first above written.
NORWEST EQUITY PARTNERS V, LP
A MINNESOTA LIMITED PARTNERSHIP
By: ITASCA PARTNERS V, LLP
Its: General Partner
By_________________________________________
Its_______________________________________
NORWEST EQUITY PARTNERS VI, LP
A MINNESOTA LIMITED PARTNERSHIP
By: ITASCA LBO VI, LP
Its: General Partner
By_________________________________________
Its_______________________________________
[AMENDMENT TO 1998 AGREEMENT]
10
MINNESOTA PRIVATE EQUITY FUND, LP
By: EQUITY RESEARCH, INC.
Its: General Partner
By_________________________________________
Its_______________________________________
[AMENDMENT TO 1998 AGREEMENT]
11
XXXXX XXXXXXX INVESTORS-FUND XI, L.P.
By: THE PIPER FUND-FUND XI, L.P.
Its: Managing Partner
By_______________________________________________
Managing Director of Xxxxx Xxxxxxx Inc., as
Managing Partner of the Piper Fund-Fund XI, L.P.
[AMENDMENT TO 1998 AGREEMENT]
12
________________________________
Xxx Xxxxxxxxx
[AMENDMENT TO 1998 AGREEMENT]
13
________________________________
Xxxxx and Xxxxx Xxxxxxx Jt Ten
XXXXX XXXXXXX INC.
as custodian FBO Xxxxx X. Xxxxxxx
By_________________________________________
Its_______________________________________
[AMENDMENT TO 1998 AGREEMENT]
14
ANTARES LEVERAGED CAPITAL CORP.
By_________________________________________
Its_______________________________________
[AMENDMENT TO 1998 AGREEMENT]
15
================================================================================
---------------------------------
LIFE TIME FITNESS, INC.
(FORMERLY FCA, LTD.)
---------------------------------
STOCK PURCHASE AGREEMENT
---------------------------------
DECEMBER 8, 1998
================================================================================
TABLE OF CONTENTS
PAGE
1. Authorization of Securities...................................................................... 1
2. Sale and Purchase of Securities.................................................................. 1
3. Closing.......................................................................................... 2
4. Restriction on Transfer of Securities............................................................ 2
4.1 Restrictions............................................................................ 2
4.2 Legend.................................................................................. 2
4.3 Removal of Legend....................................................................... 3
4.4 Register of Securities.................................................................. 3
5. Representations and Warranties by Company........................................................ 3
5.1 Organization, Standing, etc............................................................. 3
5.2 Qualification........................................................................... 4
5.3 Financial Statements.................................................................... 4
5.4 Tax Returns and Audits.................................................................. 4
5.5 Changes, Dividends, etc................................................................. 4
5.6 Title to Properties and Encumbrances.................................................... 5
5.7 Litigation; Governmental Proceedings.................................................... 5
5.8 Compliance with Applicable Laws and Other Instruments................................... 6
5.9 Preferred Shares and Conversion Stock; Warrants and Warrant Stock....................... 6
5.10 Securities Laws......................................................................... 6
5.11 Patents and Other Intangible Rights..................................................... 7
5.12 Capital Stock........................................................................... 7
5.13 Outstanding Debt........................................................................ 8
5.14 Schedule of Assets and Contracts........................................................ 8
5.15 Corporate Acts and Proceedings.......................................................... 10
5.16 Purchase Commitments and Outstanding Bids............................................... 10
5.17 Insurance Coverage...................................................................... 10
5.18 No Brokers or Finders................................................................... 10
5.19 Conflicts of Interest................................................................... 10
5.20 Licenses................................................................................ 11
5.21 Registration Rights..................................................................... 11
5.22 Retirement Plans........................................................................ 11
5.23 Environmental and Safety Laws........................................................... 11
5.24 Employees............................................................................... 13
5.25 Absence of Restrictive Agreements....................................................... 13
5.26 Small Business Concern.................................................................. 13
5.27 Application of Proceeds................................................................. 13
5.28 Disclosure.............................................................................. 14
6. Representations and Warranties of Purchasers..................................................... 14
6.1 Investment Intent....................................................................... 14
6.2 Location of Principal Office and Qualification as Accredited Investor................... 14
6.3 Acts and Proceedings.................................................................... 15
6.4 No Brokers or Finders................................................................... 15
7A. Conditions of Each Purchaser's Obligation........................................................ 15
7A.1 No Errors, etc.......................................................................... 15
7A.2 Compliance with Agreement............................................................... 15
7A.3 Certificate of Officers................................................................. 15
7A.4 Opinion of Company's Counsel............................................................ 15
7A.5 No Event of Default..................................................................... 18
7A.6 Qualification Under State Securities Laws............................................... 18
7A.7 Proceedings and Documents............................................................... 18
7A.8 Co-Sale Agreements...................................................................... 18
7A.9 Execution of SBA Form 480............................................................... 19
7A.10 Execution of SBA Form 652-D............................................................. 19
7A.11 Akradi Employment Agreement............................................................. 19
7A.12 First Amendment of 1996 Agreement and Waiver............................................ 19
7A.13 Amended and Restated Series A Certificate............................................... 19
7A.14 Dissenters' Rights...................................................................... 19
7B. Conditions of Company's Obligation............................................................... 19
7B.1. No Errors, etc.......................................................................... 19
7B.2. Payment of Purchase Price............................................................... 19
8. Affirmative Covenants............................................................................ 20
8.1 Corporate Existence..................................................................... 20
8.2 Books of Account and Reserves........................................................... 20
8.3 Furnishing of Financial Statements and Information...................................... 20
8.4 Inspection.............................................................................. 22
8.5 Preparation and Approval of Budgets..................................................... 22
8.6 Payment of Taxes and Maintenance of Properties.......................................... 23
8.7 Insurance............................................................................... 23
8.8 Payment of Indebtedness and Discharge of Obligations.................................... 23
8.9 Directors' and Shareholders' Meetings................................................... 24
8.10 Application of Proceeds................................................................. 24
8.11 Retirement Plans........................................................................ 24
8.12 Filing of Reports....................................................................... 25
8.13 Patents and Other Intangible Rights..................................................... 25
8.14 Insurance on Life of Xxxxxx Xxxxxx...................................................... 25
8.15 Rule 144A............................................................................... 25
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8.16 Compliance.............................................................................. 26
8.17 Right of First Refusal.................................................................. 26
8.18 Conversion Stock and Warrant Stock Fully Paid; Reservation of Shares.................... 27
8.19 Form D Filing; Blue Sky Law Filings..................................................... 27
9. Negative Covenants............................................................................... 28
9.1 Dividends on or Redemption of Junior Stock.............................................. 28
9.2 Future Registration Rights.............................................................. 28
9.3 Other Matters Requiring Prior Approval of Purchasers.................................... 28
10. Registration of Stock............................................................................ 29
10.1 Required Registration................................................................... 29
10.2 Incidental Registration................................................................. 30
10.3 Registration Procedures................................................................. 31
10.4 Expenses................................................................................ 33
10.5 Indemnification......................................................................... 33
11. Default.......................................................................................... 35
11.1 Events of Default....................................................................... 35
11.2 Remedies Upon Events of Default......................................................... 37
11.3 Notice of Defaults...................................................................... 37
11.4 Suits for Enforcement................................................................... 37
11.5 Remedies Cumulative..................................................................... 37
11.6 Remedies not Waived..................................................................... 37
12. Termination of Certain Covenants................................................................. 38
13. Definitions...................................................................................... 38
13.1 "Additional Shares of Common Stock"..................................................... 38
13.2 "Amended and Restated Series A Certificate"............................................. 38
13.3 "Common Stock".......................................................................... 38
13.4 "Conversion Price"...................................................................... 38
13.5 "Convertible Securities"................................................................ 38
13.6 "Indebtedness for Borrowed Money"....................................................... 39
13.7 "First Amendment to 1996 Agreement and Waiver".......................................... 39
13.8 "Junior Stock".......................................................................... 39
13.9 "Permitted Liens"....................................................................... 39
13.10 "Preferred Stock"....................................................................... 39
13.11 "Purchase Price"........................................................................ 39
13.12 "Purchased Stock"....................................................................... 39
13.13 "Securities"............................................................................ 40
13.14 "Senior Indebtedness"................................................................... 40
13.15 "Series A Conversion Stock"............................................................. 40
13.16 "Subsidiary"............................................................................ 40
-iii-
14. Consents; Waivers and Amendments................................................................. 40
15. Voting Agreement................................................................................. 41
16. Changes, Waivers, etc............................................................................ 41
17. Payment of Fees and Expenses of Purchasers....................................................... 41
18. Understanding Among Purchasers................................................................... 41
19. Notices.......................................................................................... 42
20. Survival of Representations and Warranties, etc.................................................. 42
21. Parties in Interest.............................................................................. 42
22. Headings......................................................................................... 42
23. Choice of Law.................................................................................... 42
24. Counterparts..................................................................................... 42
Schedule A................................................................................................ A-1
Exhibit 1 -- Certificate of Designation of Rights and Preferences of
Series B Preferred Stock
Exhibit 2 -- Form of Warrant
Exhibit 3 -- Exception Schedule
Exhibit 4 -- Financial Statements
Exhibit 5 -- Schedule of Assets and Contracts
Exhibit 6 -- Form of Co-Sale Agreement
Exhibit 7 -- Akradi Amended and Restated Employment Agreement
Exhibit 8 -- First Amendment of 1996 Agreement and Waiver
Exhibit 9 -- Amended and Restated Series A Certificate
-iv-
LIFE TIME FITNESS, INC.
STOCK PURCHASE AGREEMENT
December 8, 1998
To Each of the Persons Named in
Schedule A to this Agreement
(the "Purchasers")
Ladies and Gentlemen:
In consideration of the agreement of the Purchasers to purchase the
Preferred Shares and the Warrants (as hereinafter defined), as provided for
herein, the undersigned LIFE TIME FITNESS, Inc. (formerly known as FCA, Ltd.), a
Minnesota corporation (the "Company"), hereby agrees with each of the Purchasers
as follows:
1. Authorization of Securities. The Company proposes to
authorize, issue and sell an aggregate of up to 1,000,000 shares of series B
convertible preferred stock of the Company (the "Series B Preferred Stock"), to
be issued pursuant to and be entitled to the benefits of a Certificate of
Designation of Rights and Preferences (the "Certificate") containing the terms
set forth in Exhibit 1 hereto. The term Preferred Shares as used herein shall
mean the shares of Series B Preferred Stock set forth in Schedule A hereto and
all preferred shares of the Company issued in exchange or substitution therefor.
The Company also proposes to authorize, issue and sell to the
Purchasers Warrants to purchase an aggregate of up to 142,857 shares of Common
Stock, such Warrants to be substantially in the form of Exhibit 2 hereto. The
term Warrants as used herein shall mean the Warrants to be delivered pursuant to
this Agreement and all Warrants issued in exchange or substitution therefor; and
the term Warrant Stock as used herein shall mean the shares of Common Stock
issued or issuable upon exercise of the Warrants and all shares of Common Stock
issued in exchange or substitution therefor.
2. Sale and Purchase of Securities. Subject to the terms and
conditions hereof, the Company agrees to sell to each Purchaser, and each
Purchaser agrees to purchase from the Company, the number of Preferred Shares
and Warrants to purchase the number of shares of Warrant Stock set forth
opposite such Purchaser's name in Schedule A hereto, at the purchase price set
forth opposite such Purchaser's name in Schedule A hereto.
The parties hereto agree that of such purchase price, there shall be
allocated to the purchase of the Warrants $.01 per share of Warrant Stock
covered by the Warrants.
3. Closing. The closing of the sale to, and purchase by, the
Purchasers of the Preferred Shares and the Warrants (the "Closing") shall occur
at the offices of Xxxxxx & Whitney LLP, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx,
Xxxxxxxxx, at the hour of 9:00 A.M., Minneapolis time, on December 9, 1998 or on
such other day or at such other time or place as the Purchasers and the Company
shall agree upon (the "Closing Date").
At the Closing, the Company will deliver to the Purchasers certificates
representing the Preferred Shares and the Warrants being purchased by the
Purchasers, registered in their respective names as stated in Schedule A hereto
(or in the names of their respective nominees as may be specified to the Company
at least 48 hours prior to the Closing Date), against delivery to the Company of
the amounts set forth after their respective names in Schedule A hereto by wire
transfer or certified check in payment of the total purchase price of the
Preferred Shares and Warrants being purchased by the Purchasers.
4. Restriction on Transfer of Securities.
4.1 Restrictions. The Preferred Shares and the shares of Common
Stock into which the Preferred Shares are convertible and all shares of Common
Stock of the Company issued in exchange or substitution therefor (the
"Conversion Stock"), and the Warrants and the Warrant Stock, are "restricted
securities" as defined under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder and may
be transferred only pursuant to (a) a registration statement covering the sale
of such securities that has been declared effective under the Securities Act,
(b) Rule 144 (or any similar rule then in effect) adopted under the Securities
Act, if such rule is available, and (c) subject to the conditions elsewhere
specified in this Section 4, any other legally available means of transfer.
4.2 Legend. (a) Each certificate representing Preferred Shares and
each of the Warrants shall be endorsed with the following legend:
"The securities evidenced hereby may not be
transferred without (i) the opinion of counsel
satisfactory to the Company that such transfer may
be lawfully made without registration under the
Federal Securities Act of 1933 and all applicable
state securities laws or (ii) such registration."
Upon the conversion of any Preferred Shares or upon the exercise of any Warrant,
unless the Company receives an opinion of counsel from the holder of such a
security satisfactory to the Company to the effect that a sale, transfer,
assignment, pledge or distribution of the Conversion Stock or Warrant Stock
issuable upon such conversion or exercise may be made without registration, or
unless such Conversion Stock or Warrant Stock is being disposed of pursuant to
registration under the Securities Act and any applicable state act, the same
legend shall be endorsed on the certificate evidencing such Conversion Stock or
Warrant Stock.
-2-
(b) Stop Transfer Order. A stop transfer order shall be placed
with the Company's transfer agent preventing transfer of any of the securities
referred to in paragraph (a) above pending compliance with the conditions set
forth in any such legend (except as otherwise provided in paragraph (a) above).
4.3 Removal of Legend. Any legend endorsed on a certificate or
instrument evidencing a security pursuant to Section 4.2 hereof shall be
removed, and the Company shall issue a certificate or instrument without such
legend to the holder of such security, (a) if such security is being disposed of
pursuant to a registration statement covering the sale of such security that has
been declared effective under the Securities Act and any applicable state acts
or pursuant to Rule 144 or any similar rule then in effect, or (b) if such
holder provides the Company with an opinion of counsel satisfactory to the
Company to the effect that a sale, transfer, assignment, offer, pledge or
distribution for value of such security may be made without registration and
that such legend is not required to satisfy the applicable exemption from
registration.
4.4 Register of Securities. The Company or its duly appointed
agent shall maintain a separate register for the Preferred Shares and the
Warrants in which it shall register the issuance and transfer of all Preferred
Shares and Warrants. All transfers of Preferred Shares and Warrants 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 such securities as the
actual owner of the securities so registered until the Company or its agent is
required to record a transfer of such securities on its register. The Company or
its agent shall be required to record any such transfer when it receives (a) the
security to be transferred duly and properly endorsed by the registered holder
thereof or by its attorney duly authorized in writing, and (b) the opinion of
counsel referred to in Sections 4.2 and 4.3 hereof or evidence of compliance
with the registration provisions referred to in those Sections.
5. Representations and Warranties by Company. Except as disclosed
in Exhibit 3 hereto, the Company represents and warrants to the Purchasers that:
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
Minnesota, and has the requisite corporate power and authority to own its
properties and to carry on its business in all material respects as it is now
being conducted. The Company has the requisite corporate power and authority to
issue the Preferred Shares, the Conversion Stock, the Warrants and the Warrant
Stock, and to otherwise perform its obligations under this Agreement and the
Warrants. The copies of the articles of incorporation of the Company, including
certificates of designation for preferred stock (the "Articles of
Incorporation"), and bylaws of the Company (the "Bylaws") delivered to the
Purchasers or their agents prior to the execution of this Agreement are true and
complete copies of the duly and legally adopted Articles of Incorporation and
Bylaws in effect as of the date of this Agreement. The Company does not have any
direct or indirect equity interest in any other firm, corporation, partnership,
joint venture association or other business organization except as set forth in
Exhibit 3 hereto. If any Subsidiary (as hereinafter defined) is
-3-
listed on Exhibit 3 hereto, the representations and warranties set forth in this
Section 5 are being hereby restated with respect to such Subsidiary.
5.2 Qualification. The Company is duly qualified or licensed as a
foreign corporation in good standing in each jurisdiction wherein the nature of
its activities or of its properties owned or leased makes such qualification or
licensing necessary and failure to be so qualified or licensed would have a
material adverse impact on its business.
5.3 Financial Statements. Attached hereto as Exhibit 4 are (a)
consolidated balance sheets as of December 31, 1997 and 1996, together with the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three fiscal years in the period ended December 31, 1997,
and the report thereon of Xxxxxx Xxxxxxxx LLP, independent public accountants,
and (b) an unaudited consolidated balance sheet as of September 30, 1998 (the
"Balance Sheet Date"), and the related consolidated statements of operations and
cash flow for the nine months then ended, prepared by the Company. Such
financial statements (i) are in accordance with the books and records of the
Company, (ii) present fairly the financial condition of the Company at December
31, 1997 and at the Balance Sheet Date and the results of its operations for the
periods therein specified, and (iii) have, in all material respects, 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 sheets or notes thereto disclose all of the debts,
liabilities and obligations of any nature (whether absolute, accrued or
contingent and whether due or to become due) of the Company at December 31, 1997
or at the Balance Sheet Date, as applicable, which, individually or in the
aggregate, are material and which in accordance with generally accepted
accounting principles would be required to be disclosed in such balance sheets,
and the omission of which would, in the aggregate, have a material adverse
impact on the Company. The balance sheets include appropriate reserves for all
taxes and other liabilities accrued at each such date but not yet payable.
5.4 Tax Returns and Audits. All required federal, state and local
tax returns or appropriate extension requests of the Company have been filed,
and all federal, state and local taxes required to be paid with respect to such
returns have been paid or due provision for the payment thereof has been made.
The Company is not delinquent in the payment of any such tax or in the payment
of any assessment or governmental charge. The Company has not received notice of
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.
None of the Company's tax returns has been audited by governmental authorities
in a manner to bring such audits to the Company's attention. The Company does
not have any tax liabilities except those reflected in Exhibit 4 hereto and
those incurred in the ordinary course of business since the Balance Sheet Date.
5.5 Changes, Dividends, etc. Except for the transactions
contemplated by this Agreement (including the Amended and Restated Employment
Agreement with Xxxxxx Xxxxxx contemplated by Section 7A.11), since the Balance
Sheet Date the Company has not:
-4-
(a) incurred any debts, obligations or liabilities, absolute, accrued or
contingent and whether due or to become due, except current liabilities incurred
in the ordinary course of business, which (individually or in the aggregate)
will not materially and adversely affect the business, properties or prospects
of the Company; (b) paid any obligation or liability other than, or discharged
or satisfied any liens or encumbrances other than those securing, current
liabilities, in each case in the ordinary course of business; (c) declared or
made any payment or distribution to its shareholders as such, or purchased or
redeemed any of its shares of capital stock or other securities, or obligated
itself to do so; (d) mortgaged, pledged or subjected to lien, charge, security
interest or other encumbrance any of its assets, tangible or intangible, except
in the ordinary course of business; (e) sold, transferred or leased any of its
assets except in the ordinary course of business; (f) cancelled 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
ordinary course of business; (i) encountered any labor difficulties or labor
union organizing activities; (j) issued or sold any shares of capital stock or
other securities or granted any options, warrants or other purchase rights with
respect thereto other than as contemplated by this Agreement; (k) made any
acquisition or disposition of any material assets or become involved in any
other material transaction, other than for fair value in the ordinary course of
business; (l) increased the compensation payable, or to become payable, to any
of its directors or employees, or made any bonus payment or similar arrangement
with any directors or employees or increased the scope or nature of any fringe
benefits provided for its employees or directors; or (m) agreed to do any of the
foregoing other than pursuant hereto. There has been no material adverse change
in the financial condition, operations, results of operations or business of the
Company since the Balance Sheet Date.
5.6 Title to Properties and Encumbrances. The Company has good and
marketable title to all its owned properties and assets, including without
limitation the properties and assets reflected in Exhibit 4 hereto and the
properties and assets used in the conduct of its business, except for property
disposed of in the ordinary course of business since the Balance Sheet Date,
which properties and assets are not subject to any mortgage, pledge, lease,
lien, charge, security interest, encumbrance or restriction, except (a) those
which are shown and described in Exhibit 4 hereto or the notes thereto, and (b)
Permitted Liens (as hereinafter defined). The plant, offices and equipment owned
and leased by the Company have been kept in good condition and repair in the
ordinary course of business.
5.7 Litigation; Governmental Proceedings. There are no legal
actions, suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company, its properties, assets or business, and the
Company is not aware of any facts which are likely to result in or form the
basis for any such action, suit or other proceeding. The Company is not in
default with respect to any judgment, order or decree of any court or any
governmental agency or instrumentality. The Company has not been threatened with
any action or proceeding under any building or zoning ordinance, law or
regulation.
-5-
5.8 Compliance with Applicable Laws and Other Instruments. The
business and operations of the Company have been and are being conducted in
accordance with all applicable laws, rules and regulations of all governmental
authorities except where noncompliance with such laws, rules and regulations
would not have a material adverse effect on the business, financial condition or
results of operations of the Company. Neither the execution nor delivery of, nor
the performance of or compliance with, this Agreement nor the consummation of
the transactions contemplated hereby will conflict with, or, with or without the
giving of notice or passage of time, result in any breach of, or constitute a
default under, or result in the imposition of any lien or encumbrance upon any
asset or property of the Company pursuant to, any applicable law, administrative
regulation or judgment, order or decree of any court or governmental body, any
agreement or other instrument to which the Company is a party or by which it or
any of its properties, assets or rights is bound or affected, and will not
violate the Articles of Incorporation or Bylaws. The Company is not in violation
of, or in default under, any lien, indenture, mortgage, lease, agreement,
instrument, commitment or arrangement where such violation or default would have
a material adverse effect on the business, financial condition or results of
operation of the Company, nor in violation of its Articles of Incorporation or
its Bylaws.
5.9 Preferred Shares and Conversion Stock; Warrants and Warrant
Stock. The Preferred Shares when issued and paid for pursuant to the terms of
this Agreement, will be duly authorized, validly issued and outstanding, fully
paid, nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions, except as set forth in Section 4 hereof, and the shares of
Conversion Stock and Warrant Stock issuable upon conversion of the Preferred
Shares or exercise of the Warrants have been reserved for issuance based upon
the initial Conversion Price or Purchase Price (as hereinafter defined) of the
Preferred Shares or Warrants, respectively, and when issued upon conversion or
exercise will be duly authorized, validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions, except as set forth in Section 4 hereof and except for pledges,
liens, encumbrances and restrictions created by the Purchasers. The Warrants,
when issued and paid for pursuant to the terms of this Agreement, will be duly
authorized, issued in accordance with the applicable requirements of the
Minnesota Business Corporation Act, and no additional consideration will be
required from the Purchasers for the purchase of ,and no additional corporate
action will be required by the Company for the issuance of, the Warrants. The
certificates representing the Preferred Shares to be delivered by the Company
hereunder, and the certificates representing the Conversion Stock and Warrant
Stock to be delivered upon the conversion of the Preferred Shares or the
exercise of the Warrants, will be genuine, and the Company has no knowledge of
any fact which would impair the validity thereof.
5.10 Securities Laws. Based in part upon the representations and
warranties contained in Section 6 hereof, no consent, authorization, approval,
permit or order of or filing with any governmental or regulatory authority is
required under current laws and regulations in connection with the execution and
delivery of this Agreement or the offer, issuance, sale or delivery of the
Preferred Shares or the Warrants or the offer of the Conversion Stock or the
-6-
Warrant Stock other than the qualification thereof, if required, under
applicable state securities laws, which qualification has been or will be
effected as a condition of these sales. The Company has not, directly or through
an agent, offered the Preferred Shares, the Conversion Stock, the Warrants or
the Warrant Stock, or any similar securities for sale to, or solicited any
offers to acquire such securities from, persons other than the Purchasers and
other accredited investors. Under the circumstances contemplated hereby, the
offer, issuance, sale and delivery of the Preferred Shares and the Warrants and
the offer of the Conversion Stock and the Warrant Stock will not under current
laws and regulations require compliance with the prospectus delivery or
registration requirements of the Securities Act.
5.11 Patents and Other Intangible Rights. The Company (a) owns or
has the exclusive right to use, free and clear of all material liens, claims and
restrictions, except as otherwise disclosed in Exhibit 3 hereto, all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing, used in the conduct of its business as now conducted,
(b) is not obligated or under any liability whatsoever to make any payments of a
material nature by way of royalties, fees or otherwise to any owner of, licensor
of, or other claimant to, any patent, trademark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise, (c) owns or has the unrestricted right to
use all trade secrets, including know-how, inventions, designs, processes,
computer programs and technical data necessary to the development, operation and
sale of all products and services sold or proposed to be sold by it, free and
clear of any rights, liens or claims of others, and (d) is not using any
confidential information or trade secrets of others. To the Company's knowledge,
the Company is not infringing upon or otherwise acting adversely to any known
right or claimed right of any person under or with respect to any patents,
trademarks, service marks, trade names, copyrights, licenses or rights with
respect to the foregoing.
5.12 Capital Stock. The authorized capital stock of the Company
consists of 50,000,000 common shares, of which 2,622,000 shares are issued and
outstanding and 10,000,000 shares of preferred stock, 958,487 of which are
issued and outstanding, consisting entirely of 958,487 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock"). All of the
outstanding shares of capital stock of the Company were duly authorized and
validly issued and are fully paid and nonassessable. There are no outstanding
subscriptions, options, warrants, calls, contracts, demands, commitments,
Convertible Securities (as hereinafter defined) or other agreements or
arrangements of any character or nature whatever, except for the outstanding
shares of Series A Preferred Stock and as otherwise disclosed in Exhibit 3
hereto or as contemplated by this Agreement, under which the Company is or may
be obligated to issue capital stock or other securities of any kind representing
an ownership interest or contingent ownership interest in the Company. Neither
the offer nor the issuance or sale of the Preferred Shares, the Conversion
Stock, the Warrants or the Warrant Stock, constitutes an event under any
anti-dilution provisions of any securities issued or issuable by the Company or
any agreements with respect to the issuance of securities by the Company, which
will either increase the number of shares issuable pursuant to such provisions
or decrease the consideration per share to be received by the Company pursuant
to such
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provisions. No holder of any security of the Company is entitled to any
preemptive or similar rights to purchase securities from the Company except as
otherwise contemplated by this Agreement or the Stock Purchase Agreement dated
May 7, 1996 among the Company and the Purchasers named therein (as the same may
be amended, restated or otherwise modified, including by the First Amendment to
1996 Agreement and Waiver (as hereinafter defined), the "1996 Agreement"). All
outstanding securities of the Company have been issued in full compliance with
an exemption or exemptions from the registration and prospectus delivery
requirements of the Securities Act and from the registration and qualification
requirements of all applicable state securities laws.
5.13 Outstanding Debt. The Company has no Indebtedness for Borrowed
Money (as hereinafter defined) except as otherwise set forth in Exhibit 4 hereto
or the notes thereto. The Company is not in default in the payment of the
principal of or interest or premium on any such Indebtedness for Borrowed Money,
and no event has occurred or is continuing under the provisions of any
instrument, document or agreement evidencing or relating to any such
Indebtedness for Borrowed Money which with the lapse of time or the giving of
notice, or both, would constitute an event of default thereunder.
5.14 Schedule of Assets and Contracts. Attached hereto as Exhibit 5
is a Schedule of Assets and Contracts containing:
(a) Annex A: a listing of all real properties owned by
the Company;
(b) Annex B: a listing of each indenture, lease,
sublease, license or other instrument under which the Company claims or
holds a leasehold interest in real property;
(c) Annex C: a listing of all written and oral contracts,
agreements, subcontracts, purchase orders, commitments and arrangements
involving payments remaining to or from the Company in excess of
$100,000 and other agreements material to the Company's business to
which the Company is a party or by which it is bound, under which full
performance (including payment) has not been rendered by any party
thereto;
(d) Annex D: a listing of all collective bargaining
agreements, employment agreements, consulting agreements,
noncompetition agreements, nondisclosure agreements, executive
compensation plans, profit sharing plans, bonus plans, deferred
compensation agreements, employee pension retirement plans and employee
benefit stock option or stock purchase plans and other employee benefit
plans, entered into or adopted by the Company;
(e) Annex E: a listing of all deeds of trust, mortgages,
security agreements, pledge agreements and other agreements or
arrangements whereby
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any of the assets or properties of the Company are subject to any lien,
encumbrance, security interest or charge;
(f) Annex F: a listing of all leases of personal property
involving payment remaining to or from the Company in excess of
$100,000;
(g) Annex G: a listing of all bank accounts (or accounts
with other financial institutions) maintained by the Company, together
with the persons authorized to make withdrawals from such accounts;
(h) Annex H: the name of each employee of the Company
whose annual compensation is in excess of $50,000 and the remuneration
currently payable to each such employee;
(i) Annex I: the name of each shareholder of the Company
and the number of shares owned by such shareholder;
(j) Annex J: a listing of all insurance policies in force
and referred to in Section 5.17 hereof; and
(k) Annex K: a listing of all patents, royalty and
license agreements, trademarks, trade names, service marks and
copyrights (including applications therefor) relating to Company
products.
Prior to the Closing Date, the Company shall provide or otherwise make
available to legal counsel for the Purchasers a true and complete copy of each
document referred to above which such counsel requests to examine.
The Company has substantially performed all obligations required to be
performed by it to date and is not in default in any respect under any of the
contracts, agreements, leases, documents, commitments or other arrangements to
which it is a party or by which it is otherwise bound except where such default
would not have a material adverse effect on the business, financial condition or
results of operation of the Company. All instruments referred to above are in
effect and enforceable against the Company according to their respective terms
(except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally, and except for judicial limitations on the
enforcement of the remedy of specific performance and other equitable remedies),
and there is not under any of such instruments any existing material default or
event of default or event, in each case on the part of the Company, which, with
notice or lapse of time or both, would constitute an event of default
thereunder. To the Company's knowledge, all third parties having material
contractual arrangements with the Company are in substantial compliance
therewith and the Company is not aware of any material default in any respect
thereunder by any such third party to such contractual arrangements. All plans
or
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arrangements listed pursuant to clause (d) above are fully funded to the
extent that such funding is required by generally accepted accounting
principles.
5.15 Corporate Acts and Proceedings. This Agreement and the First
Amendment to 1996 Agreement and Waiver have been duly authorized by all
necessary corporate action on behalf of the Company, and have been duly executed
and delivered by authorized officers of the Company. All corporate action
necessary for the authorization, creation, issuance and delivery of the
Preferred Shares, the Conversion Stock, the Warrants and the Warrant Stock, has
been taken on the part of the Company, or will be taken by the Company on or
prior to the Closing Date. This Agreement and the First Amendment to the 1996
Agreement and Waiver are, and the Warrants when issued pursuant to the terms of
this Agreement will be, valid and binding agreements of the Company enforceable
against the Company in accordance with their terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors' rights generally, and
except for judicial limitations on the enforcement of the remedy of specific
enforcement and other equitable remedies.
5.16 Purchase Commitments and Outstanding Bids. No purchase
commitment of the Company is in excess of normal, ordinary and usual
requirements of its business, or was, to the Company's knowledge, made at any
price in excess of the then current market price, or contains, to the Company's
knowledge, terms and conditions more onerous than those usual and customary in
the industry. There is no outstanding material bid, sales proposal, contract or
unfilled order of the Company which (a) will, or could if accepted, require the
Company to supply goods or services at a cost to the Company in excess of the
revenues to be received therefrom, or (b) quotes prices which do not include a
xxxx-up over reasonably estimated costs consistent with past xxxx-ups on similar
business or market conditions current at the time.
5.17 Insurance Coverage. There are in full force policies of
insurance issued by insurers of recognized responsibility insuring the Company,
its properties and business against such losses and risks, and in such amounts,
as in the Company's best judgment, after advice from its insurance broker, are
acceptable for the nature and extent of its business and the Company's
resources.
5.18 No Brokers or Finders. No person, firm or corporation has or
will have, as a result of any act or omission of the Company, any right,
interest or valid claim against or upon the Company or any Purchaser for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity, in connection with the transactions contemplated by this Agreement.
The Company will indemnify and hold each Purchaser harmless against any and all
liability with respect to any such commission, fee or other compensation which
may be payable or determined to be payable in connection with the transactions
contemplated by this Agreement.
5.19 Conflicts of Interest. No officer or director of the Company
or any affiliate (as such term is defined in Rule 405 under the Securities Act)
of any such person or, to the
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Company's knowledge, no shareholder or any affiliate of any such person, has any
direct or indirect interest (a) in any entity which does business with the
Company, or (b) in any property, asset or right which is used by the Company in
the conduct of its business, or (c) in any contractual relationship with the
Company other than as an employee. For the purpose of this Section 5.19, there
shall be disregarded any interest which arises solely from the ownership of less
than a 1% equity interest in a corporation whose stock is regularly traded on
any national securities exchange or in the over-the-counter market.
5.20 Licenses. The Company possesses from the appropriate agency,
commission, board and government body and authority, whether state, local or
federal, all licenses, permits, authorizations, approvals, franchises and rights
which (a) are necessary for it to engage in the business currently conducted by
it, and (b) if not possessed by the Company would have a material adverse effect
on the business, financial condition or results of operations of the Company.
The Company has no knowledge that would lead it to believe that it will not be
able to obtain all licenses, permits, authorizations, approvals, franchises and
rights that may be required for any business the Company proposes to conduct.
5.21 Registration Rights. Other than under this Agreement and the
1996 Agreement, the Company has not agreed to register any of its authorized or
outstanding securities under the Securities Act.
5.22 Retirement Plans. The Company does not have any retirement
plan in which any employees of the Company participate that is subject to any
provisions of the Employee Retirement Income Security Act of 1974, as amended,
and of the regulations adopted pursuant thereto ("ERISA").
5.23 Environmental and Safety Laws.
(a) For purposes of this Agreement,
(i) "Environmental Law" means the Comprehensive
Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., the Federal
Water Pollution Control Act, 33 U.S.C. Section 1201 et seq.,
the Clean Water Act, 33 U.S.C. Section 1321 et seq., the
Clean Air Act, 42 U.S.C. Section 7401 et seq., and any other
federal, state, local or other governmental statute,
regulation, law or ordinance dealing with the protection of
human health, natural resources or the environment;
(ii) "Hazardous Substance" means any pollutant,
contaminant, hazardous substance or waste, solid waste,
petroleum or any fraction thereof, or any other chemical,
substance or material listed or identified in or regulated by
any Environmental Law;
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(iii) "RCRA Hazardous Waste" means a hazardous
waste, as that term is defined in and pursuant to the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.;
and
(iv) "Real Estate" means the real property owned
or leased by the Company at any time.
(b) No Hazardous Substances have ever been buried,
spilled, leaked, discharged, emitted, generated, stored, used or
released, and no Hazardous Substances are now present, in, on, or under
the Real Estate except for immaterial quantities stored or used by the
Company in the ordinary course of its business and in accordance with
all applicable Environmental Laws.
(c) The Real Estate is not being used, and the Real
Estate has never been used, in connection with the business of
manufacturing, storing or transporting Hazardous Substances, and no
RCRA Hazardous Wastes have been treated, stored or disposed of on the
Real Estate.
(d) There are not now and never have been any underground
or aboveground storage tanks or other containment facilities of any
kind on the Real Estate which contain or ever did contain any Hazardous
Substances.
(e) The Real Estate is not and never has been listed on
the National Priorities List, the Comprehensive Environmental Response,
Compensation and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.
(f) The Company has delivered to the Purchasers true and
complete copies of all reports, authorizations, permits, licenses,
disclosures and other documents in its possession, custody or control
describing or relating in any way to the Real Estate which describe,
mention or discuss the status thereof with respect to any Environmental
Law.
(g) To the best knowledge of the Company, there are not
and there never have been any requests, notices, investigations,
claims, demands, actions, suits or other legal or administrative
proceedings relating in any way to the Company or the Real Estate,
alleging liability under, violation of or noncompliance with, any
Environmental Law or any license, permit or other authorization issued
pursuant thereto. No such matter is threatened or impending, nor does
there exist any substantial basis therefor.
(h) The Company operates, and at all times has operated,
the business in accordance with all applicable Environmental Laws, and
all licenses, permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful and efficient operation
of the business are in the Company's possession and are in full force
and effect. To the knowledge of the Company, there is no threat that
any such
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permit, license or other authorization will be withdrawn, terminated,
not renewed, or otherwise materially limited or changed.
5.24 Employees. To the Company's knowledge, no officer of the
Company or employee of the Company whose annual compensation is in excess of
$100,000 has any plans to terminate his or her employment with the Company. 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 not encountered any material labor difficulties. The
Company does not know of any worker's compensation liabilities, except those
reflected in Exhibit 4 hereto.
5.25 Absence of Restrictive Agreements. To the Company's knowledge,
no employee of the Company is subject to any secrecy or non-competition
agreement or any agreement or restriction of any kind that would impede in any
way the ability of such employee to carry out fully all activities of such
employee in furtherance of the business of the Company. To the Company's
knowledge, no employer or former employer of any employee of the Company has any
claim of any kind whatsoever in respect of any of the rights described in
Section 5.11 hereof.
5.26 Small Business Concern. The Company is a "small business
concern" within the meaning of the Small Business Investment Act of 1958, as
amended, and the regulations thereunder, including Title 13, Code of Federal
Regulations, Section 129.105 (the "SBIA"). The information set forth in the
Small Business Administration Forms 480, 652 and Section A of Form 1031
regarding the Company is accurate and complete. Copies of such forms shall have
been completed and executed by the Company and delivered to each Purchaser that
is a licensed small business investment company (an "SBIC") at the Closing Date.
The Company does not currently engage in, and it shall not hereafter engage in,
any activities, and shall not use directly or indirectly the proceeds from the
sale of the Preferred Shares or the Warrants for any purpose for which an SBIC
is prohibited from providing funds by the SBIA.
5.27 Application of Proceeds. The proceeds from the issuance and
sale of Preferred Shares and Warrants pursuant to this Agreement will be used to
fund working capital and other general corporate purposes. No portion of such
proceeds (i) will be used to provide capital to a corporation licensed under the
SBIA, (ii) will be used outside the United States (except (x) to acquire abroad
materials and industrial property rights for a domestic operation or (y) for
transfer to a controlled foreign subsidiary, so long as at least 51% of the
assets and activities of the Company will remain within the United States), or
(iii) will be used for any purpose contrary to the public interest (including
but not limited to activities which are in violation of law) or inconsistent
with free competitive enterprise, in each case, within the meaning of 13 CFR
Section 107.720. The Company's primary business activity does not involve,
directly or indirectly, providing funds to others, the purchase or discounting
of debt obligations, factoring or long-term leasing of equipment with no
provision for maintenance or repair, and the Company is not classified under
Major Group 65 (Real Estate) of the SIC Manual.
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5.28 Disclosure. The Company has not knowingly withheld from the
Purchasers any material facts relating to the assets, business, operations,
financial condition or prospects of the Company. No representation or warranty
in this Agreement or in any certificate or schedule furnished or to be furnished
to any Purchaser pursuant hereto contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact required to
be stated herein or therein or necessary to make the statements herein or
therein not misleading.
6. Representations and Warranties of Purchasers. Each of the
Purchasers severally represents and warrants for itself that:
6.1 Investment Intent. The Preferred Shares and the Warrants being
acquired by such Purchaser hereunder are being purchased, and the Conversion
Stock and the Warrant Stock acquired by such Purchaser upon conversion of such
Preferred Shares or exercise of such Warrants will be acquired, for such
Purchaser's own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act. Such Purchaser understands that the Preferred Shares, the
Conversion Stock, the Warrants and the Warrant Stock have not been registered
under the Securities Act or any applicable state laws by reason of their
issuance or contemplated issuance in a transaction exempt from the registration
and prospectus delivery requirements of the Securities Act and such state laws,
and that the reliance of the Company and others upon this exemption is
predicated in part upon this representation and warranty. Such Purchaser further
understands that the Preferred Shares, the Conversion Stock, the Warrants and
the Warrant Stock may not be transferred or resold without (a) registration
under the Securities Act and any applicable state securities laws, or (b) an
exemption from the requirements of the Securities Act and applicable state
securities laws.
Such Purchaser understands that an exemption from such registration is
not currently available pursuant to Rule 144 promulgated under the Securities
Act by the Securities and Exchange Commission (the "Commission") and that in any
event such Purchaser may not sell any securities pursuant to Rule 144 prior to
the expiration of a one-year period after such Purchaser has acquired the
securities. Such Purchaser understands that any sales pursuant to Rule 144 may
only be made in full compliance with the provisions of Rule 144.
6.2 Location of Principal Office and Qualification as Accredited
Investor. The state in which such Purchaser's principal office (or domicile, if
such Purchaser is an individual) is set forth in such Purchaser's address in
Schedule A hereto. Such Purchaser qualifies as an accredited investor within the
meaning of Rule 501 under the Securities Act for the reasons specified on such
Purchaser's Certification attached to this Agreement. Such Purchaser has such
knowledge and experience in financial and business matters that such Purchaser
is capable of evaluating the merits and risks of the investment to be made
hereunder by such Purchaser. Such Purchaser has and has had access to all of the
Company's material books and records and access to the Company's executive
officers has been provided to such Purchaser or to such Purchaser's qualified
agents.
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6.3 Acts and Proceedings. This Agreement has been duly authorized
by all necessary action on the part of such Purchaser, has been duly executed
and delivered by such Purchaser, and is a valid and binding agreement upon the
part of such Purchaser enforceable against such Purchaser in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization, or other similar laws affecting
enforcement of creditors' rights generally, and except for judicial limitations
on the enforcement of the remedy of specific enforcement and other equitable
remedies.
6.4 No Brokers or Finders. No person, firm or corporation has or
will have, as a result of any act or omission by such Purchaser, any right,
interest or valid claim against the Company for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement. Such Purchaser will
indemnify and hold the Company harmless against any and all liability with
respect to any such commission, fee or other compensation which may be payable
or determined to be payable as a result of the actions of such Purchaser in
connection with the transactions contemplated by this Agreement.
7A. Conditions of Each Purchaser's Obligation. The obligation to
purchase and pay for the Preferred Shares and the Warrants which each Purchaser
has agreed to purchase on the Closing Date is subject to the fulfillment prior
to or on the Closing Date of the following conditions. In the event that any
such condition is not satisfied to the satisfaction of each Purchaser, then no
Purchaser shall be obligated to proceed with the purchase of such Preferred
Shares or Warrants.
7A.1 No Errors, etc. The representations and warranties of the
Company under this Agreement shall be true in all material respects as of the
Closing Date with the same effect as though made on and as of the Closing Date.
7A.2 Compliance with Agreement. The Company shall have performed
and complied with all agreements or conditions required by this Agreement to be
performed or complied with by it prior to or as of the Closing Date.
7A.3 Certificate of Officers. The Company shall have delivered to
the Purchasers a certificate, dated the Closing Date, executed by the President
and the senior financial officer of the Company and certifying to the
satisfaction of the conditions specified in Sections 7A.1, 7A.2 and 7A.5 hereof.
7A.4 Opinion of Company's Counsel. The Company shall have delivered
to each of the Purchasers an opinion or opinions of Xxxxxx & Xxxxxxx LLP,
special counsel for the Company, dated the Closing Date, to the effect that:
(a) The Company is duly incorporated, validly existing
and in good standing under the laws of the State of Minnesota with the
corporate power to
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enter into this Agreement, the Warrants and the First Amendment to 1996
Agreement and Waiver, to issue and sell the Preferred Shares, the
Conversion Stock, the Warrants and the Warrant Stock as contemplated by
this Agreement, to carry out the provisions of this Agreement, the
Warrants and the First Amendment to 1996 Agreement and Waiver and to
conduct any lawful business activity; and qualified to do business as a
foreign corporation in good standing in any state or jurisdiction
wherein the nature of its activities or of its properties owned or
leased makes such qualification necessary and failure to be so
qualified would have a material adverse effect upon the Company.
(b) This Agreement, the First Amendment to 1996 Agreement
and Waiver, and the Warrants have been duly authorized by all requisite
corporate action, executed and delivered by the Company, and are valid
and binding agreements of the Company enforceable in accordance with
their respective terms.
(c) The Certificate and the Amended and Restated Series A
Certificate (as hereinafter defined) have been duly adopted by all
necessary corporate action and have been duly filed with the Secretary
of State of the State of Minnesota (no other or additional filing or
recording being necessary in order to create the Series B Preferred
Stock or to amend the terms of the Series A Preferred Stock). No holder
of capital stock of the Company has dissenters' rights under Chapter
302A of the Minnesota Statutes in connection with the adoption and
filing of the Certificate or the Amended and Restated Series A
Certificate, except for the holders of Series A Preferred Stock.
(d) The Preferred Shares are entitled to the rights,
preferences and provisions of the Certificate. The Series A Preferred
Stock is entitled to the rights, preferences and provisions of the
Amended and Restated Series A Certificate. The Preferred Shares and the
Warrants are entitled to the benefits of this Agreement applicable
thereto.
(e) The Preferred Shares are duly authorized and validly
issued, fully paid and nonassessable. The Warrants are duly authorized
and issued in accordance with the Minnesota Business Corporation Act,
and no additional corporate action is required for their issuance. The
certificates for the Preferred Shares are in valid and sufficient form.
(f) The shares initially issuable upon conversion of the
Preferred Shares and the exercise of the Warrants have been duly
authorized and reserved for issuance and when issued upon such
conversion or exercise in accordance with the terms and conditions of
the Preferred Shares or the Warrants will be duly authorized, validly
issued, fully paid and nonassessable.
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(g) The Company is authorized by its Articles of
Incorporation to issue 60,000,000 shares of capital stock, of which
50,000,000 shares have been designated Common Stock, 958,487 shares
have been designated Series A Preferred Stock, 1,000,000 shares are
designated Series B Preferred Stock, and 8,041,513 shares are
undesignated as to rights and preferences. The outstanding shares of
capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. Based solely upon a review
of the minute books of the Company and the contracts, agreements,
leases, documents, commitments and arrangements disclosed in Exhibit 5
to this Agreement, there are no outstanding securities convertible into
common shares of the Company or outstanding options, warrants or other
rights to acquire securities of the Company, other than (i) the
Preferred Shares and the Warrants, (ii) options and warrants disclosed
in Exhibit 3 to this Agreement, and (iii) the outstanding shares of
Series A Preferred Stock. None of the contracts, agreements, leases,
documents, commitments or arrangements disclosed in Exhibit 5 to this
Agreement (except the 1996 Agreement) grants or creates any right with
respect to the registration of any securities of the Company under the
Securities Act or creates any obligation on the part of the Company to
purchase or redeem any outstanding shares of capital stock of the
Company.
(h) Based solely upon a review of the minute books of the
Company and the contracts, agreements, leases, documents, commitments
and arrangements disclosed in Exhibit 5 to this Agreement, no security
holder of the Company is entitled to preemptive or similar rights to
subscribe for or to purchase any shares of capital stock of the Company
except as otherwise contemplated by this Agreement and the 1996
Agreement, nor will any security holder of the Company be entitled to
any such rights as a result of the execution or delivery of this
Agreement or the issuance of the Preferred Shares, the Conversion
Stock, the Warrants, or the Warrant Stock other than as contemplated by
this Agreement and the 1996 Agreement.
(i) Assuming the accuracy of the representations of the
Purchasers set forth in Section 6 hereof, the Company has obtained the
approval or consent of all governmental agencies or bodies required to
be obtained by it for the valid offer, issuance and sale of the
Preferred Shares and the Warrants and the offer of the Conversion Stock
and the Warrant Stock to the Purchasers through conversion by them of
the Preferred Shares or exercise of the Warrants. The execution,
delivery and performance of this Agreement and the First Amendment to
the 1996 Agreement and Waiver, the offer, issuance and sale of the
Preferred Shares, the Conversion Stock, the Warrants and the Warrant
Stock, and the consummation of the transactions contemplated by this
Agreement will not result in any breach or violation of the terms or
provisions of, or constitute a default under, the Articles of
Incorporation or the Bylaws or a violation of any contract, agreement,
lease, document, commitment or arrangement listed in
-17-
Exhibit 5 to this Agreement or any judgment, decree or order known to
such counsel and applicable to the Company or to such counsel's
knowledge any statute, rule or regulation of the United States or the
State of Minnesota or any governmental authority or regulatory body
thereof.
(j) Assuming the accuracy of the representations of the
Purchasers set forth in Section 6 hereof, the offer, sale, issuance and
delivery of the Preferred Shares and the Warrants, and the offer of the
Conversion Stock and the Warrant Stock to the Purchasers through
conversion or exercise by them of the Preferred Shares or the Warrants
under the circumstances contemplated by the Certificate, the Warrants
and this Agreement, are exempt from the registration and prospectus
delivery requirements of the Securities Act, and all registrations,
qualifications, permits and approvals required under applicable state
securities laws for the lawful offer, sale, issuance and delivery of
the Preferred Shares, the Conversion Stock, the Warrants and the
Warrant Stock have been obtained, other than the filing of a notice on
Form D by the Company with the Commission which may be made subsequent
to such offer, sale, issuance and delivery and any filings that may be
required to be made subsequent to the Closing under any applicable
state securities laws.
(k) Other than as disclosed on Exhibit 3 to this
Agreement, such counsel have no knowledge of any litigation, proceeding
or governmental investigation pending or threatened against the
Company, its key management employees in their capacity as employees,
properties or business.
7A.5 No Event of Default. There shall exist at the time of Closing
no condition or event which would constitute an Event of Default (as hereinafter
defined) or which, after notice or lapse of time or both, would constitute an
Event of Default.
7A.6 Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals required under applicable state securities
laws for the lawful execution and delivery of this Agreement and the offer,
sale, issuance and delivery of the Preferred Shares and the Warrants and the
offer of the Conversion Stock and the Warrant Stock shall have been obtained,
other than the filing of any Form Ds with the Commission and such other filings
that are required to be made subsequent to the Closing under any applicable
state securities laws that the Company has agreed to make under this Agreement.
7A.7 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 transaction shall be satisfactory in form and
substance to the Purchasers and their special counsel.
7A.8 Co-Sale Agreements. Each of Xxxxxx Xxxxxx, Xxxxxx Xxxxxxxxxxx,
F.T. Weyerhauser and J.P. Weyerhauser, as Trustees under Trust Agreement dated
June 13, 1956,
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FBO W. Xxxx Xxxxxxxx, WWF & Co. and X. X. Xxxxxxxx and X.X.
Xxxxxxxx Trustees U/A dated October 30, 1995 with W. Xxxx Xxxxxxxx shall have
entered into a Co-Sale Agreement with the Purchasers substantially in the form
of Exhibit 6 hereto.
7A.9 Execution of SBA Form 480. Each of the Purchasers that is an
SBIC and the Company shall have executed the Size Status Declaration on SBA Form
480 referred to in Section 5.26 hereof, and each of such Purchasers shall have
received an executed copy of such Form for its records.
7A.10 Execution of SBA Form 652-D. Each of the Purchasers that is an
SBIC shall have received from the Company its duly executed certification, dated
the Closing Date, on SBA Form 652-D, that the Company will not illegally
discriminate in its operations, employment practices or facilities.
7A.11 Akradi Employment Agreement. The Company and Xxxxxx Xxxxxx
shall have entered into an Amended and Restated Employment Agreement
substantially in the form of Exhibit 7 hereto.
7A.12 First Amendment of 1996 Agreement and Waiver. The 1996
Agreement shall have been amended and the rights of first refusal granted
pursuant thereto shall have been waived as set forth in Exhibit 8 hereto.
7A.13 Amended and Restated Series A Certificate. The Statement of
Designation of Rights, Preferences and Limitations of Series A Convertible
Preferred Stock shall have been amended as set forth in Exhibit 9 hereto.
7A.14 Dissenters' Rights. No shareholder of the Company shall have
exercised dissenters' rights under the Minnesota Business Corporation Act in
connection with the adoption and filing of the Certificate or the Amended and
Restated Series A Certificate.
7B. Conditions of Company's Obligation. The obligation of the
Company to issue and sell the Preferred Shares and the Warrants pursuant to the
terms of this Agreement is subject to the fulfillment prior to or on the Closing
Date of the following conditions.
7B.1. No Errors, etc. The representations and warranties of each
Purchaser under this Agreement shall be true in all material respects as of the
Closing Date with the same effect as though made on and as of the Closing Date.
7B.2. Payment of Purchase Price. The Purchasers shall have each paid
the purchase price set forth opposite each such Purchaser's name in Schedule A
hereto.
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8. Affirmative Covenants. Subject to the provisions of Section 12
hereof, the Company covenants and agrees that:
8.1 Corporate Existence. The Company will maintain, and will cause
each Subsidiary (as hereinafter defined) to maintain, its corporate existence in
good standing and comply with all applicable laws and regulations of the United
States or of any state or states thereof or of any political subdivision thereof
and of any governmental authority where failure to so comply would have a
material adverse impact on the Company or its business or operations.
8.2 Books of Account and Reserves. The Company will, and will
cause each of its Subsidiaries to, keep books of record and account in which
full, true and correct entries are made of all of its and their respective
dealings, business and affairs, in accordance with generally accepted accounting
principles. The Company will employ certified public accountants selected by the
Board of Directors of the Company who are "independent" within the meaning of
the accounting regulations of the Commission and who are one of the so-called
"Big Five" accounting firms, and have annual audits made by such independent
public accountants in the course of which such accountants shall make such
examinations, in accordance with generally accepted auditing standards, as will
enable them to give such reports or opinions with respect to the financial
statements of the Company and its Subsidiaries as will satisfy the requirements
of the Commission in effect at such time with respect to certificates and
opinions of accountants.
8.3 Furnishing of Financial Statements and Information. The
Company will deliver to each Purchaser:
(a) as soon as practicable, but in any event within 45
days after the close of each month, unaudited consolidated balance
sheets of the Company and its Subsidiaries as of the end of such month,
together with the related consolidated statements of operations and
cash flow for such month, setting forth the budgeted figures for such
month prepared and submitted in connection with the Company's annual
plan as required under Section 8.5 hereof and in comparative form
figures for the corresponding month of the previous fiscal year, all in
reasonable detail and certified by an authorized accounting officer of
the Company, subject to year-end adjustments;
(b) as soon as practicable, but in any event within 120
days after the end of each fiscal year, a consolidated balance sheet of
the Company and its Subsidiaries, as of the end of such fiscal year,
together with the related consolidated statements of operations,
shareholders' equity and cash flow for such fiscal year, setting forth
in comparative form figures for the previous fiscal year, all in
reasonable detail and duly certified by the Company's independent
public accountants, which accountants shall have given the Company an
opinion, unqualified as to the scope of the audit, regarding such
statements;
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(c) concurrently with the delivery of any financial statements
referred to in paragraphs (a) and (b) of this Section 8.3, current
schedules of Indebtedness for Borrowed Money and Senior Indebtedness,
as these terms are hereinafter defined, together with a certificate of
the President and the principal accounting officer of the Company to
the effect that such schedules are accurate and correct and that there
exists no condition or event which constitutes an event of default with
respect to any indebtedness of the Company, or, if any such condition
or event exists, specify the nature and period of existence thereof and
what action the Company is taking or proposes to take with respect
thereto;
(d) concurrently with the delivery in each year of the
financial statements referred to in paragraph (b) of this Section 8.3,
a statement and report signed by the independent public accountants who
certified such financial statements to the effect that they have read
this Agreement and that in the course of the audit upon which their
certificate was based they became aware of no condition or event which
constituted an Event of Default or which, after notice or lapse of time
or both, would constitute an Event of Default or if such accountants
did become aware of any such condition or event, specifying the nature
and period of existence thereof;
(e) as soon as reasonably practical after the written request
of any Purchaser that is an SBIC, confirm the use of the proceeds as
described in Section 5.27 hereof;
(f) promptly furnish to each Purchaser that is an SBIC all
information necessary in order for such Purchaser to prepare and file
SBA Form 468 and other information requested or required by any
governmental authority asserting jurisdiction over such Purchaser, such
information to be provided within 20 days of such Purchaser's request,
but in no event shall such Purchaser request any information that has
previously been disclosed pursuant to the reporting requirements set
for herein;
(g) promptly after the submission thereof to the Company,
copies of all reports and recommendations submitted by independent
public accountants in connection with any annual or interim audit of
the accounts of the Company or any of its Subsidiaries made by such
accountants;
(h) promptly upon transmission thereof, copies of all reports,
proxy statements and other communications furnished to shareholders of
the Company;
(i) with reasonable promptness, such other financial data
relating to the business, affairs and financial condition of the
Company and any
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Subsidiaries as is available to the Company and as from time to time
the Purchasers may reasonably request;
(j) at least 20 days prior to the earlier of (i) the execution
of any agreement relating to any merger or consolidation of the Company
or any of its Subsidiaries with another corporation, or a plan of
exchange involving the outstanding capital stock of the Company or any
of its Subsidiaries, or the sale, transfer or other disposition of all
or substantially all of the property, assets or business of the Company
or any of its Subsidiaries to another corporation, or (ii) the holding
of any meeting of the shareholders of the Company for the purpose of
approving such action, provide written notice of the terms and
conditions of such proposed merger, consolidation, plan of exchange,
sale, transfer or other disposition; and
(k) within 15 days after the Company learns in writing of the
commencement or threatened commencement of any material suit, legal or
equitable, or of any material administrative, arbitration or other
proceeding against the Company, any of its Subsidiaries or their
respective businesses, assets or properties, written notice of the
nature and extent of such suit or proceeding.
8.4 Inspection. The Company will permit each Purchaser and any of its
partners, officers or employees, or any outside representatives designated by
such Purchaser and reasonably satisfactory to the Company, to visit and inspect
at such Purchaser's expense any of the properties of the Company or its
Subsidiaries, including their books and records (and to make photocopies thereof
or make extracts therefrom), and to discuss their affairs, finances, and
accounts with their officers, lawyers and accountants, except with respect to
trade secrets and similar confidential information, which need not be disclosed,
all to such reasonable extent and at such reasonable times and intervals as such
Purchaser may reasonably request. Except as otherwise required by laws or
regulations applicable to a Purchaser, the Purchasers shall maintain, and shall
require their representatives to maintain, all information obtained pursuant to
Section 8.3 hereof, this Section 8.4 and Section 8.5 hereof on a confidential
basis.
8.5 Preparation and Approval of Budgets. At least one month prior to
the beginning of each fiscal year of the Company, the Company shall prepare and
submit to its Board of Directors, for its review and approval, an annual plan
for such year, which shall include monthly capital and operating expense
budgets, cash flow statements and profit and loss projections itemized in such
detail as the Board of Directors may reasonably request. Each annual plan shall
be modified as often as is necessary in the judgment of the Board of Directors
to reflect 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 each such modification shall be submitted to the
Board of Directors. The Company will, simultaneously with the submission thereof
to the Board of Directors, deliver a copy of each such annual plan and
modification thereof to each Purchaser.
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8.6 Payment of Taxes and Maintenance of Properties. The Company will,
and will cause each Subsidiary to:
(a) pay and discharge promptly, or cause to be paid and
discharged promptly when due and payable, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or
upon any of its properties, as well as all material claims of any kind
(including claims for labor, material and supplies) which, if unpaid,
might by law become a lien or charge upon its property; provided,
however, that neither the Company nor any Subsidiary shall be required
to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company or such Subsidiary
as the case may be shall have set aside on its books reserves
(segregated to the extent required by generally accepted accounting
principles) deemed adequate by it with respect thereto; and
(b) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time
to time make, or cause to be made, all repairs and renewals and
replacements which in the opinion of the Company are necessary and
proper so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; the Company will
maintain or cause to be maintained back-up copies of all valuable
papers and software.
8.7 Insurance. The Company will, and will cause each Subsidiary to,
obtain and maintain in force such property damage, public liability, business
interruption, worker's compensation, indemnity bonds and other types of
insurance as the Company's executive officers, after consultation with an
accredited insurance broker, shall determine to be necessary or appropriate to
protect the Company from the insurable hazards or risks associated with the
conduct of the Company's business. The Company's executive officers shall
periodically report to the Board of Directors on the status of such insurance
coverage.
All insurance shall be maintained in at least such amounts and to such
extent as shall be determined to be reasonable by the Board of Directors; and
all such insurance shall be effected and maintained in force under a policy or
policies issued by insurers of recognized responsibility, except that the
Company or any Subsidiary may effect worker's compensation or similar insurance
in respect of operations in any state or other jurisdiction either through an
insurance fund operated by such state or other jurisdiction or by causing to be
maintained a system or systems of self-insurance which is in accord with
applicable laws.
8.8 Payment of Indebtedness and Discharge of Obligations. The Company
will, and will cause each Subsidiary to, pay or cause to be paid the principal
of and interest and premium, if any, on all Indebtedness for Borrowed Money
heretofore or hereafter incurred or assumed by it when and as the same shall
become due and payable, unless such Indebtedness for Borrowed
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Money is renewed or extended. The Company will, and will cause each Subsidiary
to, faithfully observe, perform and discharge all of the material covenants,
conditions and obligations which are imposed on it by any and all indentures and
other agreements securing or evidencing such Indebtedness for Borrowed Money or
pursuant to which such Indebtedness for Borrowed Money is issued, and will not
permit the continuance of any act or omission which is or under the provisions
thereof may be declared to be a material default thereunder, unless such default
is waived pursuant to the provisions thereof. Neither the Company nor any
Subsidiary shall be required to make any payment or to take any other action by
reason of this Section 8.8 at any time while it shall be currently contesting in
good faith by appropriate proceedings its obligations to make such payment or to
take such action provided that the Company or such Subsidiary, as the case may
be, shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting principles) deemed adequate by it with
respect thereto.
8.9 Directors' and Shareholders' Meetings. The holders of the Preferred
Shares shall have the right to elect directors of the Company as set forth in
the Certificate.
The Company shall reimburse such holders of Preferred Shares for the
reasonable out-of-pocket expenses incurred by them or the directors elected by
them pursuant to the Certificate in connection with the attending of meetings by
their director designees or carrying out any other duties by such director
designees that may be specified by the Board of Directors; shall pay such
director designees the same directors' fees paid to the other non-employee
directors of the Company (it being understood that the Company's stock option
plan may provide for stock option grants to only those non-employee directors
who, together with their affiliates, do not own more than one percent of
outstanding capital stock of the Company); and shall maintain as part of its
Articles of Incorporation or Bylaws a provision for the indemnification of its
directors to the full extent permitted by law.
The Company agrees, as a general practice, to hold a meeting of its
Board of Directors at least once every two months, and during each year to hold
its annual meeting of shareholders on or approximately on the date provided in
its Bylaws.
8.10 Application of Proceeds. Unless otherwise approved by the
Purchasers, the net proceeds received by the Company from the sale of the
Preferred Shares and Warrants shall be used substantially for working capital
purposes. Pending use of the proceeds in the business, they shall be deposited
in a bank or banks having deposits of $150,000,000 or more, invested in money
market mutual funds having assets of $500,000,000 or more, or invested in
securities issued or guaranteed by the United States Government.
8.11 Retirement Plans. The Company will cause each retirement plan of
the Company or any of its Subsidiaries in which any employees of the Company or
of any of its Subsidiaries participate that is subject to the provisions of
ERISA and the documents and instruments governing each such plan to be conformed
to when necessary, and to be administered in a manner consistent with, those
provisions of ERISA which may, from time to
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time, become effective and operative with respect to such plans; if requested by
the Purchasers in writing from time to time, furnish to the Purchasers a copy of
any annual report with respect to each such plan that the Company files with the
Secretary of Labor pursuant to ERISA; and at such time as such insurance shall
be available at rates deemed commercially reasonable by the Company, maintain
insurance against the contingent liability against the net worth of the Company
imposed in respect of each such plan by the provisions of ERISA.
8.12 Filing of Reports. The Company will, from and after such time as
it has securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, or has securities registered pursuant to the Securities
Act, and until such time as the Purchasers are eligible to sell their Preferred
Shares and Warrants pursuant to Rule 144(k) (or any successor rule) or until
such earlier time as the Purchasers have sold such Preferred Shares and
Warrants, make timely filing of such reports as are required to be filed by it
with the Commission so that Rule 144 under the Securities Act or any successor
provision thereto will be available to the Purchasers.
8.13 Patents and Other Intangible Rights. The Company will apply for,
or obtain assignments of, or licenses to use, all patents, trademarks, trademark
rights, trade names, trade name rights and copyrights which in the opinion of a
prudent and experienced businessman operating in the industry in which the
Company is operating are desirable or necessary for the conduct and protection
of the business of the Company.
8.14 Insurance on Life of Xxxxxx Xxxxxx. The Company will maintain life
insurance under a policy or policies issued by insurers of recognized standing
in the amount of $5,000,000 on the life of Xxxxxx Xxxxxx, to the extent Mr.
Akradi is insurable and so long as he is an employee of the Company. Such policy
or policies shall name the Company as the beneficiary thereunder, and shall be
in addition to any policy or policies maintained by the Company to fund
potential stock repurchase obligations of the Company.
8.15 Rule 144A. The Company agrees that, upon the request of any holder
of Preferred Shares, Conversion Stock, Warrants or Warrant Stock, or any
prospective purchaser of Preferred Shares, Conversion Stock, Warrants or Warrant
Stock, the Company shall promptly provide (but in any case within 15 days of a
request) to such holder or potential purchaser the following information: (a) a
brief statement of the nature of the business of the Company and its
Subsidiaries and the products and services they offer; (b) the Company's most
recent consolidated balance sheets and statement of operations and statement of
shareholders' equity and similar financial statements for such part of the two
preceding fiscal years prior to such request as the Company has been in
operation (such financial information shall be audited, to the extent reasonably
available); and (c) such other information about the Company, its Subsidiaries
and their business, financial condition and results of operations as the
requesting person shall request in order to comply with Rule 144A promulgated
under the Securities Act and the antifraud provisions of the federal and state
securities laws.
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The Company hereby represents and warrants to any such requesting
person that the information provided by the Company pursuant to this Section
8.15 will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
8.16 Compliance. So long as any Purchaser that is an SBIC holds any
Preferred Shares (i) without the prior written consent of such Purchaser, the
Company shall not use the proceeds from the sale of the Preferred Shares and the
Warrants issued and sold pursuant to this Agreement for any purpose other than
as set forth in Section 8.10 above, (ii) the Company shall not use the proceeds
from the sale of the Preferred Shares and the Warrants issued and sold pursuant
to this Agreement for any prohibited purposes outlined in the second sentence of
Section 5.27, (iii) the Company shall not change its business activity in any
manner which, by reason of such change in business activity, would cause the
Company to fall within a different SIC Code and thereby render the Company
ineligible as a "small business concern" under the SBIA and (iv) the Company
shall at all times comply with the non-discrimination requirements of 13 CFR
Parts 112, 113 and 117. The Company shall at all times permit any Purchaser that
is an SBIC and, if necessary, a representative of the Small Business
Administration, access to the Company's records and the Company shall provide
such information as such Purchaser that is an SBIC may request in order to
verify compliance with this Section 8.16 including, without limitation, an
officer's certificate indicating such compliance. The Company hereby
acknowledges that (A) any diversion of the proceeds from their intended use as
specified in Section 5.27, Section 8.10 and this Section 8.16, (B) the Company's
becoming ineligible as a "small business concern" by reason of a change in the
Company's business activity within one year from the Closing Date or (C) failure
to provide the information specified in Section 8.3(e) and 8.3(f), shall entitle
any Purchaser that is an SBIC, upon demand, and in addition to any other
remedies that may exist, to immediate rescission of this Agreement and repayment
in full of the funds invested hereunder as contemplated by 13 CFR Section
107.760 and 13 CFR Section 107.800.
8.17 Right of First Refusal. If the Company should decide to issue and
sell additional shares of any capital stock of the Company or any warrants,
securities convertible into capital stock of the Company or other rights to
subscribe for or to purchase any capital stock of the Company, other than (a)
shares of Common Stock sold to the public pursuant to a registration statement
filed under the Securities Act, if such offering is underwritten on a firm
commitment basis, (b) shares of Common Stock awarded or issued upon the exercise
of options granted pursuant to employee and consultant benefit plans adopted by
the Company, and the grant of such options themselves, provided that the
aggregate number of shares thus awarded and issued and issuable pursuant to the
exercise of all such options shall not be in excess of 883,000 (appropriately
adjusted to reflect stock splits, stock dividends, reorganizations,
consolidations and similar changes hereafter effected), (c) shares of Common
Stock issued upon conversion of the Preferred Stock or exercise of the Warrants,
(d) dividends payable in Common Stock and (e) warrants issued in connection with
bona fide financing transactions (including, without limitation, equipment
financing arrangements and bank lines of credit) with conventional institutional
lenders entered into in the ordinary course of their business and shares of
Common Stock issued upon exercise of such warrants (provided that the aggregate
number of shares thus
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issued on exercise and covered by unexercised warrants shall not be in excess of
150,000 (appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected)) (all
such capital stock, warrants, securities convertible into capital stock and
other rights, other than securities referred to in (a), (b), (c), (d) and (e)
above, being hereinafter sometimes collectively referred to as "Additional
Securities"), the Company shall first offer to sell to each of the Purchasers,
upon the same terms and conditions as the Company is proposing to issue and sell
such Additional Securities to others, such Purchaser's pro rata share (as
defined below) of such Additional Securities. Such offer shall be made by
written notice given to each such Purchaser and specifying therein the amount of
the Additional Securities being offered, the purchase price and other terms of
such offer. Such Purchaser shall have a period of 45 days from and after the
effective date of such notice within which to accept such offer. If a Purchaser
elects to accept such offer in whole or in part, such Purchaser shall so accept
by written notice to the Company given within such 45-day period. If a Purchaser
fails to accept such offer in whole or in part within such 45-day period, any of
such Additional Securities not purchased by such Purchaser pursuant to such
offer may be offered for sale to others by the Company for a period of 120 days
from the last day of such 45-day period, but only on terms and conditions no
more favorable to the third party purchasers than those set forth in the initial
offer to such Purchaser, free and clear of the restrictions imposed by this
Article 8.17.
For purposes of the previous paragraph, a Purchaser's "pro rata share"
is the number of shares of Additional Securities (rounded to the nearest whole
share) as is equal to the product of (a)(i) the number of shares of Common Stock
issued, or issuable upon the exercise or conversion of rights, options or other
convertible securities without the payment of any additional cash consideration
or with the payment of a nominal cash consideration, as the case may be
(collectively, "Fully Paid Securities"), to such Purchaser immediately prior to
the issuance of the Additional Securities being offered divided by (ii) the
total number of Fully Paid Securities issued or issuable by the Company
immediately prior to the issuance of the Additional Securities, multiplied by
(b) the entire offering of Additional Securities.
8.18 Conversion Stock and Warrant Stock Fully Paid; Reservation of
Shares. The Company covenants and agrees that all Conversion Stock that may be
issued upon conversion of the Preferred Shares and all Warrant Stock that may be
issued upon exercise of the Warrants will, upon issuance in accordance with the
terms of the Certificate or the Warrants, as applicable, be fully paid and
nonassessable, and that the issuance thereof shall not give rise to any
preemptive rights on the part of any person. The Company further covenants and
agrees that the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock for the purpose of issue upon
the conversion of the Preferred Shares and the exercise of the Warrant Stock.
8.19 Form D Filing; Blue Sky Law Filings. The Company covenants and
agrees to file with the Commission, not later than 15 days after the Closing,
five copies of a notice on Form D under the Securities Act (one of which will be
manually signed by a person duly authorized by the Company); to otherwise comply
with the requirements of Rule 503 under the
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Securities Act; and to furnish promptly to each Purchaser upon request evidence
of each such required timely filing (including a copy thereof). The Company
covenants and agrees to timely make any filings that may be required to be made
subsequent to the Closing under any applicable state securities laws, and to
furnish promptly to each Purchaser upon request evidence of each such required
timely filing (including a copy thereof).
9. Negative Covenants. Subject to the provisions of Section 12 hereof,
the Company will be limited and restricted as follows:
9.1 Dividends on or Redemption of Junior Stock. Without the prior
approval of the Purchasers, the Company will not declare or pay any dividend or
make any other distribution on any shares of Junior Stock (as hereinafter
defined), other than those payable solely in shares of Junior Stock, or
purchase, redeem or otherwise acquire for any consideration (other than in
exchange for or out of the net cash proceeds of the contemporaneous issue or
sale of other shares of Junior Stock or debt securities convertible into other
shares of Junior Stock), or set aside a sinking fund or other fund for the
redemption or repurchase of any shares of Junior Stock or any warrants, rights
or options to purchase shares of Junior Stock.
9.2 Future Registration Rights. Except for any registration expressly
permitted by Section 10 hereof and the 1996 Agreement, the Company will not,
without the prior approval of the Purchasers, agree with the holders of any
securities issued or to be issued by the Company to register such securities
under the Securities Act nor will it grant any incidental registration rights.
9.3 Other Matters Requiring Prior Approval of Purchasers. The Company
will not without the prior approval of the Purchasers:
(a) guarantee, endorse or otherwise be or become contingently
liable, or permit any Subsidiary to guarantee, endorse or otherwise
become contingently liable, in connection with the obligations,
securities or dividends of any person, firm, association or
corporation, other than the Company or any of its Subsidiaries, except
that the Company and any Subsidiary may endorse negotiable instruments
for collection in the ordinary course of business; or
(b) make or permit any Subsidiary to make loans or advances to
any person (including without limitation to any officer, director or
shareholder of the Company or any Subsidiary), firm, association or
corporation, except loans and advances to the Company and its
wholly-owned Subsidiaries and advances to suppliers and employees made
in the ordinary course of business (provided that the outstanding
balance of loans and advances to employees of the Company or any
Subsidiary shall not at any time exceed $100,000 in the aggregate or
$20,000 for any one individual); or
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(c) purchase or invest, or permit any Subsidiary to purchase
or invest, in the stock or obligations of any other person, firm or
corporation, other than a wholly-owned Subsidiary; or
(d) pay, or permit any Subsidiary to pay, compensation,
whether by way of salaries, bonuses, participations in pension or
profit sharing plans, fees under management contracts or for
professional services or fringe benefits to any officer in excess of
amounts fixed by the Board of Directors of the Company prior to any
payment to such officer; or
(e) except for securities excepted from the definition of
Additional Securities by clauses (a), (b), (c), (d) and (e) of the
first paragraph of Section 8.17 hereof, issue (A) any additional
capital stock of the Company of any class other than Common Stock, or
securities convertible into any such class or (B) any options, warrants
or other rights to purchase capital stock of the Company of any class
other than Common Stock, or securities convertible into shares of any
such class; or
(f) make any material change in the nature of its business as
carried on at the date of this Agreement.
10. Registration of Stock.
10.1 Required Registration. If, at any time after twelve months after
the closing of the first public offering by the Company of shares of Common
Stock pursuant to a registration statement filed under the Securities Act and
until such time as all holders of the Purchased Stock are able to sell all of
the Purchased Stock owned by such holders pursuant to Rule 144(k) under the Act
(or any successor rule), the Company shall receive a written request therefor
from any record holder or holders of an aggregate of at least a majority of the
shares of Purchased Stock not theretofore registered under the Securities Act
and sold, the Company shall prepare and file a registration statement under the
Securities Act covering the shares of Purchased Stock which are the subject of
such request and shall use its best efforts to cause such registration statement
to become effective. In addition, upon the receipt of such request, the Company
shall promptly give written notice to all other record holders of shares of
Purchased Stock not theretofore registered under the Securities Act and sold
that such registration is to be effected. The Company shall include in such
registration statement such shares of Purchased Stock for which it has received
written requests to register by such other record holders within 30 days after
the date of the Company's written notice to such other record holders. The
Company shall be obligated to prepare, file and cause to become effective only
two registration statements (other than on Form S-3 or any successor form
promulgated by the Commission ("Form S-3")) pursuant to this Section 10.1, and
to pay the expenses associated with such registration statements;
notwithstanding the foregoing, the record holder or holders of an aggregate of
at least a majority of the shares of Purchased Stock not theretofore registered
under the Securities Act and sold may require, pursuant to this Section 10.1,
the Company to file, and to pay the
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expenses associated with, any number of registration statements on Form S-3 (or
any successor form), if such form is then available for use by the Company and
such record holder or holders. In the event that the holders of a majority of
the Purchased Stock for which registration has been requested pursuant to this
Section 10.1 determine for any reason not to proceed with a registration at any
time before a registration statement has been declared effective by the
Commission, and such registration statement, if theretofore filed with the
Commission, is withdrawn with respect to the Purchased Stock covered thereby,
and the holders of such Purchased Stock agree to bear their own expenses
incurred in connection therewith and to reimburse the Company for the expenses
incurred by it attributable to the registration of such Purchased Stock, then
the holders of such Purchased Stock shall not be deemed to have exercised their
right to require the Company to register Purchased Stock pursuant to this
Section 10.1.
Notwithstanding the foregoing, the Company may delay initiating the
preparation and filing of a registration statement on Form S-3 pursuant to the
preceding paragraph for a period not to exceed 90 days if in the good faith
judgment of the Company's principal investment banker such delay is necessary in
order not to affect in a significant and adverse manner equity financing efforts
then being undertaken by the Company.
If, at the time any written request for registration is received by the
Company pursuant to this Section 10.1, the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities by it or any of its security holders, such written request shall
be deemed to have been given pursuant to Section 10.2 hereof rather than this
Section 10.1, and the rights of the holders of Purchased Stock covered by such
written request shall be governed by Section 10.2 hereof.
Without the written consent of the holders of a majority of the
Purchased Stock for which registration has been requested pursuant to this
Section 10.1, neither the Company nor any other holder of securities of the
Company may include securities in such registration if in the good faith
judgment of the managing underwriter of such public offering the inclusion of
such securities would interfere with the successful marketing of the Purchased
Stock or require the exclusion of any portion of the Purchased Stock to be
registered.
10.2 Incidental Registration. Each time the Company shall determine to
proceed with the actual preparation and filing of a registration statement under
the Securities Act in connection with the proposed offer and sale for cash of
any of its securities by it or any of its security holders (other than
registration statements on forms that do not permit the inclusion of shares by
the Company's security holders), the Company will give written notice of its
determination to all record holders of Purchased Stock not theretofore
registered under the Securities Act and sold. Upon the written request of a
record holder of any shares of Purchased Stock given within 30 days after the
date of any such notice from the Company, the Company will, except as herein
provided, cause all such shares of Purchased Stock, the record holders of which
have so requested registration thereof, to be included in such registration
statement, all to
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the extent requisite to permit the sale or other disposition by the prospective
seller or sellers of the Purchased Stock to be so registered; provided, however,
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying any such registration initiated by it; provided further, however, that
if the Company determines not to proceed with a registration after the
registration statement has been filed with the Commission and the Company's
decision not to proceed is primarily based upon the anticipated public offering
price of the securities to be sold by the Company, the Company shall promptly
complete the registration for the benefit of those selling security holders who
wish to proceed with a public offering of their securities and who bear all
expenses in excess of $25,000 incurred by the Company as the result of such
registration after the Company has decided not to proceed. Notwithstanding the
foregoing, the Company shall not be in default of its obligation to include the
Purchased Stock in a registration if such registration is being made at the
request of the holders of Series A Preferred Stock and Series A Conversion Stock
pursuant to the 1996 Agreement, and the Preferred Stock is excluded from such
registration pursuant to the terms of the 1996 Agreement. If any registration
pursuant to this Section 10.2 shall be underwritten in whole or in part, the
Company may require that the Purchased Stock requested for inclusion pursuant to
this Section 10.2 be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters. If
in the good faith judgment of the managing underwriter of such public offering
the inclusion of all of the Purchased Stock originally covered by a request for
registration and all other Securities originally covered by a request for
registration pursuant to the 1996 Agreement would reduce the number of shares to
be offered by the Company or interfere with the successful marketing of the
shares of stock offered by the Company, the number of shares of Purchased Stock
and such other Securities otherwise to be included in the underwritten public
offering may be reduced pro rata (by number of shares) among the holders thereof
requesting such registration. Those shares of Purchased Stock which are thus
excluded from the underwritten public offering shall be withheld from the market
by the holders thereof for a period, not to exceed 90 days, which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten public offering.
10.3 Registration Procedures. If and whenever the Company is required
by the provisions of Section 10.1 or 10.2 hereof to effect the registration of
shares of Purchased Stock under the Securities Act, the Company will:
(a) prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed nine months;
(b) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the
sale of such securities, not to exceed nine months;
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(c) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the
public offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may
reasonably request in writing within 20 days following the original
filing of such registration statement, except that the Company shall
not for any purpose be required to execute a general consent to service
of process or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(e) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration
statement has been filed;
(f) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Purchased Stock
by such holder;
(h) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances in which they were made, not misleading;
(i) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts
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to prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued; and
(j) at the request of any such holder, furnish: (i) an
opinion, dated as of the closing date, of the counsel representing the
Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request,
covering such matters as such underwriters and holder or holders may
reasonably request; and (ii) letters dated as of the effective date of
the registration statement and as of the closing date, from the
independent certified public accountants of the Company, addressed to
the underwriters, if any, and to the holder or holders making such
request, covering such matters as such underwriters and holder or
holders may reasonably request.
10.4 Expenses. With respect to each registration, including
registrations pursuant to Form S-3 (or any successor form), requested pursuant
to Section 10.1 hereof (except as otherwise provided in such Section with
respect to registrations voluntarily terminated at the request of the requesting
security holders) and with respect to each inclusion of shares of Purchased
Stock in a registration statement pursuant to Section 10.2 hereof (except as
otherwise provided in Section 10.2 with respect to registrations initiated by
the Company but with respect to which the Company has determined not to
proceed), the Company shall bear the following fees, costs and expenses: all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, fees and disbursements of counsel for
the underwriter or underwriters of such securities (if the Company and/or
selling security holders are required to bear such fees and disbursements), all
internal Company expenses, all legal fees and disbursements and other expenses
of complying with state securities or blue sky laws of any jurisdictions in
which the securities to be offered are to be registered or qualified, and the
premiums and other costs of policies of insurance against liability (if any)
arising out of such public offering. Fees and disbursements of counsel and
accountants for the selling security holders, underwriting discounts and
commissions and transfer taxes relating to the shares of Purchased Stock
included in the offering by the selling security holders, and any other expenses
incurred by the selling security holders not expressly included above, shall be
borne by the selling security holders.
10.5 Indemnification. In the event that any Purchased Stock is included
in a registration statement under Section 10.1 or 10.2 hereof:
(a) The Company will indemnify and hold harmless each holder
of shares of Purchased Stock which are included in a registration
statement pursuant to the provisions of this Section 10, its directors
and officers, and any underwriter (as defined in the Securities Act)
for such holder and each person, if any, who controls such holder or
such underwriter within the meaning of the Securities Act, from and
against, and will reimburse such holder and each such underwriter and
controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such holder or any such
underwriter or
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controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
in which they were made, not misleading; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such
holder, such underwriter or such controlling person in writing
specifically for use in the preparation thereof.
(b) Each holder of shares of Purchased Stock which are
included in a registration pursuant to the provisions of this Section
10 will indemnify and hold harmless the Company, its directors and
officers, any underwriter and each person, if any, who controls the
Company or such underwriter from and against, and will reimburse the
Company, its directors and officers, any underwriter and each person,
if any, who controls the Company or such underwriter with respect to,
any and all loss, damage, liability, cost or expense to which the
Company or any underwriter and each person, if any, who controls the
Company or such underwriter may become subject under the Securities Act
or otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by such holder
specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section 10.5 of notice
of the commencement of any action involving the subject matter of the
foregoing indemnity provisions such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the
provisions of said paragraph (a) or (b), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement
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thereof, the indemnifying party shall have the right to participate in,
and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, provided, however,
if the defendants in any action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, or if there is a conflict of
interest which would prevent counsel for the indemnifying party from
also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate
in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party
pursuant to the provisions of said paragraph (a) or (b) for any legal
or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii)
the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party.
11. Default.
11.1 Events of Default. Each of the following events shall be an event
of default (an "Event of Default") for purposes of this Agreement:
(a) if the Company or any Subsidiary becomes insolvent or
bankrupt, or admits in writing its inability to pay its debts as they
mature, or makes an assignment for the benefit of creditors, or ceases
doing business as a going concern (except that a Subsidiary may cease
to do business if approved in advance by the Board of Directors of the
Company), or the Company or any Subsidiary applies for or consents to
the appointment of a trustee or receiver for the Company or any
Subsidiary, or for the major part of the property of either; or
(b) if a trustee or receiver is appointed for the Company or
any Subsidiary or for the major part of the property of either and the
order of such appointment is not discharged, vacated or stayed within
30 days after such appointment; or
(c) if any judgment, writ or warrant of attachment or of any
similar process in an amount in excess of $50,000 shall be entered or
filed against the
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Company or any Subsidiary or against any of the property or assets of
either and remains unpaid, unvacated, unbonded or unstayed for a period
of 30 days; or
(d) if an order for relief shall be entered in any Federal
bankruptcy proceeding in which the Company or any Subsidiary is the
debtor; or if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under any
bankruptcy or similar law or laws for the relief of debtors, are
instituted by or against the Company or any Subsidiary and, if
instituted against the Company or any Subsidiary, are consented to or,
if contested by the Company or the Subsidiary, are not dismissed by the
adverse parties or by an order, decree or judgment within 30 days after
such institution; or
(e) if the Company or any Subsidiary shall default in any
material respect in the due and punctual performance of any covenant or
agreement in any note, bond, indenture, loan agreement, note agreement,
mortgage, security agreement or other instrument evidencing or related
to Indebtedness for Borrowed Money, and such default shall continue for
more than the period of notice and/or grace, if any, therein specified
and shall not have been waived; or
(f) (i) if any representation or warranty made by or on behalf
of the Company in this Agreement or in any certificate or schedule
furnished pursuant hereto shall prove to have been untrue or incorrect
in any material respect as of the date of this Agreement or as of the
Closing Date, (ii) if any representation or warranty made by or on
behalf of the Company in the 1996 Agreement or in any certificate or
schedule furnished under or pursuant to any term thereof shall prove to
be untrue or incorrect in any material respect as of the date of the
1996 Agreement or the Closing Date thereunder, (iii) if any report,
certificate, financial statement or financial schedule or other
instrument prepared by the Company or any officer of the Company
furnished or delivered under or pursuant to this Agreement after the
Closing Date hereunder shall prove to be untrue or incorrect in any
material respect as of the date it was made, furnished or delivered, or
(iv) if any report, certificate, financial statement or financial
schedule or other instrument prepared by the Company or any officer of
the Company furnished or delivered under or pursuant to the 1996
Agreement after the Closing Date thereunder shall prove to be untrue or
incorrect in any material respect as of the date it was made, furnished
or delivered; or
(g) if default shall be made in the Company's obligation to
redeem the Preferred Stock (as hereinafter defined), as required by the
applicable Certificate of Designation, whether or not funds are legally
available therefor; or
(h) if default shall be made in the due and punctual
performance or observance of any other term contained in this Agreement
or the 1996
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Agreement, and such default shall have continued for a period of 15
days after written notice thereof to the Company by the holder of any
Preferred Stock.
11.2 Remedies Upon Events of Default. Upon the occurrence of an Event
of Default of the type specified in (i) paragraphs (a), (b), (d) or (g) of
Section 11.1, and (ii) paragraph (f) of Section 11.1 if the representation or
warranty at issue was made with reckless disregard for the truth or falsity
thereof, and so long as such Event of Default continues unremedied, then, unless
such Event of Default shall have been waived by the holders of sixty percent of
the Preferred Stock then outstanding, the holders of sixty percent of the
Preferred Stock then outstanding may require the Company immediately to redeem
all Preferred Stock then outstanding as provided in Section 4(b) of the
Certificate or the Amended and Restated Series A Certificate, as the case may
be, and thereupon the Company shall be obligated to redeem all Preferred Stock
then outstanding. Upon the occurrence of any Event of Default hereunder, unless
such Event of Default shall have been waived by the holders of sixty percent of
the Preferred Stock then outstanding, the holders of sixty percent of the
Preferred Stock then outstanding shall be entitled to designate a majority of
the Board of Directors of the Company as provided in Section 2(c) of the
Certificate or the Amended and Restated Series A Certificate, as the case may
be.
11.3 Notice of Defaults. When, to its knowledge, any Event of Default
has occurred or exists, the Company agrees to give written notice within three
business days of such Event of Default to the holders of all outstanding
Preferred Shares. If the holder of any Preferred Shares shall give any notice or
take any other actions in respect of a claimed Event of Default, the Company
will forthwith give written notice thereof to all other holders of Preferred
Shares at the time outstanding, describing such notice or action and the nature
of the claimed Event of Default.
11.4 Suits for Enforcement. In case any one or more Events of Default
shall have occurred and be continuing, unless such Events of Default shall have
been waived in the manner provided in Section 11.2 hereof, the holders of sixty
percent of the Preferred Shares may proceed to protect and enforce their rights
under Section 11 by suit in equity or action at law. It is agreed that in the
event of such action such holders of Preferred Shares shall be entitled to
receive all reasonable fees, costs and expenses incurred, including without
limitation such reasonable fees and expenses of attorneys (whether or not
litigation is commenced) and reasonable fees, costs and expenses of appeals.
11.5 Remedies Cumulative. No right, power or remedy conferred upon any
holder of Preferred Shares shall be 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 by any such security or now or hereafter
available at law or in equity or by statute or otherwise.
11.6 Remedies not Waived. No course of dealing between the Company and
any Purchaser or the holder of any Preferred Shares, and no delay in exercising
any right, power or remedy conferred hereby or by any such security or now or
hereafter existing at law or in equity
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or by statute or otherwise, shall operate as a waiver of or otherwise prejudice
any such right, power or remedy; provided, however, that this Section 11.6 shall
not be construed or applied so as to negate the provisions and intent of any
statute which is otherwise applicable.
12. Termination of Certain Covenants. The obligations of the Company
under Sections 8 and 9 hereof and the obligations of the Purchasers under
Section 15 hereof, other than its obligations under Section 8.12 hereof, shall,
notwithstanding any provisions hereof apparently to the contrary, terminate and
shall be of no further force or effect from and after the date on which the
Company completes a public offering of shares of Common Stock under
circumstances that would result in the mandatory conversion of the Preferred
Shares into Conversion Stock as set forth in the Certificate.
13. Definitions. Unless the context otherwise requires, the terms
defined in this Section 13 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 below shall,
except as otherwise expressly provided, be determined by reference to the
Company's books of account and in conformity with generally accepted accounting
principles as applied to such books of account in the opinion of the independent
certified public accountants selected by the Board of Directors of the Company
as required under the provisions of Section 8.2 hereof.
13.1 "Additional Shares of Common Stock" shall mean all shares of
Common Stock of the Company issued by the Company on or after the Closing Date,
except the Conversion Stock, the Warrant Stock and shares of Common Stock issued
upon conversion of Series A Preferred Stock.
13.2 "Amended and Restated Series A Certificate" shall mean
the Amendment and Restatement of Statement of Designation of Rights, Preferences
and Limitations of Series A Convertible Preferred Stock that is approved and
adopted in substantially the form set forth in Exhibit 9 hereto.
13.3 "Common Stock" shall mean the Company's authorized common
shares, any additional common shares which may be authorized in the future by
the Company, and any stock into which such common shares may hereafter be
changed, and shall also include stock of the Company of any other class which is
not preferred as to dividends or as to distributions of assets on liquidation,
dissolution or winding up of the Company over any other class of stock of the
Company, and which is not subject to redemption.
13.4 "Conversion Price" shall mean such price at which the
Preferred Shares are convertible into Common Stock pursuant to the Certificate.
13.5 "Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are at any time directly
or indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
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13.6 "Indebtedness for Borrowed Money" shall include only
indebtedness of the Company and its Subsidiaries incurred as the result of a
direct borrowing of money and shall not include any other indebtedness
including, but not limited to, indebtedness incurred with respect to trade
accounts.
13.7 "First Amendment to 1996 Agreement and Waiver" shall mean
that amendment entered into between the Company and the Purchasers under the
1996 Agreement and that waiver by such Purchasers of their preemptive rights in
substantially the form set forth in Exhibit 8 hereto.
13.8 "Junior Stock" shall mean Common Stock and all other
shares of stock of any other class of the Company at any time created and issued
ranking junior to the Preferred Shares with respect to the right to receive
dividends and/or the right to the distribution of assets upon liquidation,
dissolution or winding up of the Company.
13.9 "Permitted Liens" shall mean (a) liens for taxes and
assessments or governmental charges or levies not at the time due or in respect
of which the validity thereof shall currently be contested in good faith by
appropriate proceedings; and (b) liens in respect of pledges or deposits under
worker's compensation laws or similar legislation, carriers', warehousemen's,
mechanics', laborers' and materialmen's, landlord's and statutory and similar
liens, if the obligations secured by such liens are not then delinquent or are
being contested in good faith, and liens and encumbrances incidental to the
conduct of the business of the Company or any Subsidiary which were not incurred
in connection with the borrowing of money or the obtaining of advances or
credits and which do not in the aggregate materially detract from the value of
its property or materially impair the use thereof in the operation of its
business.
13.10 "Preferred Stock" shall mean the shares of Series A
Preferred Stock and the Preferred Shares.
13.11 "Purchase Price" shall mean such price at which the
Warrants are exercisable for Common Stock pursuant to Section 2 hereof and
Exhibit 2 hereto.
13.12 "Purchased Stock" shall mean the Preferred Shares, the
Conversion Stock, the Warrants and the Warrant Stock, and the stock or other
securities of the Company issued in a stock split or reclassification of, or a
stock dividend or other distribution on or in substitution or exchange for, or
otherwise in connection with, any of the foregoing securities, or in a merger or
consolidation involving the Company or a sale of all or substantially all of the
Company's assets. Nothing in this Section 13.12 shall be deemed to require the
Company to register any Preferred Shares or Warrants, it being understood that
the registration rights granted by Section 10 hereof relate only to shares of
Common Stock and securities issued in substitution or exchange therefor.
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13.13 "Securities" shall mean the Preferred Shares, the
Conversion Stock, the Warrants, the Warrant Stock, the Series A Preferred Stock,
the Series A Conversion Stock, and any stock or other securities of the Company
issued in a stock split or reclassification of, or a stock dividend or other
distribution on or in substitution or exchange for, or otherwise in connection
with, any of the foregoing securities, or in a merger or consolidation involving
the Company or a sale of all or substantially all of the Company's assets.
13.14 "Senior Indebtedness" shall mean (a) the principal of
all Indebtedness for Borrowed Money of the Company and its Subsidiaries to
banks, insurance companies or other financial institutions, (b) the present
value of net minimum lease payments of all leases under which the Company or any
of its Subsidiaries is the lessee and which are required to be capitalized under
generally accepted accounting principles, (c) the principal of all indebtedness
of the Company or any of its Subsidiaries under installment purchase agreements,
and (d) the principal of all indebtedness of the Company or any of its
Subsidiaries to the owners of any real property leased by the Company for
leasehold improvements financed by such owners.
13.15 "Series A Conversion Stock" shall mean the shares of
Common Stock into which the Series A Preferred Stock are convertible and all
shares of Common Stock of the Company issued in exchange or substitution
therefor.
13.16 "Subsidiary" shall mean any corporation, association or
other business entity more than a majority (by number of votes) of the voting
stock of which is owned or controlled, directly or indirectly, by the Company or
by one or more of its Subsidiaries or both.
14. Consents; Waivers and Amendments. Except as otherwise specifically
provided herein, in each case in which approval of the Purchasers is required by
the terms of this Agreement, such requirement shall be satisfied by a vote or
the written consent of Purchasers under this Agreement and the 1996 Agreement
owning at least sixty percent of the Securities then owned by such Purchasers
(for purposes of this Section 14, the holders of Preferred Stock shall have a
number of votes equal to the number of shares of Common Stock into which the
Preferred Stock is then convertible and the holders of the Warrants shall have a
number of votes equal to the number of shares of Common Stock purchasable upon
exercise of the Warrants). With the written consent of Purchasers owning at
least sixty percent of the Securities then owned by the Purchasers, the
obligations of the Company under this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), and with
the same approval the Company 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 of the holders of the
Securities and of the Company; provided, however, that no such waiver or
supplemental agreement shall (a) amend the terms of the Preferred Shares as set
forth in the Certificate (any such amendment to the terms of the Preferred
Shares shall require the vote of the holders of the Preferred Shares called for
by the Certificate), (b) reduce the aforesaid percentage of Securities, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of all of the record holders of Securities whose
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rights would be affected by such reduction, or (c) amend the basic terms of any
Warrant, the holder of which does not consent thereto. Written notice of any
such waiver, consent or agreement of amendment, modification or supplement shall
be given to the record holders of the Securities who have not previously
consented thereto in writing.
15. Voting Agreement. Each of the Purchasers individually agrees to
vote all shares of Purchased Stock owned by such Purchaser in favor of the
election of Xxxxxx Xxxxxx to the Board of Directors of the Company so long as he
is Chief Executive Officer of the Company, including the circumstances described
in Section 2(c) of the Certificate. The parties intend that Xxxxxx Xxxxxx be a
third party beneficiary of the provisions contained in this Section 15.
16. Changes, Waivers, etc. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, 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 Section 14 hereof.
17. Payment of Fees and Expenses of Purchasers. Upon the consummation
of the sale of the Preferred Shares and the Warrants anticipated by this
Agreement or upon failure by the Company to consummate such sales, the Company
will pay the reasonable out-of-pocket expenses incurred by the Purchasers in
connection with the transactions herein contemplated up to $18,000, including
without limitation the reasonable fees and out-of-pocket expenses of Faegre &
Xxxxxx LLP for their services as special counsel to the Purchasers in connection
with the transactions herein contemplated. The Company will also pay (a) all
fees and expenses incurred by the Purchasers with respect to any amendments or
waivers requested by the Company (whether or not the same become effective)
under or in respect of this Agreement or the agreements contemplated hereby, and
(b) all fees and expenses incurred by the Purchasers with respect to the
enforcement of the rights granted under this Agreement or the agreements
contemplated hereby.
18. Understanding Among Purchasers. The determination by each of the
Purchasers to purchase Preferred Shares and Warrants pursuant to this Agreement
has been made by such Purchaser independently of the other Purchasers, and
independently of any statements or opinions as to the advisability of such
purchase or as to the properties, business, prospects or condition (financial or
otherwise) of the Company which may have been made or given by the other
Purchasers or by any agent or employee of the other Purchasers. In addition, it
is acknowledged by each of the Purchasers that the other Purchasers have not
acted as such Purchaser's agent in connection with making its investment
hereunder and that the other Purchasers will not be acting as such Purchaser's
agent in connection with monitoring such Purchaser's investment hereunder.
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19. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be (i) hand
delivered, (ii) mailed first-class postage prepaid, registered or certified
mail, (iii) delivered by overnight delivery service of recognized reputation, or
(iv) delivered by telefacsimile,
(a) if to any holder of any Purchased Stock, addressed to such
holder at its address as shown on the books of the Company, or at such
other address as such holder may specify by written notice to the
Company, or
(b) if to the Company, addressed to the Company, 0000 Xxxx
Xxxx Xxxxxxx, Xxxx Xxxxxxx, Xxxxxxxxx 00000, attention Chief Financial
Officer, (612-947-0077) or to such other address as the Company may
specify by written notice to the Purchasers,
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given (w) upon delivery,
if delivered personally, (x) five days after deposit, if sent by mail, (y) the
day after delivery to an overnight delivery service, or (z) upon receipt of
electronic confirmation of receipt, if delivered by telefacsimile.
20. Survival of Representations and Warranties, etc. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, any investigation at any time made by the Purchasers
or on their behalf, and the sale and purchase of the Preferred Shares and the
Warrants and payment therefor. All statements contained in any certificate or
schedule delivered by or on behalf of the Company pursuant hereto (other than
legal opinions) shall constitute representations and warranties by the Company
hereunder.
21. 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 be binding upon, inure to the benefit of and be
enforceable by and against the holder or holders at the time of any of the
Purchased Stock, provided that if such holder or holders is not a Purchaser,
such holder or holders acquired such Purchased Stock in compliance with Section
4 of this Agreement.
22. 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.
23. Choice of Law. It is the intention of the parties that the laws of
Minnesota, other than the choice of law provisions thereof, shall govern the
validity of this Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties.
24. Counterparts. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
Very truly yours,
LIFE TIME FITNESS, INC.
By __________________________________________
Its _______________________________________
The foregoing Agreement is hereby
accepted as of the date first above written.
NORWEST EQUITY PARTNERS V, LP
A MINNESOTA LIMITED PARTNERSHIP
By: ITASCA PARTNERS V, LLP
Its: General Partner
By _______________________________
Its ___________________________
NORWEST EQUITY PARTNERS VI, LP
A MINNESOTA LIMITED PARTNERSHIP
By: ITASCA LBO VI, LP
Its: General Partner
By _______________________________
Its ___________________________
MINNESOTA PRIVATE EQUITY FUND, LP
By: EQUITY RESEARCH, INC.
Its: General Partner
By _______________________________
Its: President
XXXXX XXXXXXX INVESTORS--FUND XI, L.P.
By: THE PIPER FUND--FUND XI, L.P.
Its: Managing Partner
By ________________________________________
Managing Director of Xxxxx Xxxxxxx Inc.,
as Managing Partner of The Piper Fund--Fund XI, L.P.
By ________________________________________
Xxx Xxxxxxxxx
By ________________________________________
Xxxxx Xxxxxxx
XXXXX XXXXXXX INC.
as custodian FBO Xxxxx X. Xxxxxxx
By _______________________________
Its ___________________________
ANTARES LEVERAGED CAPITAL CORP.
By _______________________________
Its ___________________________
PURCHASER CERTIFICATION
The undersigned, in connection with the Stock Purchase Agreement dated
December 8, 1998 among LIFE TIME FITNESS, Inc. (the "Company") and certain
Purchasers listed in Schedule A thereto, hereby makes each of the
representations contained in Section 6 of such Stock Purchase Agreement. The
undersigned further represents either (a) that he/she/it qualifies as an
"accredited investor", as that term is used in Regulation D promulgated under
the Securities Act of 1933 (the "Act"), because (check one):
(1) _____ it is a bank as defined in Section 3(a)(2) of the Act, or a
savings and loan association or other institution as defined
in Section 3(a)(5) of the Act, whether acting in its
individual or fiduciary capacity; a broker or dealer
registered pursuant to Section 15 of the Securities Exchange
Act of 1934; an insurance company as defined in Section 2(13)
of the Act; an investment company registered under the
Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that act; a Small
Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions, or any
instrumentality of a state or its subdivisions, for the
benefit of its employees, if such plan has total assets in
excess of $5,000,000; an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security
Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company
or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2) _____ it is a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(3) _____ it is an organization described in Section 501(c)(3) of the
Internal Revenue Code, a corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets
in excess of $5,000,000;
(4) _____ he or she is a director or executive officer of the Company;
(5) _____ he or she is an individual who has an individual net worth, or
joint net worth with his or her spouse, in excess of
$1,000,000;
(6) _____ he or she is an individual who had an income in excess of
$200,000 in each of the two most recent years or joint income
with his or her spouse in excess of $300,000 in each of those
years and who reasonably expects an income in excess of the
same level in the current year;
(7) _____ it is a trust with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in Rule 506(b)(2)(ii) under the Act; or
(8) _____ it is an entity, all of whose equity owners are accredited
investors.
___________________________________
___________________________________
SCHEDULE A
Number of
Number of Shares Covered
Preferred Shares by Warrants Aggregate
Names and Addresses of Purchasers to be Purchased Purchased Purchase Price
--------------------------------- ---------------- -------------- --------------
Norwest Equity Partners V, LP 700,000 100,000 $14,000,000
2800 Xxxxx Xxxxxxx Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Norwest Equity Partners VI, LP 200,000 28,571 $ 4,000,000
2800 Xxxxx Xxxxxxx Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Minnesota Private Equity Fund, LP 32,000 4,571 $ 640,000
Xxxxx Xxxxxxx Investors-Fund XI L.P. 15,000 2,143 $ 300,000
Xxxxx Xxxxxxx Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Xxx Xxxxxxxxx 500 71 $ 10,000
Xxxxx Xxxxxxx 1,250 179 $ 25,000
Xxxxx Xxxxxxx Inc. as custodian FBO 1,250 179 $ 25,000
Xxxxx X. Xxxxxxx
Antares Leveraged Capital Corp. 50,000 7,143 $ 1,000,000
1,000,000 142,857 $20,000,000
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