EXHIBIT 10.1
SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
("AGREEMENT") is made and entered into as of December 17, 2001, by and among
Excalibur Holdings, Inc., a Texas corporation (the "COMPANY"), Seneca Capital,
L.P., a Delaware limited partnership ("SENECA LP"), Seneca Capital
International, Ltd., a corporation organized under the laws of the Cayman
Islands ("SENECA INTERNATIONAL") (who are collectively referred to as "SENECA"
or the "INVESTORS").
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors hereby
agree as follows:
1. AUTHORIZATION OF SECURITIES.
1.1. AUTHORIZATION OF SERIES A PREFERRED STOCK. The Company shall
authorize the number of shares of Series A Convertible Preferred Stock,
$.001 par value per share (the "SERIES A PREFERRED STOCK"), as provided
herein, which shall be entitled to the preferences, rights and benefits
set forth in the Company's Statement of Resolution Establishing a
Series of Shares, which has been filed with the Secretary of State of
the State of Texas in the form set forth in EXHIBIT A attached hereto
(the "STATEMENT OF RESOLUTION"). The Series A Preferred Stock shall be
convertible into shares of the Company's common stock, $.001 par value
per share (the "COMMON STOCK"), as set forth in the Statement of
Resolution.
1.2. RESERVATION OF CONVERSION SHARES. The Company shall authorize and
reserve a sufficient number of its previously authorized but unissued
shares of Common Stock to satisfy the rights of conversion and purchase
of the holders of the Series A Preferred Stock and the rights of
exercise, conversion, and purchase of the holders of the Warrants (as
defined herein). Any shares of Common Stock issuable upon conversion of
the Series A Preferred Stock, when issued, shall be referred to as
"CONVERSION SHARES."
1.3. COLLATERAL AGREEMENTS. The Company, the Investors and certain
named shareholders of the Company will also enter into a Registration
Rights Agreement referred to in Section 7.9 (the "REGISTRATION RIGHTS
AGREEMENT"), a Co-Sale Agreement referred to in Section 7.10 (the
"CO-SALE Agreement") and a Warrant Certificate referred to in Section
2.2 (the "WARRANT CERTIFICATE"). The Registration Rights Agreement, the
Co-Sale Agreement, and the Warrant Certificate are referred to
collectively as the "COLLATERAL AGREEMENTS."
2. SALE AND PURCHASE OF SHARES OF SERIES A PREFERRED STOCK AND WARRANTS.
2.1. SERIES A PREFERRED STOCK. Subject to the terms and conditions
hereof, the Company agrees to sell to the Investors, and each of the
Investors severally agrees to purchase from the Company in accordance
with this Agreement, for cash, the number of shares of Series A
Preferred Stock set forth opposite such Investor's name on SCHEDULE 1
under the column entitled "Series A Preferred Stock" at a purchase
price of $0.75 per share (the "PURCHASE COMMITMENT"). The Company's
agreement with each Investor is a separate agreement, and the sale of
Series A Preferred Stock to each Investor is a separate sale.
2.2. WARRANTS. Additionally, on the Closing Date, for no additional
consideration, the Company will grant each Investor warrants (the
"WARRANTS") to purchase the number of shares of Series A Preferred
Stock set forth opposite such Investor's name on SCHEDULE 1 under the
column entitled "Warrants" at an exercise price of $1.00 per share. The
form of the Warrant Certificate is attached hereto as EXHIBIT F.
3. CLOSING.
3.1. CLOSING DATE AND TIME. The closing of the purchase of the Series A
Preferred Stock described herein shall take place at the offices of
Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP, 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000,
Xxxxxxx Xxxxx, Xxxxxxxxxx, 00000, at 10:00 a.m., California time, on or
about December 17, 2001, or as soon as practicable thereafter (the
"CLOSING"), or at such other place or different time or day as may be
mutually acceptable to the Investors and the Company, provided that (a)
$750,000 of Series A Preferred Stock is purchased by the Investors in
the aggregate at the Closing and (b) all other conditions to the
Closing, as provided in this Agreement, have been met to the reasonable
satisfaction of, or waived by, the Investors. The date and time on
which the Closing occurs shall be referred to as the "CLOSING DATE."
3.2. DELIVERIES. On the Closing Date, the Company shall deliver to each
of the Investors (i) stock certificate(s) for the number of shares of
Series A Preferred Stock being purchased by such Investor, which shares
shall be registered in the Investor's name or as otherwise designated
by the Investor and (ii) Warrant Certificate(s) for the number of
Warrants being purchased by such Investor. At the Closing, each
Investor shall pay to the Company the purchase price for the Purchase
Commitment set forth on SCHEDULE 1 by wire transfer in immediately
available funds or any other payment method acceptable to the Company.
4. USE OF PROCEEDS. The Company shall use the proceeds from the transactions
contemplated hereby for working capital and other corporate purposes in a manner
duly authorized by the Board of Directors of the Company (the "BOARD"), after
giving effect to the provisions of Section 8.6 of this Agreement, regarding the
new member of the Board.
5. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. To induce each of the
Investors to enter into this Agreement and to purchase the Series A Preferred
Stock and the Warrants set forth herein, the Company hereby represents and
warrants the following to each Investor as of the Closing Date:
5.1. ORGANIZATION, STANDING, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
state of incorporation and has the requisite corporate power and
authority to own, lease or operate its properties and to carry on its
business as it is now being conducted.
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5.2. GOVERNING INSTRUMENTS. The copies of the Articles of Incorporation
(including the Statement of Resolution) and the Bylaws of the Company,
and all amendments thereto (collectively, the "CHARTER DOCUMENTS"),
delivered to legal counsel for the Investors prior to the execution of
this Agreement, are true and complete copies of the duly and legally
adopted Charter Documents in effect as of the date of this Agreement,
and no action has been taken or authorized to (i) amend any Charter
Document (other than in connection with the Statement of Resolution) or
(ii) to liquidate the Company.
5.3. SUBSIDIARIES, ETC. SCHEDULE 5.3 sets forth each corporation,
partnership, limited liability company, joint venture, association or
other business enterprise in which the Company has a direct or indirect
equity or ownership interest, controlling or otherwise (each a
"SUBSIDIARY"). Except as set forth on SCHEDULE 5.3, the Company does
not have any direct or indirect equity or ownership interest,
controlling or otherwise, in any corporation, partnership, limited
liability company, joint venture, association or other business
enterprise. The Company is the record holder of all outstanding shares
of capital stock or other equity interests of each Subsidiary. The
representations and warranties of this Section 5, except as to Sections
5.5, 5.6, 5.7 and 5.8, shall apply to each Subsidiary.
5.4. QUALIFICATION. The Company is duly qualified, licensed or
domesticated as a foreign corporation in good standing in each
jurisdiction listed on SCHEDULE 5.4. The Company has not failed to
qualify or be licensed or domesticated in any jurisdiction in which the
failure to so qualify or be licensed or domesticated would have a
material adverse effect upon the business, prospects, assets,
properties, or financial condition of the Company (a "MATERIAL ADVERSE
EFFECT").
5.5. CORPORATE ACTS AND PROCEEDINGS. This Agreement and the Collateral
Agreements have been duly authorized by all necessary corporate action
on behalf of the Company, have been duly executed and delivered by
authorized officers of the Company, are legal, valid, and binding
agreements on the part of the Company and are enforceable against the
Company in accordance with their respective terms. All corporate
actions necessary for the authorization, issuance and delivery of the
Warrants and the authorization, creation, reservation and issuance of
the Series A Preferred Stock and the Conversion Shares contemplated
hereunder have been taken by the Company.
5.6. CAPITAL STOCK. Immediately prior to the Closing, the authorized
capital stock of the Company consists of 50,000,000 shares of Common
Stock, of which 9,445,000 shares are issued and outstanding; 1,650,000
shares of Series A Preferred Stock, none of which are issued and
outstanding, and 3,350,000 shares of undesignated preferred stock, par
value $.001 per share. A list of shareholders by name, number of shares
and percentage ownership (on an as-if converted to Common Stock basis),
both before and after the Closing is completed, is set forth in
SCHEDULE 5.6. All of the outstanding shares of capital stock of the
Company were duly authorized, validly issued, are fully paid and
nonassessable, and have been issued in compliance with an exemption or
exemptions from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and
from the registration and qualification requirements of all applicable
state securities laws.
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5.6.1. There are no outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any
character or nature whatever, other than as provided in this
Agreement, under which the Company is obligated to issue any
securities of any kind representing an ownership interest in
the Company, except as set forth in SCHEDULE 5.6. Sufficient
shares of Common Stock and Series A Preferred Stock are
reserved for issuance upon exercise, conversion or otherwise,
of the obligations set forth in SCHEDULE 5.6 and the Warrants.
Neither the offer nor the issuance or sale of the Series A
Preferred Stock constitutes an event, under any anti-dilution
provisions of any securities issued (or issuable pursuant to
outstanding rights, warrants or options) 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 provisions.
5.6.2. Except as set forth on SCHEDULE 5.6, this Agreement,
and the Collateral Agreements, no holder of any securities of
the Company is entitled to any preemptive or similar rights to
purchase any securities of the Company from the Company,
either as a result of this Agreement or any prior
transactions; provided, however, that nothing in this Section
5.6 shall affect, alter or diminish any right granted to the
Investors in this Agreement or the Collateral Agreements.
5.7. VALID ISSUANCE. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and the Collateral
Agreements and to perform its obligations hereunder, thereunder, and
under the Statement of Resolution, and to issue the Series A Preferred
Stock, the Warrants, and the Conversion Shares. The Series A Preferred
Stock and the Warrants, when issued and paid for pursuant to the terms
of this Agreement, will be duly authorized and validly issued and
outstanding, fully paid, nonassessable and free and clear of all
pledges, liens, encumbrances and restrictions, except as set forth in
Sections 6.2 and 11 hereof, the Collateral Agreements and the Statement
of Resolution. The Conversion Shares have been reserved for issuance
upon conversion of the Series A Preferred Stock and, when issued upon
conversion of the Series A Preferred Stock in accordance with 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
Sections 6.2 and 11, the Collateral Agreements and the Statement of
Resolution.
5.8. FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 5.8 are complete
and correct copies of the following financial statements (collectively,
the "FINANCIAL STATEMENTS"): (a) the audited balance sheet as of
December 31, 2000 of AeroWeld, Inc., an Oklahoma corporation
("AEROWELD") which sold substantially all of its assets to a Subsidiary
of the Company and the related audited statements of income and cash
flows for the fiscal year ended December 31, 2000, (b) the unaudited
balance sheet as of September 30, 2001 (the "BALANCE SHEET DATE") of
AeroWeld and the related unaudited statements of income and cash flows
for the nine month period ended September 30, 2001, (c) the audited
balance sheet as of December 31, 2000 of Excalibur Steel, Inc., an
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Oklahoma corporation ("EXCALIBUR STEEL") which merged with and into a
Subsidiary of the Company and the related audited statements of income
and cash flows for the fiscal year ended December 31, 2000, (d) the
unaudited balance sheet as of the Balance Sheet Date of Excalibur Steel
and the related unaudited statements of income and cash flows for the
nine month period ended September 30, 2001 (AeroWeld and Excalibur
Steel are collectively referred to as the "ACQUISITION COMPANIES"), and
(e) the unaudited consolidated balance sheet of the Company as of
November 25, 2001. The Financial Statements present fairly the
financial position of each of the respective Acquisition Companies, as
of such dates and the results of operations and statement of cash flows
for the period covered thereby (subject, in the case of the internal
financial statements, to year-end audit adjustments) and have been
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except as to the interim financial
statements, which are subject to normal year-end adjustments, and the
absence of footnotes thereto. Except as disclosed in the Financial
Statements, since the Balance Sheet Date, there has been no material
adverse change in the business or condition, financial or otherwise,
operations, or prospects of the Company.
5.9. LITIGATION; GOVERNMENTAL PROCEEDINGS. Except as set forth on
SCHEDULE 5.9, 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 or business, or any officer or director of the
Company in their capacity as such, which, if successful, would have a
Material Adverse Effect, and the Company is not aware of any facts
which are reasonably expected to result in or form the basis for any
such action, suit, arbitration 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, which default would have
a Material Adverse Effect.
5.10. COMPLIANCE WITH APPLICABLE LAWS AND OTHER INSTRUMENTS. The
properties, business and operations of the Company have been and are
being conducted in compliance with all applicable laws, rules,
regulations, decrees, injunctions, judgments, orders, rulings, awards,
settlements, and writs of all governmental authorities, except where
the failure to comply therewith would not have a Material Adverse
Effect. Neither the execution nor delivery of, nor the performance of
or compliance with, this Agreement and the Collateral Agreements nor
the consummation of the transactions contemplated hereby or thereby
will, with or without the giving of notice or passage of time, (i)
violate any applicable law, rule, regulation, judgment, injunction,
order, or decree applicable to the Company, (ii) 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 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, or (iii) conflict with or violate the Charter Documents. The
Company is not in violation of its Charter Documents nor is the Company
in violation of, or in default under, any lien, indenture, mortgage,
lease, agreement, instrument, commitment or arrangement, except for
defaults that do not and will not have a Material Adverse Effect on the
Company. The Company is not subject to any restriction which would
prohibit it from entering into or performing its obligations under this
Agreement or the Collateral Agreements.
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5.11. SECURITIES LAWS. Subject to the accuracy of the representations
of the Investors in Section 6, 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 and the Collateral
Agreements, the consummation of the transactions contemplated hereby or
thereby, or the offer, issuance, sale or delivery of the Series A
Preferred Stock and the Warrants, other than (i) the filing of a Form D
pursuant to Regulation D under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and the qualification thereof, if required,
under applicable state securities laws which qualification has been or
will be effected and (ii) with respect to the Registration Rights
Agreement, the registration of the shares covered thereby with the
Securities and Exchange Commission (the "COMMISSION") and filings
pursuant to state securities laws. The Company has not, directly or
through an agent, offered the Series A Preferred Stock, the Warrants,
or any similar securities for sale to, or solicited any offers to
acquire such securities from, persons other than the Investors and
other accredited investors. Subject to the accuracy of the
representations of the Investors in Section 6, under the circumstances
contemplated by this Agreement, the offer, issuance, sale and delivery
of the Series A Preferred Stock and the Warrants will not, under
current laws and regulations, require compliance with the prospectus
delivery or registration requirements of the Securities Act.
5.12. OUTSTANDING INDEBTEDNESS. Except for the promissory notes and
other indebtedness set forth on SCHEDULE 5.12, the Company does not
have any indebtedness incurred as the result of any borrowing of money,
including, but not limited to, indebtedness with respect to trade
accounts, other than indebtedness incurred in the ordinary course and
not exceeding $50,000 individually or in the aggregate. The Company is
not in default in the payment of the principal of or interest or
premium on any such indebtedness, and no event has occurred or is
continuing under the provisions of any instrument, document or
agreement evidencing or relating to any such indebtedness which with
the lapse of time or the giving of notice, or both, would constitute an
event of default thereunder.
5.13. CONTRACTS.
5.13.1. Prior to the execution of this Agreement, the Company
has delivered to legal counsel for the Investors, SCHEDULE
5.13 containing a detailed list of the Company's material
contracts, specifically referring to this Section 5.13 and
identifying such contracts in accordance with the following
subsections:
(a) true and complete description of all real
properties owned by the Company;
(b) each indenture, lease, sublease, license or other
instrument under which the Company claims or holds a
leasehold interest in real property (including any
agreement related to the purchase or sale of such
assets);
(c) each lease of personal property involving
payments remaining to or from the Company in excess
of $50,000;
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(d) each agreement granting voting rights,
registration rights, first negotiating rights or
preemptive rights to a third party; and
(e) any other agreement or group of related
agreements the performance of which involves
consideration greater than $50,000.
5.13.2. Prior to the Closing, the Company shall provide legal
counsel for the Investors with a true and complete copy of
each document referred to on such schedule which such counsel
requests to examine.
5.13.3. The Company is in compliance with all of its
obligations, has not defaulted, and is not in default under
any of the contracts, agreements, leases, documents,
commitments or other arrangements to which it is a party or by
which it or its property is otherwise bound, except to the
extent such default does not and will not a have a Material
Adverse Effect. All agreements referred to in SCHEDULE 5.13
are in effect and enforceable against the Company according to
their respective terms subject to applicable bankruptcy,
insolvency, fraudulent conveyance, moratorium, reorganization
and other similar laws affecting the enforcement of creditors'
rights generally and to judicial limitations on the
enforcement of the remedy of specific performance and other
equitable remedies. To the Company's knowledge, all parties
having material contractual arrangements with the Company are
in substantial compliance therewith and none are in material
default in any respect thereunder.
5.14. ACCOUNTS RECEIVABLE. To the Company's knowledge, all accounts
receivable of the Company referenced in the Financial Statements
(except such accounts receivable as have been collected since such
date) are valid and enforceable claims, except to the extent that they
are included in the reserves for doubtful accounts, and the goods and
services sold and delivered which gave rise to such accounts were sold
and delivered in conformity with the applicable purchase orders,
agreements and specifications. Such accounts receivable are subject to
no valid defense or offsets except routine customer complaints or
warranty demands of an immaterial nature. The Company does not believe
that its uncollectible accounts will exceed the reserves for doubtful
accounts.
5.15. 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 (i) are necessary for it to engage in the
business currently conducted by it, and (ii) if not possessed by the
Company, would have a Material Adverse Effect. 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 presently
proposes to conduct. A list of all material licenses, permits,
approvals and similar rights currently in effect is set forth in
SCHEDULE 5.15.
5.16. TITLE TO PROPERTIES AND ENCUMBRANCES. Except with respect to real
and personal property leased pursuant to lease agreements, the Company
has good and marketable title to all of its properties and assets,
except for property disposed of in the ordinary course of business,
which properties and assets are not subject to any mortgage, pledge,
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lease, lien, charge, security interest, encumbrance or restriction,
except (i) 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
or (ii) minor imperfections of title, if any, not material in nature or
amount and not materially (x) detracting from the value or impairing
the use of the property subject thereto or (y) impairing the operations
or proposed operations of the Company and its subsidiaries, including,
without limitation, the ability of the Company or its subsidiaries to
secure financing using such properties and assets as collateral.
5.17. TAX RETURNS AND AUDITS. The Company has accurately prepared and
timely filed all federal, state and other tax returns required by law
to be filed, has paid or made provision for the payment of all taxes
shown to be due and all additional assessments where any nonpayment
would result in a Material Adverse Effect. None of the federal income
tax returns of the Company have been audited by the Internal Revenue
Service. No additional assessments or adjustments are pending or
threatened against the Company or its assets for any period, nor is
there any basis for any such assessment or adjustment.
5.18. RETIREMENT PLANS. Except as set forth in SCHEDULE 5.18, the
Company does not have any retirement plan in which any employee of the
Company participates 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").
5.19. ENVIRONMENTAL AND SAFETY LAWS. To the Company's knowledge, the
Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and
safety, except violations which would not have a Material Adverse
Effect, and no material expenditures are or are reasonably anticipated
to be required in order to comply with any such existing statute, law
or regulation. To the Company's knowledge, during the period that the
Company has owned or leased its properties and facilities, (i) there
have been no disposals, releases or threatened releases of Hazardous
Materials (as defined below) on, from or under such properties or
facilities, and (ii) other than normal office products and cleaning
supplies, it has not used, generated, manufactured or stored on, under
or about such properties or facilities or transported to or from such
properties or facilities any Hazardous Materials. For purposes of this
Agreement, the terms "disposal," "release" and "threatened release"
shall have the definitions assigned thereto by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601, ET. SEQ. as amended ("CERCLA"). For the purposes
of this Section, "Hazardous Materials" shall mean any hazardous or
toxic substance, material or waste, which is regulated under, or
defined as a "hazardous substance," "pollutant," "contaminant," "toxic
chemical," "hazardous material," "toxic substance" or "hazardous
chemical" under (1) CERCLA; (2) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Section 11001, ET. SEQ.; (3) the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, ET. SEQ.; (4) the
Toxic Substance Control Act, 15 U.S.C. Section 2601, ET. SEQ.; (5) the
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651, ET.
SEQ.; (6) regulations promulgated under any of the above statutes; or
(7) any applicable state or local statute, ordinance, rule or
regulation that has a scope or purpose similar to those statutes
identified above.
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5.20. TRANSACTIONS WITH AFFILIATES. Except as set forth in SCHEDULE
5.20, no director, officer, employee or shareholder of the Company, or
member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any
member of the family of any such person, has a substantial interest or
is an officer, director, trustee, partner or holder of more than 5% of
the outstanding capital stock thereof, is a party to any transaction
with the Company, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by,
rental or real or personal property from or otherwise requiring
payments to any such person or firm, other than employment-at-will
arrangements in the ordinary course of business.
5.21. NO BROKERS OR FINDERS. Except as set forth on SCHEDULE 5.21, no
person, firm or corporation has or will have, as a result of any
contractual undertaking by the Company, any right, interest or valid
claim against the Company or any Investor for any commission, fee or
other compensation as a finder or broker, or in any similar capacity,
in connection with the transactions contemplated by this Agreement or
any of the Collateral Agreements. The Company will defend, indemnify
and hold the Investors 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, other than as set forth on
SCHEDULE 5.21.
5.22. REGISTRATION RIGHTS. Except as set forth in SCHEDULE 5.22 and as
contemplated by this Agreement and the Collateral Agreements, the
Company has not agreed to register any of its authorized or outstanding
shares of its capital stock under the Securities Act other than the
Conversion Shares. The holders of the Series A Preferred Stock shall be
entitled to registration rights pursuant to the terms and conditions
specified in the Registration Rights Agreement.
5.23. DISCLOSURE. Neither this Agreement nor any Collateral Agreement
nor any other agreement or schedule entered into or delivered pursuant
to this Agreement or and Collateral Agreement contains any untrue
statement of a material fact or omits 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 OF THE INVESTORS. Each of the Investors severally represents
the following to the Company with respect to such Investor:
6.1. INVESTMENT INTENT. The shares of Series A Preferred Stock and the
Conversion Shares into which such shares may be converted being
acquired by such Investor are being purchased for investment for such
Investor's own account and not with the view to, or for resale in
connection with, any distribution or public offering thereof. Such
Investor has no current plan or intention to engage in a sale,
exchange, transfer, distribution, redemption, reduction in any way of
such Investor's risk of ownership by short sale or otherwise, or other
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disposition, directly or indirectly of the Series A Preferred Stock or
Warrants being acquired by such Investor pursuant to this Agreement or
the Conversion Shares into which such shares may be converted. Such
Investor is able to bear the economic risk of its investment and has
the knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks (including tax
considerations) of its investment, including the high degree of risk of
loss of such Investor's entire investment herein.
6.2. RESTRICTIONS ON RESALE, RULE 144. Each Investor understands that
the shares of Series A Preferred Stock have not been registered under
the Securities Act or any state securities laws by reason of their
contemplated issuance in transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof
and/or Rule 506 promulgated under the Securities Act and applicable
state securities laws, and that the reliance of the Company and others
upon these exemptions is predicated in part upon this representation by
each Investor. Each Investor further understands that the Series A
Preferred Stock may not be transferred or resold without (i)
registration under the Securities Act and any applicable state
securities laws or (ii) an exemption from the requirements of the
Securities Act and applicable state securities laws. Each Investor also
understands that the Conversion Shares and any shares of capital stock
acquired by it pursuant to Section 8.7 hereof will be issued without
prior registration thereof under the Securities Act or applicable state
securities laws in reliance upon Section 4(2) of the Securities Act and
transactional exemptions from registration under applicable state
securities laws based upon appropriate representations of each
Investor. As such, the Conversion Shares will be subject to transfer
restrictions similar to restrictions applicable to the Series A
Preferred Stock. Each Investor understands (i) that an exemption from
such registration is not presently available pursuant to Rule 144
promulgated under the Securities Act by the Commission, (ii) that the
Company has made no commitment to become eligible for Rule 144
(although the Company is subject to the covenants in Section 8.11) and
(iii) that in any event an Investor may not sell any securities
acquired hereunder pursuant to Rule 144 prior to the expiration of a
one-year period (or such shorter period as the Commission may hereafter
adopt) after such Investor has acquired such securities. Each Investor
understands that any sales pursuant to Rule 144 can be made only in
full compliance with the provisions of Rule 144.
6.3. LOCATION OF PRINCIPAL OFFICE, QUALIFICATION AS AN ACCREDITED
INVESTOR, ETC. The state in which each Investor's principal office (or
domicile, if such Investor is an individual) is located is the state
set forth in such Investor's address on SCHEDULE 1. Each Investor by
execution of this Agreement hereby represents that he, she or it
qualifies as an "accredited investor" for purposes of Regulation D
promulgated under the Securities Act. Each Investor (i) is an investor
in securities of companies in the development stage and acknowledges
that it is able to fend for itself, and bear the loss of its entire
investment in the Series A Preferred Stock and (ii) has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment to be made by it
pursuant to this Agreement. If other than an individual, each Investor
also represents either (a) that it has not been organized solely for
10
the purpose of acquiring the Series A Preferred Stock or Conversion
Shares, or (b) that if it has been organized solely for the purpose of
acquiring the Series A Preferred Stock or Conversion Shares, all of its
holders of equity interests are "accredited investors" for purposes of
Regulation D promulgated under the Securities Act.
6.4. ACTS AND PROCEEDINGS. Each Investor has full power and authority
to enter into and perform under this Agreement and all Collateral
Agreements in accordance with their respective terms. This Agreement
and all Collateral Agreements have been duly authorized by all
necessary action on the part of each Investor, have been duly executed
and delivered by each such Investor, and are valid and binding
agreements of each such Investor and enforceable against each such
Investor in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and to judicial limitations on the remedy
of specific enforcement and other equitable remedies. The execution of
and performance of the transactions contemplated by this Agreement and
the Collateral Agreements to be executed by each Investor and
compliance with their provisions by each Investor will not violate any
provision of law by which such Investor is bound and will not conflict
with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or
waiver under, its organizational documents (each as amended to date) or
any indenture, lease, agreement or other instrument to which the
Investor is a party or by which it or any of its properties is bound,
or any decree, judgment, order, statute, rule or regulation applicable
to the Investor.
6.5. EXCULPATION AMONG INVESTORS. Each Investor acknowledges that in
making the decision to invest in the Company, such Investor is not
relying on any other Investor or upon any person, firm or company,
other than the Company and its officers, employees and/or directors.
Each Investor agrees that no other Investor, nor the partners,
employees, officers or controlling persons of any other Investor, shall
be liable for any actions taken by such Investor, or omitted to be
taken by such Investor, in connection with such investment.
6.6. DISCLOSURE OF INFORMATION. The Investor represents that the
Company has made available to such Investor at a reasonable time prior
to the execution of this Agreement sufficient and satisfactory
opportunity to ask questions and receive answers from the Company's
management concerning the Company's business, management and financial
affairs, the terms and conditions of the offering of the Series A
Preferred Stock and to obtain any additional information (which the
Company possesses or can acquire without unreasonable effort or
expense) as may be necessary to verify the accuracy of information
furnished to such Investor. The Investor has reviewed the
representations concerning the Company contained in this Agreement and
the Collateral Agreements. The foregoing, however, does not limit or
modify the representations and warranties of the Company in this
Agreement or the right of the Investors to rely thereon.
6.7. LEGEND; STOP TRANSFER. The Series A Preferred Stock, and any
Conversion Shares issued upon conversion thereof, shall bear a legend
substantially similar to that set forth in Section 11.3. The Company
shall make a notation regarding the restrictions on transfer of the
Series A Preferred Stock and any such Conversion Shares in its books
11
and the Series A Preferred Stock and any such Conversion Shares shall
be transferred on the books of the Company only if transferred or sold
pursuant to an effective registration statement under the Securities
Act covering the securities to be transferred or an opinion of counsel
satisfactory to the Company that such registration is not required.
6.8. NO BROKERS OR FINDERS. Except as set forth on SCHEDULE 5.21, no
person, firm or corporation has or will have, as a result of any
contractual undertaking by any Investor, any right, interest or valid
claim against such Investor or 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.
Each responsible Investor 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,
except those disclosed on SCHEDULE 5.21.
7. CONDITIONS OF EACH INVESTOR'S OBLIGATION. The obligation of each Investor to
purchase the Series A Preferred Stock on the Closing Date is subject to the
fulfillment or waiver by such Investor prior to or on such Closing Date of the
conditions set forth in this Section 7. In the event that any such condition is
not satisfied to the reasonable satisfaction of any Investor, then such
non-satisfied Investor shall not be obligated to proceed with the purchase of
such securities.
7.1. REPRESENTATIONS AND WARRANTIES. 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 such date.
7.2. STATEMENT OF RESOLUTION. As of the Closing Date, the Statement of
Resolution, as adopted by the Board, shall have been filed with the
Secretary of State of the State of Texas in the form set forth in
EXHIBIT A, with evidence of such filing tendered on the Closing Date.
7.3. COMPLIANCE WITH AGREEMENTS. The Company shall have performed and
complied in all material respects with all agreements or conditions
required by this Agreement and the Collateral Agreements to be
performed and complied with by it prior to or as of the Closing Date.
7.4. CERTIFICATE OF OFFICERS. The Company shall have delivered to the
Investors a certificate, dated as of the Closing Date, executed by the
Secretary of the Company, certifying to the satisfaction of the
conditions specified in Sections 7.1, 7.2, 7.3, 7.7 and 7.8.
7.5. OPINION OF COMPANY COUNSEL. The Company shall have delivered to
each Investor an opinion, satisfactory to each of the Investors, from
counsel for the Company, dated as of the Closing Date, substantially in
the form attached as EXHIBIT C hereto.
7.6. SUPPORTING DOCUMENTS. Legal counsel for the Investors shall have
received the following:
7.6.1. a copy of resolutions of the Board authorizing and
approving the Series A Preferred Stock and the Warrants, and
authorizing and approving the execution, delivery and
performance of this Agreement and the Collateral Agreements,
including the issuance of the Series A Preferred Stock and the
Warrants to the Investors, such resolutions to be certified by
the Secretary of the Company;
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7.6.2. a Certificate of Incumbency executed by the Treasurer
of the Company certifying the names, titles and signatures of
the officers authorized to execute this Agreement and further
certifying that the Charter Documents of the Company delivered
to legal counsel for the Investors at the time of the
execution of this Agreement have been validly adopted and have
not been amended or modified;
7.6.3. such additional supporting documentation and other
information with respect to the transactions contemplated
hereby as legal counsel for the Investors may reasonably
request, including documentation effecting the election of the
new Board in accordance with Section 8.6 of this Agreement;
and
7.6.4. a good standing certificate for the Company, issued by
the Secretary of State of the State of Texas within five (5)
days of the Closing.
7.7. QUALIFICATION UNDER STATE SECURITIES LAWS. All registrations,
qualifications, permits and approvals required, if any, under state
securities laws for the lawful execution and delivery of this Agreement
and the offer, sale, issuance and delivery of the Series A Preferred
Stock and the Warrants to the Investors at the Closing shall have been
obtained or will be obtained by the Company in compliance with such
laws.
7.8. EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. As of
the Closing Date, each of the Company's officers shall have entered
into an employee non-competition, proprietary information and
inventions assignment agreement with the Company in the form set forth
in EXHIBIT B.
7.9. REGISTRATION RIGHTS AGREEMENT. As of the Closing Date, the
Registration Rights Agreement shall have been executed and delivered in
the form attached hereto as EXHIBIT D.
7.10. CO-SALE AGREEMENT. As of the Closing Date, the Co-Sale Agreement
shall have been executed and delivered in the form attached hereto as
EXHIBIT E.
7.11. DELIVERY OF SECURITIES. As of the Closing Date, the Investors
shall have received certificates evidencing the Series A Preferred
Stock and the Warrants issued pursuant to this Agreement.
7.12. BOARD VACANCY FOR SERIES A PREFERRED DIRECTOR. As of the Closing
Date, there shall be a vacancy on the Board to be filled by the Series
A Preferred Director.
8. AFFIRMATIVE COVENANTS OF THE COMPANY. Subject to the provisions of Section
12, the Company covenants and agrees as follows:
13
8.1. CORPORATE EXISTENCE. The Company will maintain its corporate
existence in good standing and comply with all applicable laws and
regulations of the United States or of any state or political
subdivision thereof and of any government authority where failure to so
comply would have a Material Adverse Effect on the Company or its
business or operations.
8.2. BOOKS OF ACCOUNT AND RESERVES. The Company will keep books of
record and account in which full, true and correct entries are made of
all of its dealings, business and affairs, in accordance with GAAP. The
Company will employ certified public accountants from a national firm
as (a) selected by the Board who are "independent" within the meaning
of the accounting regulations of the Commission and (b) approved by the
Series A Preferred Director (as defined in and subject to the terms and
conditions of Section 8.6 of this Agreement), which approval shall not
be withheld unreasonably (the "ACCOUNTANTS"). Commencing with the year
ending December 31, 2001, the Company will have annual audits made by
such 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 as will satisfy the
requirements of the Commission in effect at such time with respect to
reports or opinions of accountants.
8.3. FURNISHING OF FINANCIAL STATEMENTS AND INFORMATION. The Company
will:
8.3.1. deliver the following quarterly financial statements to
each Investor continuing to own 200,000 shares of Series A
Preferred Stock (or equivalent number of Conversion Shares,
subject to appropriate adjustment to reflect stock splits,
stock dividends, reorganizations and other capitalization
changes effected after the Closing Date) (each such Investor a
"MAJOR INVESTOR") as soon as available but in any event within
forty-five (45) days after the end of each of the first three
(3) quarters of each fiscal year of the Company: an unaudited
balance sheet of the Company, together with the related
statements of operations, retained earnings and cash flow
statements for such quarter (provided, however, that such
statements need not include footnotes, but otherwise shall
comply with GAAP), which financial statements shall compare
the financial information contained therein with the Company's
annual operating plan and budget for such period;
8.3.2. deliver the following audited annual financial
statements to each Major Investor as soon as available but in
any event within one-hundred five (105) days after the end of
each fiscal year: a balance sheet of the Company, as of the
end of such fiscal year, together with the related statements
of operations, retained earnings and cash flow statements for
such fiscal year, all in reasonable detail and duly certified
by the Accountants, who shall have given the Company an
opinion, unqualified as to the scope of the audit, regarding
such statements;
8.3.3. upon the reasonable request of any Major Investor,
deliver the following monthly financial statements to such
Major Investor, as soon as available, but in any event within
thirty (30) days after the close of each month: an unaudited
balance sheet of the Company as of the end of such month,
together with the related statements of operations for each
such month, and on a year to date basis (provided, however,
that such statements need not comply with GAAP), which balance
sheets and statements of operations shall compare the
financial information contained therein with the Company's
annual operating plan and budget for such period;
14
8.3.4. upon the reasonable request of any Major Investor,
deliver the following: (a) an operating plan and budget for
the current or upcoming fiscal year, and (b) an update on the
Company's actual performance against the plan and budget for
any month or fiscal quarter;
8.3.5. deliver to each Major Investor, with reasonable
promptness, such other financial information and projections
relating to the business, affairs and financial condition of
the Company as is available to the Company and as from time to
time any such Major Investor may reasonably request; and
8.3.6. deliver to each Major Investor within seven (7) days
after the Company learns of the commencement or written
threats of the commencement of any lawsuit, legal or
equitable, or of any administrative, arbitration or other
proceeding against the Company or its business, assets or
properties, written notice of the nature and extent of such
suit or proceeding.
8.4. INSPECTION. The Company will permit each Major Investor, or any
other representative designated by each such Major Investor and
reasonably satisfactory to the Company, to visit and inspect, at such
Major Investor's expense, any of the properties of the Company,
including its books and records (and to make photocopies thereof or
make extracts therefrom), and to discuss its affairs, finances and
accounts with its officers, lawyers and accountants, all to such
reasonable extent and at such reasonable times and intervals as such
Major Investor may reasonably request; provided, however, that each
Major Investor's foregoing rights are limited to exercising such rights
only for purposes related to such Major Investor's stock ownership in
the Company and nothing herein will require the Company to take action
or provide information (i) that is subject to attorney-client
privilege, (ii) for or to a party with which the Company is at the time
engaged in a dispute or litigation, (iii) that would cause the Company
to breach a confidentiality agreement with a third party or (iv) for or
to any party that the Company reasonably deems to be a competitor of
the Company. Each Major Investor shall maintain, and shall require its
representatives to maintain, all confidential information obtained from
the Company on a confidential basis. The Company shall cause each Major
Investor and its representatives who have obtained confidential
information from the Company to execute the Company's standard form of
nondisclosure agreement
8.5. SUBSIDIARIES. The Company shall cause each Subsidiary to comply
with the applicable covenants set forth in this Section 8.
8.6. SERIES A PREFERRED DIRECTOR. The Holders shall appoint the initial
Series A Preferred Director (as defined in the Statement of Resolution)
as soon as practicable after the date of this Agreement. The Company
shall pay for the reasonable out-of-pocket expenses incurred by the
Series A Preferred Director when conducting the Company's business,
including attending meetings of the Board and its committees.
15
8.7. RIGHT OF FIRST REFUSAL. In the event that the Company proposes to
issue any additional shares of its capital stock or other equity
securities, other than through a registered public offering under the
Securities Act, each holder of shares of Series A Preferred Stock
(collectively, the "HOLDERS") shall have a right of first refusal on
the terms and conditions specified herein. For purposes of this Section
8.7, a Holder may, at any time, transfer or assign its right of first
refusal to (i) any investment fund, partnership, limited liability
company or entity managed or controlled by, or under common control
with, or any other Affiliate of, such Holder or (ii) to any party
acquiring at least twenty-five thousand (25,000) shares of the Series A
Preferred Stock or the Common Stock equivalent (subject to appropriate
adjustment for any stock dividends, stock splits, subdivisions,
reorganizations and other capitalization changes effected after the
Closing Date). Each Holder shall have a right of first refusal, for a
period of thirty (30) days after notice from the Company, to purchase
all or any portion of such additional shares of such capital stock or
other equity securities to maintain such Holder's pro rata ownership in
the Company. The purchase price for such additional shares of capital
stock under this right of first refusal shall be the price offered to
or proposed to be paid to the Company by any purchasers. Each Holder
shall have the right to purchase its Pro Rata Share (as defined herein)
of any additional shares of capital stock, subject to increase if any
other Holder of such right of first refusal elects not to participate.
"PRO RATA SHARE" shall be determined by multiplying the total number of
additional shares of capital stock or other equity securities subject
to this Section 8.7 by a fraction, the numerator of which shall be the
number of shares of Series A Preferred Stock or Common Stock owned by
such holder of the right of first refusal, assuming conversion or
exercise, as the case may be, of all outstanding convertible
securities, options and warrants then held by such holder of the right
of first refusal; and the denominator of which shall be the total
number of shares of capital stock of the Company outstanding, assuming
conversion or exercise, as the case may be, of all outstanding
convertible securities, options and warrants. Failure to respond in
writing to the Company's written notice of such sale, within the thirty
(30) day period shall be deemed to be a waiver of this right of first
refusal.
The above rights of first refusal shall not apply to any additional
shares of capital stock (a) issuable upon conversion of any of the
Company's outstanding convertible securities (including, without
limitation, any class or series of Series A Preferred Stock), (b)
issued to employees, directors, consultants, advisors or management of
the Company, or issuable upon exercise of stock options granted to such
employees, consultants, advisors and management in each case pursuant
to stock-based compensation plans, all out of the Option Pool (as
defined in the Statement of Resolution) or such other shares that are
issued to employees and are approved by the Board and the Holders of a
majority of the then outstanding Series A Preferred Stock, (c) issued
or issuable by way of stock split or stock dividend or similar capital
modification, (d) issued in connection with any merger, acquisition or
other reorganization approved by the Board, (e) issued upon
authorization of the Board in connection with strategic corporate
partnering arrangements or pursuant to business conducted by the
Company with customers, suppliers or lessors, as approved by the Board
and the Series A Preferred Director, (f) in connection with financing
transactions approved by the Board and the Holders of a majority of the
then outstanding Series A Preferred Stock, or (g) with respect to which
the Company has obtained a written waiver of the application of this
16
Section 8.7 signed by the holders of at least seventy-five percent
(75%) of the then outstanding shares of Series A Preferred Stock. For
purposes of such right of first refusal, the issuance by the Company of
any warrant or right to purchase or subscribe to another security, or
the issuance of a security which gives the holder a present or future
right or privilege to convert the security into another security, shall
be deemed to include the issuance of the underlying security at the
time of the issuance of the warrant or right or convertible security
and subject to the right of first refusal, but the exercise of the
right to purchase or subscribe or to convert shall not be deemed an
additional "issuance" subject to such right of first refusal.
8.8. KEY-MAN AND OTHER INSURANCE. The Company shall procure and
maintain key-man life insurance, with the Company named as beneficiary
on the life of each of Xxxxxxx X. X. Xxxxxx and Xxxxxxx X. Xxxxxxxx, in
the amount of $1 million and on such terms and conditions as determined
by the Board.
8.9. PAYMENT OF TAXES. The Company will pay all taxes (other than taxes
based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of Conversion Shares, other than
any tax or other charge imposed in connection with any transfer
involved in the issue and delivery of shares of Common Stock in a name
other than that in which the shares of Series A Preferred Stock so
converted were registered.
8.10. NONDISCLOSURE AND DEVELOPMENTS AGREEMENT. The Company shall
obtain, and shall cause its Subsidiaries to obtain, a nondisclosure and
inventions developments agreement containing terms substantially
similar to the form of EXHIBIT B, from all future officers, directors,
employees and consultants who will have access to confidential
information of the Company or any of its Subsidiaries, upon
commencement of their association with the Company or any of its
Subsidiaries.
8.11. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Investors the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the
Commission that may at any time permit an Investor to sell securities
of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to do the following and to
cause the Public Company (as defined in the Statement of Resolution) to
do the following:
8.11.1. make and keep public information available, as those
terms are understood and defined in Commission Rule 144, at
all times after ninety (90) days after the Reorganization (as
defined in the Statement of Resolution) or the effective date
of as Qualified Public Offering (as defined in the Statement
of Resolution);
8.11.2. take such action, including the voluntary registration
of its Common Stock (or the Public Company Common Stock) under
Section 11 of the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), as is necessary to enable the Investors to
utilize Form S-3 for the sale of their Registrable Securities
(as defined in the Registration Rights Agreement), such action
to be taken as soon as practicable after the end of the fiscal
year in which the Reorganization occurs or a Qualified Public
Offering is declared effective, whichever occurs first;
17
8.11.3. file with the Commission in a timely manner all
reports and other documents required of the Company (or the
Public Company) under the Securities Act and the 1934 Act; and
8.11.4. furnish to any Investor, so long as the Investor owns
any Registrable Securities (as defined in the Registration
Rights Agreement), forthwith upon request (i) a written
statement by the Company (or the Public Company) that it has
complied with the reporting requirements of Commission Rule
144 (at any time after ninety (90) days after the
Reorganization or the effective date of a Qualified Public
Offering, whichever occurs first), the Securities Act and the
1934 Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any
time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company (or the Public
Company) and such other reports and documents so filed by the
Company (or the Public Company), and (iii) such other
information as may be reasonably requested in availing any
Holder of any rule or regulation of the Commission which
permits the selling of any such securities without
registration or pursuant to such form.
9. RESERVATION OF CONVERSION SHARES. The Company further covenants and agrees
that the Company will at all times have and maintain authorized and reserved a
sufficient number of its shares of Common Stock for the purpose of issuance upon
the conversion of the Series A Preferred Stock in accordance with the Statement
of Resolution.
10. COVENANT BREACHES.
10.1. COVENANT BREACHES. Each of the following events shall be a breach
of covenant (a "COVENANT BREACH") for purposes of this Agreement:
10.1.1. if any representation or warranty made by or on behalf
of the Company in this Agreement, in any Collateral Agreement,
or in any certificate, report or other document delivered
under or pursuant to any term hereof or thereof shall prove to
have been untrue or incorrect in any material respect as of
such date made; provided, however, that a Covenant Breach
shall be deemed not to have occurred only with respect to such
facts or circumstances that are susceptible of correction by
the Company without causing a Material Adverse Effect on the
Company or a material adverse effect on the value of the
Series A Preferred Stock, the Warrants or the Conversion
Shares or the rights and remedies of the Investors in
connection with any of the foregoing or under this Agreement
or any of the Collateral Agreements, if such facts or
circumstances are corrected within thirty (30) days after
written demand for correction made to the Company by the
holder of any Series A Preferred Stock; or
10.1.2. if the Company breaches in the due and punctual
performance or observance of any covenant or agreement
contained in this Agreement or the Statement of Resolution and
such breach continues for a period of fifteen (15) days after
18
written notice thereof to the Company by the holder of any
Series A Preferred Stock; provided, however, that a Covenant
Breach shall not be deemed to have occurred if, (a) at the end
of such 15-day period, the Company advises each Investor in
writing that (i) the Company is diligently attempting to cure
such breach, (ii) the existence of such breach is not causing
and will not cause a Material Adverse Effect on the Company or
the Investors' rights under the Registration Rights Agreement,
and (iii) such breach is curable within the next thirty (30)
days and (b) such breach is cured within such thirty (30) day
period.
10.2. REMEDIES UPON COVENANT BREACHES. Upon the occurrence of a
Covenant Breach, unless such Covenant Breach shall have been waived in
the manner provided in Section 13.1 or cured prior to the exercise of
the remedies set forth in this Section, then unless this Agreement or
an applicable Collateral Agreement provides that the aggrieved party
may seek injunctive, judicial or other relief, the parties agree to
negotiate in good faith for a period of thirty (30) days commencing on
the date such Covenant Breach is deemed to have occurred pursuant to
Section 10.1 to resolve any dispute arising out of or relating to this
Agreement or the formation, breach, termination or validity thereof (a
"DISPUTE"). If the parties cannot timely resolve the Dispute, the
parties agree that it will be resolved in federal or New York state
courts located in New York, New York. Each party agrees that all
actions which arise out of or relate to this Agreement shall be
brought, and each party irrevocably consents to exclusive jurisdiction
in, federal or New York state courts located in New York, New York.
Each party hereby waives all rights to a trial by jury in any action
arising our of or relating to this Agreement.
10.3. NOTICE OF COVENANT BREACHES. If any Investor shall give any
notice in respect of a claimed Covenant Breach, the Company shall
forthwith give written notice thereof to all other holders of shares of
the Series A Preferred Stock at the time outstanding, describing such
notice and the nature of the claimed Covenant Breach.
11. RESTRICTIONS ON TRANSFER OF SECURITIES.
11.1. RESTRICTIONS. The Series A Preferred Stock, and upon conversion
of the Series A Preferred Stock, the Conversion Shares are transferable
only pursuant to (i) a public offering registered under the Securities
Act; (ii) Rule 144 of the Commission (or any similar rule then in
effect) if such rule is available (although the Company has no current
obligation to make Rule 144 available, the Company is subject to the
covenants in Section 8.11); and (iii) subject to the conditions
specified elsewhere in this Section 11, any other legally available
means of transfer under applicable federal and state securities laws;
provided, however, that in the case of (ii) and (iii), the Company
first shall have received an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer
is exempt from the registration requirements of the Securities Act.
11.2. RESTRICTIONS OF BYLAWS. In addition to the restrictions set forth
in Section 11.1 above, the Company's Bylaws, as amended, prohibits the
sale, pledge, encumbrance, transfer or other disposition (collectively,
a "TRANSFER") of the Series A Preferred Stock, and upon conversion of
the Series A Preferred Stock, the Conversion Shares in any way, except
under the terms of the Bylaws, as amended.
19
11.3. LEGEND. Each certificate representing Series A Preferred Stock
shall be endorsed with a legend substantially similar to the following:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND ARE SUBJECT TO
CERTAIN INVESTMENT REPRESENTATIONS. THESE SECURITIES MAY NOT
BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION UNDER THE ACT AND SUCH APPLICABLE BLUE
SKY LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
SALE, TRANSFER, HYPOTHECATION, ENCUMBRANCE, OR DISPOSITION OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED
BY THE PROVISIONS OF THE BYLAWS OF THE CORPORATION, AS
AMENDED. ALL PROVISIONS OF THE BYLAWS, AS AMENDED,
INCORPORATED BY REFERENCE IN THIS CERTIFICATE. A COPY OF THE
BYLAWS, AS AMENDED, MAY BE INSPECTED AT THE PRINCIPAL OFFICE
OF THE CORPORATION.
ADDITIONALLY, THE ARTICLES OF INCORPORATION, AS AMENDED, WHICH
ARE ON FILE IN THE XXXXXX XX XXX XXXXXXXXX XX XXXXX XX XXX
XXXXX XX XXXXX AND A COPY OF WHICH THE CORPORATION WILL
FURNISH ANY SHAREHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST,
DENY PRE-EMPTIVE RIGHTS OF SHAREHOLDERS AND THE RIGHT OF
SHAREHOLDERS TO CUMULATE VOTES IN THE ELECTION OF DIRECTORS,
AND SET FORTH THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND
RELATIVE RIGHTS OF EACH CLASS OF STOCK THE CORPORATION IS
AUTHORIZED TO ISSUE.
Upon the conversion of the Series A Preferred Stock, unless the Company
receives an opinion of counsel satisfactory to the Company to the
effect that a transfer of the Conversion Shares may be made without
registration or further restriction on transfer, or unless such
Conversion Shares are being disposed of pursuant to a registration
under the Securities Act, the same legend shall be endorsed on the
certificate evidencing such Conversion Shares.
11.4. REMOVAL OF LEGEND. Any legend endorsed on a certificate pursuant
to Section 11.3 hereof shall be removed, and the Company shall issue a
certificate without such legend to the holder of such security, if such
security is being disposed of pursuant to a registration under the
Securities Act or pursuant to Rule 144 or any similar rule then in
effect or if such holder provides the Company with an opinion of
20
counsel satisfactory to the Company to the effect that a transfer of
such securities may be made without registration. In addition, if the
holder of such securities delivers to the Company an opinion of such
counsel, reasonably satisfactory to the Company, to the effect that no
subsequent transfer of such securities will require registration
pursuant to Rule 144(k) under the Securities Act, the Company will
promptly upon such contemplated transfer deliver new certificates
evidencing such security that do not bear the legend set forth in
Section 11.3.
12. TERMINATION OF CERTAIN COVENANTS. The obligations of the Company under
Sections 8 and 10 of this Agreement, notwithstanding any provisions hereof to
the contrary, shall terminate and shall be of no further force or effect on the
closing date of a Qualified Public Offering.
13. MISCELLANEOUS.
13.1. WAIVERS, AMENDMENTS AND APPROVALS. In each case in which approval
of the Investors is required by the terms of this Agreement, such
requirement shall be satisfied by a vote or the written action of
Investors owning sixty-six percent (66%) in interest of the then
outstanding shares of Series A Preferred Stock, voting together as a
single class, then owned by the Investors, unless a different
percentage is specifically required pursuant to this Agreement. With
the written consent of Investors owning sixty-six percent (66%) in
interest of the then outstanding shares of Series A Preferred Stock,
voting together as a single class, 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
written approval of Investors owning sixty-six percent (66%) in
interest of the then outstanding shares of Series A Preferred Stock,
voting together as a single class, then owned by the Investors, 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 Series A Preferred Stock; provided, however, that no such waiver or
supplemental agreement shall (i) amend the terms of the shares of
Series A Preferred Stock as set forth in the Statement of Resolution
(any such amendment to the terms of the shares of Series A Preferred
Stock shall require the vote of the holders of shares of Series A
Preferred Stock called for by the Statement of Resolution), (ii) amend
the provisions of this Agreement granting specific rights to the
holders of the Series A Preferred Stock without the written consent of
the holders of sixty-six percent (66%) of the Series A Preferred Stock,
(iii) reduce the aforesaid proportions of shares the holders of which
are required to consent to any waiver or supplemental agreement without
the consent of all of the record holders of shares whose rights would
be adversely affected by such reduction or (iv) cause the Series A
Preferred Director to be removed from the Board without the written
consent of Seneca. Written notice of any such waiver, consent or
agreement of amendment, modification or supplement shall be given to
the record holders of the Series A Preferred Stock who have not
previously consented thereto in writing.
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13.2. ORAL 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 13.1.
13.3. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or
certified mail, as follows:
13.3.1. to any Investor, to the address listed on SCHEDULE 1,
with a copy (which shall not constitute notice to any
Investor) to:
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
13.3.2. to the Company, to:
Excalibur Holdings, Inc.
00000 Xxxxxx Xxxxx Xxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy (which shall not constitute notice to the
Company) to:
Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
and such notices and other communications shall for all purposes of
this Agreement be treated as being effective or having been given if
delivered personally, or, if sent by mail, when received. Any party may
change its address for such communications by giving notice thereof to
the other parties in conformity with this Section.
13.4. SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. Except as specified
in Section 12 herein, all representations, warranties, covenants and
agreements contained herein or in any other agreement or schedule
delivered pursuant to this Agreement shall survive the execution and
delivery of this Agreement or such other agreement or schedule, as the
case may be, for a period of two (2) years.
22
13.5. DELAYS OR OMISSIONS. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to
any party under this Agreement shall impair any such right, power or
remedy of such party nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence thereto, or of a similar
breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party
hereto of any breach or default under this Agreement, or any waiver on
the part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing.
13.6. OTHER REMEDIES. Any and all remedies herein expressly conferred
upon a party shall be deemed cumulative with, and not exclusive of, any
other remedy conferred hereby or by law on such party, and the exercise
of any one remedy shall not preclude the exercise of any other. Subject
to the dispute resolution provisions of Section 10.2, the parties may
seek enforcement of the terms of this Agreement by suit in equity or
action at law to protect the rights granted under this Agreement.
13.7. ATTORNEYS' FEES. Should suit be brought to enforce or interpret
any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages,
reasonable attorneys' fees to be fixed by the court (including, without
limitation, costs, expenses and fees on any appeal). The prevailing
party shall be the party entitled to recover its costs of suit,
regardless of whether such suit proceeds to final judgment. A party not
entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a
party is entitled to recover costs or attorneys' fees.
13.8. ENTIRE AGREEMENT. This Agreement, the exhibits hereto, the
documents referenced herein and the exhibits thereto, constitute the
entire understanding and agreement of the parties hereto with respect
to the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements or understandings, inducements or
conditions, express or implied, written or oral, between the parties
with respect hereto and thereto, including without limitation the
confidential information memorandum dated October 1, 2001 (the
"INFORMATION MEMORANDUM") and the term sheet executed between the
parties (the "TERM SHEET"). The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent
with any of the terms hereof.
13.9. SEVERABILITY. Should any one or more of the provisions of this
Agreement or of any agreement entered into pursuant to this Agreement
be determined to be illegal or unenforceable, all other provisions of
this Agreement and of each other agreement entered into pursuant to
this Agreement, shall be given effect separately from the provision or
provisions determined to be illegal or unenforceable and shall not be
affected thereby. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
23
13.10. SUCCESSORS AND ASSIGNS.
13.10.1. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon and be enforceable
by the successors and assigns of the parties hereto, including
the holder or holders from time to time of any of the Series A
Preferred Stock, the Warrants, or the Conversion Shares;
provided, however, that no holder of any of the Series A
Preferred Stock, the Warrants, or the Conversion Shares shall
be entitled to assign or transfer such securities to any party
or entity (including existing and future customers of the
Company) engaged in the same industry that the Company is so
engaged in as of the date hereof. Such restriction on
assignment and transfer shall terminate and shall be of no
further force or effect on the closing date of a Qualified
Public Offering (as defined in the Statement of Resolution).
Whether a party or entity is engaged in the same industry as
the Company will be reasonably determined by the Board.
Nothing in this Section 13.10, however, shall prevent any
transfer or assignment of the Series A Preferred Stock, the
Warrants, or the Conversion Shares to any institutional
investor. Notwithstanding the foregoing, a successor or assign
of an Investor shall not be regarded as an "INVESTOR," unless
such transferee is an Affiliate of the transferor or it
acquires at least 50,000 shares of Series A Preferred Stock or
the Common Stock equivalent (subject to appropriate adjustment
for any stock dividends, stock splits, subdivisions,
reorganizations and other capitalization changes effected
after the Closing Date).
13.10.2. Any successor or assign of an Investor (other than an
Affiliate of an Investor) that is regarded as an "Investor"
pursuant to this Section 13.10 shall not be entitled to, on
its own behalf, seek enforcement of the representations and
warranties contained herein by suit in equity or action at
law. Such successor or assign may, however, join any suit in
equity or action at law brought by any party hereto to enforce
the representations and warranties contained herein.
13.11. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Texas without regard to its principles
of conflicts of laws.
13.12. COUNTERPARTS. This Agreement may be executed concurrently in two
(2) or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
13.13. PAYMENT OF FEES AND EXPENSES OF THE INVESTORS. Provided the
Closing occurs, (a) the Company will promptly reimburse the Investors
for reasonable legal expenses incurred by the firm of Kramer, Levin,
Naftalis & Xxxxxxx LLP not to exceed $20,000, incurred in connection
with the transactions contemplated by this Agreement, plus
out-of-pocket expenses incurred; (b) the firm of Xxxxxx Xxxxx Xxxxxxxx
& Xxxxxxx LLP will xxxx the Company at the address provided in Section
13.3 of this Agreement; and (c) the Company will pay such invoices
within ten (10) days after submission of such invoices. The Company
will be solely responsible for its own legal costs incurred in
performing its obligations in this transaction.
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13.14. RIGHTS OF INVESTORS INTER SE. Except as provided for in Section
13.1 regarding actions under the Agreement requiring a vote or consent
of sixty-six percent (66%) in interest of the outstanding shares of
Series A Preferred Stock, each Investor shall have the absolute right
to exercise or refrain from exercising any right or rights which such
Investors may have by reason of this Agreement or any security,
including, without limitation, the right to consent to the waiver of
any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement
or any agreement effecting any such modification, and such Investors
shall not incur any liability to any other or with respect to
exercising or refraining from exercising any such right or rights.
13.15. CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written consent of the other party or as otherwise required by
law, it shall at all times keep confidential and not divulge, furnish
or make accessible to anyone, any confidential information, knowledge
or data concerning or relating to the business or financial affairs of
the other parties to which such party has been or shall become privy by
reason of this Agreement or the Collateral Agreements, discussions or
negotiations relating to this Agreement or the Collateral Agreements,
the performance of its obligations hereunder or the ownership of the
Series A Preferred Stock purchased hereunder or the Conversion Shares.
The provisions of this Section 13.15 shall be in addition to, and not
in substitution for, the provisions of any separate nondisclosure
agreement executed by the parties hereto.
13.16. AGGREGATION OF STOCK. All shares of Series A Preferred Stock or
the Conversion Shares held or acquired by entities or persons
controlled by, or under common control with, an Investor shall be
aggregated together for purposes of determining the availability of
rights under this Agreement.
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IN WITNESS WHEREOF, this Agreement is hereby executed as of the date first
written above.
COMPANY: EXCALIBUR HOLDINGS, INC.
------------------------------------
By:
---------------------------------
Its:
--------------------------------
INVESTORS:
SENECA CAPITAL, L.P.
------------------------------------
By:
Its:
SENECA CAPITAL INTERNATIONAL, LTD.
------------------------------------
By:
---------------------------------
Its:
--------------------------------
(SIGNATURE PAGE TO SERIES A STOCK PURCHASE AGREEMENT)
26
LIST OF SCHEDULES
SCHEDULE 1 List of Investors and Investor Amounts
SCHEDULE 5.3 List of Subsidiaries
SCHEDULE 5.4 States in which the Company is Qualified to do Business
SCHEDULE 5.6 List of Shareholders, Option Holders and Other Securities
Owners
SCHEDULE 5.8 Financial Statements
SCHEDULE 5.9 Litigation
SCHEDULE 5.12 Outstanding Indebtedness
SCHEDULE 5.13 List of Assets and Contracts
SCHEDULE 5.15 List of Licenses, Permits and Approvals, etc.
SCHEDULE 5.18 Retirement Plans
SCHEDULE 5.20 Transactions with Affiliates
SCHEDULE 5.21 List of Brokers and Finders
SCHEDULE 5.22 Registration Rights
LIST OF EXHIBITS
EXHIBIT A Form of Statement of Resolution Establishing a Series of
Shares
EXHIBIT B Form of Non-Disclosure and Restrictions on Use Agreement
EXHIBIT C Form of Opinion of Company Counsel
EXHIBIT D Form of Registration Rights Agreement
EXHIBIT E Form of Co-Sale Agreement
EXHIBIT F Form of Warrant Certificate
27
