SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of June 30, 1999,
between Diplomat Direct Marketing Corporation, a Delaware corporation with
principal executive offices located at 000 Xxxxxx Xxxxxx, Xxxxxxx, X.X. 00000
(the "Company"), Xxxxx Holdings, Inc., having an address at 0 Xxxxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000 ("Xxxxx") and the undersigned ("Buyer").
W I T N E S S E T H:
WHEREAS, the Company desires to sell, and the Buyer desires
to purchase, upon the terms and subject to the conditions of this Agreement,
10,000 shares of newly created Series G 10% Convertible Preferred Stock of the
Company, $.01 par value (the "Preferred Stock"), having the rights,
preferences and privileges set forth in the Certificate of Designations to the
Certificate of Incorporation of the Company attached hereto as Annex I (the
"Amendment");
WHEREAS, the Company has agreed to register on behalf of
Buyer the Conversion Shares (as hereinafter defined) acquired upon conversion
of the Preferred Stock, under the terms of that certain Registration Rights
Agreement, of even date herewith, by and among the Company, and Buyer (the
"Registration Agreement");
WHEREAS, the Company and Xxxxx desire to exchange that
number of shares of the Common Stock of the Company, $.0001 par value (the
"Company Common Stock"), for that number of shares of the Common Stock of
Xxxxx, $.0001 par value (the "Xxxxx Common Stock"), in each case having a
Market Value equal to $1,000,000 at the close of trading on June 7, 1999,
which Market Value shall be determined to be the last sale price of a share of
Company Common Stock or of Xxxxx Common Stock as reported by The Nasdaq Stock
Market, Inc., with the shares of Company Common Stock so received by Xxxxx
being referred to as the "Company Exchange Shares" and the shares of Xxxxx
Common Stock so received by the Company being referred to as the "Xxxxx
Exchange Shares;"
WHEREAS, upon the terms and subject to the conditions set
forth in the Amendment, the Preferred Stock is convertible into shares of
Company Common Stock and is redeemable by the Company under certain
conditions;
NOW THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED STOCK
A. Transaction. Buyer hereby agrees to purchase from the Company, and the
Company has offered and hereby agrees to issue and sell to the Buyer in a
transaction exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the
Preferred Stock; and Company and Xxxxx agree to exchange the Company Exchange
Shares for the Xxxxx Exchange Shares.
B. Purchase Price; Form of Payment. The purchase price (the "Preferred
Purchase Price") for the Preferred Stock to be purchased by Buyer hereunder
shall be equal to $1,000,000, which shall be payable in cash on the Closing
Date; and the purchase price (the "Company Exchange Purchase Price") for the
Company Exchange Shares shall be the Xxxxx Exchange Shares, and the purchase
price (the "Xxxxx Exchange Purchase Price") for the Xxxxx Exchange Shares
shall be the Company Exchange Shares, which Xxxxx Exchange Purchase Price and
Company Exchange Purchase Price shall be exchanged on the Closing Date.
II. BUYER'S AND XXXXX'X REPRESENTATIONS, WARRANTIES; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Each of Buyer and Xxxxx severally represents and warrants to and
covenants and agrees with the Company, with each such company only making
representations which refer to its own activities or to information concerning
its own operations, as follows:
A. Buyer is purchasing the Preferred Stock and the shares of Common Stock
issuable upon conversion of the Preferred Stock (the "Conversion Shares", and
collectively with the Preferred Stock, the "Securities"), and Xxxxx is
purchasing the Company Exchange Shares, for its own account, for investment
purposes only and not with a view towards or in connection with the public
sale or distribution thereof in violation of the Securities Act.
B. Each of Buyer and Xxxxx is (i) experienced in making investments of
the kind contemplated by this Agreement, (ii) capable, by reason of its
business and financial experience, of evaluating the relative merits and risks
of an investment in the Securities, and (iii) able to afford the loss of its
investment in the Securities or in the Company Exchange Shares, respectively.
C. Each of Buyer and Xxxxx understands that the Securities and the
Company Exchange Shares, respectively, are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's and Xxxxx'x
compliance with, each of Buyer's and Xxxxx'x representations, warranties and
covenants, respectively and severally, as set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer and
Xxxxx to purchase the Securities;
D. Each of Buyer and Xxxxx has been furnished with or provided access to
all materials relating to the business, financial position and results of
operations of the Company, and all other materials requested by Buyer and
Xxxxx, respectively, to enable it to make an informed investment decision with
respect to the Securities and the Company Exchange Shares, respectively.
E. Each of Buyer and Xxxxx acknowledges that it has been furnished with
copies of the Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1998 and all other reports and documents heretofore filed by the
Company with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act and the Securities
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Exchange Act of 1934, as amended (the "Exchange Act"), since September 30,
1998 (collectively the "Commission Filings").
F. Each of Buyer and Xxxxx acknowledges that in making its decision to
purchase the Securities and the Company Exchange Shares, respectively, it has
been given an opportunity to ask questions of and to receive answers from the
Company's executive officers, directors and management personnel concerning
the terms and conditions of the private placement of the Securities and
Company Exchange Shares, respectively, by the Company.
G. Each of Buyer and Xxxxx understands that the Securities and Company
Exchange Shares, respectively, have not been approved or disapproved by the
Commission or any state securities commission and that the foregoing
authorities have not reviewed any documents or instruments in connection with
the offer and sale to it of the Securities and Company Exchange Shares,
respectively, and have not confirmed or determined the adequacy or accuracy of
any such documents or instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by each of Buyer and Xxxxx and is a valid and binding agreement of
each of Buyer and Xxxxx enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally.
I. Authority; Validity and Enforceability. Each of Buyer and Xxxxx, to
the extent it is a signatory, has the requisite corporate power and authority
to enter into this Agreement, the Registration Agreement and the Pledge
Security Agreement of even date herewith between the Company, the Buyer, the
Xxxxx Family Irrevocable Stock Trust (the "Xxxxx Trust"), a copy of which is
annexed hereto as Annex II (the "Pledge Agreement"). The execution, delivery
and performance by each of Xxxxx and Buyer, to the extent it is a signatory of
this Agreement, the Registration Agreement and the Pledge Agreement, and the
consummation by each of Buyer and Xxxxx of the transactions contemplated
hereby and thereby has been duly authorized by all necessary corporate action
on the part of each of Buyer and Xxxxx, respectively. Each of this Agreement,
the Registration Agreement and the Pledge Agreement has been duly validly
executed and delivered by each of Buyer and Xxxxx, to the extent it is a
signatory, and each such instrument constitutes a valid and binding obligation
of each of Buyer and Xxxxx enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally. The Xxxxx Exchange Shares have been duly and validly
authorized for issuance by Xxxxx.
J. Commission Filings. None of the Xxxxx Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and all other reports and documents
heretofore filed by Xxxxx with the Commission pursuant to the Securities Act
and the Exchange Act since June 30, 1998 (the "Xxxxx Commission Filings")
contained at the time they were filed any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
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K. Financial Statements; No Undisclosed Liabilities. Xxxxx has delivered
to the Company true and complete copies of its audited balance sheet as at
June 30, 1998 and the related audited statements of operations and cash flows
for the three fiscal years ended June 30, 1998, including the related notes
and schedules thereto, as well as the same financial statements as of and for
the three, six and nine month periods ended March 31, 1999 (collectively, the
"Financial Statements"). Each of the Financial Statements is complete and
correct in all material respects, has been prepared in accordance with United
States General Accepted Accounting Principles ("GAAP") (subject, in the case
of the interim Financial Statements, to normal year end adjustments and the
absence of footnotes) and in conformity with the practices consistently
applied by Xxxxx without modification of the accounting principles used in the
preparation thereof, and fairly presents the financial position, results of
operations and cash flows of Xxxxx as at the dates and for the periods
indicated. For purposes hereof, the audited balance sheet of Xxxxx as at June
30, 1998 is hereinafter referred to as the "Balance Sheet" and June 30, 1998
is hereinafter referred to as the "Balance Sheet Date". Xxxxx has no
indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) that
would have been required to be reflected in, reserved against or otherwise
described in the Balance Sheet or in the notes thereto in accordance with
GAAP, which was not fully reflected in, reserved against or otherwise
described in the Balance Sheet or the notes thereto or otherwise described and
reflected in the Financial Statements, or was not incurred in the ordinary
course of business consistent with Xxxxx'x past practices since the Balance
Sheet Date.
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer and Xxxxx that:
A. Capitalization. 1. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $.0001 par value (the "Company
Common Stock"), of which 15,245,813 shares are outstanding on the date hereof
and 1,000,000 shares of preferred stock, of which 444,014 shares are
outstanding on the date hereof which can be converted into a maximum of
15,388,972 shares of Common Stock (not including the payment of dividends
thereon in additional shares of Common Stock), subject to anti-dilution and
similar provisions. All of the issued and outstanding shares of Common Stock
and preferred stock have been duly authorized and validly issued and are fully
paid and non-assessable. As of the date hereof, the Company has outstanding
stock options and warrants to purchase 1,654,900 shares of Common Stock. The
Securities have been duly and validly authorized and reserved for issuance by
the Company, and when issued by the Company pursuant to the terms of this
Agreement will be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive, subscription, "call" or other similar
rights to acquire the Common Stock or the Company's preferred stock that have
been issued or granted to any person, except as disclosed on Schedule III.
A.1.
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2. The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity, except as disclosed on Schedule III.A.2.
B. Organization; Reporting Company Status. 1. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and is duly qualified as a foreign corporation
in all jurisdictions in which the failure to so qualify would have a material
adverse effect on the business, properties, prospects, condition (financial or
otherwise) or results of operations of the Company or on the consummation of
any of the transactions contemplated by this Agreement (a "Material Adverse
Effect").
2. The Company has registered the Common Stock pursuant to Section 12 of
the Exchange Act and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting obligations
under Section 13(a) or 15(d), as applicable, of the Exchange Act for the
12-month period immediately preceding the date hereof. The Common Stock is
listed and traded on the NASDAQ SmallCap Stock Market ("NASDAQ") and except
for a letter dated ___, 1999, a copy of which is annexed hereto as Schedule
III B.2, the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
C. Authorized Shares. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Preferred Stock (assuming for purposes of this Section
III.C. a Conversion Price (as defined in the Amendment) of not greater than
$.30. The Company understands and acknowledges the potentially dilutive effect
to the Common Stock of the issuance of the Preferred Stock. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Stock in accordance with this Agreement and the
Preferred Stock is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
D. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to enter into this Agreement, the Amendment, the
Registration Agreement and the Pledge Agreement. The execution, delivery and
performance by the Company of this Agreement, the Amendment, the Registration
Agreement and the Pledge Agreement, and the consummation by the Company of the
transactions contemplated hereby and thereby (the issuance of the Preferred
Stock, the registration of the Conversion Shares and the pledge of collateral
pursuant to the Pledge Agreement), has been duly authorized by all necessary
corporate action on the part of the Company. Each of this Agreement, the
Amendment, the Registration Agreement and the Pledge Agreement has been duly
validly executed and delivered by the Company and each instrument constitutes
a valid and binding obligation of the Company enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. The Securities have been duly and
validly authorized for issuance by the Company.
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E. Non-contravention. The execution and delivery by the Company of this
Agreement, the Amendment and the Pledge Agreement, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, do not and will not conflict with or result
in a breach by the Company of any of the terms or provisions of, or constitute
a default (or an event which, with notice, lapse of time or both, would
constitute a default) under (i) the articles of incorporation or by-laws of
the Company or (ii) except for such conflict, breach or default which would
not have a Material Adverse Effect, any indenture, mortgage, deed of trust or
other material agreement or instrument to which the Company is a party or by
which its properties or assets are bound, or any law, rule, regulation,
decree, judgment or order of any court or public or governmental authority
having jurisdiction over the Company or any of the Company's properties or
assets, including the Rules of The Nasdaq Stock Market, Inc.
F. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Stock to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
G. Commission Filings. None of the Commission Filings contained at the
time they were filed any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
H. Absence of Certain Changes. Except as disclosed on Schedule III.A.I.,
Schedule III.A.II, or Schedule III.H. or in the Financial Statements (as
defined in Section III.L. hereto), since the Balance Sheet Date (as defined in
Section III.L.), there has not occurred any change, event or development in
the business, financial condition, prospects or results of operations of the
Company, and there has not existed any condition having or reasonably likely
to have, a Material Adverse Effect.
I. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that
has not been fully disclosed in writing to the Buyer that (i) reasonably would
be expected to have a Material Adverse Effect or (ii) reasonably would be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement, the Amendment, the
Warrants or the Pledge Agreement.
J. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation pending or, to the Company's knowledge, threatened,
by or before any court or public or governmental authority, or under the aegis
of the Listing Investigations Division of The Nasdaq Stock Market, Inc.,
which, if determined adversely to the Company, would have a Material Adverse
Effect.
K. Absence of Events of Default. No "Event of Default" (as defined in any
agreement or instrument to which the Company is a party) and no event which,
with notice, lapse
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of time or both, would constitute an Event of Default (as so defined), has
occurred and is continuing, which could have a Material Adverse Effect.
L. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
September 30, 1998 and the related audited statements of operations and cash
flows for the three fiscal years ended September 30, 1998, including the
related notes and schedules thereto, as well as the same financial statements
as of and for the three and six month periods ended March 31, 1999
(collectively, the "Financial Statements"), and all management letters, if
any, from the Company's independent auditors relating to the dates and periods
covered by the Financial Statements. Each of the Financial Statements is
complete and correct in all material respects, has been prepared in accordance
with United States General Accepted Accounting Principles ("GAAP") (subject,
in the case of the interim Financial Statements, to normal year end
adjustments and the absence of footnotes) and in conformity with the practices
consistently applied by the Company without modification of the accounting
principles used in the preparation thereof, and fairly presents the financial
position, results of operations and cash flows of the Company as at the dates
and for the periods indicated. For purposes hereof, the audited balance sheet
of the Company as at September 30, 1998 is hereinafter referred to as the
"Balance Sheet" and September 30, 1998 is hereinafter referred to as the
"Balance Sheet Date". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise,
and whether due or to become due) that would have been required to be
reflected in, reserved against or otherwise described in the Balance Sheet or
in the notes thereto in accordance with GAAP, which was not fully reflected
in, reserved against or otherwise described in the Balance Sheet or the notes
thereto or otherwise described and reflected in the Financial Statements, or
was not incurred in the ordinary course of business consistent with the
Company's past practices since the Balance Sheet Date.
M. Compliance with Laws; Permits. The Company is in compliance with all
laws, rules, regulations, codes, ordinances and statutes (collectively "Laws")
applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
N. Related Party Transactions. Except as disclosed on Schedule III.N. or
the Commission Filings, neither the Company nor any of its officers, directors
or "Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act)
has borrowed any moneys from or has outstanding any indebtedness or other
similar obligations to the Company. Neither the Company nor any of its
officers, directors or Affiliates (i) owns any direct or indirect interest
constituting more than a one percent equity (or similar profit participation)
interest in, or controls or is a director, officer, partner, member or
employee of, or consultant to or lender to or borrower from, or has the right
to participate in the profits of, any person or entity which is (x) a
competitor, supplier, customer, landlord, tenant, creditor or debtor of the
Company, (y) engaged in a business related to the business of the Company , or
(z) a participant in any transaction to
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which the Company is a party (other than in the ordinary course of the
Company's business) or (ii) is a party to any contract, agreement, commitment
or other arrangement with the Company.
O. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and
has no knowledge of any threat by, any insurer (that has issued any insurance
policy to the Company) that such insurer intends to deny coverage under or
cancel, discontinue or not renew any insurance policy presently in force.
P. Securities Law Matters. Based, in part, upon the several
representations and warranties of Buyer and Xxxxx set forth in Section II
hereof, the offer and sale by the Company of the Securities and Company
Exchange Shares is exempt from (i) the registration and prospectus delivery
requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification
provisions of all applicable state securities and "blue sky" laws. Other than
pursuant to an effective registration statement under the Securities Act, the
Company has not issued, offered or sold preferred stock (including for this
purpose any securities of the same or a similar class as the preferred stock,
or any securities convertible into or exchangeable or exercisable for
preferred stock or any such other securities) or Company Common Stock other
than the Company's Series F Preferred Stock which was sold to a single
"accredited investor" as defined in Rule 501 promulgated under the Securities
Act (an "Accredited Investor") and 100,000 shares of Company Common Stock
which was sold to a single Accredited Investor at $1.00 per share within the
six-month period next preceding the date hereof, except as disclosed on
Schedule III.P., and the Company shall not directly or indirectly take, and
shall not permit any of its directors, officers or Affiliates directly or
indirectly to take, any action [including, without limitation, any offering or
sale to any person or entity of preferred stock or Company Common Stock (or
securities of the same or similar class as the Preferred Stock or Company
Common Stock)], so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to Buyer
and Xxxxx of the Preferred Stock and Company Common Stock as contemplated by
this Agreement. No form of general solicitation or advertising has been used
or authorized by the Company or any of its officers, directors or Affiliates
in connection with the offer or sale of the Preferred Stock or Company Common
Stock as contemplated by this Agreement or any other agreement to which the
Company is a party.
Q. Environmental Matters. 1. The operations of the Company are in
material compliance with all applicable Environmental Laws and all permits
issued pursuant to Environmental Laws or otherwise;
2. To its knowledge, the Company has obtained or applied for all material
permits required under all applicable Environmental Laws necessary to operate
its business;
3. The Company is not the subject of any outstanding written order of or
agreement with any governmental authority or person respecting (i)
Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened
Release of Hazardous Materials;
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4. The Company has not received, since the Balance Sheet Date, any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law, or
may have any liability under any Environmental Law;
5. The Company does not have any current contingent liability in
connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site);
6. To the Company's knowledge, there are no investigations of the
business, operations, or currently or previously owned, operated or leased
property of the Company pending or threatened which could lead to the
imposition of any liability pursuant to any Environmental Law;
7. There is not located at any of the properties of the Company any (A)
underground storage tanks, (B) asbestos-containing material or (C) equipment
containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all environmentally related audits,
studies, reports, analyses, and results of investigations that have been
performed with respect to the currently or previously owned, leased or
operated properties of the Company.
For purposes of this Section III.Q.:
"Environmental Law" means any foreign, federal, state or local statute,
regulation, ordinance, or rule of common law as now or hereafter in effect in
any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. App. Section 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.),
the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 et seq.), and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), and the regulations promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state
or local governmental authority including, without limitation, petroleum and
its by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant,"
"pollutant," "toxic waste" or toxic substance" under any provision of any
Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;
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"Remedial Action" means all actions to (x) clean up, remove, treat or in
any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; or (z) perform
pre-remedial studies and investigations or post-remedial monitoring and care.
R. Labor Matters. The Company is not party to any labor or collective
bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees
has made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the Company's knowledge, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or to the Company's
knowledge, threatened by any labor organization or group of employees of the
Company. There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or,
to the knowledge of the Company, threatened against or involving the Company.
There are no unfair labor practice charges, grievances or complaints pending
or, to the knowledge of the Company, threatened by or on behalf of any
employee or group of employees of the Company.
S. ERISA Matters. The Company and its ERISA Affiliates are in compliance
in all material respects with all provisions of ERISA applicable to it.
Neither the Company nor any ERISA Affiliate maintains, contributes, maintained
or contributed to a plan subject to the provisions of Title IV of ERISA or
Section 412 of the Internal Revenue Code.
For purposes of this Section III.S.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or any
successor statute, together with the final regulations promulgated thereunder,
as the same may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is a member of a group of which the Company is a member and
which is treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code").
T. Tax Matters. 1. The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in respect
of which the failure to so file does not and could not have a Material Adverse
Effect; all such Tax Returns are true and accurate in all material respects
and have been prepared in compliance with all applicable Laws; the Company has
paid all Taxes due and owing by it (whether or not such Taxes are required to
be shown on a Tax Return) and have withheld and paid over to the appropriate
taxing authorities all Taxes which it is required to withhold from amounts
paid or owing to any employee, stockholder, creditor or other third parties;
and since the Balance Sheet Date, the charges, accruals and reserves for Taxes
with respect to the Company (including any provisions for
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deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated
as ending on the date hereof.
2. No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that such corporation is or may be
subject to taxation by that jurisdiction. There are no foreign, federal, state
or local tax audits or administrative or judicial proceedings pending or being
conducted with respect to the Company; no information related to Tax matters
has been requested by any foreign, federal, state or local taxing authority;
and, except as disclosed above, no written notice indicating an intent to open
an audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority. There are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A)
has not executed or entered into a closing agreement pursuant to Section 7121
of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (B) has not agreed to or
is required to make any adjustments pursuant to Section 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign law
by reason of a change in accounting method initiated by the Company or has any
knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)
(2) of the Internal Revenue Code during the applicable period specified in
Section 897(c) (1) (A) (ii) of the Internal Revenue Code.
3. The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company under (A) Treas. Reg. Section
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under
Section 280G of the Internal Revenue Code.
For purposes of this Section III.T.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real
or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties, additions
to tax, and interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any amendment
thereof.
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U. Property. The Company has good and marketable title to all real and
personal property owned by it, free and clear of all liens, encumbrances and
defects except as disclosed in the Commission Filings or the Financial
Statements such as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company; and any real property and buildings held under lease
by the Company are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the Company.
V. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being
conducted. To the best of the Company's knowledge, the Company is not
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. No claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
W. Internal Controls and Procedures. The Company maintains accurate books
and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by
which its properties are bound are executed with management's authorization;
(ii) the reported accountability of the Company's assets is compared with
existing assets at regular intervals; (iii) access to the Company's assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which the Company is a party or by which its properties are
bound are recorded as necessary to permit preparation of the financial
statements of the Company in accordance with U.S. generally accepted
accounting principles.
X. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment
or other unlawful expense relating to political activity; (ii) made any direct
or indirect unlawful payment of Company funds to any foreign or domestic
government official or employee; (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Y. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer or
Xxxxx pursuant to this Agreement, contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, not misleading.
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Z. Right of First Refusal. The Company has not granted any right of first
refusal to any person with respect to the issuance of Common Stock, preferred
stock or securities convertible into Common Stock which is currently in
effect.
AA. Company is purchasing the Xxxxx Exchange Shares for its own account,
for investment purposes only and not with a view towards or in connection with
the public sale or distribution thereof in violation of the Securities Act.
BB. Company is (i) experienced in making investments of the kind
contemplated by this Agreement, (ii) capable, by reason of its business and
financial experience, of evaluating the relative merits and risks of an
investment in the Securities, and (iii) able to afford the loss of its
investment in the Xxxxx Exchange Shares.
CC. Company understands that the Xxxxx Exchange Shares are being offered
and sold by Xxxxx in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that Xxxxx is relying upon the accuracy of, and Company's
compliance with, Company's representations, warranties and covenants set forth
in this Agreement to determine the availability of such exemption and the
eligibility of Company to purchase the Xxxxx Exchange Shares;
DD. Company has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of
Xxxxx, and all other materials requested by Company to enable it to make an
informed investment decision with respect to the Xxxxx Exchange Shares.
EE. Company acknowledges that it has been furnished with copies of the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998
and all other reports and documents heretofore filed by Xxxxx with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since June 30, 1998 (collectively the "Xxxxx Commission
Filings").
FF. Company acknowledges that in making its decision to purchase the
Xxxxx Exchange Shares it has been given an opportunity to ask questions of and
to receive answers from Xxxxx'x executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Xxxxx Exchange Shares by Xxxxx.
GG. Company understands that the Xxxxx Exchange Shares have not been
approved or disapproved by the Commission or any state securities commission
and that the foregoing authorities have not reviewed any documents or
instruments in connection with the offer and sale to it of the Xxxxx Exchange
Shares and have not confirmed or determined the adequacy or accuracy of any
such documents or instruments.
HH. Neither Company nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing, any put option, short position or other similar instrument or
position with respect to the Xxxxx Common Stock and
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neither Company nor any of its affiliates nor any person acting on its or
their behalf will use at any time shares of Xxxxx Common Stock acquired
pursuant to this Agreement to settle any put option, short position or other
similar instrument or position that may have been entered into prior to the
execution of this Agreement.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Each of Xxxxx and Buyer, on the one hand, and
Company, on the other hand, acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Securities and the Company Exchange Shares,
and the Xxxxx Exchange Shares, respectively, shall have endorsed thereon a
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the Preferred Stock, the Company Exchange Shares
and the Xxxxx Exchange Shares):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. Filings. Each of Xxxxx, Buyer and the Company shall make all necessary
SEC, Nasdaq and "blue sky" filings required to be made by Xxxxx, Buyer and the
Company, respectively, in connection with the sale of the Securities, the
Company Exchange Shares and the Xxxxx Exchange Shares as contemplated under
the terms of this Agreement, and as required by all applicable laws and the
Rules of The Nasdaq Stock Market, Inc., and shall provide copies thereof to
the Buyer, Xxxxx and the Company, as relevant, promptly after such filing.
C. Reporting Status. So long as the Buyer and/or Xxxxx beneficially owns
any of the Securities or Company Exchange Shares, on the one hand, and so long
as the Company beneficially owns any of the Xxxxx Exchange Shares, on the
other hand, the Company and Xxxxx, respectively, each shall use its best
efforts timely to file all reports required to be filed by it with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Reserved.
E. Listing. Except to the extent the Company lists its Common Stock on
The New York Stock Exchange or the Nasdaq National Market System, the Company
shall use its best efforts to maintain its listing of the Common Stock on the
NASDAQ.
F. Reserved Conversion Shares. The Company at all times from and after
the date hereof shall have a sufficient number of shares of Common Stock duly
and validly authorized and reserved for issuance to satisfy the conversion, in
full, of the Preferred Stock
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(assuming for purposes of this Section IV.F., a Conversion Price of not
greater than $.30). In the event the Current Market Price (as defined in the
Amendment) declines to $.30, the Company shall, within 10 days of the
occurrence of such event, authorize and reserve for issuance such additional
shares of Common Stock sufficient in number for the conversion, in full, of
the Preferred Stock, assuming for purposes of this Section IV.F. a Conversion
Price of not greater than $.15 per share.
G. Right of First Refusal. If the Company should propose (the "Proposal")
to issue Common Stock or securities convertible into Common Stock, or to
become obligated for any indebtedness having equity or other non-debt features
at less than par value (e.g., having any attendant equity or other features
other than strictly calling for repayment of full face principal and accrued
interest), or to issue any debt securities or other indebtedness having an
effective annual interest rate in excess of 9.9% (each a "Right of First
Refusal Security" and collectively, the "Right of First Refusal Securities"),
in each case on the date of issuance, during any period during which the
Preferred Stock is issued and outstanding (the "Right of First Refusal
Period"), the Company shall be obligated to offer the Buyer on the terms set
forth in the Proposal (the "Offer") and the Buyer shall have the right, but
not the obligation, to accept such Offer on such terms. If during the Right of
First Refusal Period, the Company provides written notice to the Buyer that it
proposes to issue any Right of First Refusal Securities on the terms set forth
in the Proposal, then the Buyer shall have ten (10) business days to accept or
reject such Offer in writing. If the Company fails to: (i) provide such
written notice to the Buyer of a Proposal during the Right of First Refusal
Period, (ii) offer the Buyer the opportunity to complete the transaction as
set forth in the Proposal, or (iii) enter into an agreement with the Buyer, at
such terms after the Buyer has accepted the Offer, then the Company shall pay
to the Buyer, as liquidated damages, an amount in total equal to ten percent
(10%) of the amount paid to the Company for the Right of First Refusal
Securities. The foregoing Right of First Refusal is and shall be senior in
right to any other right of first refusal issued by the Company to any other
person. Notwithstanding the foregoing, the Buyer shall have no rights under
this paragraph 4.G. in respect of Common Stock or any other securities of the
Company issuable (i) upon the exercise or conversion of options, warrants or
other rights to purchase securities of the Company outstanding as of the date
hereof, or (ii) under the Company's ____ Employee Stock Option Plan (in the
form and with respect to the number of shares of Common Stock to which such
plan is subject on the date hereof).
H. Director Designation. Until such time as Buyer shall have sold,
redeemed, or converted, all of its shares of Preferred Stock acquired pursuant
to this Agreement, Xxxxx shall have the right to designate an ex officio
member of the Company's Board of Directors, which designee shall receive
notices of (and related materials for discussion at), and shall be entitled to
attend and participate in all meetings of the Company's Board of Directors, as
well as all meetings of committees of the Company's Board of Directors, which
notices (and related materials) shall be delivered to such designee at the
same time and in the same manner as such communications are given to members
of the Company's Board of Directors. Such designee shall be reimbursed for the
costs and expenses of his/her attendance at all such meetings in the same
manner and in the same amounts as are members of the Company's Board of
Directors, and such designee shall receive the same compensation for
attendance at meetings of the Company's Board of Directors (including
Committee meetings) as is received by members of the Company's Board of
Directors.
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V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Company Exchange Shares
and/or Conversion Shares pursuant to an effective Securities Act registration
statement will be given to its transfer agent for the Company Exchange Shares
and/or Conversion Shares and that the Company Exchange Shares and the
Conversion Shares issuable upon conversion of the Preferred Stock otherwise
shall be freely transferable on the books and records of the Company as and to
the extent provided in this Agreement, the Registration Rights Agreement and
applicable law. Nothing contained in this Section V.A. shall affect in any way
Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of such Company Exchange Shares and/or Conversion Shares. If,
at any time, Buyer or Xxxxx provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of the resale by
Buyer and Xxxxx of such Company Exchange Shares and/or Conversion Shares is
not required under the Securities Act and that the removal of restrictive
legends is permitted under applicable law, the Company shall permit the
transfer of such Company Exchange Shares and/or Conversion Shares and,
promptly instruct the Company's transfer agent to issue one or more
certificates for Company Common Stock without any restrictive legends endorsed
thereon.
X. Xxxxx undertakes and agrees that no instructions other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Xxxxx Exchange Shares
pursuant to an effective Securities Act registration statement will be given
to its transfer agent for Xxxxx Exchange Shares and that the Xxxxx Exchange
Shares otherwise shall be freely transferable on the books and records of
Xxxxx as and to the extent provided in this Agreement and applicable law.
Nothing contained in this Section V.B. shall affect in any way the Company's
obligations and agreement to comply with all applicable securities laws upon
resale of such Xxxxx Exchange Shares. If, at any time, Company provides Xxxxx
with an opinion of counsel reasonably satisfactory to Xxxxx that registration
of the resale by Company of such Xxxxx Exchange Shares is not required under
the Securities Act and that the removal of restrictive legends is permitted
under applicable law, the Xxxxx shall permit the transfer of such Xxxxx
Exchange Shares and, promptly instruct Xxxxx'x transfer agent to issue one or
more certificates for Xxxxx Common Stock without any restrictive legends
endorsed thereon.
C. The Company shall permit Buyer to exercise its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion
to the Company. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be
deemed a Conversion Date. The Company shall transmit the certificates
evidencing the shares of Company Common Stock issuable upon conversion of any
Preferred Stock (together with certificates evidencing any Preferred Stock not
being so converted) to Buyer via express courier, by electronic transfer or
otherwise, within five business days after receipt by the Company of the
Notice of Conversion (the "Delivery Date"). Within five business days after
Buyer delivers the Notice of Conversion to the Company, Buyer shall deliver to
the Company the Preferred Stock being converted. Buyer shall indemnify the
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Company for any damages to third parties as a result of a claim by such third
party to ownership of the Preferred Stock converted prior to receipt of the
Preferred Stock by the Company.
D. The Company understands that a delay in the issuance of the shares of
Company Common Stock upon the conversion of the Preferred Stock could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as
a penalty), the Company agrees to pay to Buyer for late issuance of Company
Common Stock issuable upon conversion of the Preferred Stock in accordance
with the following schedule (where "No. Business Days" is defined as the
number of business days beyond five (5) days from the Delivery Date):
Compensation For Each 500 Shares of
Preferred Stock Not Converted
No. Business Days Timely
----------------- -----------------------------------
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
More than 10 $250 + $100 for each
Business Day Late beyond 10
days
The Company shall pay to Buyer the compensation described above by the
transfer of immediately available funds upon Buyer's demand. Nothing herein
shall limit Buyer's right to pursue actual damages for the Company's failure
to issue and deliver Company Common Stock to Buyer (which actual damages shall
be reduced by the amount of any compensation paid by the Company as described
above in this Section V.D.), and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Company Common Stock within five business days
after the relevant Delivery Date, Buyer shall be entitled to rescind the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and Buyer shall each be restored to their
respective original positions immediately prior to delivery of such Notice of
Conversion on delivery.
VI. DELIVERY INSTRUCTIONS.
The Securities, Company Exchange Shares and the Xxxxx Exchange Shares
shall be delivered by the Company, on the one hand, and by Xxxxx, on the other
hand, on a "delivery-against-payment basis" at the Closing.
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VII. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Stock,
Company Exchange Shares and Xxxxx Exchange Shares (the "Closing Date") shall
be the date hereof or such other as shall be mutually agreed upon in writing.
The issuance and sale of the Securities, the Company Exchange Shares and the
Xxxxx Exchange Shares shall occur on the Closing Date at the offices of Nixon,
Hargrave, Devans & Xxxxx LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer and Xxxxx each understands that the Company's obligation to
sell the Securities and the Company Exchange Shares on the Closing Date to
Buyer and Xxxxx pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer and Xxxxx of the Preferred Purchase Price and the
Company Exchange Purchase Price, respectively;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer and Xxxxx contained in this Agreement
as if made on the Closing Date (except for representations and warranties
which, by their express terms, speak as of and relate to a specified date, in
which case such accuracy shall be measured as of such specified date) and the
performance by Buyer and Xxxxx in all material respects on or before the
Closing Date of all covenants and agreements of Buyer required to be performed
by it pursuant to this Agreement on or before the Closing Date;
C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this
Agreement.
IX. CONDITIONS TO BUYER'S AND XXXXX'X OBLIGATIONS.
The Company understands that the several obligations of Buyer to purchase
the Securities and of Xxxxx to purchase the Company Exchange Shares on the
Closing Date pursuant to this Agreement is each conditioned upon:
A. Delivery by the Company of one or more certificates (I/N/O Buyer)
evidencing the Securities to be purchased by Buyer pursuant to this Agreement,
and delivery to Buyer of a fully-executed copy of this Agreement, the
Registration Agreement and the Pledge Agreement (including all collateral
subject thereto, along with executed stock powers in blank and related
medallion signature guarantees); and Delivery by Company of one or more
certificates (I/N/X Xxxxx) evidencing the Company Exchange Shares to be
purchased by Xxxxx pursuant to this Agreement, and delivery to Xxxxx of a
fully-executed copy of this Agreement.
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B. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as
if made on the Closing Date (except for representations and warranties which,
by their express terms, speak as of and relate to a specified date, in which
case such accuracy shall be measured as of such specified date) and the
performance by the Company in all material respects on or before the Closing
Date of all covenants and agreements of the Company required to be performed
by it pursuant to this Agreement on or before the Closing Date;
C. Buyer and Xxxxx having received an opinion of counsel for the Company,
dated the Closing Date, in form, scope and substance reasonably satisfactory
to the Buyer and Xxxxx.
D. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on the NASDAQ, (ii) the
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions, or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof.
E. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeable would have
a Material Adverse Effect.
F. The Company shall have delivered to Buyer and Xxxxx reimbursement of
Buyer's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by the Note and this Agreement (including the fees
and disbursements of Buyer's legal counsel of $20,000).
G. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this
Agreement.
H. Buyer and Xxxxx shall have received such written consents, in form
acceptable to Buyer and Xxxxx, to the transactions contemplated by this
Agreement and the Amendment, as necessary to permit consummation thereof,
including but not limited to consents to the Company's payment of dividends on
the Preferred Stock out of legally available funds, the mandatory redemption
of the Preferred Stock under certain circumstances and the conversion to
Conversion Shares of the Preferred Stock, all in accordance with the terms and
conditions of the Amendment; provided, that such consents shall include
written consents from FINOVA Mezzanine Capital Inc. and from First Source
Financial LLP.
X. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of the
Company, on the one hand, and Buyer and Xxxxx, on the other hand, in this
Agreement, the annexes,
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schedules and exhibits hereto and in each instrument, agreement and
certificate entered into and delivered by them pursuant to this Agreement,
shall survive the Closing and the consummation of the transactions
contemplated hereby. In the event of a breach or violation of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of
any investigation made by or on behalf of such party on or prior to the
Closing Date.
B. The Company hereby agrees to indemnify and hold harmless the Buyer and
Xxxxx, their Affiliates and their respective officers, directors, partners and
members (collectively, the "Buyer Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for
all out-of-pocket expenses (including the reasonable fees and expenses of
legal counsel), in each case promptly as incurred by the Buyer Indemnitees and
to the extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
2. any failure by the Company to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant to
this Agreement.
C. Buyer and Xxxxx, severally, hereby agree to indemnify and hold
harmless the Company, its Affiliates and their respective officers, directors,
partners and members (collectively, the "Company Indemnitees"), from and
against any and all Losses, and agrees to reimburse the Company Indemnitees
for all out-of-pocket expenses (including the reasonable fees and expenses of
legal counsel), in each case promptly as incurred by the Company Indemnitees
and to the extent arising out of or in connection with:
1. any misrepresentation, omission of fact, or breach of any
of Buyer or Xxxxx'x representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by Buyer or Xxxxx
pursuant to this Agreement; or
2. any failure by Buyer or Xxxxx to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or
delivered by Buyer or Xxxxx pursuant to this Agreement.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section XI (an "Indemnified Party") of written notice of any
investigation, claim,
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proceeding or other action in respect of which indemnification is being sought
(each, a "Claim"), the Indemnified Party promptly shall notify the party
against whom indemnification pursuant to this Section XI is being sought (the
"Indemnifying Party") of the commencement thereof; but the omission to so
notify the Indemnifying Party shall not relieve it from any liability that it
otherwise may have to the Indemnified Party, except to the extent that the
Indemnifying Party is materially prejudiced and forfeits substantive rights
and defenses by reason of such failure. In connection with any Claim as to
which both the Indemnifying Party and the Indemnified Party are parties, the
Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel (together with appropriate local counsel) and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of- pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have
agreed to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified
Party and the Indemnifying Party reasonably shall have concluded that
representation of the Indemnified Party and the Indemnifying Party by the same
legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, (i) potentially
differing interests between such parties in the conduct of the defense of such
Claim, or (ii) if there may be legal defenses available to the Indemnified
Party that are in addition to or disparate from those available to the
Indemnifying Party and which can not be presented by counsel to the
Indemnifying Party, or (z) the Indemnifying Party shall have failed to employ
legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If
the Indemnified Party employs separate legal counsel in circumstances other
than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Indemnifying Party shall not, in
connection with any Claim in the same jurisdiction, be liable for the fees and
expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent
shall not unreasonably be withheld), settle or compromise any Claim or consent
to the entry of any judgment that does not include an unconditional release of
the Indemnified Party from all liabilities with respect to such Claim or
judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon
any award rendered by any arbitrators may be entered in any court having
competent jurisdiction thereof.
XI. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, without regard to the conflicts of law
principles of such state. Each of
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the parties consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction. This Agreement may be amended only by an
instrument in writing signed by the party to be charged with enforcement. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
XII. NOTICES.
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid,
or by a nationally recognized overnight courier service, and shall be deemed
given when so delivered personally or by overnight courier service, or, if
mailed, three (3) days after the date of deposit in the United States mails,
as follows:
(1) if to the Company, to: (3) if to Xxxxx, to
Diplomat Direct Marketing Corporation Xxxxx Holdings, Inc.
000 Xxxxxx Xxxxxx 0 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxx, President Attention: Xxxxxxxxx Xxxxxxxx,
Executive Vice-President
With a copy to: with a copy to:
Xxxxxxx, Xxxxxx & Xxxxxxxxx LLP Nixon, Hargrave, Devans & Xxxxx LLP
000 Xxxx 00xx Xxxxxx 000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxxx X. Xxxxxx Attention: Xxxxx X. Xxxxxxxx, Esq.
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(2) if to Buyer, to
Xxxxx E-Commerce Corp.
0 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxxx, President
with a copy to:
Nixon, Hargrave, Devans & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxx, Esq.
The Company, or Buyer or Xxxxx may change its foregoing address by notice
given pursuant to this Section XII.
XIII. CONFIDENTIALITY.
Each of the Company, Buyer and Xxxxx agrees to keep confidential and not
to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required
to be disclosed by law (including, without limitation, pursuant to Item 10 of
Rule 601 of Regulation S-K under the Securities Act and the Exchange Act).
XIV. ASSIGNMENT.
This Agreement shall not be assignable by any of the parties hereto prior
to the Closing without the prior written consent of the other party, and any
attempted assignment contrary to the provisions hereby shall be null and void;
provided, however, that Buyer or Xxxxx may assign its rights and obligations
hereunder, in whole or in part, to any affiliate of Buyer or Xxxxx who
furnishes to the Company the representations and warranties set forth in
Section II hereof and otherwise agrees to be bound by the terms of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
DIPLOMAT DIRECT MARKETING CORPORATION
By: /s/ XXXXXX X. XXXXXX
--------------------
Name: Xxxxxx Xxxxxx
Title: President
XXXXX HOLDINGS, INC.
By: /s/ ALEXANDER KAPLAXIS
----------------------
Name: Alexander Kaplaxis
Title: Executive Vice President
BUYER:
XXXXX E-COMMERCE CORP.
By: /s/ XXXXX XXXXXXXXXX
--------------------
Name: Xxxxx Xxxxxxxxxx
Title: President
