EXHIBIT 10.31
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT made and entered into effective as of the
9th day of September, 1996, is by and between Irata, Inc., a Texas corporation
(the "Company"), and Xxxxxx Xxxxxxx, a resident of the Commonwealth of
Pennsylvania ("Salyard").
RECITALS
Salyard has acted as consultant to the Company and the Company is
indebted to Salyard for such services in the amount of $22,500.00 (herein the
"Salyard Debt"). The Company has reached agreement with its senior lender,
Petrus Investments, Ltd. (the "Senior Lender") to cure the existing defaults
under the Company's loan agreement with the Senior Lender (herein the "Loan
Agreement Amendment"). The Loan Agreement Amendment is conditioned upon (i) the
Company successfully completing a private placement of not less than 48 units
("Units"), with each Unit consisting of 50,000 shares of Class A common stock
and 50,000 common stock purchase warrants at an offering price of $25,000 per
Unit in accordance with the confidential term sheet of the Company dated
September 6, 1996 (the "Term Sheet") of the Company through Royce Investment
Group, Inc. and Xxxxxxx Xxxxx Securities Incorporated (collectively the
"Placement Agents") under an agency agreement (the "Agency Agreement") between
the Company and the Placement Agents and (ii) the commitment of certain parties
indebted to the Company (herein collectively the "Interim Lenders") to convert
their indebtedness into "Interim Lender Units" of the Company which each Interim
Lender Unit consisting of one share of Class A common stock and one common stock
purchase warrant having substantially the same terms as the common stock
purchase warrant to be issued by the Company under the Agency Agreement.
Subject to the prior or simultaneous closing of the purchase and sale
of not less than 48 Units under the Agency Agreement at a purchase price of
$25,000 per Unit, Salyard has agreed to convert the Salyard Debt into 45,000
shares of Class A Common Stock and 45,000 common stock purchase warrants and the
Company has agreed to issue and deliver to Salyard an aggregate of 45,000 shares
of Class A Common Stock and 45,000 common stock purchase warrants in exchange
for the surrender of the Salyard Debt. Accordingly, the Company and Salyard
have agreed as follows:
1. Subscription and Purchase. Subject to the terms and provisions
herein set forth, Salyard has agreed to purchase an aggregate of 45,000 shares
of Class A Common Stock and 45,000 common stock purchase warrants in
consideration for the surrender at the Closing of the Salyard Debt.
2. Representations and Warranties of Salyard. Salyard hereby
represents and warrants to the Company and its agents, employees and
representatives as follows:
(a) Investment Intent. (i) The Interim Lender Units, the underlying
shares of Class A Common Stock, the underlying warrants to purchase shares of
Class A Common Stock and the shares of Class A Common Stock underlying the
warrants (herein collectively the "Securities") are being acquired solely for
the account of Salyard, for investment, and not with a view to or for the
resale, distribution, subdivision, or fractionalization thereof, (ii) Salyard
has no contract, understanding, undertaking, agreement, or arrangement with any
person to sell, transfer, or pledge to any person the Securities or any part
thereof, (iii) Salyard has no present plans to enter into any such contract,
undertaking, agreement or arrangement, (iv) Salyard understands the legal
consequences of the foregoing representations and warranties to mean that
Salyard must bear the economic risk of the investment in the Securities for an
indefinite period of time, (v) Salyard has such knowledge and experience in
financial and business matters that Salyard is capable of evaluating the merits
and risks of acquiring the Securities, and (vi) Salyard acknowledges that the
acquisition of the Securities involves a high degree of risk which may result in
the loss of the total amount of Salyard's investment in the Securities.
(b) Securities Compliance. Salyard understands that no sale,
distribution, transfer or other disposition of the Securities can be made by
Salyard unless the Securities have been registered under the Securities Act of
1933, as amended (the "Act"), and applicable securities laws of any other
relevant jurisdiction, or exemptions from such registrations are available, as
evidenced by an opinion of counsel satisfactory to the Company, with respect to
the proposed sale, distribution, transfer or other disposition. Any purchaser on
resale or transfer of the Securities will also be required to meet the
suitability requirements applicable to investors and such purchaser or Salyard
will be required to bear all expenses of such transfer (including the costs of
any legal advice or opinions required).
(c) Experience. Salyard, together with any Purchaser
Representative, is knowledgeable and
experienced in the field of investments involving the business of the Company or
has a general understanding and knowledge of such investments; furthermore,
Salyard alone, or together with any Purchaser Representative, has such knowledge
and experience in financial and business matters that Salyard is capable of
understanding the information set forth in the Circular, evaluating the risks of
any investment in the Securities and making an informed investment decision.
(d) No General Solicitation. The Securities have been offered to
Salyard without any form of general solicitation or advertising of any type by
or on behalf of the Company or any of their employees, agents or
representatives.
(e) Access to Information. Salyard has (i) read the Term Sheet and
all exhibits or schedules to the Term Sheet, (ii) for a reasonable amount of
time had an opportunity to ask questions and receive answers concerning the
terms and conditions of the offering and sale of the Securities and the actual
and proposed business and affairs of the Company, and is satisfied with the
results thereof, and (iii) been given access, if requested, to all documents
with respect to the Company or this transaction, as well as to such other
information that Salyard has requested in order to evaluate an investment in the
Securities. SALYARD HAS NOT RECEIVED NOR RELIED UPON ANY REPRESENTATIONS OR
WARRANTIES BY THE COMPANY OR THEIR OFFICERS, MANAGERS, MEMBERS, AGENTS,
EMPLOYEES OR REPRESENTATIVES, OR ANY OTHER PERSON, OTHER THAN THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THE TERM SHEET AND THIS AGREEMENT.
(f) Exemption Status. Salyard understands that the Securities to be
sold hereunder are being offered and sold in reliance upon exemptions from
registration under the Act and applicable state securities laws. Salyard
understands that the Company and its agents, employees, and representatives are
relying on, among other things, the representations and warranties of Salyard
set forth herein in offering and selling the Securities to Salyard in reliance
upon exemptions available under the Act and state securities laws.
(g) Domicile. Salyard is a bona fide resident or domiciliary of the
Commonwealth of Pennsylvania and meets the following requirements, as
applicable, for qualifying as a "person resident within the Commonwealth of
Pennsylvania":
(i) If a corporation, partnership, trust or other form of
business organization, Salyard has its principal office within the
Commonwealth of Pennsylvania.
(ii) If an individual, Salyard has a principal residence and
domicile in the Commonwealth of Pennsylvania and is a citizen of
the United States and is at least twenty-one (21) years of age.
(iii) If a corporation, partnership, trust or other form of
business organization WHICH WAS ORGANIZED FOR THE SPECIFIC PURPOSE
OF ACQUIRING SECURITIES, all of the beneficial owners of Salyard
are residents of the Commonwealth of Pennsylvania and are citizens
of the United States.
(h) Net Worth. Salyard's investment in the Securities will not
exceed 20% of Salyard's net worth (or joint net worth with Salyard's spouse)
determined as of the date of this Agreement.
(i) START-UP COMPANY. SALYARD ACKNOWLEDGES THAT THE COMPANY IS A
"START-UP" COMPANY WHICH HAS SUSTAINED SUBSTANTIAL LOSSES AND THAT IS ENGAGED IN
AN INDUSTRY WHICH IS A HIGHLY COMPETITIVE INDUSTRY. CONSEQUENTLY, SALYARD
ACKNOWLEDGES THAT AN INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF
RISK.
3. Covenants of Salyard. As an inducement for Royce Investment Group,
Inc. to act as Placement Agent for the Company's Securities under the Agency
Agreement, Salyard covenants and agrees that for a period commencing on the date
hereof and expiring twelve (12) months after the closing of the sale of the
Units as contemplated under the Agency Agreement, Salyard will not publicly
sell, assign or transfer any Securities of the Company without the prior written
consent of Royce Investment Group, Inc. Salyard, to facilitate enforcement of
this covenant, hereby consents to the Company imposing stop transfer
restrictions with respect to all shares of capital stock of the Company owned by
Salyard until the end of the lock-up period.
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4. Restrictions on Transfer. In addition to the restrictions set forth
above, Salyard understands and agrees that (i) the Securities are restricted
securities under the Act, and may not be sold, assigned or transferred unless
the sale, assignment or transfer of such Securities is registered under the Act
and applicable blue sky laws, as now in effect or hereafter amended, or there is
furnished evidence in form and substance satisfactory to the Company from
counsel acceptable to the Company that such registrations are not required, (ii)
the Company is under no obligation to register the Securities or to perfect any
exemption for resale of the Securities under applicable securities laws, and
(iii) the following restrictions and limitations will be applicable to the
Securities and any resales, pledges, hypothecations or other transfers of any of
the Securities:
(a) Legend. A legend will be placed on each certificate or other
document evidencing any of the Securities in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IF
SUCH SALE, PLEDGE, OR TRANSFER WOULD BE IN VIOLATION OF THE 1933
ACT OR THE SECURITIES LAWS OF ANY STATE.
(b) Stop Transfer Instructions. Stop transfer instructions can be
issued by the Company to restrict the resale, pledge, hypothecation or other
transfer in contravention of this Agreement.
(c) Transfers. Salyard acknowledges that Salyard will be
responsible for compliance with all conditions to transfer imposed by any
applicable securities law and for any expenses incurred by the Company
including, but not limited to, legal fees, accounting services and filing fees,
in connection with reviewing and effecting such transfer.
5. Closing. The closing of the purchase and sale of the Interim Lender
Units (the "Closing") may be held on any date, determined in the sole discretion
of the Company, on or after the date hereof, but in no event no later than
November 15, 1996.
6. Conditions Precedent to Closing. The obligations of Salyard to
exchange the Interim Loan and the Interim Lender Warrants for the Interim Lender
Units under this Agreement are subject to the satisfaction, at or before the
Closing Date, of all the conditions set out below in this Section 6(a). Salyard
may waive any or all of these conditions in whole or in part without prior
notice; provided, however, that no such waiver of a condition shall constitute a
waiver by Salyard of any of his other rights or remedies, at law or in equity,
if the Company shall be in default of any of its representations, warranties or
covenants under this Agreement.
(a) Senior Loan Agreement Amendment. The Company and Petrus
Investments, Ltd., its senior lender, shall have reached agreement amending the
Company's loan agreement with its senior lender to cure the defaults that have
been in existence.
(b) Closing of Offering. The Company shall have contemporaneously
or previously closed the sale of not less than 48 Units at a purchase price of
$25,000 per Unit through the Placement Agents, with each Unit consisting of one
share of Class A Common Stock of the Company and one Common Stock Purchase
Warrant evidencing the right to purchase one share of Class A Common Stock at an
exercise price of $1.00 per share if exercised prior to two years after the
closing and thereafter exercisable at $1.50 per share.
(c) Other Documents. Salyard shall have received at the Closing
such further instruments, documents and certificates, in form and content
reasonably satisfactory to Salyard and his counsel, as may be reasonably
requested by Salyard.
7. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation or statement as to the results thereof,
made by or on behalf of Salyard, the Company or any of their respective agents,
representatives, officers or managers or any controlling
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person, and will survive exchange for the Interim Lender Units.
8. Notice. All communications hereunder will be in writing and, if
sent to Salyard, will be mailed, delivered or telegraphed and confirmed to
Salyard at the address set forth on the signature page of this Agreement, or if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
them at 0000 Xxxx Xxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, Attn: Xxxxx Xxxxxx.
9. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Salyard may not assign the debt evidenced by the Interim Loan or the related
warrants nor any other rights hereunder without the prior written consent of the
Company, which may not be unreasonably withheld.
10. Attempted Breaches. Any transfer of interest effected, or
purported to be effected, not in accordance with the terms and conditions of
this Agreement or any other agreement referred to herein or to a person
prohibited by law from holding any of the Interim Lender Units shall be null and
void and shall not bind the Company.
11. Amendment. This Agreement may not be modified or amended except by
written instrument executed by or on behalf of each of the parties hereto.
12. Waivers. The observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but such waiver shall
be effective only if in a writing signed by the party or parties against which
such waiver is to be asserted. Unless otherwise expressly provided herein, no
delay on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party hereto of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.
13. Entire Agreement. This Agreement, including the exhibits hereto,
if any, and the documents and agreements expressly referred to herein constitute
the entire agreement between the parties hereto with respect to the matters
covered hereby, and any other prior or contemporaneous oral or written
understandings or agreements with respect to the matters covered hereby are
expressly superseded by this Agreement. There are no oral or unwritten
agreements between the parties.
14. Severability. If any provision of this Agreement, or the
application of such provision to any person or circumstances, shall be declared
judicially to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other persons or circumstances, and the parties
hereto agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder of this Agreement will have the same force and effect as if such part
or parts had never been included herein. Any such finding of invalidity or
unenforceability shall not prevent the enforcement of such provision in any
other jurisdiction to the maximum extent permitted by applicable law.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMABLE IN
XXXXXX COUNTY, TEXAS.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the _____ day of January, 1997.
Irata Inc.
By:_________________________
Authorized Officer
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Address:____________________________ _____________________________
____________________________ Xxxxxx Xxxxxxx
____________________________
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