SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 9, 1998
JD AMERICAN WORKWEAR, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 33-98682 05-0460102
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(State of Organization) (Commission File No.) (IRS Employer
Identification Number)
46 Old Flat River Road
Coventry, Rhode Island 02816
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(Address of principal executive offices)
(401) 397-6800
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(Registrant's telephone number, including area code)
ITEM 1. CHANGE IN CONTROL OF REGISTRANT.
Not Applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Not Applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT:
Not Applicable.
ITEM 5. OTHER EVENTS
Securities Purchase Agreement
JD American Workwear, Inc. (the "Company") entered into a Securities
Purchase Agreement dated April 9, 1998 (the "Purchase Agreement") with The
Union Labor Life Insurance Company, a Maryland corporation ("ULLICO"), and
certain additional agreements related to the Purchase Agreement. This current
report provides a summary of the important terms of the transaction, but
readers should make reference to the complete agreements filed as exhibits to
this current report for a complete description of the transaction.
Series B Preferred Stock
Pursuant to the terms of the Purchase Agreement, the Company issued to
ULLICO 2,500 shares of Series B 12% Cumulative Convertible Preferred Stock,
$.001 par value (the "Series B Preferred Stock"). The Series B Preferred Stock
is convertible into the Company's common stock, $.002 par value (the "Common
Stock") at a conversion price of $5.00 per share, subject to adjustment. As a
part of the issuance of the Series B Preferred Stock, the Company also issued
to ULLICO a detached ten-year stock purchase warrant to purchase 799,000 shares
of Common Stock at an exercise price of $.01 per share (the "Investor
Warrant"). The purchase price for the Series B Preferred Stock and the Investor
Warrant was $2,500,000. The Company will use the net proceeds to facilitate
and expand a program of union labor manufacturing of its products, to repay
certain notes payable and long-term debt, and for sales and administrative
salaries, product development, sales and marketing expense, and other general
corporate purposes.
Dividends
The Series B Preferred Stock entitles ULLICO to receive, when and as
declared by the Company's Board, cumulative cash dividends in preference to the
payment of dividends on all other shares of capital stock of the Company,
subject to the provisions on priority described below.
During the two-year period following issuance of the Series B Preferred
Stock (the "PIK Period") the Company has the option of making payment of the
semi-annual dividends on the Series B Preferred Stock either in cash or by
issuing additional shares of Series B Preferred Stock ("PIK Dividends"). For
purposes of payment of PIK Dividends, each share of Series B Preferred Stock is
to be valued at $1,000; and in the event the Company elects to pay dividends in
shares of Series B Preferred Stock, the Company is required to issue additional
detached ten-year dividend warrants (the "Dividend Warrants") to purchase
54,000 shares of Common Stock at an exercise price of $.01 per share for each
semi-annual dividend period that PIK Dividends are paid. During the PIK Period
the Company may not pay or declare cash dividends on any stock other than the
Series B Preferred Stock. Unless full dividends on the Series B Preferred Stock
for all past dividend periods and the then current period shall have been paid
or declared and a sufficient sum for the payment thereof set aside in trust for
the Series B Preferred Stock Holders, no dividend (other than a dividend
payable solely in Common Stock) shall be paid or declared, and no distribution
made, on any other shares of stock.
Liquidation
In the event the Company is liquidated, dissolved or otherwise wound-up,
holders of the Series B Preferred Stock will be entitled to a preferred
distribution of the assets of the Company in an amount equal to the investment
value per share on the date of payment, and if such assets are insufficient, a
ratable distribution shall be made. After the payment of the full preferential
amounts to the holders of the Series B Preferred Stock, the holders of the
Company's Series A Preferred Stock will receive a distribution in their full
preferential amounts (or ratable distributions thereof). The holders of the
Company's Common Stock will then be entitled to receive $5.00 per share, and if
there are any assets remaining, a ratable distribution together with the
holders of the Series B Preferred Stock treated (for this purpose only) as if
they had converted their shares into Common Stock will be made amongst the
holders of the Common Stock and the holders of the Series B Preferred Stock.
Optional and Mandatory Redemption
The Company may, at its own option and at any time after the third
anniversary of the original issuance of the Series B Preferred Stock, redeem
the Series B Preferred Stock, in whole but not in part. In such event, the
Company is obligated to pay holders of the Series B Preferred Stock the
investment value per share, plus a redemption premium equal to a 20% internal
rate of return on the investment value.
A mandatory redemption of 1,250 shares of Series B Preferred Stock is
required on each of the first business days of April 2004 and 2005. Between 30
and 60 days prior to any redemption, the Company must give written notice to
the holder of the Series B Preferred Shares, and at least ten days prior to the
date of a redemption the Company shall deposit with any Washington, D.C. bank
or trust company having capital and surplus of at least $1 billion a sum equal
to the aggregate redemption price of all shares of Series B Preferred Stock
scheduled to be redeemed.
Voting
Each holder of Series B Preferred Stock is entitled to vote on all
Company matters and is entitled to the number of votes equal to the largest
number of full shares of Common Stock into which such shares of Series B
Preferred Stock are convertible. The Series B Preferred Stock holders shall be
entitled to elect one director out of the seven authorized directors of the
Company's board and one director out of the three directors comprising the
Company's Compensation Committee. If certain events occur or do not occur, such
as the failure to pay either a PIK Dividend or cash dividend to the Series B
Preferred Stock holders, the holders of the Series B Preferred Stock shall be
entitled, immediately upon giving written notice, to elect the smallest number
of directors that will constitute a majority of the authorized number of
directors.
Stockholders Agreement
A Stockholders Agreement dated April 9, 1998 (the "Stockholders
Agreement") was entered into among ULLICO, the Company, David N. DeBaene,
Annette DeBaene, Norman DeBaene, Thomas Lisi, and Steev Panneton (each, a
"Holder"). The Stockholders Agreement provides that the Company shall have a
right of first refusal before any shares of Common Stock may be transferred by
any Holder. ULLICO has a right of second refusal and co-sale rights, if the
Company does not elect to buy all of the securities it is offered. If ULLICO
enters into an agreement to transfer, sell or otherwise dispose of all of its
Preferred Stock, Warrants and any Common Stock issued upon conversion or
exercise of the former ("Purchased Shares")(such agreement referred to as a
"Tag-Along Sale"), each Holder has the right to participate in the Tag-Along
Sale. If ULLICO, alone or with another person, accepts an offer from any party
who is unaffiliated with it to purchase any Purchased Shares which results in
such party having the ability to elect a majority of the Company's Board of
Directors, then, at the request of ULLICO, each Holder shall sell all shares of
Common Stock held by such Holder (referred to as a "Drag-Along Sale").
The Holders agree that, for a period of five years from the Stockholders
Agreement no Holder will compete with the Company nor solicit the Company's
customers, suppliers, or employees to limit or terminate their relationship
with the Company. The Holders agree to maintain confidentiality with respect to
the Company's Confidential Information.
Registration Rights Agreement
The Company and ULLICO entered into a Registration Rights Agreement dated
April 9, 1998 which requires the Company, upon the written request of certain
holders of the Series B Preferred Stock, to file a Registration Statement for
the public resale of the Common Stock issued on conversion of the Series B
Preferred Stock. The required registration is triggered when the Company
receives a written request from initiating holders of the Series B Preferred
Stock. This obligates the Company to prepare and file a registration statement
under the Securities Act of 1933, as amended ("Securities Act"). When the
Company receives that request, it must promptly notify all holders of
securities that may be registered that it intends to effectuate such
registration. The Company is required to file and cause to become effective a
maximum of two registration statements, excluding registration statements on
Form S-3. The Company shall not be obligated to effect more than one
registration and Form S-3 during any six-month period and shall be obligated to
file and cause to become effective no more than six registration statements on
Form S-3. No registration statement is required to be filed unless the proposed
public offering price of the securities under such registration shall be at
least $5 million (prior to deducting underwriting discounts and commissions).
The Registration Rights Agreement also provides for incidental
registration. If the Company files a registration statement other than pursuant
to the required registration and other than on Form S-4 or S-8, it agrees to
give prompt, written notice of same to all holders of registerable securities.
Upon the written request of a holder of any shares of securities that may be
registered given within thirty days after the receipt of the Company's written
notice, the Company agrees to include all such registerable securities in such
registration statement provided, however, that the Company receives a written
request of same within thirty (30) days after such holder received the
Company's notification.
Escrow Agreement
The Company and ULLICO executed an escrow agreement (the "Escrow
Agreement") with Marine Midland Bank ("MMB") requiring that the proceeds, less
the payment of certain fees and expenses, from the sale of the Series B
Preferred Stock (approximately $1,585,000; the "Escrow Amount") be held and
invested or reinvested by MMB in obligations issued or guaranteed by the Untied
States or any person controlled or supervised by and acting as an
instrumentality of the United States pursuant to Congressional authority or
Certificates of Deposit of banks or trust companies (including MMB) organized
under the laws of the United States.
The term of the escrow commences on the date of the closing and
terminates at 5:00 p.m., eastern time, on June 30, 1998. If the Company fails
to deliver to ULLICO by May 29, 1998 audited financial statements prepared on a
consolidated basis (together with consolidated statements in support thereof)
consisting of a balance sheet of the Company, as of the end of such fiscal
year, together with statements of income, stockholders' equity and cash flow
for such fiscal year, ULLICO shall give written notice to the Company and MMB
of such failure. MMB shall, without further instructions, immediately pay to
ULLICO the Escrow Amount, and to the Company the escrow income.
Claims may be made by ULLICO against the Escrow Account if, within thirty
days (30) of ULLICO's receipt of the financial statements, (i) the Company is
not in conformity with the requirement in the Securities Purchase Agreement to
provide, as soon as available but in any event within ninety (90) days after
the close of each fiscal year of the Company (beginning with the year ended
February 28, 1998), financial statements duly certified by one of the five
largest national independent certified public accounting firms or (ii) in the
Investor's reasonable judgment, the financial condition, results of operations
and cash flows of the Company reflected in the financial statements are not in
material conformity with the information previously furnished to ULLICO, then
ULLICO shall give written notice of the claim to the Company and MMB, setting
forth its claim and the reasons therefor. If the Company objects to the claim,
it shall give written notice of such objection to the investor and MMB within
ten days after the receipt of such claim notice from ULLICO.
Any dispute or claim arising out of the Escrow Agreement which is not
resolved by negotiation shall be resolved by arbitration held in Washington,
D.C., under the rules promulgated by the American Arbitration Association. The
arbitrators shall apply the substantive law of the State of New York. The
Company, under the terms of the escrow agreement, acknowledges that in no event
shall any resolution of a claim or payment of any portion of the escrow amount
to ULLICO require the return, revocation or rescission of the Series B
Preferred Stock or the Warrant.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS.
Not Applicable.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired. Not Applicable.
(b) Pro Forma Financial Information. Not Applicable.
(c) Exhibits.
The following Exhibits are filed herewith:
4.1 Securities Purchase Agreement dated April 9, 1998
4.2 Certificate of Designation of Series B 12% Cumulative Convertible
Preferred Stock and Certificate of Correction of Certificate of
Designation.
4.3 Stockholders' Agreement dated April 9, 1998.
4.4 Registration Rights Agreement dated April 9, 1998.
4.5 Warrant Certificate issued to ULLICO.
4.6 Escrow Agreement
20.1 Press release.
ITEM 8. CHANGE IN FISCAL YEAR.
Not Applicable.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
JD AMERICAN WORKWEAR, INC.
By: /s/ DAVID N. DEBAENE
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David N. DeBaene
(President and Chief Executive Officer)
Date: April 15, 1998
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JD AMERICAN WORKWEAR, INC.
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SECURITIES PURCHASE AGREEMENT
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2,500 SHARES OF SERIES B 12% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
AND
799,000 DETACHED TEN-YEAR STOCK PURCHASE WARRANTS
Dated as of April 9, 1998
===============================================================================
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
1. Authorization of Securities 1
2. Sale and Purchase of Securities 2
3. Closing 2
4. Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities 2
4.1 Register of Securities 2
4.2 Restrictions on Transfer 2
4.3 Removal of Transfer Restrictions 4
5. Representations and Warranties by the Company 4
5.1 Organization, Standing, etc 4
5.2 Qualification 5
5.3 Capital Stock 5
5.4 Securities 6
5.5 Indebtedness for Borrowed Money 7
5.6 Shareholder List 7
5.7 Corporate Acts and Proceedings 7
5.8 Compliance with Laws and Other Instruments 7
5.9 Binding Obligations 8
5.10 Securities Laws 8
5.11 No Brokers or Finders 9
5.12 Financial Statements 9
5.13 Absence of Undisclosed Liabilities 9
5.14 Changes 9
5.15 Material Agreements of the Company 10
5.16 Employees 11
5.17 Tax Returns and Audits 12
5.18 Patents and Other Intangible Assets 13
5.19 Employment Benefit Plans--ERISA 15
5.20 Title to Property and Encumbrances; Leases 15
5.21 Condition of Properties 15
5.22 Insurance Coverage 15
5.23 Litigation 16
5.24 Financial Projections 16
5.25 Registration Rights 16
5.26 Licenses 16
5.27 Interested Party Transactions 17
5.28 Minute Books and Check Authorizations 17
5.29 Financial Statements in Public Filings 17
5.30 Commission Reports and Other Documents 17
5.31 Customer Orders 18
5.32 Disclosure 18
6. Conditions of Parties' Obligations 18
6.1 Conditions of Investor's Obligations at the Closing 18
6.2 Conditions of Company's Obligations 21
7. Affirmative Covenants 21
7.1 Maintain Corporate Rights and Facilities 21
7.2 Maintain Insurance 21
7.3 Pay Taxes and Other Liabilities 22
7.4 Records and Reports 22
7.5 Preparation of Budget 24
7.6 Notice of Litigation and Disputes 24
7.7 Directors' Meetings 24
7.8 Conduct of Business 25
7.9 Replacement of Certificates 25
7.10 Compliance with Section 6 25
7.12 Securities Law Filings 25
7.13 Composition of the Board of Directors; Compensation Committee 25
7.14 Compliance With Certificate and Bylaws 26
7.15 Internal Accounting Controls 26
7.16 Use of Proceeds 26
7.17 Union Matters 26
7.18 Dividends 27
7.19 PIK Dividends and Dividend Warrants 27
7.20 Escrow of Certain Proceeds 27
8. Negative Covenants 28
8.1 Senior or Parity Securities 28
8.2 Private Offerings 28
8.3 Changes in Type of Business 28
8.4 Loans; Guarantees 28
8.5 Restrictive Agreements 28
9. Enforcement 29
9.1 Remedies at Law or in Equity 29
9.2 Cumulative Remedies 29
9.3 No Implied Waiver 29
10. Rights of First Refusal 30
10.1 Subsequent Offerings 30
10.2 Exercise of Rights 30
10.3 Issuance of Equity Securities to Other Persons 30
10.4 Termination of Right of First Refusal 30
10.5 Excluded Securities 30
11. Definitions 31
12. Miscellaneous 37
12.1 Waivers and Amendments 37
12.2 Effect of Waiver or Amendment 37
12.3 Rights of Holders Inter Se 38
12.4 Notices 38
12.5 Survival of Representations and Warranties, etc 39
12.6 Severability 40
12.7 Parties in Interest 40
12.8 Headings 40
12.9 Choice of Law 40
12.10 Expenses 40
12.11 Counterparts 41
12.12 Authorship 41
12.13 Entire Agreement 41
</TABLE>
LIST OF ANNEXES
Annex A Certificate
Annex B The Investor Warrant Certificate
Annex C The Dividend Warrant Certificate
Annex 5.5 Schedule of Indebtedness for Borrowed Money
Annex 5.6 Schedule of Holders of Common Stock, Options and Warrants
Annex 5.11 Schedule of Brokers or Finders
Annex 5.12 Financial Statements
Annex 5.13 Schedule of Special Liabilities
Annex 5.14 Schedule of Changes
Annex 5.15 Schedule of Material Agreements
Annex 5.16 Schedule of Designated Key Employee's Outside Commitments
Annex 5.18 Schedule of Patents and Other Intangible Assets
Annex 5.23 Schedule of Litigation
Annex 5.25 Schedule of Registration Rights
Annex 5.27 Schedule of Interested Party Transactions
Annex 5.31 Schedule of Customer Orders
Annex 6.1(f) Opinion of the Company's Counsel
Annex 6.1(k) Stockholders Agreement
Annex 6.1(l) Registration Rights Agreement
Annex 6.1(m) Escrow Agreement
Annex 7.16 Use of Proceeds
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
April 9, 1998 between JD AMERICAN WORKWEAR, INC., a Delaware corporation (the
"Company"), and THE UNION LABOR LIFE INSURANCE COMPANY, a Maryland corporation
("Ullico" or the "Investor").
THE PARTIES hereby agree as follows:
1. Authorization of Securities.
(a) Preferred Stock. The Company has authorized the issue and
sale of 3,200 shares of its Series B 12% Cumulative Convertible Preferred
Stock, $.001 par value (the "Preferred Stock"), having the powers, designation,
preferences and relative, participating, optional and other special rights and
the qualifications, limitations and restrictions set forth in the Company's
Certificate of Designation of the Preferred Stock (hereinafter referred to as
the "Certificate"), a copy of which is attached hereto as Annex A. The
Preferred Stock is convertible into the Company's common stock, $.002 par
value, which class of shares is sometimes referred to herein as the "Common
Stock". The Common Stock into which the Preferred Stock is convertible is
sometimes referred to herein as the "Conversion Stock".
(b) Warrants.
(i) The Company has authorized the issuance of a detached
ten-year Stock Purchase Warrant to purchase 799,000 shares of the Common Stock
at an exercise price of $.01 per share (the "Investor Warrants").
(ii) The Company has authorized the issuance of detached
ten-year dividend warrants (the "Dividend Warrants") to purchase a total of
213,552 shares of Common Stock at an exercise price of $.01 per share. The
Dividend Warrants are issuable to the holders of the Preferred Stock in
accordance with Section 2(a)(iii) of the Certificate.
(iii) The Investor Warrants and the Dividend Warrants are
referred to herein collectively as the "Warrants". The Investor Warrants shall
be evidenced by certificates substantially in the form of Annex B (the
"Investor Warrant Certificate"). The Dividend Warrants shall be evidenced by
certificates substantially in the form of Annex C (the "Dividend Warrant
Certificate," and, together with the Investor Warrant Certificate, the "Warrant
Certificates"). The Common Stock issuable upon exercise of the Warrants is
sometimes referred to herein as the "Warrant Stock". The Preferred Stock, the
Conversion Stock, the Warrant Stock and the Warrants are sometimes referred to
herein individually and collectively as the "Securities".
2. Sale and Purchase of Securities. Upon the terms and subject to the
conditions herein contained, the Company agrees to sell to Investor, and
Investor agrees to purchase from the Company, at the Closing (as hereinafter
defined) on the Closing Date (as hereinafter defined) 2,500 shares of Preferred
Stock and the Investor Warrant at a total price of $2,500,000 (the "Purchase
Payment").
3. Closing. The closing of the sale to and purchase by Investor of the
Preferred Stock and the Investor Warrants (the "Closing") shall occur at the
offices of Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, Thirty-First
Floor, New York, N.Y. 10022-4697, at the hour of 4:00, Eastern time, on April
9, 1998, or at such different time or day as Investor and the Company shall
agree (the "Closing Date"). At the Closing, the Company will deliver to
Investor a certificate evidencing the Preferred Stock and a Warrant Certificate
evidencing the Investor Warrants, each of which shall be registered in
Investor's name, against delivery to the Company of payment by check or wire
transfer in an amount equal to the Purchase Payment less $1,750,000 less
expenses of this transaction to be delivered to Marine Midland Bank, N.A.,
pursuant to the Escrow Agreement by and among the Company, Investor and Marine
Midland Bank, N.A. Bank, dated April 9, 1998.
4. Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities.
4.1 Register of Securities. The Company or its duly appointed
agent shall maintain a separate register for the Securities, in which it shall
register the issue and sale of all such shares and the Warrants. All transfers
of the Securities shall be recorded on the register maintained by the Company
or its agent, and the Company shall be entitled to regard the registered holder
of the Securities as the actual holder of the Securities so registered until
the Company or its agent is required to record a transfer of such Securities on
its register. Subject to Section 4.2(c) hereof, the Company or its agent shall
be required to record any such transfer when it receives the Security to be
transferred duly and properly endorsed by the registered holder thereof or by
its attorney duly authorized in writing.
4.2 Restrictions on Transfer.
(a) Investor understands and agrees that the Securities it
will be acquiring have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and that accordingly they will not be fully
transferable except as permitted under various exemptions contained in the
Securities Act or applicable state securities laws, or upon satisfaction of the
registration and prospectus delivery requirements of the Securities Act or
registration or qualification requirements under applicable state securities
laws. Investor acknowledges that it must bear the economic risk of its
investment in the Securities for an indefinite period of time (subject,
however, to the Company's obligation to redeem the Preferred Stock in
accordance with the Certificate and to the Company's obligation to effect the
registration of the Conversion Stock and the Warrant Stock under the Securities
Act in accordance with the Registration Rights Agreement (as hereinafter
defined)) since they have not been registered under the Securities Act and
therefore cannot be sold unless they are subsequently registered or an
exemption from registration is available.
(b) Investor hereby represents and warrants to the Company
that (i) it is acquiring the Securities it has agreed to purchase for
investment purposes only, for its own account, and not as nominee or agent for
any other Person (as hereinafter defined), and not with the view to, or for
resale in connection with, any distribution thereof within the meaning of the
Securities Act, and (ii) it is an "accredited investor" within the meaning of
Rule 501(a) of the Commission under the Securities Act.
(c) Investor hereby agrees with the Company as follows:
(i) Subject to Section 4.3 hereof, the certificates
evidencing the Securities it has agreed to purchase, and each certificate
issued in transfer thereof, will bear the following legend:
"The securities evidenced by this certificate have not
been registered under the Securities Act of 1933 and
have been taken for investment purposes only and not
with a view to the distribution thereof, and, except as
stated in an agreement between the holder of this
certificate, or its predecessor in interest, and the
issuer corporation, such securities may not be sold or
transferred unless there is an effective registration
statement under such Act covering such securities or
the issuer corporation receives an opinion of counsel
(which may be counsel for the issuer corporation)
stating that such sale or transfer is exempt from the
registration and prospectus delivery requirements of
such Act."
(ii) The certificates representing such Securities,
and each certificate issued in transfer thereof, will also bear any legend
required under any applicable state securities law.
(iii) Absent an effective registration statement under
the Securities Act, covering the disposition of the Securities which Investor
acquires, Investor will not sell, transfer, assign, pledge, hypothecate or
otherwise dispose of any or all of the Securities without first providing the
Company with an opinion of counsel (which may be counsel for the Company) to
the effect that such sale, transfer, assignment, pledge, hypothecation or other
disposition will be exempt from the registration and the prospectus delivery
requirements of the Securities Act and the registration or qualification
requirements of any applicable state securities laws, except that no such
registration or opinion shall be required with respect to (A) a transfer not
involving a change in beneficial ownership, or (B) the distribution of
Securities by such Investor to any of its partners, or retired partners, or to
the estate of any of its partners or retired partners, or (C) a sale to be
effected in accordance with Rule 144 of the Commission under the Securities Act
(or any comparable exemption).
(iv) Investor consents to the Company's making a
notation on its records or giving instructions to any transfer agent of the
Securities in order to implement the restrictions on transfer of the Securities
mentioned in this subsection (c).
4.3 Removal of Transfer Restrictions. Any legend endorsed on a
certificate evidencing a Security pursuant to Section 4.2(c)(i) hereof and the
stop transfer instructions and record notations with respect to such Security
shall be removed and the Company shall issue a certificate without such legend
to the holder of such Security (a) if such Security is registered under the
Securities Act, or (b) if such Security may be sold under Rule 144(k) of the
Commission under the Securities Act or (c) if such holder provides the Company
with an opinion of counsel (which may be counsel for the Company) reasonably
acceptable to the Company to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act.
5. Representations and Warranties by the Company. In order to induce
Investor to enter into this Agreement and to purchase the Preferred Stock and
the Investor Warrant, the Company hereby covenants with, and represents and
warrants to, the Investor as follows:
5.1 Organization, Standing, etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite power and authority to carry on its
business, to own and hold its properties and assets, to enter into this
Agreement, the Warrant Certificates and the Registration Rights Agreement, to
issue the Securities and to carry out the provisions hereof and thereof, and
the terms of the Certificate and the Securities. The copies of the Certificate
of Incorporation, Certificate of Designation of the Company's Series A
Preferred Stock and Bylaws of the Company which have been delivered to Investor
prior to the execution of this Agreement are true and complete and have not
been amended or repealed. The Company has no Subsidiaries (as hereinafter
defined) or direct or indirect interest (by way of stock ownership or
otherwise) in any firm, partnership, corporation, association or business
enterprise.
5.2 Qualification. The Company is duly qualified, licensed or
domesticated as a foreign corporation in good standing in each jurisdiction
wherein the nature of its activities or its properties owned or leased makes
such qualification, licensing or domestication necessary.
5.3 Capital Stock. The authorized capital stock of the Company
consists of 4,500,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock, of which 600 shares have been designated Series A 10% Mandatorily
Convertible Preferred Stock (the "Series A Preferred Stock"), and the Company
has no authority to issue any other capital stock. Three hundred thirteen (313)
shares of Series A Preferred Stock are issued and outstanding and 1,964,898
shares of Common Stock are issued and outstanding, and all such shares of
Common Stock and Series A Preferred Stock are duly authorized, validly issued,
fully paid and nonassessable. The offer, issuance and sale of such shares of
Common Stock and Series A Preferred Stock were (a) made in accordance with or
were exempt from the registration and prospectus delivery requirements of the
Securities Act, (b) registered or qualified (or were exempt from registration
or qualification) under the registration or qualification requirements of all
applicable state securities laws, and (c) accomplished in conformity with all
other federal and applicable state securities laws, rules and regulations. The
Company has (A) reserved a total of 250,000 shares of Common Stock for issuance
to employees under a 1995 stock option plan , under which options to purchase a
total of 250,000 shares have been granted, 12,500 of which are unexercised; (B)
reserved a total of 360,545 shares of Common Stock for issuance upon exercise
of outstanding "A" Warrants issued by the Company; (C) reserved a total of
360,545 shares of Common Stock for issuance upon the exercise of outstanding
"B" Warrants issued by the Company, (D) reserved a total of 465,648 shares of
Common Stock for issuance upon the exercise of outstanding Consultant Warrants
issuable at $4.00 per share, (E) reserved a total of 88,889 shares of Common
Stock for issuance upon conversion of the 11% Convertible Notes issued by the
Company, (F) reserved a total of 112,500 shares of Common Stock for issuance
upon exercise of outstanding Class PW Warrants issued in conjunction with the
11% Convertible Notes, (G) reserved a total of 68,550 shares of Common Stock
for issuance upon exercise of outstanding Class W Warrants issued in
conjunction with 12% Convertible Notes, (H) reserved a total of 32,777 shares
of Common Stock for issuance upon exercise of outstanding Underwriter Purchase
Options, (I) reserved a total of 50,000 shares of Common Stock for issuance
upon exercise of the outstanding Consultant Warrants issuable at $1.50 per
share, and (J) reserved a total of 313,000 shares of Common Stock for issuance
upon conversion of the Series A Preferred Stock. Except as expressly provided
in the preceding sentence or the Certificate, the Company has no outstanding
subscription, option, warrant, call, contract, demand, commitment, convertible
security or other instrument, agreement or arrangement of any character or
nature whatsoever under which the Company is or may be obligated to issue
Common Stock, preferred stock or other Equity Security (as hereinafter defined)
of any kind. Neither the offer nor the issuance or sale of the Securities
constitutes or will constitute an event, under any Equity Security or any
anti-dilution or similar provision of any agreement or instrument to which the
Company is a party or by which it is bound or affected, which shall either
increase the number of shares or units of Equity Securities issuable upon
conversion of any Equity Securities (whether stock or Indebtedness for Borrowed
Money (as hereinafter defined)) or upon exercise of any warrant or right to
subscribe to or purchase any stock or similar security (including Indebtedness
for Borrowed Money), or decrease the consideration per share or unit of Equity
Security to be received by the Company upon such conversion or exercise.
5.4 Securities.
(a) Preferred Stock. The Preferred Stock is duly authorized
and, when issued and paid for pursuant to the terms of this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable, will have the
rights, preferences and privileges specified in the Certificate and will be
free and clear of all Liens (as hereinafter defined) and restrictions, other
than Liens that might have been created by Investor and restrictions on
transfer imposed by (i) Sections 4.2 and 4.3 hereof, (ii) applicable state
securities laws and (iii) the Securities Act; and the Conversion Stock is duly
authorized and has been reserved for issuance upon conversion of the Preferred
Stock and, when issued upon conversion in accordance with the terms of the
Certificate, will be duly authorized, validly issued, fully paid and
nonassessable Common Stock and free and clear of all Liens and restrictions,
other than Liens that might have been created by Investors and restrictions
imposed by (i) Sections 4.2 and 4.3 hereof, (ii) applicable state securities
laws and (iii) the Securities Act.
(b) Warrants. The Warrants are duly authorized and when
issued pursuant to this Agreement and, in the case of the Dividend Warrants,
the Certificate will be validly issued, and have the rights and privileges
specified in the Warrant Certificate and are free and clear of all Liens and
restrictions, other than Liens that might have been created by Investor and
restrictions on transfer imposed by (i) Sections 4.2 and 4.3 hereof, (ii) the
applicable state securities laws and (iii) the Securities Act, and the Warrant
Stock is duly authorized and has been reserved for issuance upon exercise of
the Warrants and, when issued in accordance with the terms of the Warrant
Certificates and payment of the purchase price therefor has been made to the
Company, will be duly authorized, validly issued fully paid and nonassessable
Common Stock and free and clear of all Liens and restrictions, other than Liens
that might have been created by Investor and restrictions imposed by (i)
Sections 4.2 and 4.3 hereof, (ii) applicable state securities laws and (iii)
the Securities Act.
5.5 Indebtedness for Borrowed Money. The Company has no
Indebtedness for Borrowed Money except as disclosed on the Balance Sheet (as
hereinafter defined) or on Annex 5.5 hereto.
5.6 Shareholder List. Annex 5.6 hereto contains a true and
complete list of the names and addresses of the stockholders of record, as of
February 20, 1998, of the outstanding Common Stock and of the holders of all
outstanding options, warrants or other rights to purchase Common Stock, as well
as a list of the names, addresses, beneficial ownership of the outstanding
Common Stock, the price paid per share and the form of payment therefor for
each officer, director, current or former consultant or holder of at least 3%
or more of the outstanding Common Stock (or securities representing the right
to purchase or acquire upon conversion at least 3% or more of the outstanding
Common Stock). With respect to holders of Common Stock, Annex 5.6 contains a
true and complete description of the number of shares held by each such holder
and the date such shares were purchased. With respect to each outstanding
option, Annex 5.6 sets forth the date of grant, the number of shares subject
thereto, the exercise price, vesting schedule and expiration date. With respect
to warrants, Annex 5.6 sets forth the date of issue of each warrant, the number
of shares of Common Stock subject to the warrant, the exercise price and
expiration date. No holder of Common Stock or any other security of the Company
or any other Person is entitled to any preemptive right, right of first refusal
or similar right as a result of the issuance of the Securities or otherwise.
Except as disclosed in Annex 5.6, there is no voting trust, agreement or
arrangement among any of the beneficial holders of Common Stock of the Company
affecting the exercise of the voting rights of such stock.
5.7 Corporate Acts and Proceedings. All corporate acts and
proceedings required for the authorization, execution and delivery of this
Agreement, the Warrant Certificates and the Registration Rights Agreement, the
offer, issuance and delivery of the Securities and the performance of this
Agreement, the Warrant Certificates, the Registration Rights Agreement (except
to the extent that additional Board action may be required to effect a
Securities Act registration) and the terms of the Certificate have been
lawfully and validly taken or will have been so taken prior to the Closing.
5.8 Compliance with Laws and Other Instruments. The business and
operations of the Company have been and are being conducted in accordance with
all applicable federal, state and local laws, rules and regulations, except to
the extent that noncompliance with laws, rules and regulations would not,
individually or in the aggregate, have a Material Adverse Effect (as
hereinafter defined) on the Company. The execution and delivery by the Company
of this Agreement, the Warrant Certificates and the Registration Rights
Agreement and the performance of this Agreement, the Warrant Certificates and
the Registration Rights Agreement and the terms of the Certificate (a) will not
require from the Board or stockholders of the Company any consent or approval
that has not been validly and lawfully obtained (except to the extent that
additional Board action may be required to effect a Securities Act
registration), (b) will not require any authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality of government,
except such as shall have been lawfully and validly obtained prior to the
Closing (except for filing a Form D with the Commission within 15 days of the
Closing Date and in the case of any registration required by the Registration
Rights Agreement, proceedings under the Securities Act or state blue sky laws
to register Common Stock under the Securities Act), (c) will not cause the
Company to violate or contravene (i) any provision of law, (ii) any rule or
regulation of any agency or government, domestic or foreign, (iii) any order,
writ, judgment, injunction, decree, determination or award, or (iv) any
provision of the Certificate of Incorporation, the Certificate of Designation
for the Series A Preferred Stock (the "Series A Certificate") or Bylaws of the
Company, (d) will not violate or be in conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under,
any indenture, loan or credit agreement, note agreement, deed of trust,
mortgage, security agreement or other agreement, lease or instrument,
commitment or arrangement to which the Company is a party or by which the
Company or any of its properties, assets or rights is bound or affected, to the
extent that such violation, conflict, breach or default would (individually or
in the aggregate) have a Material Adverse Effect and (e) will not result in the
creation or imposition of any Lien. The Company is not in violation of, or
(with or without notice or lapse of time or both) in default under, any term or
provision of its Certificate of Incorporation, the Series A Certificate or
Bylaws or of any indenture, loan or credit agreement, note agreement, deed of
trust, mortgage, security agreement or other agreement, lease or other
instrument, commitment or arrangement to which the Company is a party or by
which any of the Company's properties, assets or rights is bound or affected.
The Company is not subject to any restriction of any kind or character which
has or may have a Material Adverse Effect on the Company or which prohibits the
Company from entering into this Agreement or would prevent or make burdensome
its performance of or compliance with all or any part of this Agreement, the
Warrant Certificates, the Registration Rights Agreement or the Certificate or
the consummation of the transactions contemplated hereby or thereby.
5.9 Binding Obligations. This Agreement, the Registration Rights
Agreement, the Warrant Certificates and the Certificate constitute the legal,
valid and binding obligations of the Company and are enforceable against the
Company in accordance with their respective terms, except as such enforcement
is limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.
5.10 Securities Laws. Subject to the accuracy of Investor's
representations and warranties in Section 4.2(b), the offer, issue and sale of
the Securities are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
5.11 No Brokers or Finders. Except as provided in Annex 5.11, no
Person has, or as a result of the transactions contemplated herein will have,
any right or valid claim against the Company or any Investor for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity.
5.12 Financial Statements. Attached hereto as Annex 5.12 are (a)
the Company's unaudited balance sheet (the "Balance Sheet") as of November 30,
1997 (the "Balance Sheet Date") and the unaudited statements of income, cash
flow and stockholders' equity for the 9-month period then ended, and (b) the
Company's audited balance sheet as of February 28, 1997 and the audited
statements of income, cash flow and stockholders' equity for the twelve-month
period then ended. These financial statements (i) are in accordance with the
books and records of the Company, (ii) present fairly the financial condition
of the Company at the Balance Sheet Date and other dates therein specified and
the results of its operations and cash flow for the periods therein specified,
and (iii) have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior accounting periods.
Specifically, but not by way of limitation, the Balance Sheet discloses all of
the debts, liabilities and obligations of any nature (whether absolute,
accrued, contingent or otherwise and whether due or to become due) of the
Company at the Balance Sheet Date which must be disclosed on a balance sheet in
accordance with generally accepted accounting principles.
5.13 Absence of Undisclosed Liabilities. Except as disclosed on
Annex 5.13 hereto, the Company has no material obligation or liability (whether
accrued, absolute, contingent, liquidated or otherwise, whether due or to
become due, whether or not known to the Company) arising out of any transaction
entered into at or prior to the Closing, or any act or omission to act at or
prior to the Closing, or any state of facts existing at or prior to the
Closing, including taxes with respect to or based upon the transactions or
events occurring at or prior to the Closing, and including without limitation
unfunded past service liabilities under any pension, profit sharing or similar
plan, except (a) to the extent set forth on or reserved against in the Balance
Sheet, and (b) current liabilities incurred and obligations under agreements
entered into, in the usual and ordinary course of business, since the Balance
Sheet Date, none of which (individually or in the aggregate) has a Material
Adverse Effect on the Company.
5.14 Changes. Since the Balance Sheet Date as to clauses (a) and
(c) below and since one year prior to the Balance Sheet Date as to the
remaining clauses of this Section 5.14, except as disclosed on Annex 5.14
hereto, the Company has not (a) incurred any debts, obligations or liabilities,
absolute, accrued, contingent or otherwise, whether due or to become due,
except current liabilities incurred in the usual and ordinary course of
business, none of which (individually or in the aggregate) materially and
adversely affects the business, finances, properties or prospects of the
Company, (b) made or suffered any changes in its contingent obligations by way
of guaranty, endorsement (other than the endorsement of checks for deposit in
the usual and ordinary course of business), indemnity, warranty or otherwise,
(c) discharged or satisfied any Liens other than those securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the usual and ordinary course of business, (d) mortgaged, pledged or
subjected to Lien any of its assets, tangible or intangible, (e) sold,
transferred or leased any of its assets except in the usual and ordinary course
of business, (f) canceled or compromised any debt or claim, or waived or
released any right, of material value, (g) suffered any physical damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the properties, business or prospects of the Company, (h)
entered into any transaction other than in the usual and ordinary course of
business except for this Agreement, (i) encountered any labor difficulties or
labor union organizing activities, (j) except in the usual and ordinary course
of business, made or granted any wage or salary increase or entered into any
employment agreement, (k) issued or sold any shares of capital stock or other
securities or granted any options with respect thereto, or modified any Equity
Security, except to the extent disclosed on Annex 5.6 hereto, (l) declared or
paid any dividends on or made any other distributions with respect to, or
purchased or redeemed, any of its outstanding Equity Securities, (m) suffered
or experienced any change in, or condition affecting, its condition (financial
or otherwise), properties, assets, liabilities, business operations, results of
operations or prospects other than changes, events or conditions in the usual
and ordinary course of its business, none of which (either by itself or in
conjunction with all such other changes, events and conditions) has been
materially adverse, (n) made any change in the accounting principles, methods
or practices followed by it or depreciation or amortization policies or rates
theretofore adopted, or (o) entered into any agreement, or otherwise obligated
itself, to do any of the foregoing.
5.15 Material Agreements of the Company. Except as expressly set
forth in this Agreement, the Balance Sheet or as disclosed on Annex 5.15
hereto, the Company is not a party to any written or oral agreement, instrument
or arrangement not made in the ordinary course of business that is material to
the Company and the Company is not a party to any written or oral (a) agreement
with any labor union, (b) agreement for the purchase of fixed assets or for the
purchase of materials, supplies or equipment in excess of normal operating
requirements, (c) agreement for the employment of any officer, individual
employee or other Person on a full time basis or any agreement with any Person
for consulting services, (d) bonus, pension, profit sharing, retirement, stock
purchase, stock option, deferred compensation, medical, hospitalization or life
insurance (other than group medical, hospitalization or insurance plans
applicable to all employees in which benefit levels are not related to
compensation) or similar plan, contract or understanding with respect to any or
all of the employees of the Company or any other Person, (e) indenture, loan or
credit agreement, note agreement, deed of trust, mortgage, security agreement,
promissory note or other agreement or instrument relating to or evidencing
Indebtedness for Borrowed Money or subjecting any asset or property of the
Company to any Lien or evidencing any Indebtedness, (f) guaranty of any
Indebtedness, (g) lease or agreement under which the Company is lessee of or
holds or operates any property, real or personal, owned by any other Person
under which payments to such Person exceed $ 25,000 per annum, (h) lease or
agreement under which the Company is lessor or permits any Person to hold or
operate any property, real or personal, owned or controlled by the Company, (i)
agreement granting any preemptive right, right of first refusal or similar
right to any Person, (j) agreement or arrangement with any Affiliate (as
hereinafter defined) or any "associate" (as this term is defined in Rule 405 of
the Commission under the Securities Act) of the Company or any officer,
director or shareholder of the Company, (k) agreement obligating the Company to
pay any royalty or similar charge for the use or exploitation of any tangible
or intangible property, (l) agreement or license under which the Company has
granted or transferred to any Person , or under which any Person has granted or
transferred to the Company, the right to exploit or otherwise use any patent,
trademark, service mark, copyright, trade name, trade secret, Company
Technology (as hereinafter defined) or other intangible asset, (m) covenant not
to compete or other restriction on its ability to conduct a business or engage
in any other activity, (n) agreement to register securities under the
Securities Act, or (o) agreement, instrument or other commitment or arrangement
with any Person continuing for a period of more than three months from the
Closing Date which involves an expenditure or receipt by the Company in excess
of $25,000. For purposes of the next preceding sentence, "material" shall mean
an obligation which by its terms calls for aggregate payments by the Company in
excess of $25,000. The Company has furnished to Investor true and complete
copies of all agreements and other documents requested by Investor or its
special counsel or other authorized representative. All parties having material
contractual arrangements with the Company are in substantial compliance
therewith, and none is in default in any material respect thereunder. The
Company does not have outstanding any power of attorney.
5.16 Employees. The following individuals (collectively,
"Designated Key Employees") are in the employ of the Company: David N. DeBaene,
Thomas A. Lisi and Anthony P. Santucci. To the best of the Company's knowledge,
no Designated Key Employee of the Company has any plans to terminate his or her
employment with the Company, and the Company has no intention of terminating
the employment of any Designated Key Employee. Except as set forth in Annex
5.16 hereto, to the best of the Company's knowledge after reasonable inquiry,
no Designated Key Employee or any other employee of the Company is a party to
or is otherwise bound by any agreement or arrangement (including, without
limitation, any license, covenant, or commitment of any nature), or subject to
any judgment, decree, or order of any court or administrative agency, (a) that
would conflict with such employee's obligation diligently to promote and
further the interests of the Company or (b) that would conflict with the
Company's business as now conducted or as proposed to be conducted. No
Designated Key Employee has any direct or indirect equity interest (by way of
stock ownership or otherwise) in any firm, partnership, corporation,
association or business enterprise, other than any such interest (i) in a
corporation which is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act and (ii) which does not, alone or in the aggregate
with other such interests, exceed one percent (1%) of the equity of such
corporation. The Company has complied in all material respects with all laws
relating to the employment of labor, including provisions relating to wages,
hours, equal opportunity, collective bargaining and payment of Social Security
and other taxes, and the Company has encountered no material labor
difficulties. Except as disclosed on Annex 5.15 hereto or pursuant to ordinary
arrangements for employment compensation, the Company is not under any
obligation or liability to any officer, director, employee or Affiliate of the
Company.
5.17 Tax Returns and Audits. All required federal, state and local
tax returns of the Company have been accurately prepared and duly and timely
filed, and all federal, state and local taxes required to be paid with respect
to the periods covered by such returns have been paid. The Company is not and
has not been delinquent in the payment of any tax, assessment or governmental
charge. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns nor any state income or franchise tax
returns has ever been audited by governmental authorities. The reserves for
taxes, assessments and governmental charges reflected on the Balance Sheet are
and will be sufficient for the payment of all unpaid taxes, assessments and
governmental charges payable by the Company with respect to the period ended on
the Balance Sheet Date. Since the Balance Sheet Date, the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations
for such period. The Company has withheld or collected from each payment made
to each of its employees, the amount of all taxes (including, but not limited
to, federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositaries.
5.18 Patents and Other Intangible Assets.
(a) Annex 5.18 contains a true and complete list of all
patents (including all reissues, divisions, continuations and extensions
thereof), patent applications, trademarks, trademark registrations,
servicemarks, trade names, copyrights, licenses and rights with respect to the
foregoing and other such property owned or used by the Company (the "Company
Intellectual Property") and, unless otherwise indicated on such Schedule such
Company Intellectual Property has been duly registered in, filed in or issued
by the United States Copyright Office or the United States Patent and Trademark
Office, the appropriate offices in the various States of the United States and
the appropriate offices of such other jurisdictions where such registration,
filing or issuance is required for the conduct of the business of the Company.
The Company (i) owns or has the right to use, free and clear of all Liens,
claims and restrictions, all patents, trademarks, service marks, trade names,
copyrights, licenses and rights with respect to the foregoing, used in or
necessary for the conduct of its business as now conducted or proposed to be
conducted, (ii) is not infringing upon or otherwise acting adversely to the
right or claimed right of any Person under or with respect to any patent,
trademark, service mark, trade name, copyright or license with respect thereto
and (iii) is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any patent, trademark, service mark, trade name, copyright
or other intangible asset, with respect to the use thereof or in connection
with the conduct of its business or otherwise. The Company has not made any
claim of a violation or infringement by others of its rights to or in
connection with the Company Intellectual Property and knows of no basis for the
making of any such claim. There are no interferences or other contested
proceedings in the United States Copyright Office, the United States Patent and
Trademark Office or any federal, state or local court or before any other
governmental agency or tribunal, relating to any of the Company Intellectual
Property, nor to Company's knowledge are any such interferences or proceedings
threatened.
(b) The Company owns and has the unrestricted right to use
all product rights, manufacturing rights, trade secrets, including know-how,
negative know-how, formulas, patterns, compilations, programs, devices,
methods, techniques, processes, inventions, designs, technical data, computer
software, and all information that derives independent economic value, actual
or potential, from not being generally known or known by competitors and which
the Company has taken reasonable steps to maintain in secret (all of the
foregoing of which are collectively referred to herein as "Company Technology")
required for or incident to the conduct of the Company's business, as it is
presently conducted and as it is proposed to be conducted, in each case free
and clear of any right, Lien or claim of others, including without limitation
former employers of its employees.
(c) Since its organization, the Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all Company Technology and all Inventions (as defined below). Since its
organization, each of the Company's employees and other Persons who, either
alone or in concert with others, developed, invented, discovered, derived, or
designed Company Technology or Inventions, or who has knowledge of or access to
information about Company Technology or Inventions, has entered into a written
agreement with the Company which provides that (i) this Company Technology,
other information and Inventions are proprietary to the Company and are not to
be divulged, misused or misappropriated, and (ii) this Company Technology,
other information and Inventions are to be disclosed by such employees and such
Persons to the Company and transferred by them to the Company, without any
further consideration being given therefor by the Company, together with all of
such employee's or other Person's right, title and interest in and to such
Company Technology, other information and Inventions and all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to such Company Technology, other information and Inventions. As used
herein, "Inventions" means all inventions, developments and discoveries which
during the period of an employee's or other Person's service to the Company he
or she makes or conceives of, either solely or jointly with others, that relate
to any subject matter with which his or her work for the Company may be
concerned, or relate to or are connected with the business, products, services
or projects of the Company, or relate to the actual or demonstrably anticipated
research or development of the Company or involve the use of the Company's
time, material, facilities or trade secret information.
(d) The Company has not sold, transferred, assigned,
licensed or subjected to any Lien, any Company Technology, trade secret,
know-how, invention, design, process, computer software or technical data, or
any interest therein, necessary or useful for the development, manufacture,
use, operation or sale of any product or service presently under development or
manufactured, sold or rendered by the Company.
(e) No director, officer, employee, agent or shareholder of
the Company owns or has any right in the or Company Technology, or any patents,
trademarks, service marks, trade names, copyrights, licenses or rights with
respect to the foregoing, or any inventions, developments, or discoveries used
in or necessary for the conduct of the Company's business as now conducted or
as proposed to be conducted.
(f) The Company has not received any communication alleging
or stating that the Company or any Designated Key Employee has violated or
infringed, or by conducting business as proposed, would violate or infringe,
any patent, trademark, service mark, trade name, copyright, trade secret,
proprietary right, process or other intellectual property of any other Person.
5.19 Employment Benefit Plans--ERISA. The Company does not
maintain or make contributions to any pension, profit sharing or other employee
retirement benefit plan. The Company has no material liability with respect to
any such plan (including, without limitation, any unfunded liability or any
accumulated funding deficiency) or any material liability to the Pension
Benefit Guaranty Corporation or under Title IV of the Employee Retirement
Income Security Act of 1974, as amended, with respect to a multi-employer
pension benefit plan, nor would the Company have any such liability if any such
plan were terminated or if the Company withdrew, in whole or in part, from any
multi-employer plan.
5.20 Title to Property and Encumbrances; Leases. The Company has
good and marketable title to all of its properties and assets, including
without limitation the properties and assets reflected in the Balance Sheet and
the properties and assets used in the conduct of its business, except for
properties disposed of in the ordinary course of business since the Balance
Sheet Date and except for properties held under valid and subsisting leases
which are in full force and effect and which are not in default, subject to no
Lien, except those which are shown and described on the Balance Sheet and
except for Permitted Liens (as hereinafter defined). All material leases under
which the Company is lessee of any real or personal property are valid,
enforceable and effective in accordance with their terms (subject to the laws
of bankruptcy, insolvence and other similar laws affecting the enforcement of
creditors' rights generally); there is not under any such lease any existing or
claimed default by the Company or event or condition which with notice or lapse
of time or both would constitute a default by the Company. No lease under which
the Company is lessee of any real property contains any provision which either
(i) treats a sale or transfer of any or all of the outstanding stock of the
Company or a merger of the Company with another Person as an assignment of the
Company's leasehold interest, or (ii) otherwise requires the consent of the
lessor in the event of any such sale, transfer or merger.
5.21 Condition of Properties. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair and are adequate and
sufficient for the Company's business.
5.22 Insurance Coverage. There is in full force and effect one or
more policies of insurance issued by insurers of recognized responsibility,
insuring the Company and its properties and business against such losses and
risks, and in such amounts, as are customary in the case of corporations of
established reputation engaged in the same or similar business and similarly
situated. The Company has not been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that it will be unable to
renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable as those presently in effect, other than possible
increases in premiums that do not result from any act or omission of the
Company.
5.23 Litigation. Except as disclosed on Annex 5.23 hereto, there
is no legal action, suit, arbitration or other legal, administrative or other
governmental investigation, inquiry or proceeding (whether federal, state,
local or foreign) pending or threatened against or affecting (i) the Company or
its properties, assets or business (existing or contemplated), or (ii) any
Designated Key Employee, before any court or governmental department,
commission, board, bureau, agency or instrumentality or any arbitrator. After
reasonable investigation, neither the Company nor any Designated Key Employee
of nor attorney for the Company is aware of any fact which might result in or
form the basis for any such action, suit, arbitration, investigation, inquiry
or other proceeding. Neither the Company nor any Designated Key Employee is in
default with respect to any order, writ, judgment, injunction, decree,
determination or award of any court or of any governmental agency or
instrumentality (whether federal, state, local or foreign).
5.24 Financial Projections. The Company has heretofore furnished
to Investor a copy of its Financial Projections dated January 1998 (which
Financial Projections are referred to herein as the "Projections"), copies of
which have been initialed by the Company and Investor for purposes of
identification. While the Company does not warrant that it will achieve the
financial projections appearing in the Projections, the Projections disclose
all material assumptions used in the preparation of these projections; all such
assumptions are reasonable; the Company has a reasonable basis for making these
projections; the Company has no reason to believe that the Company will be
unable to meet these projections; and these projections fairly present the
information which they purport to show.
5.25 Registration Rights. Except as set forth in Annex 5.25
hereto, the Company has not agreed to register under the Securities Act any of
its authorized or outstanding securities.
5.26 Licenses. The Company possesses from the appropriate agency,
commission, board and governmental body and authority, whether state, local or
federal, all material licenses, permits, authorizations, approvals, franchises
and rights which are necessary for the Company to engage in the business
currently conducted by it and proposed to be conducted, including without
limitation the development, manufacture, use, sale and marketing of its
existing and proposed products and services; and all such certificates,
licenses, permits, authorizations and rights are in full force and effect, and,
to the best of the Company's knowledge, will not be revoked, canceled,
withdrawn, terminated or suspended.
5.27 Interested Party Transactions. Except as disclosed on Annex
5.27 hereto, no officer, director or shareholder of the Company or any
Affiliate or "associate" (as this term is defined in Rule 405 of the Commission
under the Securities Act) of any such Person or the Company has or has had,
either directly or indirectly, (a) an interest in any Person which (i)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (ii) purchases from or
sells or furnishes to the Company any goods or services, or (b) a beneficial
interest in any transaction, contract or agreement to which the Company is a
party or by which it may be bound or affected.
5.28 Minute Books and Check Authorizations. The minute books of
the Company provided to Paul, Hastings, Janofsky & Walker LLP, special counsel
for the Investor, contain all resolutions adopted by directors and shareholders
since the incorporation of the Company and fairly and accurately reflect, in
all material respects, all matters and transactions referred to in such
minutes. The Board has adopted, and there is in full force and effect, a policy
which prohibits the issuance of any check or draft by the Company in any amount
in excess of $10,000 on any deposit account of the Company unless the same has
been signed by two officers of the Company who have been so authorized by
action of the Board.
5.29 Financial Statements in Public Filings. All consolidated
financial statements of the Company (including notes to such financial
statements) included in the Company's Annual report on Form 10-KSB for the
fiscal year ended February 28, 1997 (the "Year End Financial Statements") filed
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the unaudited financial statements of the Company included in
Reports on Form 10-QSB for the quarters ended May 31, August 31, and November
30 (the "Interim Financial Statements") filed pursuant to the Exchange Act (a)
are in accordance with the books and records of the Company, (b) present fairly
the consolidated financial position, results of operations, changes in
shareholders' equity, and cash flow (as applicable) of the Company as of the
respective dates and for the respective periods indicated, except, in the case
of the Interim Financial Statements, for normal year-end audit adjustments, and
(c) except for the absence of footnotes in the Interim Financial Statements,
have been prepared in conformity with generally accepted accounting principles
applied in all material respects on a consistent basis through all the periods
involved. The Company has no material liabilities that are required by
generally accepted accounting principles to be disclosed on a balance sheet
other than (i) those disclosed in the Year End Financial Statements or the
Interim Financial Statements, and (ii) those arising in the ordinary course of
business since November 30, 1997.
5.30 Commission Reports and Other Documents. Each registration
statement, proxy statement or report filed with the Commission and not
withdrawn by the Company since January 11, 1996, on the date of effectiveness
in the case of such registration statements, or on the date of filing in the
case of such reports, or on the date of mailing in the case of such proxy
statements, (x) complied as to form in all material respects with the
requirements of the applicable statute (Securities Act in the case of
registration statements and Exchange Act in the case of proxy statements and
reports), rules and regulations of the Commission, and (y) did not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Since January 11,
1996, the Company has filed all reports required to be filed by it with the
Commission, and all such reports complied as to form in all material respects
with the applicable requirements of law. All financial statements and schedules
included in the documents referred to in the preceding sentence were prepared
in accordance with GAAP (except for the absence of footnotes in the Interim
Financial Statements included in such documents), applied in all material
respects on a consistent basis except as noted therein, and fairly present the
information purported to be shown therein.
5.31 Customer Orders. Annex 5.31 attached hereto contains a true
and complete list, as of March 31, 1998, of all open or unfulfilled customer
"cutting ticket" requests or orders made, taken or entered into by the Company
in excess of $25,000 per customer. Such list identifies the name of the
customer party, when such customer "cutting ticket" request or order was taken
or entered into, and the dollar amount related thereto. Each customer "cutting
ticket" request or order included in Annex 5.31 and any customer "cutting
ticket" request or order made, taken or entered into by the Company since March
31, 1998, were made, taken or entered into in the ordinary course of business,
consistent with the Company's past practices.
5.32 Disclosure. There is no fact which the Company has not
disclosed to the Investor in writing which materially and adversely affects
nor, insofar as the Company can now foresee, will materially and adversely
affect, the properties, business, prospects, results of operation or condition
(financial or other) of the Company or the ability of the Company to perform
its obligations under this Agreement, the Warrant Certificate, or the
Registration Rights Agreement or observe the terms of the Certificate. The
information contained in the Projections, in this Agreement and in any writing
furnished pursuant hereto or in connection herewith is true, complete and
correct, and such information does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or herein or necessary to make the statements therein or herein not misleading.
6. Conditions of Parties' Obligations.
6.1 Conditions of Investor's Obligations at the Closing. The
obligation of Investor to purchase and pay for the Preferred Stock and the
Investor Warrants is subject to the fulfillment prior to or on the Closing Date
of the following conditions, any of which may be waived in whole or in part by
Investor.
(a) No Errors, etc. The representations and warranties of
the Company under this Agreement shall be deemed to have been made again on the
Closing Date and shall then be true, complete and correct.
(b) Compliance with Agreement. The Company shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it on or before the Closing Date.
(c) No Default. There shall not exist on the Closing Date
any Default (as hereinafter defined) or Event of Default (as hereinafter
defined) or any event or condition which, with the giving of notice or lapse of
time or both, would constitute a Default or Event of Default.
(d) Certificate of Officer. The Company shall have
delivered to Investor a certificate dated the Closing Date, executed by its
President, certifying the satisfaction of the conditions specified in
subsections (a), (b) and (c) of this Section 6.1.
(e) Certificate of Designated Key Employees. The Company
shall have delivered to Investor a certificate dated the Closing Date, executed
by the Designated Key Employees, certifying, to the best of their knowledge,
upon having made a reasonable investigation sufficient to express an informed
view, the satisfaction of the conditions specified in subsections (a), (b) and
(c) of this Section 6.1.
(f) Opinion of the Company's Counsel. The Investors shall
have received from Reed Smith Shaw & McClay LLP, a limited liability
partnership, counsel for the Company, a favorable opinion dated the Closing
Date substantially in the form of Annex 6.1(f) hereto.
(g) Certificate. The Certificate shall have been filed with
the Secretary of State of the State of Delaware and a copy of the Certificate
certified by the Secretary of State of the State of Delaware shall have been
delivered to special counsel for the Investor, Paul, Hastings, Janofsky &
Walker LLP.
(h) Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under applicable
state securities laws shall have been obtained for the lawful execution,
delivery and performance of this Agreement and the performance of the
Certificate, including without limitation the offer, sale, issue and delivery
of the Securities.
(i) Supporting Documents. Investor shall have received the
following:
(1) Copies of resolutions of the Board, certified by
the Secretary of the Company, authorizing and approving the Certificate and the
execution, delivery and performance of this Agreement, the Warrant
Certificates, the Escrow Agreement and the Registration Rights Agreement and
the performance of the Certificate, and all other documents and instruments to
be delivered pursuant hereto and thereto;
(2) A certificate of incumbency executed by the
Secretary of the Company certifying the names, titles and signatures of the
officers authorized to execute the documents referred to in subparagraph (1)
above and further certifying that the Certificate of Incorporation, Series A
Certificate and Bylaws of the Company delivered to the Investor at the time of
the execution of this Agreement have been validly adopted and have not been
amended or modified, except to the extent provided in the Certificate; and
(3) Such additional supporting documentation and
other information with respect to the transactions contemplated hereby as the
Investor or its special counsel, Paul, Hastings, Janofsky & Walker LLP, may
reasonably request.
(j) Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions, shall be satisfactory in
form and substance to Investor and to its special counsel, Paul, Hastings,
Janofsky & Walker LLP.
(k) Stockholders Agreement. David N. DeBaene, Thomas A.
Lisi, Anthony P. Santucci, Norman DeBaene, Annette DeBaene and Steev Panneton
(the "Senior Executives"), Investor and the Company shall have entered into a
Stockholders Agreement substantially in the form of Annex 6.1(k) hereto (the
"Stockholders Agreement") and the certificates evidencing the Common Stock held
by the Senior Executives shall have been endorsed with the legend required by
the Stockholders Agreement.
(l) Registration Rights Agreement. The Company and the
Investor shall have entered into a Registration Rights Agreement substantially
in the form of Annex 6.1(l) hereto (the "Registration Rights Agreement").
(m) Escrow Agreement. The Company, Investor and Marine
Midland Bank, N.A. (the "Escrow Agent") shall have entered into an Escrow
Agreement substantially in the form of Annex 6.1(m) hereto (the "Escrow
Agreement") and the Company shall have deposited with the Escrow Agent the sum
of $1,750,000 less expenses of this transaction (the "Escrow Amount").
(n) Consent of the Holders of the Series A Preferred Stock.
The holders of a majority of the Series A Preferred Stock shall have consented
to the issuance of the Preferred Stock in accordance with the terms of the
Series A Certificate of Designation.
(o) Closing Fees and Expenses. The Company shall have paid
Investor a Closing Fee of $50,000 and also have paid the fees and expenses of
Investor's counsel and consulting fees and other reasonable expenses incurred
by the Investor to investigate and evaluate the Company and its business
prospects.
(p) Waiver of Piggy Back Registration Rights. The Company
has provided the Investor with copies of written waivers from holders of
Consultant Warrants with respect to such warrants' "piggy back" registration
rights in connection with any registration of the Conversion Stock or Warrant
Stock. The Company shall use its best efforts to obtain written waivers of
"piggy back" registration rights with respect to the Company's Class PW
Warrants and Class W Warrants in connection with any registration of the
Conversion Stock or Warrant Stock.
(q) Waiver of Severance Trigger. The Company has provided
the Investor with a copy of a written waiver executed by David N. DeBaene to
the effect that this Agreement and the transactions contemplated hereby shall
not result in any severance payment to him under his employment agreement with
the Company or otherwise.
6.2 Conditions of Company's Obligations. The Company's obligation
to issue and sell the Preferred Stock and the Investor Warrants to Investor on
the Closing Date is subject to the fulfillment prior to or at the Closing Date
of the conditions precedent specified in paragraphs (g), (h) and (n) of Section
6.1 hereof.
7. Affirmative Covenants. The Company agrees that unless the Holders
of a Majority of the Restricted Stock (as hereinafter defined) otherwise agree
in writing, so long as Investor is a Holder of Restricted Stock, the Company
(and each of its Subsidiaries unless the context otherwise requires) will do
the following:
7.1 Maintain Corporate Rights and Facilities. Maintain and
preserve its corporate existence and all rights, franchises and other authority
adequate for the conduct of its business; maintain its properties, equipment
and facilities in good order and repair; and conduct its business in an orderly
manner without voluntary interruption. ` 7.2 Maintain Insurance.
(a) Maintain in full force and effect a policy or policies
of insurance issued by insurers of recognized responsibility, insuring it and
its properties and business against such losses and risks, and in such amounts,
as are customary in the case of corporations of established reputation engaged
in the same or a similar business and similarly situated;
(b) Within thirty (30) days after the Closing Date obtain,
and thereafter maintain in full force and effect policies of term life
insurance issued by issuers of recognized responsibility, in the amount of $2
million on the life of David N. DeBaene with the Company as the sole
beneficiary and so long as he is an employee of the Company.
7.3 Pay Taxes and Other Liabilities. Pay and discharge, before
the same become delinquent and before penalties accrue thereon, all taxes,
assessments and governmental charges upon or against it or any of its
properties, and all its other material liabilities at any time existing, except
to the extent and so long as (i) the same are being contested in good faith and
by appropriate proceedings in such manner as not to cause any materially
adverse effect upon its financial condition or the loss of any right of
redemption from any sale thereunder, and (ii) it shall have set aside on its
books reserves (segregated to the extent required by generally accepted
accounting principles) deemed by it adequate with respect thereto.
7.4 Records and Reports. Accurately and fairly maintain its books
of account in accordance with generally accepted accounting principles, as
approved from time to time by a majority of the Board and its independent
certified public accountants; employ a firm of independent certified public
accountants, which firm is either one of the five largest national accounting
firms or which is approved by the Holders of the Majority of the Restricted
Stock, to make annual audits of its accounts in accordance with generally
accepted auditing standards; permit Investor and its representatives to have
access to and to examine its properties, books and records (and to copy and
make extracts therefrom) at such reasonable times and intervals as Investor may
request and to discuss its affairs, finances and accounts with its officers and
auditors, all to such reasonable extent and at such reasonable times and
intervals as Investor may request; and the Company shall also furnish each
Holder of the Securities:
(a) As soon as available, and in any event within thirty
(30) days after the close of each monthly accounting period, financial
statements prepared on a consolidated basis (together with consolidating
statements in support thereof) consisting of a balance sheet of the Company as
of the end of such monthly accounting period and statements of income,
stockholders' equity and cash flow for such monthly accounting period, and for
the portion of the Company's fiscal year ending with the last day of such
monthly accounting period, setting forth in comparative form (i) the figures
for such period, figures for the corresponding periods of the previous fiscal
year and the budgeted figures for such periods prepared and submitted pursuant
to Section 7.5 hereof, and (ii) as of the end of each fiscal quarter, the
figures for such quarter, the figures for the corresponding quarter of the
preceding fiscal year and the budgeted figures for such current quarter
prepared and submitted pursuant to Section 7.5 hereof, all in reasonable
detail, prepared and certified by the chief executive officer or the chief
financial officer of the Company as fairly presenting the financial condition
as of the balance sheet date and results of operations and cash flows for the
period then ended in accordance with GAAP consistently applied, subject to
normal year end adjustments which in the aggregate shall not be material;
(b) As soon as available, and in any event within ninety
(90) days after the close of each fiscal year of the Company (commencing with
the year ended February 28, 1998), financial statements prepared on a
consolidated basis (together with consolidating statements in support thereof)
consisting of a balance sheet of the Company, as of the end of such fiscal
year, together with statements of income, stockholders' equity and cash flow
for such fiscal year, setting forth in comparative form the figures for such
fiscal year and for the previous fiscal year, all in reasonable detail, and
duly certified by an opinion unqualified as to scope of a firm of independent
certified public accountants, which firm is one of the four or five largest
national accounting firms, to the effect that such financial statements fairly
present the financial condition as of the balance sheet date and results of
operations and cash flows for the twelve-month period then ended in accordance
with GAAP consistently applied;
(c) So long as any Preferred Stock or any of the Warrants
remain outstanding, promptly upon learning of the occurrence of a Default or an
Event of Default or a condition or event which with the giving of notice or the
lapse of time, or both, would constitute a Default or an Event of Default, a
certificate signed by the chief executive officer or chief financial officer of
the Company describing such Default, Event of Default or condition or event and
stating what steps are being taken to remedy or cure the same;
(d) Promptly upon the receipt thereof by the Company or the
Board, copies of all reports, all management letters and other detailed
information submitted to the Company or the Board by independent accountants in
connection with each annual or interim audit or review of the accounts or
affairs of the Company made by such accountants;
(e) Promptly after the same are available, copies of all
such proxy statements, financial statements and reports as the Company shall
send to its stockholders, and promptly upon the transmission thereof copies of
all registration statements, notifications, proxy statements, reports and other
documents and writings which the Company may file with or furnish to the
Commission or any governmental authority at any time substituted therefor; and
(f) With reasonable promptness, such other information
relating to the finances, properties, business and affairs of the Company and
each Subsidiary (as hereinafter defined), as Investor reasonably may request
from time to time.
7.5 Preparation of Budget. Within sixty (60) days after the
Closing Date, for the Company's partial fiscal year ending after the Closing
Date, and at least thirty (30) days prior to the beginning of each subsequent
fiscal year, prepare and submit to the Board, and furnish to Investor a copy
of, an annual plan for such year which shall include monthly capital and
operating expense budgets, cash flow statements and profit and loss and
quarterly balance sheet projections, itemized in such detail as the Board may
request. A majority of the members of the Board shall approve such budgets,
statements and projections. Each annual plan shall be modified as often as
necessary, but in any event every six (6) months, to reflect material changes
required as a result of operating results and other events that occur, or may
be reasonably expected to occur, during the year covered by the annual plan,
and copies of these modifications shall be submitted to and approved by the
Board and furnished to Investor. The Company may dispense with any six-month
modification if the Board reasonably determines that no material change is
required in the budget for that six-month fiscal period.
7.6 Notice of Litigation and Disputes. Promptly notify Investor
of each legal action, suit, arbitration or other administrative or governmental
investigation or proceeding (whether federal, state, local or foreign)
instituted or threatened against the Company which could materially and
adversely affect its condition (financial or otherwise), properties, assets,
liabilities, business, operations or prospects, or of any occurrence or dispute
which involves a reasonable likelihood of any such action, suit, arbitration,
investigation or proceeding being instituted.
7.7 Directors' Meetings. Hold meetings of the Board at least once
every two (2) months; give Investor at least five (5) days' notice of, and
permit an officer or other representative of Investor or any Person designated
by Investor to attend as an observer, all meetings of the Board and all
meetings of committees of the Board; furnish Investor and its designated
representative with a complete and accurate copy of the minutes and other
records of all meetings and other proceedings of the Board and its committees
as well as of the written consents of members of the Board by which action is
taken by the Board or any committee without a meeting, and minutes and written
consents relating to action taken by the shareholders of the Company; provided,
that, if a meeting of the Board or any committee thereof is required to be held
on shorter notice than five (5) days, waiver of the notice contained in this
Section 7.7 shall not be unreasonably withheld; and also furnish Investor and
its designated representative with a complete and accurate copy of the minutes
of the meetings and the written consents with respect to action taken without a
meeting of the board of directors and committees of each Subsidiary and of the
stockholders of each Subsidiary. The Company will pay the reasonable
out-of-pocket expenses of such Persons in attending such meetings.
7.8 Conduct of Business. Conduct its business in accordance with
all applicable provisions of federal, state, local and foreign law.
7.9 Replacement of Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any certificate representing any of the Securities, issue a new
certificate representing such Securities in lieu of such lost, stolen,
destroyed, or mutilated certificate.
7.10 Compliance with Section 6. Use its best efforts to cause the
conditions specified in Sections 6.1 and 6.2 hereof to be met by the Closing
Date.
7.11 Stockholders Agreement. To the extent that it may lawfully do
so, purchase all shares of Common Stock which it is entitled to purchase under
the Stockholders Agreement, and take all lawful action necessary or advisable
to enforce its rights under such Stockholders Agreement.
7.12 Securities Law Filings. Make all filings necessary to perfect
in a timely fashion exemptions from (i) the registration and prospectus
delivery requirements of the Securities Act and (ii) the registration or
qualification requirements of all applicable securities or blue sky laws of any
state or other jurisdiction, for the issuance of the Securities to Investor.
7.13 Composition of the Board of Directors; Compensation
Committee.
(a) At all times cause at least one Person designated by
the Holders of a Majority of the Restricted Stock to be elected as and remain a
director of the Company, and reimburse such Person so designated for his
out-of-pocket expenses in connection with attending meetings of the Board and
all committees thereof and all expenses otherwise incurred in fulfilling his
duty as director.
(b) The Board shall establish a compensation committee of
three directors (the "Compensation Committee"), one member of which shall be
selected by the Holders of a Majority of the Preferred Stock, and the other two
members of which shall be selected by the Board. All action taken by the
Compensation Committee shall require the unanimous vote or written consent of
all of the three members. All matters affecting compensation of any officer or
director of the Corporation or any Subsidiary or any employee of or consultant
or advisor to the Corporation or any Subsidiary whose annual base compensation
is at least $50,000 shall require approval of the Compensation Committee in
order to be effective. No option or warrant to purchase Common Stock, stock
appreciation right, phantom stock (or similar payment) or stock issuance to any
officer, director or employee of the Corporation shall be granted, effected,
modified or accelerated unless the same has been approved by the Compensation
Committee. In addition, the Compensation Committee shall have the exclusive
authority to administer and take all action permitted or required to be taken
by the Board or any committee of the Board under all stock option plans of the
Company and under any other plan or arrangement that provides for the issuance
of Common Stock, stock appreciation rights, phantom stock or other similar
benefits to any employee of or any advisor or consultant to the Corporation or
any Subsidiary.
7.14 Compliance With Certificate and Bylaws. Perform and observe
all requirements of the Warrant Certificate, the Company's Bylaws and
Certificate of Incorporation and the Certificate, including without limitation
its obligations to the Holders of Securities set forth in the Certificate, the
Company's Certificate of Incorporation, the Warrant Certificate and Bylaws.
7.15 Internal Accounting Controls. Devise and maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements, and
to maintain accountability for assets, (c) access to assets is permitted only
in accordance with management's general or specific authorization, and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
7.16 Use of Proceeds. Use the proceeds from the sale of the
Preferred Stock and the Warrants hereunder substantially as set forth in Annex
7.16 hereof.
7.17 Union Matters.
(a) So long as Investor is a Holder of Securities, in every
case where the choice of shippers is controlled by the Company, the Company
will cause all products ordered by its customers to be shipped by shippers that
have recognized one or more unions as the collective bargaining representative
of some or all of its workers; provided that exceptions will be permitted if
Investor is satisfied there is no viable union transportation option available.
(b) So long as Investor is a Holder of Securities:
(1) In the event of any attempt by any union to
organize or seek to represent employees of the Company or any of its
Affiliates, the Company will recognize the union as the representative of its
workers upon a showing of majority support through a formal gathering of cards
for the union in an appropriate unit.
(2) In connection with any organizing done by a
union, the Company recognizes the right of its employees to choose their
bargaining representative without interference from their employer (the Company
or its Affiliates). Accordingly, the Company and its officers, directors,
employees and agents shall refrain, and shall cause its Affiliates to refrain,
from its or their support of or opposition to the union and from actively
campaigning in opposition to the designation of such union as the
representative of such employees.
7.18 Dividends. The Company shall pay to the holders of record of
the Preferred Stock when and as declared by the Board, and out of any funds
legally available therefor, cumulative cash dividends at the rate and in the
manner provided in the Certificate.
7.19 PIK Dividends and Dividend Warrants. If the Company chooses
to pay PIK Dividends (as defined in Section 2(a)(iii) of the Certificate) in
the manner permitted in and provided by the Certificate, then concurrently with
each PIK Dividend, the Company shall issue to the holders of the Preferred
Stock issued on the Closing Date, ratably in proportion to the number of shares
held, Dividend Warrants representing the right to purchase in the aggregate
53,388 shares of Common Stock, appropriately increased to adjust for the effect
of antidilution provisions of the Series A Preferred Stock triggered upon
issuance of the PIK Dividend and Dividend Warrant. For purposes of illustration
only, and ignoring the effects of any antidilution caused by events other than
as contemplated by this transaction (i) if in the first six month period the
Company elects to pay PIK Dividends, it shall deliver to the Investor 150
shares of Series B Preferred Stock (((2,500*$1,000*6%)/$1000)=150) convertible
into 30,000 shares of Common Stock and Dividend Warrants representing the right
to purchase 54,000 shares of Common Stock (the additional 612 Dividend Warrants
to adjust for the effect of anitdilution provisions of the Series A Preferred
Stock) and (ii) if in the second six month period the Company elects to pay PIK
Dividends, it shall deliver to the Investor 159 shares of Series B Preferred
Stock (((2,650*$1,000*6%)/$1000)=159) convertible into 31,800 shares of Common
Stock and Dividend Warrants representing the right to purchase 54,000 shares of
Common Stock (the additional 612 Dividend Warrants to adjust for the effect of
anitdilution provisions of the Series A Preferred Stock).
7.20 Escrow of Certain Proceeds. As provided in Section 6.1(m),
the Company has deposited the Escrow Amount with the Escrow Agent. The Escrow
Amount shall be released to the Company if, but only if, all of the following
conditions are satisfied: (i) the Company shall have delivered to Investor its
audited financial statements for the fiscal year ended February 28, 1998 no
later than May 29, 1998, (ii) such financial statements shall meet the
requirements of Section 7.4(b) and shall be accompanied by both the opinion of
the Company's auditing firm with respect to such financial statements (as
required by Section 7.4(b)) and a certificate of the chief executive officer
and chief financial officer of the Company certifying that such financial
statements fairly present the financial condition of the Company as February
28, 1998 and the results of its operations and cash flows in accordance with
GAAP consistently applied, and (iii) in Investor's sole judgment the financial
condition, results of operations and cash flows of the Company reflected in
these financial statements are in material conformity with the information
previously furnished to Investor with respect to these financial matters. If
any of these conditions is not satisfied, then the Company will promptly give
written instructions to the Escrow Agent to pay over to Investor the entire
Escrow Amount, and Investor will give written instructions to the Escrow Agent
to pay over to the Company all income earned on the funds in escrow. Such
payments shall not result in any rescission or cancellation of the Preferred
Stock or Investor Warrants and shall not affect Investor's rights under or with
respect to this Agreement, the Securities, the Certificate or the Ancillary
Agreements.
8. Negative Covenants. The Company agrees that unless the Holders of a
Majority of the Restricted Stock otherwise agree in writing, so long as
Investor is a Holder of Securities, the Company (and each of its Subsidiaries
unless the context otherwise requires) will not do any of the following:
8.1 Senior or Parity Securities. So long as any Preferred Stock
remains outstanding, issue, assume or suffer to exist (a) any security that is
senior to or on a parity with the Preferred Stock, or (b) any Indebtedness for
Borrowed Money that is an Equity Security or is issued with an Equity Security.
8.2 Private Offerings. Except in a public offering registered
under the Securities Act, issue or sell any Equity Security unless each issuee
and purchaser agrees in writing with the Company not to offer to sell, sell,
make any short sale of, loan, grant any option for the purpose of, or otherwise
dispose of, any Equity Security for at least the same period as shall be
required of officers and directors of the Company prior to and after the
closing of any public offering of securities of the Company registered under
the Securities Act, except that the Board shall have the right to dispense with
this requirement in the case of sales of Common Stock to individuals who are
not directors or officers of the Company and who purchase less than one-tenth
of one percent (0.1%) of the then fully diluted Common Stock outstanding.
8.3 Changes in Type of Business. Make any substantial change in
the character of its business.
8.4 Loans; Guarantees. Make any loan or advance to any Person,
including, without limitation any employee or director of the Company or any
Subsidiary, except advances for travel and entertainment expenses and similar
expenditures in the ordinary course of business or under the terms of an
employee stock option plan or stock purchase agreement approved by the
Corporations Committee; or guarantee, directly or indirectly, any Indebtedness
except for trade accounts of the Company or any Subsidiary arising in the
ordinary course of business.
8.5 Restrictive Agreements. Enter into or become a party to any
agreement or instrument which by its terms would violate or be in conflict with
or restrict the Company's performance of, its obligations under this Agreement,
the Warrant Certificates, the Certificate, the Registration Rights Agreement,
the Escrow Agreement or the Stockholders Agreement.
9. Enforcement.
9.1 Remedies at Law or in Equity. If any Default shall occur or
if any representation or warranty made by or on behalf of the Company in this
Agreement or in any certificate, report or other instrument delivered under or
pursuant to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the Closing Date or the
Subsequent Closing Date or as of the date it was made, furnished or delivered,
the Holder of any Security may proceed to protect and enforce its rights by
suit in equity or action at law, whether for the specific performance of any
term contained in this Agreement, or any of the Warrant Certificates, the
Registration Rights Agreement or the Escrow Agreement (the "Ancillary
Agreements") or the Certificate or for an injunction against the breach of any
such term or in aid of the exercise of any power granted in this Agreement or
the Certificate, or to enforce any other legal or equitable right of such
Holder of any such Securities, or to take any one or more of such actions. In
the event a Holder brings such an action against the Company, the Holder shall
be entitled to recover from the Company all fees, costs and expenses of
enforcing any right of such Holder under or with respect to this Agreement, any
Ancillary Agreement or the Certificate, including without limitation such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
9.2 Cumulative Remedies. None of the rights, powers or remedies
conferred upon any Holder of Preferred Stock, Warrants or Common Stock shall be
mutually exclusive, and each such right, power or remedy shall be cumulative
and in addition to every other right, power or remedy, whether conferred hereby
or any Ancillary Agreement or by the Certificate or now or hereafter available
at law, in equity, by statute or otherwise.
9.3 No Implied Waiver. Except as expressly provided in this
Agreement, no course of dealing between the Company and Investor or the Holder
of any Security and no delay in exercising any such right, power or remedy
conferred hereby or any Ancillary Agreement or by the Certificate or now or
hereafter existing at law in equity, by statute or otherwise, shall operate as
a waiver of, or otherwise prejudice, any such right, power or remedy.
10. Rights of First Refusal.
10.1 Subsequent Offerings. Investor shall have the right of first
refusal to purchase all (or any part of all) Equity Securities that the Company
may, from time to time, propose to sell and issue after the Closing Date, other
than the Equity Securities excluded by Section 10.5 hereof.
10.2 Exercise of Rights. If and each time the Company proposes to
issue any Equity Securities, it shall give Investor written notice of its
intention, describing the Equity Securities, the price, and the general terms
and conditions upon which the Company proposes to issue the same. Investor
shall have thirty-five (35) days from the giving of such notice to agree to
purchase Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased.
10.3 Issuance of Equity Securities to Other Persons. If Investor
fails to exercise in full the rights of first refusal within such thirty-five
(35)-day period by giving the agreement referred to in Section 10.2, the
Company shall have sixty (60) days thereafter to complete the sale of the
Equity Securities in respect of which Investor's rights were not exercised, at
a price and upon general terms and conditions no more favorable to the
purchasers thereof than specified in the Company's notice to the Investors
pursuant to Section 10.2 hereof. If the Company has not sold all of these
Equity Securities within such sixty (60) days, the Company shall not thereafter
issue or sell any of such Equity Securities, without first offering such
securities to Investor in the manner provided above.
10.4 Termination of Right of First Refusal. The rights of first
refusal established by this Section 10 shall terminate upon the closing of an
underwritten public offering of Common Stock made pursuant to an effective
registration statement under the Securities Act in which the obligation of the
underwriters is to take all of such stock being offered if any is taken. Such a
firmly underwritten public offering that raises at least $10 million of gross
proceeds for the account of the Company and has a per share price to the public
for the Common Stock of at least 200% of the "Conversion Price" of the
Preferred Stock (as this quoted term is defined in the Certificate) immediately
prior to the closing of such public offering, is herein called a "Qualified
Offering."
10.5 Excluded Securities. The rights of first refusal established
by this Section 10 shall have no application to any of the following Equity
Securities: (A) the first 250,000 shares of Common Stock sold to employees or
directors of advisors under plans approved by the Compensation Committee of the
Company upon the exercise of stock options or pursuant to stock purchase
agreements, which options and agreements are approved by the Board and, as to
options granted issued after the Closing Date, the Compensation Committee, and
the options to purchase such shares, (B) the 360,545 shares of Common Stock
issuable upon exercise of the "A" Warrants referred to in Section 5.3; (C) the
360,545 shares of Common Stock issuable upon exercise of the "B" Warrants
referred to in Section 5.3, (D)the 369,024 shares of Common Stock issuable upon
exercise of the Consultant Warrants referred to in Section 5.3, (E) the 88,889
shares of Common Stock issuable upon conversion of the 11% Convertible Notes
referred to in Section 5.3, (F) the 112,500 shares of Common Stock issuable
upon exercise of the Class PW Warrants issued in conjunction with 11%
Convertible Notes referred to in Section 5.3, (G) the 68,550 shares of Common
Stock issuable upon exercise of the Class W Warrants issued in conjunction with
12% Convertible Notes referred to in Section 5.3 , (H) the 32,777 shares of
Common Stock issuable upon exercise of the outstanding Underwriter Purchase
Options referred to in Section 5.3, (I) the 62,500 shares of Common Stock
issuable upon exercise of Consultant Warrants referred to in Section 5.3, (J)
the 313,000 shares of Common Stock issuable upon conversion of the Series A
Preferred Stock referred to in Section 5.3, (K) the Conversion Stock, (L) the
Warrant Stock, (M) stock issued pursuant to any rights or agreements including,
without limitation, convertible securities, options and warrants, provided that
the rights of first refusal established by this Section 10 applied with respect
to the initial sale or grant by the Company of such rights or agreements, or by
virtue of this Section 10.5 the rights of first refusal did not apply to such
rights or agreements, (N) each Equity Security issued for a consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination, (O) any Equity Security that is issued by the Company as part of
an underwritten public offering referred to in Section 10.4 hereof, (P) shares
of Common Stock issued in connection with any stock split, stock dividend or
reverse stock split, and (Q) any Equity Security which the Holders of a
Majority of the Restricted Stock agree in writing shall not be subject to this
Section 10.
11. Definitions. Unless the context otherwise requires, the terms
defined in this Section 11 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined in this Section
11 and those accounting terms used in this Agreement not defined in this
Section 11 shall, except as otherwise provided for herein, be construed in
accordance with those generally accepted accounting principles that the Company
is required to employ by the terms of this Agreement. If and so long as the
Company has any Subsidiary, the accounting terms defined in this Section 11 and
those accounting terms appearing in this Agreement but not defined in this
Section 11 shall be determined on a consolidated basis for the Company and each
of its Subsidiaries, and the financial statements and other financial
information to be furnished by the Company pursuant to this Agreement shall be
consolidated and presented with consolidating financial statements of the
Company and each of its Subsidiaries.
"Affiliate" shall mean any Person which directly or indirectly controls,
is controlled by, or is under common control with, the indicated Person.
"Agreement" shall mean this Agreement, as the same may be amended,
modified or restated from time to time.
"Ancillary Agreement" shall have the meaning assigned to it in Section
9.1 hereof.
"Balance Sheet" and "Balance Sheet Date" shall have the meanings assigned
to these terms in Section 5.12 hereof.
"Board" shall mean the Board of Directors of the Company.
"Certificate" shall have the meaning assigned to it in Section 1(a)
hereof.
"Closing" and "Closing Date" shall have the meaning assigned to these
terms in Section 3.
"Common Stock" shall have the meaning assigned to it in Section 1(a)
hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Company" shall have the meaning assigned to it in the introductory
paragraph of this Agreement.
"Company Intellectual Property" shall have the meaning assigned to it in
Section 5.18(a) hereof.
"Company Technology" shall have the meaning assigned to it in Section
5.18(b) hereof.
"Compensation Committee" shall have the meaning assigned to it in Section
7.13(b).
"Conversion Stock" shall have the meaning assigned to it in Section 1(a)
hereof.
"Default" shall mean a material default or failure in the due observance
or performance of any covenant, condition or agreement on the part of the
Company or any of its Subsidiaries to be observed or performed under the terms
of this Agreement or the Certificate, if such default or failure in performance
shall remain unremedied for ten (10) days.
"Designated Key Employees" shall have the meaning assigned to it in
Section 5.16 hereof.
"Dividend Warrants" shall have the meaning assigned to it in Section
1(b).
"Equity Security" shall mean any stock or similar security of the Company
or any security (whether stock or Indebtedness for Borrowed Money) convertible
or exchangeable, with or without consideration, into or for any stock or
similar security, or any security (whether stock or Indebtedness for Borrowed
Money) carrying any warrant or right to subscribe to or purchase any stock or
similar security, or any such warrant or right.
"Escrow Agent," "Escrow Agreement" and "Escrow Amount" and shall have the
respective meanings assigned to those terms in Section 6.1(m) hereof.
"Event of Default" shall mean (a) the failure of either the Company or
any Subsidiary to pay any Indebtedness for Borrowed Money, or any interest or
premium thereon, within ten (10) days after the same shall become due, whether
such Indebtedness shall become due by scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise, (b) an event of default
under any agreement or instrument evidencing or securing or relating to any
such Indebtedness, or (c) the failure of either the Company or any Subsidiary
to perform or observe any material term, covenant, agreement or condition on
its part to be performed or observed under any agreement or instrument
evidencing or securing or relating to any such Indebtedness when such term,
covenant or agreement is required to be performed or observed.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"GAAP" means United States generally accepted accounting principles
applied on a basis consistent with all prior periods. "Holder" of any Security
shall mean the record or beneficial owner of such Security. A Holder of
Preferred Stock or Warrants shall be treated as the Holder of the Restricted
Stock underlying the Preferred Stock or the Warrants, as the case may be.
"Holders of a Majority of the Restricted Stock" shall mean the Person or
Persons who are the Holders of greater than 50% of the Restricted Stock.
"Indebtedness" of the Company or any Subsidiary means, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable, (iii) all obligations of such Person
under a lease that would be treated as a "capital lease" under GAAP, (iv) all
obligations of such Person as lessor under a sale/leaseback agreement, (v) all
obligations of such Person evidenced by a promissory note, bond, debenture or
similar written obligation to pay money, (vi) all obligations that are secured
by a Lien (other than a Permitted Lien) on any property or asset owned by such
Person whether or not such Person has assumed responsibility for such
obligations, and (vi) all obligations of any Person (other than the Company or
any Subsidiary) of the type referred to in any of the preceding clauses (i)
through (vi) if the Company or any Subsidiary has guaranteed or otherwise
become contingently liable for the payment or performance thereof; provided
that obligations between the Company and any of its wholly-owned Subsidiaries
or between any such wholly-owned Subsidiaries shall not constitute
"Indebtedness".
"Indebtedness for Borrowed Money" shall mean (a) Indebtedness of the type
referred to in clauses (i), (ii), (v) and (vi) of the definition of
Indebtedness, and (b) all obligations of any Person (other than the Company or
any Subsidiary) of the type referred to in any of the preceding clauses (i)
through (vi) if the Company or any Subsidiary has guaranteed or otherwise
become contingently liable for the payment or performance thereof.
"Interim Financial Statements" shall have the meaning assigned to it in
Section 5.29 hereof.
"Inventions" shall have the meaning assigned to in Section 5.18(c)
hereof.
"Investor" shall have the meaning assigned to it in the introductory
paragraph of this Agreement.
"Investor Warrant" shall have the meaning assigned to it in Section 1(b).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest in respect of such asset. For the purposes of this Agreement, any
Person shall be deemed to own subject to a Lien any asset which it has acquired
or holds subject to the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention agreement relating to
such asset.
"Material Adverse Effect" on the Company means a material adverse effect,
or any condition, situation or set of circumstances that could reasonably be
expected to have a material adverse effect, on the Company and its
Subsidiaries, taken as a whole, or the business, assets, properties, condition
(financial and other), operations or prospects of the Company and its
Subsidiaries taken as a whole.
"Permitted Lien" means (i) any Lien securing a tax, assessment or other
governmental charge or levy or the claim of a materialman, mechanic, carrier,
warehouseman or landlord for labor, materials, supplies or rentals or any
similar Lien arising under law and not under contract or (ii) any Lien
consisting of a deposit or pledge made in the ordinary course of business in
connection with, or to secure payment of, obligations under workers'
compensation, unemployment insurance or similar legislation; provided, that in
the case of (i) and (ii), either (a) the obligation secured by such Lien is not
yet due, or (b) the obligation is being contested in good faith by appropriate
proceedings and an appropriate reserve has been established therefor.
"Person" shall include any natural person, corporation, trust,
association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
"Preferred Stock" shall have the meaning assigned to it in Section 1(a)
hereof.
"Purchase Payment" shall have the meaning assigned to it in Section 2
hereof.
"Qualified Offering" shall have the meaning assigned to it in Section
10.4.
"Registration Rights Agreement" shall have the meaning assigned to it in
Section 6.1(l) hereof.
"Restricted Stock" shall mean (a) all Common Stock owned now or in the
future by the Investors, (b) the Common Stock issued or issuable upon
conversion of the Preferred Stock and/or the Warrants, whether owned by the
Investors or not, and (c) any securities issued or issuable with respect to
such Common Stock by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger or consolidation or
reorganization; provided, however, that shares of Common Stock shall only be
treated as Restricted Stock if and so long as they have not been (i) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect to such Common Stock are removed upon the consummation of such
sale and the seller and purchaser of such Common Stock receive an opinion of
counsel for the Company, which shall be in form and content reasonably
satisfactory to the seller and buyer and their respective counsel, to the
effect that such Common Stock in the hands of the purchaser is freely
transferable without restriction or registration under the Securities Act in
any public or private transaction.
"Securities" shall have the meaning assigned to it in Section 1 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Executive" shall have the meaning assigned to it in Section
6.1(k).
"Series A Certificate" shall have the meaning assigned to it in Section
5.8 hereof.
"Series A Preferred Stock" shall have the meaning assigned to it in
Section 5.3 hereof.
"Stockholders Agreement" shall have the meaning assigned to it in Section
6.1(k) hereof.
"Subsidiary" shall mean any corporation, association or other business
entity at least 50% of the outstanding voting stock of which is at the time
owned or controlled directly or indirectly by the Company or by one or more of
such subsidiary entities or both, where "voting stock" means any shares of
stock having general voting power in electing the board of directors
(irrespective of whether or not at the time stock of any other class or classes
has or might have voting power by reason of any contingency).
"ULLICO" shall have the meaning assigned to it in the introductory
paragraph of this Agreement.
"Warrants" shall have the meaning assigned to it in Section 1(b) hereof.
"Warrant Certificate" shall have the meaning assigned to it in Section
1(b) hereof.
"Warrant Stock" shall have the meaning assigned to it in Section 1(b)
hereof. "Year End Financial Statements" shall have the meaning assigned to it
in Section 5.29 hereof.
12. Miscellaneous.
12.1 Waivers and Amendments. With the written consent of the
Holders of a Majority of the Restricted Stock, the obligations of the Company
and the rights of the Holders of the Securities under this Agreement may be
waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board,
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of any supplemental agreement or modifying in any manner the
rights and obligations hereunder of the Holders of the Securities and the
Company; provided, however, that no such waiver or supplemental agreement shall
(a) affect any of the rights of any Holder of a Security created by the
Certificate or by the statutory corporate law of the state of incorporation of
the Company without compliance with all applicable provisions of the
Certificate and such statutory corporate law, or (b) reduce the aforesaid
proportion of Restricted Stock, the Holders of which are required to consent to
any waiver or supplemental agreement, without the consent of the Holders of all
of the Restricted Stock. Upon the effectuation of each such waiver, consent or
agreement of amendment or modification, the Company shall promptly give written
notice thereof to the Holders of the Restricted Stock who have not previously
consented thereto in writing. Neither this Agreement nor the Certificate, nor
any provision hereof or thereof, may be amended, waived, discharged or
terminated orally or by course of dealing, but only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in this Section 12.1.
Specifically, but without limiting the generality of the foregoing, the failure
of Investor at any time or times to require performance of any provision hereof
or of the Certificate by the Company shall in no manner affect the right of
Investor at a later time to enforce the same. No waiver by any party of the
breach of any term or provision contained in this Agreement or the Certificate,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in the Agreement or Certificate.
12.2 Effect of Waiver or Amendment. Investor and each Holder of
Securities acknowledge that by operation of Section 12.1 hereof the Holders of
a Majority of the Restricted Stock will, subject to the limitations contained
in such Section 12.1, have the right and power to diminish or eliminate certain
rights of such Investor under this Agreement.
12.3 Rights of Holders Inter Se. Each Holder of Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights which such Holder may have by reason of this Agreement or any Security,
including, without limitation, the right to consent to the waiver of any
obligation of the Company under this Agreement and to enter into an agreement
with the Company for the purpose of modifying this Agreement or any agreement
effecting any such modification, and such Holder shall not incur any liability
to any other Holder or Holders of Securities with respect to exercising or
refraining from exercising any such right or rights.
12.4 Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to the Company to:
JD American Workwear, Inc.
46 Old Flat River Road
Coventry, Rhode Island 02816
Attention: Mr. David N. DeBaene, President and Chief Executive Officer
Telecopier: (401) 397-6804
with a copy to
Gerard S. DiFiore, Esq.
Reed Smith Shaw & McClay LLP
One Riverfront Plaza
Newark, NJ 07102-5400
Telecopier: (973) 621-3199
if to Investor to:
The Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attention: Mr. Michael R. Steed, Senior Vice President
Telecopier: (202) 682-7970
with a copy to:
Alan J. Barton, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street - 23rd Floor
Los Angeles, CA 90071
Telecopier: (213) 627-0705
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. Any notice, request, consent or other communication hereunder shall be
deemed to have been given and received on the day on which it is delivered (by
any means including personal delivery, overnight air courier, United States
mail) or telecopied (or, if such day is not a business day or if the notice,
request, consent or communication is not telecopied during business hours of
the intended recipient, at the place of receipt, on the next following business
day).
12.5 Survival of Representations and Warranties, etc. All
represen-tations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by or on behalf of Investor, and the sale and
purchase of the Securities and payment therefor. All statements contained in
any certificate, instrument or other writing delivered by or on behalf of the
Company pursuant hereto or in connection with or contemplation of the
transactions herein contemplated shall constitute representations and
warranties by the Company hereunder. Any claim against the Company based upon
any inaccuracy in any of the representations or breach of any of the warranties
hereunder must be asserted against the Company, either by written notice given
to the Company specifying with reasonable particularity the claimed inaccuracy
or breach or by institution of an action at law or suit in equity against the
Company and the serving of the process and complaint with respect thereto upon
the Company, within forty-eight (48) months from the Closing Date.
12.6 Severability. Should any one or more of the provisions of
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
12.7 Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by the Holder or Holders at the time of any of the Securities.
Subject to the immediately preceding sentence, this Agreement shall not run to
the benefit of or be enforceable by any Person other than a party to this
Agreement and its successors and assigns.
12.8 Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
12.9 Choice of Law. It is the intention of the parties that the
internal substantive laws, and not the laws of conflicts, of New York should
govern the enforceability and validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties.
12.10 Expenses. The Company agrees, whether or not the transactions
contemplated hereby are consummated, to pay, and hold Investor and the Holders
of the Securities harmless from liability for the payment of, (i) the fees and
expenses of their special counsel arising in connection with the preparation,
negotiation and execution of this Agreement, the Ancillary Agreements and the
Certificate and consummation of the transactions contemplated hereby, (ii) the
fees and expenses incurred with respect to any amendments to this Agreement,
the Warrant Certificate or the Certificate proposed by the Company (whether or
not the same become effective), (iii) if Investor or other Holder of Securities
desires to sell or otherwise transfer any or all of the Securities held by it
and counsel for the Company declines to render a legal opinion to Investor or
such Holder, without cost or expense to such Investor or Holder, whether or not
registration under the Securities Act will be required for such sale or
transfer, the fees and expenses of counsel for Investor or such Holder in
rendering such an opinion, (iv) the fees and expenses of one firm of counsel
for any Holder or Holders of Securities who may be deemed to be Affiliates of
the Company for reviewing any registration statement or prospectus to be filed
under the Securities Act, or any amendments or supplements thereto, unless such
registration statement is being prepared and effected in accordance with the
Registration Rights Agreement and such Holder or Holders are participating as
selling shareholders in such registration, (v) the fees and expenses incurred
in connection with any requested waiver of the right of any Holder of
Securities or the consent of any Holder of Securities to contemplated acts of
the Company not otherwise permissible by the terms of this Agreement, any of
the Ancillary Agreements, the Warrant Certificate or the Certificate, (vi)
stamp and other taxes, excluding income taxes, which may be payable with
respect to the execution and delivery of this Agreement or the issuance,
delivery or acquisition of the Preferred Stock and the Warrants or upon the
conversion of the Preferred Stock or exercise of the Warrants, (vii) the fees
and expenses incurred in respect of the enforcement of the rights granted under
this Agreement, the Ancillary Agreements or the Certificate, and (viii) all
costs of the Company's performance of and compliance with this Agreement, the
Ancillary Agreement, the Warrant Certificate and the Certificate.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
12.12 Authorship. This Agreement shall not be construed for or
against any party by reason of the authorship or claimed authorship of any
provision of this Agreement or by reason of the status of the respective
parties.
12.13 Entire Agreement. This Agreement and any agreement, document
or instrument referred to herein constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof, and
supersede all other prior agreements or undertakings with respect thereto, both
written and oral.
[SIGNATURE PAGE OF SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective duly authorized officers as of the day and year
first above written.
JD AMERICAN WORKWEAR, INC.
By: /s/ DAVID N. DEBAENE
David N. DeBaene, President and Chief
Executive Officer
THE UNION LABOR LIFE INSURANCE COMPANY
By: /s/ HERBERT C. CANAPARY
Name: Herbert C. Canapary
Title: Vice President--Investments
CERTIFICATE OF DESIGNATION
OF
SERIES B 12% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
-------------------------------
JD AMERICAN WORKWEAR, INC.
(a Delaware corporation)
-------------------------------
(Pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware)
JD American Workwear, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY
THAT:
FIRST: The Corporation was incorporated in the State of Delaware on
January 19, 1994.
SECOND: Pursuant to authority conferred upon the Board of Directors of
the Corporation (the "Board") by the Certificate of Incorporation of the
Corporation, as amended (the "Certificate"), and Section 151 of the General
Corporation Law of the State of Delaware (the "DGCL"), the following
resolutions were duly adopted by unanimous written consent of the Board dated
April 7, 1998, which resolutions are still in full force and effect and are not
in conflict with any provisions of the Certificate of Incorporation or Bylaws
of the Corporation or any certificate of designation filed by the Corporation
pursuant to Section 151 of the DGCL:
RESOLVED, that pursuant to authority vested in the Board by the
Certificate and Section 151 of the DGCL a series of Preferred Stock of the
Corporation to be known as "Series B 12% Cumulative Convertible Preferred
Stock" is hereby established and provided for and the Board of Directors hereby
fixes, states and expresses the powers, designation, preferences and relative,
participating, optional and other special rights of such series and the
qualifications, limitations or restrictions of such series, as follows:
I. Designation. The Board of Directors does hereby provide for the
issuance of a new series of Preferred Stock of the Corporation, to be
designated and known as Series B 12% Cumulative Convertible Preferred Stock
(the "Series B Preferred Stock").
II. Number of Shares. The number of shares constituting the Series B
Preferred Stock shall be and the same are hereby fixed at 3,200.
III. Capital. For the purpose of Section 154 of the DGCL the amount to
be represented as capital for each share of Series B Preferred Stock is and
shall at all times be $1,000.
Section 1. Definitions.
(a) For purposes of this Certificate of Designation, the
following definitions shall apply:
"Affiliate" shall mean any Person which directly or indirectly
controls, is controlled by, or is under common control with, the indicated
Person; and "control" means the power to influence the management or policies
of the indicated Person.
"Board" shall mean the Board of Directors of the Corporation.
"Business Day" shall mean a day which is not a Saturday, Sunday or
legal holiday on which banking institutions in New York are authorized to
close.
"Common Stock" shall mean the common stock, par value $.002 per
share, of the Corporation.
"Common Stock's Fair Market Value" shall mean, as of any date, the
fair market value of a share of Common Stock on such date. Such fair market
value on a date shall mean (i) if shares of the Common Stock are listed on a
national securities exchange, the average of the closing prices as reported for
composite transactions during the 20 consecutive trading days preceding the
trading day immediately prior to such date or, if no sale occurred on a trading
day, then the mean between the closing bid and asked prices on such exchange on
such trading day; (ii) if shares of the Common Stock are traded on the Nasdaq
National Market ("NMM"), the average of the closing prices as reported on the
NMM during the 20 consecutive trading days preceding the trading day
immediately prior to such date or, if no sale occurred on a trading day, then
the mean between the highest bid and lowest asked prices as of the close of
business on such trading day, as reported on the NMM ; or (iii) if the shares
of the Common Stock are not traded on a national securities exchange or the NMM
but are otherwise traded over-the-counter, the arithmetic average (for
consecutive trading days) of the mean between the highest bid and lowest asked
prices as of the close of business during the 20 consecutive trading days
preceding the trading day immediately prior to such date as quoted on the
National Association of Securities Dealers Automated Quotation system or an
equivalent generally accepted reporting service.
"Corporation" shall mean JD American Workwear, Inc., a Delaware
corporation.
"Designated Common Stock's Fair Market Value" means, as of any
date, the product of (i) 0.75 multiplied by, (ii) the Common Stock's Fair
Market Value on such date.
"Dividend Rate" means (i) the Standard Dividend Rate unless the
Corporation is in arrears at least six months in the payment of all or any
portion of the Redemption Price of any shares of Series B Preferred Stock, and
(ii) during any period in which the Corporation is in arrears at least six
months in the payment of all or any portion of the Redemption Price, the
Standard Dividend Rate plus and additional 2% per annum for each full six-month
period in which any such arrearage exists up to a maximum rate of 16%. Such
increased rate shall be reduced to the Standard Dividend Rate upon the Company
curing the existence of arrearge; provided, however, that such reduction back
to the Standard Dividend Rate shall apply only prospectively and only during
such period that the Company is not in arrears.
"Dividend Warrant" means a ten-year warrant to purchase Common
Stock at a price of $0.01 per share, the form of which is appended as Annex C
to the Purchase Agreement.
"GAAP" means United States generally accepted accounting principles
applied on a basis consistent with all prior periods.
"Holders of a Majority of the Series B Preferred Stock" means any
Person or Persons holding, beneficially or of record, a Majority of the Series
B Preferred Stock.
"Indebtedness" of the Company or any Subsidiary means, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable, (iii) all obligations of such Person
under a lease that would be treated as a "capital lease" under GAAP, (iv) all
obligations of such Person as lessor under a sale/leaseback agreement, (v) all
obligations of such Person evidenced by a promissory note, bond, debenture or
similar written obligation to pay money, and (vi) all obligations that are
secured by a Lien (other than a Permitted Lien) on any property or asset owned
by such Person whether or not such Person has assumed responsibility for such
obligations; provided that obligations between the Company and any of its
wholly-owned Subsidiaries or between any such wholly-owned Subsidiaries shall
not constitute "Indebtedness". "Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind,
or any other type of preferential arrangement that has the practical effect of
creating a security interest in respect of such asset. For the purposes of this
Certificate of Designation, any Person shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset. "Permitted Lien" means (i) any Lien
securing a tax, assessment or other governmental charge or levy or the claim of
a materialman, mechanic, carrier, warehouseman or landlord for labor,
materials, supplies or rentals or any similar Lien arising under law and not
under contract or (ii) any Lien consisting of a deposit or pledge made in the
ordinary course of business in connection with, or to secure payment of,
obligations under workers' compensation, unemployment insurance or similar
legislation; provided, that in the case of (i) and (ii), either (a) the
obligation secured by such Lien is not yet due, or (b) the obligation is being
contested in good faith by appropriate proceedings and an appropriate reserve
has been established therefor.
"Investment Value" of any share of Series B Preferred Stock means,
as of any date, the sum of (i) the Per Share Amount, plus (ii) the amount of
any unpaid dividends on such share added to the Investment Value of such share
on any Dividend Reference Date pursuant to Section 2(a); and in the event of
any liquidation, dissolution or winding up of the Corporation, within the
meaning of Section 3, or a merger, consolidation or other transaction involving
the Corporation described in Section 4, or the redemption of such share, unpaid
dividends on such share, whether or not earned or declared, will be added to
the Investment Value of such share on the payment or distribution date under
Section 3 or 4, as the case may be, or on the Redemption Date (as defined in
Section 5), as the case may be, calculated cumulatively on a daily basis to the
close of business on such payment date, distribution date, or Redemption Date,
as the case may be.
"IRR" means, as of any date, that rate of return which is that
discount rate compounded annually which, when applied to all cash flows from
and to a holder of Series B Preferred Stock in respect of its Series B
Preferred Stock up to and including the date such calculation is made, produces
a net present value of those cash flows equal to zero. IRR shall be calculated
using the internal rate of return function of Microsoft Excel 5.0, absent
manifest error.
"Junior Stock" shall mean the Series A Preferred Stock and the
Common Stock and all other shares of capital stock of the Corporation, whether
presently outstanding or hereafter issued, other than Series B Preferred Stock.
"Majority of the Series B Preferred Stock" shall mean more than 50%
of the outstanding shares of Series B Preferred Stock.
"Original Issue Date" shall mean the first date on which shares of
Series B Preferred Stock are issued.
"Per Share Amount" means $1,000.
"Person" means an individual, corporation, partnership,
association, trust, limited liability company or any other entity or
organization, including a government or political subdivision or an agency,
unit or instrumentality thereof.
"PIK Period" means the two-year period commencing with the Original
Issue Date.
"Purchase Agreement" means the Securities Purchase Agreement
between the Corporation and ULLICO dated as of April 9, 1998, as the same may
be amended and restated from time to time.
"Series A Certificate of Designation" means the Certificate of
Designation of the Series A Preferred Stock filed with the Delaware Secretary
of State on April 9, 1998.
"Series A Preferred Stock" shall mean the Series A 10% Mandatorily
Convertible Preferred Stock, par value $.001 per share, of the Corporation.
"Series B Preferred Stock" shall mean the Series B 12% Cumulative
Convertible Series B Preferred Stock, par value $.001 per share, of the
Corporation.
"Standard Dividend Rate" means 12% per annum.
"Subsidiary" means, with respect to the Corporation, any Person of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Corporation or a
Subsidiary of the Corporation.
"ULLICO" means The Union Labor Life Insurance Company, a Maryland
corporation.
"Voting Stock" shall mean any shares having general voting power in
electing the Board (irrespective of whether or not at the time stock of any
other class or classes has or might have voting power by reason or the
happening of any contingency). The Common Stock, the Series A Preferred Stock
and the Series B Preferred Stock are Voting Stock.
(b) Unless otherwise expressly provided herein, all references in
this Certificate of Designation to accounting items (e.g., net income, current
assets, current liabilities, liabilities and stockholders' equity) shall mean
such items determined in accordance with GAAP.
Section 2. Dividends.
(a) Right to Dividends.
(i) The holders of record of the Series B Preferred Stock
shall be entitled to receive, when and as declared by the Board, and out of any
funds legally available therefor, cumulative cash dividends at the rate and in
the manner provided herein in preference to the payment of dividends on any
Junior Stock. Dividends on the Series B Preferred Stock shall accumulate and
accrue on each such share from the date of its original issue and shall
accumulate and accrue from day to day thereafter, whether or not earned or
declared. Such dividends shall be cumulative so that if such dividends in
respect of any previous or current semi-annual dividend period, at the rate
specified herein, shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, the deficiency shall first be fully paid before
any dividend or other distribution shall be paid or declared and set apart for
any Junior Stock. Any accumulation of dividends on the Series B Preferred Stock
shall not bear interest. Dividends shall accumulate and accrue on each share of
Series B Preferred Stock from the Original Issue Date and shall not be affected
by the transfer of shares of Series B Preferred Stock thereafter or the
cancellation and issuance or reissuance of certificates evidencing such shares.
(ii) Dividends will be calculated cumulatively on a daily
basis on each share of Series B Preferred Stock at the Dividend Rate per annum
on the Investment Value thereof. To the extent not paid on any May 31 or
November 30 of any year (each a "Dividend Reference Date"), commencing May 31,
1998, all dividends which have been calculated on each share of Series B
Preferred Stock then outstanding during the six-month period (or other period
in the case of the first Dividend Reference Date) ending on such Dividend
Reference Date, whether or not earned or declared, will be added to the
Investment Value of such share and will remain a part thereof until such
dividends are paid. If any Dividend Reference Date is not a Business Day, the
dividend otherwise due on such date shall be paid on the next following
Business Day (and this extension shall be included in the determination of such
dividend payment).
(iii) Notwithstanding the cash dividend requirement of
Section 2(a)(i), during the PIK Period the Corporation at its option may make
any semi-annual dividend payment on the Series B Preferred Stock by issuing
additional shares of Series B Preferred Stock (a "PIK Dividend") to the holders
of all then outstanding Series B Preferred Stock, with each share of Series B
Preferred Stock to be issued in payment of a PIK Dividend being valued, for
this purpose, at $1,000 per share; provided, that concurrently with each PIK
Dividend the Corporation shall issue to the holders of Series B Preferred
Stock, ratably in proportion to the number of shares held, Dividend Warrants
representing the right to purchase an aggregate of 53,388 shares of Common
Stock (appropriately increased to adjust for the effect of anti-dilution
provision of the Series A Preferred Stock); provided, however, that Dividend
Warrants shall only be issued in connection with the payment of PIK Dividends
on the Series B Preferred Stock that is issued on the Original Issue Date. The
semi-annual dividend payment due on May 31, 2000 (i) may be paid as a PIK
Dividend in respect of the six-month period commencing December 1, 1999 and
ending immediately before the second anniversary of the Original Issue Date,
and (ii) shall be paid in cash for the dividend for the period commencing on
such second anniversary and ending on May 31, 2000. The PIK Dividend paid to
any holder of Series B Preferred Stock may include the issuance of a single
fractional share of Series B Preferred Stock, which fractional share shall have
the proportional powers, preferences, rights an privileges of a whole share of
Series B Preferred Stock.
(b) Priority.
(i) During the PIK Period, no cash dividends shall be paid
or declared on any Junior Stock.
(ii) Unless full dividends on the Series B Preferred Stock
for all past dividend periods and the then current dividend period shall have
been paid or declared and a sum sufficient for the payment thereof set apart in
trust for the benefit of the holders of the Series B Preferred Stock, (1) no
dividend whatsoever (other than a dividend payable solely in Common Stock)
shall be paid or declared, and no distribution shall be made, on any Junior
Stock, and (2) no shares of Junior Stock shall be purchased, redeemed or
acquired by the Corporation and no monies shall be paid into or set aside or
made available for a sinking fund for the purchase, redemption or acquisition
thereof; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from directors or employees of or
consultants or advisers to the Corporation or any Subsidiary pursuant to
agreements under which the Corporation has the option to repurchase such shares
upon the occurrence of certain events, including without limitation the
termination of employment by or service to the Corporation or any Subsidiary;
and provided further, however, that without the approval, by vote or written
consent, of the Holders of a Majority of the Series B Preferred Stock the total
amount applied to the repurchase of shares of Common Stock shall not exceed
$50,000 during any twelve-month period.
(c) Additional Dividends. After cumulative dividends on the
Series B Preferred Stock for all past dividend periods and the then current
dividend period shall have been declared and paid or set apart, subject to
Section 8(d) , if the Board shall elect to declare additional dividends, such
additional dividends shall be declared and paid as follows:
(i) First, to the holders of the Series A Preferred Stock,
in amounts to the extent necessary to cure any arrearage in the payment of
dividends thereon as provided in the Series A Certificate of Designation; and
(ii) Second, in equal amounts per share on all shares of
Series B Preferred Stock and Common Stock, but with each share of Series B
Preferred Stock being entitled to dividends based upon the number of shares of
Common Stock into which such share of Series B Preferred Stock could be
converted, pursuant to Section 7 at the record date for the determination of
stockholders entitled to receive such dividend or, if no such record date is
established, on the date such dividend is declared.
Section 3. Liquidation Rights of Series B Preferred Stock.
(a) Series B Preferred Stock Preference. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Series B Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of
any amount shall be made in respect of the Junior Stock, an amount equal to the
Investment Value per share on the date of payment. If upon any liquidation,
dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed to the holders of the Series B
Preferred Stock under this Section 3(b) shall be insufficient to permit the
payment to such stockholders of the full preferential amounts specified in the
immediately preceding sentence, then all of the assets of the Corporation to be
distributed shall be distributed ratably to the holders of the Series B
Preferred Stock on the basis of the number of shares of Series B Preferred
Stock held.
(b) Series A Preferred Stock Preference. After the payment or
distribution to the holders of the Series B Preferred Stock of the full
preferential amounts aforesaid, the holders of the Series A Preferred Stock
then outstanding shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its stockholders, whether such assets
are capital, surplus, or earnings, before any payment or declaration and
setting apart for payment of any amount shall be made in respect of the Common
Stock the amount specified in Section 6 of the Series A Certificate of
Designation. If upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed to
the holders of the Series A Preferred Stock under this Section 3(b) shall be
insufficient to permit the payment to such stockholders of the full
preferential amounts specified in Section 6 of the Series A Certificate of
Designation, then after the holders of the Series B Preferred Stock have
received payment of the full preferential amount that is required under Section
3(a), all of the remaining assets of the Corporation to be distributed shall be
distributed ratably to the holders of the Series A Preferred Stock on the basis
of the number of shares of Series A Preferred Stock held.
(c) Remaining Assets. After the payment or distribution to the
holders of the Series B Preferred Stock and the Series A Preferred Stock of the
full preferential amounts aforesaid, the holders of the Common Stock shall be
entitled to receive $5.00 per share, and after the payment of such amount, if
there are any remaining assets available for distribution to the stockholders
of the Corporation, the holders of the Series B Preferred Stock and Common
Stock then outstanding shall be entitled to receive ratably all remaining
assets of the Corporation to be distributed, but with all holders of shares of
Series B Preferred Stock treated (for this purpose only ) as if they had
converted their shares of Series B Preferred Stock into Common Stock pursuant
to Section 7.
Section 4. Merger, Consolidation.
(a) At any time, in the event of:
(1) any consolidation or merger of the Corporation with or
into any other corporation or other Person, or any other corporate
reorganization or transaction or series of related transactions by the
Corporation in which in excess of 50% of the Corporation's voting power is
transferred, or
(2) a sale or other disposition of all or substantially all
of the assets of the Corporation, then:
(A) first, the holders of the Series B Preferred
Stock shall receive for each share of such stock, in cash or in securities
(including, without limitation, debt securities) received from the acquiring
corporation, or a combination thereof, at the closing of any such transaction,
an amount equal to the Investment Value per share on the date of full payment;
(B) second, in the case of a sale or disposition
described in the introductory clause of this clause (2), the holders of the
Series A Preferred Stock shall receive the amount specified in Section 6 of the
Series A Certificate of Designation;
(C) third, holders of the Common Stock shall be
entitled to receive $5.00 per share; and
(D) after (i) the payment or distribution to the
holders of the Series B Preferred Stock of the full preferential amounts stated
in Section 4(a)(2)(A), (ii) payment to the Series A Preferred Stock of the
amount required by Section 6 of the Series A Certificate of Designation in
accordance with Section 4(a)(2)(B) hereof, and (iii) the payment or
distribution to the holders of the Common Stock of the full amounts stated in
Section 4(a)(2)(C) , the remaining proceeds of such transaction shall be
distributed as a Shared Allocation (as defined in Section 4(b)).
Such payments shall be made with respect to the Series B Preferred
Stock and Common Stock by (i) redemption or purchase of such shares by the
Corporation or (ii) purchase or acquisition of such shares by the surviving or
acquiring Person or by the Corporation. Before any payment or distribution is
made to the holders of the Junior Stock, the full preferential amount stated in
Section 4(a)(2)(A) shall first be paid to the holders of the Series B Preferred
Stock. In the event the full amount of such payment is not paid to the holders
of the Series B Preferred Stock upon or immediately prior to such transaction
in accordance herewith, then all cash and securities (including, without
limitation, debt securities) to be distributed in respect of the proposed
transaction shall be distributed ratably among the holders of the Series B
Preferred Stock.
(b) "Shared Allocation" shall mean that the holders of Series B
Preferred Stock and Common Stock shall share the remaining consideration to be
paid by the acquiring Person in such transaction in the same proportion as the
number of shares of outstanding Common Stock and Common Stock issuable upon the
conversion of outstanding Series B Preferred Stock then held by each of them
bears to the total number of shares of outstanding Common Stock and the total
number of shares of Common Stock issuable upon conversion of all outstanding
Series B Preferred Stock.
(c) Any securities or other property to be delivered to the
holders of the Series B Preferred Stock or Junior Stock pursuant to Section
4(a) shall be valued as follows:
(1) Securities not subject to Securities Act of 1933 or
other similar restrictions on free marketability:
(A) If listed on a national securities exchange, the
value shall be deemed to be the average of the closing prices of the securities
on such exchange over the 20 consecutive trading days ending one trading day
prior to the closing; if no sale occurs on a trading day, the mean between the
closing bid and asked prices on such exchange on such trading day shall be
substituted for the closing price on such trading day;
(B) If not listed on a national securities exchange,
but quoted on the Nasdaq National Market, the value shall be deemed to be the
average of the closing prices (or, if the securities are not quoted on the
Nasdaq National Market but are regularly quoted on another NASD quotation
system and there is an active public market for the securities, the mean
between the highest bid and lowest asked prices) over the 20 consecutive
trading days ending one trading day prior to the closing; and
(C) If the securities are not listed on a national
securities exchange or quoted on the Nasdaq National Market and are either not
otherwise quoted on a NASD quotation system or there is no active public market
therefor, the value shall be the fair market value thereof, as mutually
determined by the Corporation and the Holders of a Majority of the Series B
Preferred Stock.
(2) The method of valuation of securities subject to
Securities Act of 1933 or other restrictions on free marketability shall be to
make appropriate discount from the market value determined as above in
paragraph (1)(A), (B) or (C) to reflect the approximate fair market value
thereof, as mutually determined by the Corporation and the Holders of a
Majority of the Series B Preferred Stock.
(3) All other securities or other property shall be valued
at the fair market value thereof, as mutually determined by the Corporation and
the Holders of a Majority of the Series B Preferred Stock.
(4) If the Holders of a Majority of the Series B Preferred
Stock and the Corporation are unable to reach agreement on any valuation
matter, such valuation shall be submitted to and determined by a nationally
recognized independent investment banking firm selected by the Board and the
Holders of a Majority of the Series B Preferred Stock (or, if such selection
cannot be made, by a nationally recognized independent investment banking firm
selected by the American Arbitration Association in accordance with its rules).
The cost of such valuation and, if required, action by the American Arbitration
Association shall be borne by the Corporation.
(d) In the event the requirements of Section 4(a) are not
complied with, the Corporation shall forthwith either:
(1) Cause such closing to be postponed until such time as
the requirements of this Section 4 have been complied with; or
(2) Cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series B Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section 4(e) .
(e) The Corporation shall give each holder of record of Series B
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the anticipated closing of such
transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 4, and the Corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than thirty (30) days after the Corporation has given
the first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the Holders of a Majority of the Series B Preferred Stock.
(f) The provisions of this Section 4 are in addition to the
protective provisions of Section 8 .
Section 5. Redemption.
(a) Restriction on Redemption and Purchase. Except as expressly
provided in this Section 5, the Corporation shall not have the right to
purchase, call, redeem or otherwise acquire for value any or all of the Series
B Preferred Stock.
(b) Optional Redemption. At any time after the third anniversary
of the Original Issue Date the Corporation may, at its option, redeem the
Series B Preferred Stock in whole, but not in part, at the Optional Redemption
Price hereinafter specified; provided, however, that the Corporation shall not
be entitled to redeem Series B Preferred Stock or give notice of any redemption
unless (i) the Corporation has sufficient and lawful funds to redeem all of the
then outstanding Series B Preferred Stock, and (ii) the Optional Redemption
Price is paid in full during the thirty (30)-day period immediately following a
period of thirty (30) consecutive trading days during which on each such day
the Common Stock's Fair Market Value is at least 200% of the then Conversion
Price of the Series B Preferred Stock. The date on which the Series B Preferred
Stock is to be redeemed pursuant to this Section 5(b) is herein called the
"Optional Redemption Date."
(c) Mandatory Redemption.
(1) The Corporation shall redeem the number of shares of
Series B Preferred Stock as indicated below on the dates indicated in the
following table (each a Mandatory Redemption Date"), at the Mandatory
Redemption Price hereinafter specified (a "Mandatory Redemption"):
1,250 shares First Business Day of April, 2004
1,250 shares First Business Day of April, 2005
(2) If the funds of the Corporation legally available for
redemption of Series B Preferred Stock on a Mandatory Redemption Date are
insufficient to redeem the number of shares to be redeemed pursuant to this
subsection (c) on such date, those funds which are legally available will be
used to redeem the maximum possible number of shares among the holders of the
Series B Preferred Stock ratably on the basis of the number of shares of Series
B Preferred Stock held. At the earliest time thereafter when additional funds
of the Corporation are legally available for redemption of Series B Preferred
Stock in the manner provided above, such funds will be immediately used to
redeem the balance of the Series B Preferred Stock which the Corporation has
become obligated to redeem on such Mandatory Redemption Date but which it has
not yet redeemed.
(3) If fewer than all shares of Series B Preferred Stock
are being redeemed, the redemption will be made ratably among all holders in
proportion to the number of shares of Series B Preferred Stock held.
(d) Redemption Price.
(i) (A) The Optional Redemption Price of the Series B
Preferred Stock (the "Optional Redemption Price") shall be the sum of (A) the
Investment Value per share, plus (B) the Redemption Premium.
(B) "Redemption Premium" shall mean, with respect to
a holder of Series B Preferred Stock, a sum sufficient to pay such holder of
the Series B Preferred Stock a 20% IRR taking into consideration the following:
(1) treating as a cash outflow such holder's payment of the original purchase
price of the Series B Preferred Stock on the Closing Date (as defined in the
Purchase Agreement), (2) treating each PIK Dividend received by the holder as a
cash inflow and outflow on the applicable Dividend Reference Date of $1,000 per
whole share of Series B Preferred Stock received in such PIK Dividend (with a
ratable adjustment for fractional shares), (3) treating as a cash inflow cash
dividends on the Series B Preferred Stock actually received by the holder on
the date of such receipt, (4) treating as a cash inflow on the date of receipt
the net sales price received by such holder for any Common Stock that is issued
upon conversion of Series B Preferred Stock and actually sold by such holder,
and (5) treating as a cash inflow receipt of the Optional Redemption Price on
the date of full payment to such holder.
(ii) The Mandatory Redemption Price of the Series B
Preferred Stock (the "Mandatory Redemption Price") shall be the Investment
Value per share. As used herein, "Redemption Price" shall mean either the
Optional Redemption Price or the Mandatory Redemption Price, whichever shall be
applicable.
(e) Redemption Notice. The Corporation shall, not less than
thirty (30) days nor more than sixty (60) days prior to the Optional Redemption
Date and each Mandatory Redemption Date (a "Redemption Date"), give written
notice ("Redemption Notice") to each holder of record of Series B Preferred
Stock to be redeemed. The Redemption Notice shall state:
(1) That all or a specified number of the outstanding
shares of Series B Preferred Stock are to be redeemed and the
total number of shares being redeemed;
(2) The number of shares of Series B Preferred Stock
held by the holder which the Corporation will redeem;
(3) The Redemption Date, Redemption Price and, in the
case of an Optional Redemption, the calculation of the
Optional Redemption Price;
(4) That the holder's right to convert the Series B
Preferred Stock will terminate on the Redemption Date; and
(5) The time, place and manner in which the holder is
to surrender to the Corporation the certificate or
certificates representing the shares of Series B Preferred
Stock to be redeemed.
(f) Payment of Redemption Price and Surrender of Stock. On the
Redemption Date, the Redemption Price of the Series B Preferred Stock scheduled
to be redeemed or called for redemption shall be payable to the holders of the
Series B Preferred Stock. On or before the Redemption Date, each holder of
Series B Preferred Stock to be redeemed, unless the holder has exercised its
right to convert the shares as provided in Section 7, shall surrender the
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof,
and each surrendered certificate shall be canceled and retired.
(g) Termination of Rights. If the Redemption Notice is duly
given, and if at least ten (10) days prior to the Redemption Date the
Redemption Price is either paid or made available for payment through the
arrangement specified in subsection (h) below, then notwithstanding that the
certificates evidencing any of the shares of Series B Preferred Stock so called
or scheduled for redemption have not been surrendered, all rights with respect
to such shares shall forthwith after the Redemption Date cease and terminate,
except only (i) the right of the holders to receive the Redemption Price
without interest upon surrender of their certificates therefor or (ii) the
right to receive Common Stock plus dividends upon exercise of the conversion
rights provided in Section 7 on or before the Redemption Date.
(h) Deposit of Funds. At least ten (10) days prior to the
Redemption Date, the Corporation shall deposit with any bank or trust company
in Washington, D.C., having a capital and surplus of at least $1 billion as a
trust fund, a sum equal to the aggregate Redemption Price of all shares of the
Series B Preferred Stock scheduled to be redeemed or called for redemption and
not yet redeemed, with irrevocable instructions and authority to the bank or
trust company to pay, on or after the Redemption Date or prior thereto, the
Redemption Price to the respective holders upon the surrender of their share
certificates. The deposit shall constitute full payment of the shares to their
holders, and from and after the date of such deposit (even if prior to the
Redemption Date), the shares shall be deemed to be redeemed and no longer
outstanding, and the holders thereof shall cease to be stockholders with
respect to such shares and shall have no rights with respect thereto, except
the right to receive from the bank or trust company payment of the Redemption
Price of the shares, without interest, upon surrender of their certificates
therefor and the right to convert such shares and receive accrued and unpaid
dividends as provided in Section 7 . Any monies so deposited and unclaimed at
the end of six months from the Redemption Date shall be released or repaid to
the Corporation, after which the holders of shares called for redemption shall
be entitled to receive payment of the Redemption Price only from the
Corporation.
Section 6. Voting Rights.
(a) Series B Preferred Stock. Each holder of shares of Series B
Preferred Stock shall be entitled to vote on all matters and, except as
otherwise expressly provided herein, shall be entitled to the number of votes
equal to the largest number of full shares of Common Stock into which such
shares of Series B Preferred Stock could be converted, pursuant to the
provisions of Section 7, at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken.
(b) Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held. Except as otherwise expressly
provided herein or as required by law, the holders of Series B Preferred Stock
and the holders of Common Stock shall vote together and not as separate
classes.
(c) Authorized Directors and Class Voting Rights of Series B
Preferred Stock and Common Stock; Compensation Committee.
(1) The Corporation shall have seven (7) authorized
directors. Subject to subsection (d) of this Section 6, the holders of the
Series B Preferred Stock, as a class, shall be entitled to elect one (1)
director, and the holders of all other Voting Stock, as a class, shall be
entitled to elect the remaining members of the Board.
(2) The Board shall establish a compensation committee of
three directors (the "Compensation Committee"), one member of which shall be
selected by the Holders of a Majority of the Series B Preferred Stock, and the
other two members of which shall be selected by the Board. All action taken by
the Compensation Committee shall require the unanimous vote or written consent
of all of the three members. All matters affecting compensation of any officer
or director of the Corporation or any Subsidiary or any employee of or
consultant or advisor to the Corporation or any Subsidiary whose annual base
compensation is at least $50,000 shall require approval of the Compensation
Committee in order to be effective. No option or warrant to purchase Common
Stock, stock appreciation right, phantom stock (or similar payment) or stock
issuance to any officer, director or employee of the Corporation shall be
granted, effected, modified or accelerated unless the same has been approved by
the Compensation Committee. In addition, the Compensation Committee shall have
the exclusive authority to administer and take all action permitted or required
to be taken by the Board or any committee of the Board under all stock option
plans of the Corporation and under any other plan or arrangement that provides
for the issuance of Common Stock, stock appreciation rights, phantom stock or
other similar benefits to any employee of or any advisor or consultant to the
Corporation or any Subsidiary.
(d) Special Voting Rights of Series B Preferred Stock in Case of
Certain Events. If
(i) the Corporation shall have failed to make or pay
in full any single PIK Dividend within five (5) days after
the applicable Dividend Reference Date, or
(ii) the Corporation shall have failed to pay in full
any four semi-annual cash dividends (other than during and in
respect of the PIK Period), whether or not consecutive,
within five (5) days after the applicable Dividend Reference
Date (whether or not the Corporation has adequate lawful
funds for the payment thereof) and all dividends in arrears
have not been paid in full, or
(iii) the Corporation shall have failed to redeem and
pay the full Redemption Price of all Series B Preferred Stock
that it has become obligated hereunder to redeem (whether or
not such redemption is or would be lawful),
(iv) the Corporation shall have taken any action
specified in Section 8 without first obtaining the written
consent of the Holders of a Majority of the Series B
Preferred Stock, or
(v) at a time when the holders of the Series B
Preferred Stock have the right to elect one director, a
vacancy exists in such director position and the Board has
not elected the person designated in writing by the Holders
of a Majority of the Series B Preferred Stock to fill this
vacancy within 10 days after such written designation has
been given to the Corporation,
(any of the foregoing events being herein called a "Voting Switch
Event"),
the holders of the Series B Preferred Stock shall, immediately upon the giving
of written notice to the Corporation by any holder of Series B Preferred Stock,
be entitled to elect the smallest number of directors which shall constitute a
majority of the authorized number of directors of the Corporation, and the
holders of all other shares of Voting Stock, as a class, shall be entitled to
elect the remaining members of the Board. Whenever the holders of the Series B
Preferred Stock shall be entitled to elect directors as provided in this
subsection (d), the holders of the Series B Preferred Stock may call a special
meeting of stockholders and shall have access to the stock books and records of
the Corporation for such purpose. At any such meeting, or at any other meeting
held while the holders of the Series B Preferred Stock have the voting power
described in this subsection (d), the Holders of a Majority of the Series B
Preferred Stock, present in person or by proxy, shall be sufficient to
constitute a quorum for the election of directors as herein provided. At such
meeting or, if no such special meeting shall have been called, then at the next
annual meeting of the stockholders, the holders of the Series B Preferred Stock
shall be entitled to elect a majority of the directors of the Corporation, and
the holders of all other shares of Voting Stock, as a class, shall be entitled
to elect the remaining members of the Board. Upon the election by the holders
of Series B Preferred Stock of a majority of the directors, the terms of office
of all persons who were theretofore directors of the Corporation shall
forthwith terminate, whether or not the holders of the other shares of Voting
Stock shall then have elected the remaining directors of the Corporation.
(e) Divestment of Special Voting Rights of Series B Preferred
Stock. When the Corporation has cured or eliminated all Voting Switch Events to
the reasonable satisfaction of the Holders of a Majority of the Series B
Preferred Stock, then the holders of the Series B Preferred Stock shall be
divested of the voting rights specified in Section 6(d). These voting rights
shall again accrue to the holders of Series B Preferred Stock as and when
provided in Section 6(d). Upon the termination of any such voting rights as
hereinabove provided, the Board shall call a special meeting of the
stockholders at which all directors will be elected, and the terms of office of
all persons who are then directors of the Corporation shall terminate
immediately upon the election of their successors.
(f) Vacancies. In the case of any vacancy in the office of a
director occurring among the directors elected by the holders of the Series B
Preferred Stock pursuant to subsection (c) or (d) of this Section 6, the
remaining director or directors so elected by the holders of the Series B
Preferred Stock may, by affirmative vote of a majority thereof (or the
remaining director so elected if there is only one such director), elect a
successor or successors to hold the office for the unexpired term of the
director or directors whose place or places shall be vacant. Any director who
shall have been elected by the holders of the Series B Preferred Stock, or any
director so elected as provided in the immediately preceding sentence, shall be
removed during the aforesaid term of office, whether with or without cause,
only by the affirmative vote of the Holders of a Majority of the Series B
Preferred Stock.
Section 7. Conversion. The holders of Series B Preferred Stock shall
have the following conversion rights:
(a) Right to Convert. Each share of Series B Preferred Stock
shall be convertible, at any time at the option of the holder thereof, into
fully paid and nonassessable shares of Common Stock.
(b) Conversion Price. The Series B Preferred Stock shall be
convertible into the number of shares of Common Stock which results from
dividing the Conversion Price (as hereinafter defined) in effect at the time of
conversion into $1,000 for each share of Series B Preferred Stock being
converted. The Conversion Price shall be $5.00, subject to adjustment from time
to time as provided below (the "Conversion Price").
(c) Mechanics of Conversion. Each holder of Series B Preferred
Stock who desires to convert the same into shares of Common Stock shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series B Preferred
Stock or Common Stock, and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state therein the
number of shares of Series B Preferred Stock being converted. Thereupon the
Corporation shall promptly issue and deliver to such holder a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash or, if the Corporation is legally or
financially unable to pay such dividends in cash, Common Stock (valued at the
Designated Common Stock's Fair Market Value at the time of surrender), all
accumulated, accrued and unpaid dividends on the shares of Series B Preferred
Stock being converted, whether or not earned or declared, to and including the
time of conversion. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
certificate representing the shares of Series B Preferred Stock to be
converted, and the Person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation at any time or from time to time effects a stock split or otherwise
subdivides the outstanding Common Stock into a greater number of shares, the
Conversion Price then in effect immediately before that stock split or
subdivision shall be proportionately decreased, and conversely, if the
Corporation at any time or from time to time effects a reverse stock split or
otherwise combines the outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price then in effect immediately before the
combination or reverse stock split shall be proportionately increased. Any
adjustment under this subsection (d) shall become effective at the close of
business on the date the stock split, subdivision, reverse stock split or
combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Conversion Price then in effect shall be decreased as of
the time of such issuance or, in the event such record date is fixed, as of the
close of business on such record date, by multiplying the Conversion Price then
in effect by a fraction (1) the numerator of which is the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and (2) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, as the case may be, plus the number of shares of
Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the
Conversion Price shall be recomputed accordingly as of the close of business on
such record date, and thereafter the Conversion Price shall be adjusted
pursuant to this subsection (e) as of the time of actual payment of such
dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation other
than shares of Common Stock, then and in each such event provision shall be
made so that the holders of Series B Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation which they
would have received had their Series B Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 7 with respect to the rights of the holders of the Series B Preferred
Stock.
(g) Adjustment for Reclassification, Exchange and Substitution.
In the event that at any time or from time to time the Common Stock issuable
upon the conversion of the Series B Preferred Stock is changed into the same or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for elsewhere in this Section 7),
then and in any such event each holder of Series B Preferred Stock shall have
the right thereafter to convert such stock into the kind and amount of stock
and other securities and property receivable upon such recapitalization,
reclassification or other change, by holders of the maximum number of shares of
Common Stock into which such shares of Series B Preferred Stock could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales of Assets.
If at any time or from time to time there is a capital reorganization of the
Common Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
7) or a merger or consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the Corporation's
properties and assets to any other Person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made sothat
the holders of the Series B Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series B Preferred Stock the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 7 with respect to the rights of the holders of the Series B
Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 7 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Stock) shall be applicable after that
event and be as nearly equivalent as may be practicable.
(i) Sale of Shares Below Conversion Price.
(1) If at any time or from time to time the Corporation
issues or sells, or is deemed by the express provisions of this subsection (i)
to have issued or sold, Additional Shares of Common Stock (as hereinafter
defined), other than as a dividend or other distribution on any class of stock
as provided in subsection (e) above and other than upon a subdivision or
combination of shares of Common Stock as provided in subsection (d) above, for
an Effective Price (as hereinafter defined) less than the then existing
Conversion Price, then and in each such case the then existing Conversion Price
shall be reduced, as of the opening of business on the date of such issue or
sale, as follows:
(I) if such issuance or deemed issuance occurs
during the twelve-month period immediately following
the Original Issue Date and constitutes a Financing
Transaction (as hereinafter defined), the Conversion
Price shall be reduced to the Effective Price at which
the Additional Shares of Common Stock were issued or
deemed to have been issued; and
(II) if such issuance or deemed issuance occurs
during the twelve-month period immediately following
the Original Issue Date and does not constitute a
Financing Transaction or occurs after the twelve-month
period immediately following the Original Issue Date,
the Conversion Price shall be reduced to a price
determined by multiplying that Conversion Price by a
fraction (i) the numerator of which shall be (A) the
number of shares of Common Stock outstanding at the
close of business on the day next preceding the date of
such issue or sale, plus (B) the number of shares of
Common Stock which the aggregate consideration received
(or by the express provisions hereof deemed to have
been received) by the Corporation for the total number
of Additional Shares of Common Stock so issued would
purchase at such Conversion Price, plus (C) the number
of shares of Common Stock into which all outstanding
shares of Series B Preferred Stock are convertible at
the close of business on the date next preceding the
date of such issue or sale, plus (D) the number of
shares of Common Stock into which all outstanding
shares of Series A Preferred Stock are convertible at
the close of business on the date next preceding the
date of such issue or sale, plus (E) the number of
shares of Common Stock underlying all Other Securities
(as hereinafter defined) at the close of business on
the date next preceding the date of such issue or sale,
and (ii) the denominator of which shall be (A) the
number of shares of Common Stock outstanding at the
close of business on the date of such issue or sale
after giving effect to such issue of Additional Shares
of Common Stock, plus (B) the number of shares of
Common Stock into which the outstanding shares of all
Series B Preferred Stock are convertible at the close
of business on the date next preceding the date of such
issue or sale, plus (C) the number of shares of Common
Stock into which all outstanding shares of Series A
Preferred Stock are convertible at the close of
business on the date next preceding the date of such
issue or sale, plus (D) the number of shares of Common
Stock underlying the Other Securities at the close of
business on the date next preceding the date of such
issue or sale.
"Financing Transaction" means any transaction or series of related transactions
in which Additional Shares of Common Stock are issued or sold, or are deemed to
have been issued or sold, for at least $250,000 in the aggregate.
(2) For the purpose of making any adjustment required under
this subsection (i), the consideration received by the Corporation for any
issue or sale of securities shall (A) to the extent it consists of cash be
computed at the amount of cash received by the Corporation, (B) to the extent
it consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board, (C) if Additional Shares of
Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Corporation for a consideration which covers both, be computed as
the portion of the consideration so received that may be reasonably determined
in good faith by the Board to be allocable to such Additional Shares of Common
Stock, Convertible Securities or rights or options, and (D) be computed after
reduction for all expenses payable by the Corporation in connection with such
issue or sale.
(3) For the purpose of the adjustment required under this
subsection (i), if the Corporation issues or sells any rights or options for
the purchase of, or stock or other securities convertible into or exchangeable
for, Additional Shares of Common Stock (such convertible or exchangeable stock
or securities being hereinafter referred to as "Convertible Securities") and if
the Effective Price of such Additional Shares of Common Stock is less than the
Conversion Price then in effect, then in each case the Corporation shall be
deemed to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise, conversion or exchange thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Corporation for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any,
payable to the Corporation upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion or
exchange thereof. No further adjustment of the Conversion Price, adjusted upon
the issuance of such rights, options or Convertible Securities, shall be made
as a result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion or exchange of any
such Convertible Securities. If any such rights or options or the conversion or
exchange privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Price adjusted upon the issuance
of such rights, options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion or exchange of such
Convertible Securities, and such Additional Shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Corporation
upon such exercise, plus the consideration, if any, actually received by the
Corporation for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted or exchanged, plus the consideration,
if any, actually received by the Corporation (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) on the
conversion or exchange of such Convertible Securities.
(4) For the purpose of the adjustment required under this
subsection (i), if the Corporation issues or sells, or is deemed by the express
provisions of this subsection to have issued or sold, any rights or options for
the purchase of Convertible Securities and if the Effective Price of the
Additional Shares of Common Stock underlying such Convertible Securities is
less than the Conversion Price then in effect, then in each such case the
Corporation shall be deemed to have issued at the time of the issuance of such
rights or options the maximum number of Additional Shares of Common Stock
issuable upon conversion or exchange of the total amount of Convertible
Securities covered by such rights or options and to have received as
consideration for the issuance of such Additional Shares of Common Stock an
amount equal to the amount of consideration, if any, received by the
Corporation for the issuance of such rights or options, plus the minimum
amounts of consideration, if any, payable to the Corporation upon the exercise
of such rights or options and plus the minimum amount of consideration, if any,
payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion or
exchange of such Convertible Securities. No further adjustment of the
Conversion Price, adjusted upon the issuance of such rights or options, shall
be made as a result of the actual issuance of the Convertible Securities upon
the exercise of such rights or options or upon the actual issuance of
Additional Shares of Common Stock upon the conversion or exchange of such
Convertible Securities. The provisions of paragraph (3) above for the
readjustment of the Conversion Price upon the expiration of rights or options
or the rights of conversion or exchange of Convertible Securities shall apply
mutatis mutandis to the rights, options and Convertible Securities referred to
in this paragraph (4).
(5) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Corporation on or after the Original Issue
Date, whether or not subsequently reacquired or retired by the Corporation,
other than (i) shares of Common Stock issued upon conversion of the Series B
Preferred Stock, and (ii) shares of Common Stock issued upon conversion of the
Series A Preferred Stock in accordance with the Series A Certificate of
Designation, (iii) shares of Common Stock issued upon exercise of the Dividend
Warrants, and (iv) shares of Common Stock issued to ULLICO upon the exercise of
the warrants issued pursuant to Section 1(b)(i) of the Purchase Agreement. The
"Effective Price" of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold by the Corporation under
this subsection (i), into the aggregate consideration received, or deemed to
have been received, by the Corporation for such issue under this subsection
(i), for such Additional Shares of Common Stock. "Other Securities" with
respect to an issue or sale of Additional Shares of Common Stock shall mean (1)
Convertible Securities and (2) Warrants issued to ULLICO pursuant to Section
1(b)(i) of the Purchase Agreement; "the number of shares of Common Stock
underlying Other Securities" on a particular date shall mean the number of
shares of Common Stock issuable upon the exercise, conversion or exchange, as
the case may be, of such Other Securities at the close of business on such
date.
(6) Any reduction in the conversion price of any
Convertible Security, whether outstanding on the Original Issue Date or
thereafter, or the subscription price of any option, warrant or right to
purchase Common Stock or any Convertible Security (whether such option, warrant
or right is outstanding on the Original Issue Date or thereafter), to an
Effective Price less than the then Conversion Price shall be deemed to be an
issuance of such Convertible Security and all such options, warrants or
subscription rights at such new subscription price, and the provisions of
Section 6(i)(3) and (4) shall apply thereto mutatis mutandis.
(j) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Conversion Price or the number of shares of
Common Stock or other securities issuable upon conversion of the Series B
Preferred Stock, the Corporation, at its expense, shall cause independent
public accountants of recognized standing selected by the Corporation (who may
be the independent public accountants then auditing the books of the
Corporation) to compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of the Series B Preferred Stock at the
holder's address as shown in the Corporation's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Corporation for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Conversion Price at the time in effect, (3) the number of
Additional Shares of Common Stock and (4) the type and amount, if any, of other
property which at the time would be received upon conversion of the Series B
Preferred Stock.
(k) Notices of Record Date. In the event of (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the Corporation with or into
any other corporation, or any transfer of all or substantially all of the
assets of the Corporation to any other person or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation
shall mail to each holder of Series B Preferred Stock at least thirty (30) days
prior to the record date specified therein, a notice specifying (1) the date on
which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date
on which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (3) the date, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up.
(l) Automatic Conversion.
(1) Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock based on the then
effective Conversion Price upon the receipt by the Corporation of a written
notice from the Holders of a Majority of the Series B Preferred Stock electing
unconditionally to convert their shares of Series B Preferred Stock.
(2) Upon the occurrence of the event specified in paragraph
(1) above the outstanding shares of Series B Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless the certificates evidencing such
shares of Series B Preferred Stock are either delivered to the Corporation or
its transfer agent as provided below, or the holder notifies the Corporation or
its transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
Upon the occurrence of such automatic conversion of the Series B Preferred
Stock, the holders of Series B Preferred Stock shall surrender the certificates
representing such shares at the office of the Corporation or any transfer agent
for the Series B Preferred Stock or Common Stock. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series B Preferred Stock surrendered were convertible on the date on which such
automatic conversion occurred, and the Corporation shall promptly pay in cash
or, if the Corporation does not have available adequate lawful funds therefor,
Common Stock (taken at the Designated Common Stock's Fair Market Value as of
the date of such conversion) all accrued and unpaid dividends on the shares of
Series B Preferred Stock being converted, whether or not earned or declared, to
and including the date of such conversion.
(m) Fractional Shares. Fractional shares of Common Stock
otherwise issuable upon conversion of shares of Series B Preferred Stock held
by a single holder shall be aggregated into whole shares and issued to such
holder. Otherwise, no fractional shares of Common Stock shall be issued upon
conversion of Series B Preferred Stock. Except as provided above, in lieu of
any fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied by
the Common Stock's Fair Market Value on the date of conversion.
(n) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series B Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(o) Notices. Any notice required or permitted by this Section 7
or any other provision of this Certificate of Designation to be given to a
holder of Series B Preferred Stock or to the Corporation shall be in writing
and be deemed given upon the earlier of actual receipt or three (3) days after
the same has been deposited in the United States mail, by certified or
registered mail, return receipt requested, postage prepaid, and addressed (i)
to each holder of record at the address of such holder appearing on the books
of the Corporation, or (ii) to the Corporation at 46 Old Flat River Road,
Coventry, Rhode Island 02816, or (iii) to the Corporation or any holder, at any
other address specified in a written notice given to the other for the giving
of notice.
(p) Payment of Taxes. The Corporation 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 shares of Common Stock upon
conversion of shares of Series B Preferred Stock, including without limitation
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 B Preferred Stock so converted were registered.
(q) No Dilution or Impairment. The Corporation shall not amend
its certificate of incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series B Preferred
Stock against dilution or other impairment.
Section 8. Restrictions and Limitations. So long as any shares of
Series B Preferred Stock remain outstanding, the Corporation shall not, and
shall not permit any Subsidiary to, without the prior vote or written consent
by the Holders of a Majority of the Series B Preferred Stock:
(a) Redeem, purchase or otherwise acquire for value any share or
shares of Series B Preferred Stock, otherwise than by redemption in accordance
with Section 5, or any warrant, option or right to purchase any Series B
Preferred Stock;
(b) Purchase, redeem or otherwise acquire for value (or pay into
or set aside as a sinking fund for such purpose) any Junior Stock or any
warrant, option or right to purchase any Junior Stock; provided, however, that
this restriction shall not apply to the repurchase of shares of Common Stock
from directors or employees of or consultants or advisers to the Corporation or
any Subsidiary pursuant to agreements approved by the Compensation Committee
under which the Corporation has the option to repurchase such shares upon the
occurrence of certain events, including the termination of employment by or
service to the Corporation or any Subsidiary; and provided further, however,
that without the approval, by vote or written consent, of the Holders of a
Majority of the Series B Preferred Stock, the total amount applied to the
repurchase of shares of Common Stock shall not exceed $50,000 during any
twelve-month period;
(c) Authorize or issue, or obligate itself to issue, any other
equity security senior to or on a parity with the Series B Preferred Stock as
to dividend or redemption rights, liquidation preferences, conversion rights,
voting rights or otherwise; for purposes of this subsection, a senior equity
security shall include any Indebtedness convertible into or exchangeable for
shares of capital stock of the Corporation or any Indebtedness issued with (i)
shares of capital stock of the Corporation or (ii) warrants or other rights to
purchase capital stock of the Corporation or Convertible Securities;
(d) Declare or pay any dividends on or declare or make any other
distribution (other than a dividend payable solely in shares of Common Stock),
direct or indirect, on account of the Junior Stock or set apart any sum for any
such purpose, unless all of the following conditions are satisfied: (i) such
dividend or distribution is declared and made after the PIK Period, (ii) at the
time of both the declaration and payment of such dividend or distribution, the
Corporation has paid in full all semi-annual dividends that have accrued on the
Series B Preferred Stock and cash in the amount of the next two semi-annual
dividends on the Series B Preferred Stock has been set aside in a bank trust
account for the benefit of the holders of the Series B Preferred Stock for the
payment of such dividends, (iii) such dividend and distribution do not exceed
25% of the net income of the Corporation for the four fiscal quarters of the
Corporation immediately preceding the declaration of such dividend or
distribution, (iv) immediately after giving effect to the payment of such
dividend or distribution, (A) the ratio of current assets of the Corporation to
current liabilities of the Corporation is at least 1.25 to 1, (B) the ratio of
total Indebtedness of the Corporation to stockholders' equity of the
Corporation is no greater than 1.5 to 1, and (C) the stockholders' equity of
the Corporation is at least 150% of the sum of (1) the aggregate Liquidation
Amount of all outstanding Series B Preferred Stock (computed as of the date of
declaration and including all accrued and unpaid dividends, whether or not
earned or declared, accruing from and after the most recent Dividend Reference
Date), plus (2) the Liquidation Value of all outstanding Series A Preferred
Stock (as defined in the Series A Certificate of Designation) plus all accrued
an unpaid dividends thereon and (iv) the Corporation shall have delivered to
the holders of the Series B Preferred Stock a certificate signed by its chief
executive officer and chief financial officer stating that all of the foregoing
conditions have been satisfied;
(e) Effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Corporation or any
of its Subsidiaries, or any consolidation or merger involving the Corporation
or any of its Subsidiaries, or any reclassification or other change of any
stock, or any recapitalization, or any dissolution, liquidation, or winding up
of the Corporation or, unless the obligations of the Corporation under an
agreement are expressly conditioned upon the requisite approval of the Holders
of a Majority of the Series B Preferred Stock as provided for herein, make any
agreement or become obligated to do so;
(f) Effect any sale, transfer, assignment, license or sublicense
of any patent, copyright, trademark, trade name, software or other intellectual
property that is used or developed by the Corporation and is material to the
conduct of its business;
(g) Permit any Subsidiary to issue or sell, or obligate itself to
issue or sell, except to the Corporation or any wholly-owned Subsidiary, any
stock or other equity securities of such Subsidiary;
(h) Increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Series B Preferred Stock or Series A
Preferred Stock;
(i) Amend its certificate of incorporation or this Certificate of
Designation or the Series A Certificate of Designation or any other certificate
of designation filed pursuant to Section 151 of the Delaware General
Corporation Law or amend or repeal its bylaws.
(j) Take any action which would result in taxation of the holders
of Series B Preferred Stock under Section 305 of the Internal Revenue Code of
1986 (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended);
(k) Incur, assume or suffer to exist any Indebtedness other than
(i) Indebtedness in existence on the Original Issue Date, (ii) (for the
avoidance of doubt) trade accounts payable that arise in the usual and ordinary
course of business, and (iii) short-term Indebtedness that does not exceed
$250,000 at any time incurred pursuant to a working capital line of credit from
a commercial lender that does not allow borrowings (together with reimbursement
obligations in respect of letters of credit) to exceed $250,000 at any time;
(l) Guarantee or otherwise become contingently obligated for the
payment of any Indebtedness of any Person (other than a wholly-owned
Subsidiary);
(m) Enter into or carry out any agreement or transaction that
would conflict with the Corporation's obligations to the holders of the Series
B Preferred Stock;
(n) Enter into or carry out any transaction with any of its
officers, directors or employees (having annual base compensation of at least
$50,000) or any holder of at least 1% of the outstanding Common Stock (or
warrants, options or rights to purchase such Common Stock), or any Affiliate of
any such officer, director, employee or holder; provided, however, that
compensation matters which are the province of the Compensation Committee are
not encompassed by this Section 8(n).
Section 9. No Reissuance of Series B Preferred Stock. No share or
shares of Series B Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Corporation shall be authorized to issue.
[SIGNATURE PAGE OF CERTIFICATE OF DESIGNATION]
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under penalty of perjury this
7th day of April, 1998.
JD AMERICAN WORKWEAR, INC.
By: /s/ DAVID DEBAENE
_____________________________________
David DeBaene, President
CORPORATE SEAL
ATTEST:
/s/ ANTHONY SANTUCCI
_________________________________________
Anthony Santucci, Chief Financial Officer
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATION
OF
SERIES B 12% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
JD AMERICAN WORKWEAR, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is JD American Workwear, Inc.
2. The Certificate Of Designation Of Series B 12% Cumulative
Convertible Preferred Stock of the corporation, which was filed by the
Secretary of State of Delaware on April 9, 1998, is hereby corrected.
3. The inaccuracy to be corrected in said instrument is as follows:
the number of shares constituting the Series B 12% Cumulative Convertible
Preferred Stock (the "Series B Preferred Stock") contained in clause II of the
Resolution set forth under the Second paragraph of said instrument was "3,950,"
and this number of shares of Series B Preferred Stock should have been stated
as "3,200."
4. The portion of the instrument in corrected form is as follows:
"II. Number of Shares.The number of shares constituting the
Series B Preferred Stock shall be and the same are hereby
fixed at 3,200."
Signed on this 13th day of April, 1998.
/s/ DAVID N. DEBAENE
--------------------------------------
David N. DeBaene
President, Chief Executive Officer and
Chairman of the Board of Directors
STOCKHOLDERS AGREEMENT
----------------------
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is entered into as of April
9, 1998, among THE UNION LABOR LIFE INSURANCE COMPANY, a Maryland corporation
("Investor"), JD AMERICAN WORKWEAR, INC., a Delaware corporation (the
"Company"), and David N. DeBaene, Thomas A. Lisi, Anthony P. Santucci, Norman
DeBaene, Steeve Panneton and Annette DeBaene (each a "Holder," and,
collectively, "Holders"). For purposes of this Agreement, all capitalized terms
shall have the meanings ascribed to such terms in the Securities Purchase
Agreement (defined below) unless otherwise defined herein.
RECITALS
--------
A. Concurrently with entering into this Agreement, the Company and
Investor are entering into a Securities Purchase Agreement of even date
herewith (the "Securities Purchase Agreement") under which Investor is agreeing
to purchase 2,500 shares of the Company's Series B 12% Cumulative Convertible
Preferred Stock, $.001 par value per share (the "Preferred Stock"), and a
detached ten-year Stock Purchase Warrant to purchase 799,000 shares of Common
Stock (the "Warrant").
B. Each Holder is the record and beneficial owner of the number of
shares of Common Stock set forth opposite the name of such Holder on Exhibit A
hereto (as to any Holder, its "Holder Shares").
C. Investor is unwilling to provide equity financing to the Company
unless each Holder is willing to subject its Holder Shares to the restrictions
contained in this Agreement and make the covenants contained herein, and it is
a condition to the performance of Investor's obligations under the Securities
Purchase Agreement that the Company and each Holder enter into this Agreement.
D. Each Holder acknowledges that having Investor provide equity
financing to the Company pursuant to the Securities Purchase Agreement will
directly benefit such Holder as a result of its ownership of Holder Shares and,
accordingly, that such Holder is entering into this Agreement to induce
Investor to provide equity financing to the Company under the Securities
Purchase Agreement.
A G R E E M E N T
-----------------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Definitions.
(a) Unless otherwise expressly defined herein or the context
otherwise requires, the capitalized terms appearing herein shall have the
respective meanings assigned to them in the Securities Purchase Agreement.
(b) Unless the context otherwise requires, the terms defined in
this Section 1 shall have the meanings herein specified for all purposes of
this Agreement, applicable to both the singular and plural forms of any of the
terms herein defined.
"Holder Shares" shall mean, with respect to a Holder, (i) the
number of shares of Common Stock set forth opposite such Holder's name on
Exhibit A hereto, (ii) all Common Stock hereafter acquired by such Holder, and
(iii) all shares issued by the Company on or in respect of the shares referred
to in the preceding clauses (i) and (ii) including, without limitation, by way
of dividend, subdivision, combination, reclassification, recapitalization,
reorganization or otherwise.
"Purchased Shares" shall mean (i) the Preferred Stock and Warrant
and all Common Stock issued upon conversion or exercise thereof, and (ii) all
other shares of Common Stock hereafter acquired by Investor, and (iii) all
shares issued by the Company on or in respect of the shares referred to in the
preceding clauses (i) and (ii) including, without limitation, by way of a
dividend, subdivision, combination, reclassification, recapitalization,
reorganization or otherwise.
"Transfer" shall mean any sale, pledge, assignment, encumbrance or
other transfer or disposition of any shares of Common Stock to any other
Person, whether directly, indirectly, voluntarily, involuntarily, by operation
of law, pursuant to judicial process or otherwise.
2. Covenant Against Certain Transfers; Representation and Warranty.
(a) Each Holder covenants and agrees with Investor that except as
permitted in this Agreement it will not Transfer any or all of the Holder
Shares held by it.
(b) Prior to a Qualified Offering, each Holder may sell the
Holder Shares owned by it for a cash price of not less than $7.50 per share
(which price shall be proportionately adjusted for subdivisions and
combinations of the outstanding shares of Common Stock) so long as the Company
has its Right of First Refusal with respect to such sale as provided in Section
4 hereof and Investor has the Right of Second Refusal and Co-Sale Rights with
respect to such sale as provided in Section 5 hereof.
(c) The minimum price requirement appearing in Section 2(b) shall
expire on the second anniversary of the Closing Date under the Securities
Purchase Agreement.
(d) Each Holder for itself, represents and warrants that (i) such
Holder is the record and beneficial owner of all shares of Common Stock set
forth opposite such Holder's name on Exhibit A hereto, and (ii) such Holder has
no beneficial ownership of or economic interest in any Common Stock other than
as shown opposite its name on Exhibit A.
3. Legend on Certificates. The Company and all Holders shall cause all
certificates evidencing shares of Common Stock now or hereafter held by the
Holders to bear substantially the following legend:
"The shares represented by this certificate are subject
to the rights of Union Labor Life Insurance Company
under the terms of a Stockholders Agreement, among JD
American Workwear, Inc., Holders of shares of Common
Stock of JD American Workwear, Inc. and Union Labor
Life Insurance Company, a copy of which is on file at
the principal office of JD American Workwear, Inc. and
will be furnished upon request to the holder of record
of the shares represented by this certificate."
4. The Company's Right of First Refusal. Before any shares of Common
Stock may be Transferred by any Holder, such shares of Common Stock shall first
be offered to the Company, as set forth below.
(a) If a Holder desires to Transfer any shares of Common Stock
owned by him, the Transferring Holder shall deliver a notice (the "Sale
Notice") to the Company and to the Investor stating (i) its bona fide intention
to Transfer such shares of Common Stock in the transaction described in the
Sale Notice, (ii) the number of shares of Common Stock proposed to be
Transferred (the "Noticed Securities"), (iii) the price at which it proposes to
Transfer the Noticed Securities (in the case of a Transfer not involving a
sale, such price shall be deemed to be fair market value of the Noticed
Securities as determined pursuant to Section 4(c)) hereof and the terms of
payment of that price and other terms and conditions of sale, and (iv) the name
and address of the proposed purchaser or transferee. Such Holder shall not
effect any Transfer for value of the shares of Common Stock other than for
money (United States dollars) or an obligation to pay money (United States
dollars).
(b) For a period of thirty (30) days after receipt of the Sale
Notice, the Company shall have the right to purchase all of the Noticed
Securities. The purchase price per share of Common Stock of the Noticed
Securities purchased by the Company pursuant to this Section 4 shall be, in the
case of a sale, the price per share of Common Stock set forth in the Sale
Notice and, in the case of a Transfer not involving a sale, the fair market
value of such shares of Common Stock determined pursuant to Section 4(c)
hereof, and the purchase shall be on the same terms and subject to the same
conditions as those set forth in the Sale Notice. The right to purchase shall
be exercisable by the Company by giving written notice (the "Company Notice")
to the selling Holder and the Investor within the 30-day period described
above, specifying the number of shares of Common Stock to be purchased.
(c) In the case of a Transfer of shares of Common Stock not
involving a sale, if the Company and the Transferring Holder do not reach
agreement on the fair market value thereof, then such fair market value shall
be determined in good faith by an independent and qualified investment banker
or appraisal firm selected by the Board. This determination will be final and
binding upon all parties and persons claiming under or through them. The fees
and expenses of such banker or appraisal firm shall be borne equally by the
Company and the Transferring Holder.
(d) If the Company fails or refuses to purchase any or all of the
Common Stock specified in the Notice, the Company shall give Investor written
notice thereof, specifying the number of shares of Common Stock that it has not
purchased (the "Designated Notice").
5. Investor's Rights of Second Refusal and Co-Sale Rights.
(a) Right of Second Refusal. Before any Noticed Securities not
purchased by the Company pursuant to Section 4 hereof may be Transferred by any
Holder, such Noticed Securities shall first be offered to Investor, as set
forth below. If the provisions of Section 4 are terminated as provided in the
proviso to Section 10(j), then the provisions of Section 4(a) shall be
applicable mutatis mutandis to this Section 5.
(i) For a period of thirty (30) days after receipt of the
Designated Notice, Investor shall have the right to purchase all of the Noticed
Securities not purchased by the Company pursuant to Section 4 hereof (the
"Remaining Securities"). The purchase price per share of Common Stock of the
Remaining Securities purchased by Investor pursuant to this Section 5 shall be,
in the case of a sale, the price per share of Common Stock set forth in the
Sale Notice and, in the case of a Transfer not involving a sale, the fair
market value of such shares of Common Stock determined pursuant to Section
4(a)(c) hereof unless the Company shall not have purchased any part of the
Noticed Securities, and the purchase shall be on the same terms and subject to
the same conditions as those set forth in the Sale Notice. The right to
purchase shall be exercisable by written notice to the Transferring Holder
within the 30-day period described above, specifying the number of shares of
Common Stock to be purchased.
(ii) In the case of a Transfer of shares of Common Stock not
involving a sale, if the Company shall not have purchased any part of the
Noticed Securities and if Investor and the Transferring Holder do not reach
agreement on the fair market value thereof, then such fair market value shall
be determined in good faith by an independent and qualified investment banker
or appraisal firm selected by the Board. This determination will be final and
binding upon all parties and persons claiming under or through them. The fees
and expenses of such banker or appraisal firm shall be borne equally by the
Company and the Transferring Holder.
(b) Right of Co-Sale. If the Company does not elect to purchase
all of the Noticed Securities to which the Sale Notice refers as described in
Section 4(a) hereof, and Investor does not elect to purchase all of the
Remaining Securities, if any, pursuant to Section 5(a) hereof, then Investor
shall have the right, exercisable upon written notice to the selling Holder
within thirty (30) days of the date of the original Sale Notice described in
Section 4(a), to participate in such Transfer of shares of Noticed Securities
at the same price and on the same terms and conditions. Such notice shall
indicate the number of shares of Common Stock the Investor wishes to Transfer
under its right to participate.
(i) Investor may sell all or any part of that number of
shares equal to the product obtained by multiplying (x) the aggregate number of
Noticed Securities covered by the Sale Notice (as reduced by any purchases
pursuant to Section 4(a) or Section 5(a) hereof) by (y) a fraction, the
numerator of which is the number of shares of Common Stock owned by Investor at
the time of the Transfer (assuming for this purpose that Investor's holdings
include all shares of Common Stock underlying the Preferred Stock and Warrant
or other warrants then held by Investor) and the denominator of which is the
total number of shares of Common Stock owned by the selling Holder and Investor
at the time of the Transfer.
(ii) If Investor elects to participate in the sale pursuant
to this Section 5(b), it shall effect its participation in the sale by
delivering to the prospective purchaser one or more certificates, properly
endorsed for transfer, which represent the number of shares of Common Stock
which Investor elects to sell in consummation of the sale of the Common Stock
pursuant to the terms and conditions specified in the Sale Notice, and the
purchaser shall concurrently therewith remit to Investor that portion of the
sales proceeds to which Investor is entitled by reason of its participation in
such sale. To the extent that any prospective purchaser prohibits Holder's
implied assignment of rights to participate in such sale or otherwise refuses
to purchase shares from Investor or interferes with Investor exercising its
rights of co-sale hereunder, the selling Holder shall not sell to such
prospective purchaser any Common Stock unless and until, simultaneously with
such sale, the selling Holder shall purchase such shares from Investor at the
same price and on the same terms and conditions specified in the Sale Notice.
(c) Closing if Rights Not Exercised. If Investor does not elect
to purchase or participate in the sale of all of the Noticed Securities to
which the Sale Notice refers, then the selling Holder may Transfer all (but not
less than all) of the Noticed Securities to any purchaser or transferee named
in the Sale Notice at, in the case of a sale, the price specified in the Sale
Notice and on other terms and conditions not materially more favorable to the
transferor than those described in the Sale Notice, provided that (i) such
Transfer is consummated within ninety (90) days of the date of the Sale Notice
to the Company and (ii) any purchaser or transferee named in the Sale Notice
shall agree to be bound by all the terms and conditions of, and to take upon
itself the undertakings of the transferor pursuant to, this Agreement. Any
proposed Transfer at a price greater than the price specified in the Sale
Notice or on terms and conditions materially more favorable to the transferor
than those described in the Sale Notice, as well as any subsequent proposed
Transfer of any shares of Common Stock by a selling Holder, shall again be
subject to the right of first refusal of the Company and the rights of second
refusal and co-sale of Investor and shall require compliance by the selling
Holder with the procedures described in this Section 5.
(d) Excepted Transactions. Notwithstanding anything contained
herein to the contrary, the provisions of Sections 2, 4 and 5 hereof shall not
apply to (i) any Transfer to ancestors, descendants or spouse or to a trust for
the benefit of such Persons or a Holder, or (ii) any bona fide gift, or (iii)
any Transfer to an entity that is wholly owned, and will remain wholly owned,
by such Holder (or such Holder and one or more of the individuals referred to
in the preceding clause (i)); provided that (1) as a condition precedent to any
Transfer made pursuant to one of the exemptions provided in clause (i), (ii) or
(iii), (A) the Transferring Holder shall inform the Company and Investor of
such Transfer or gift prior to effecting it, and (B) the transferee or donee
shall furnish the Company and Investor with a written agreement to be bound by
and comply with all provisions of Sections 2, 3, 4, 5 and 7 hereof and such
Transferred shares of Common Stock shall remain "shares of Common Stock" and
"Holder Shares" hereunder, and such transferee or donee shall be treated as a
"Holder" for all purposes of this Agreement, (2) in the case of a Transfer in
trust, such Holder shall become the trustee or, with such Holder's spouse, a
co-trustee of such trust, (3) in the case of a Transfer not in trust, as a
condition precedent to such Transfer such Holder shall retain an irrevocable
proxy to vote the Transferred Common Stock and (4) in the case of a Transfer
described in clause (iii), as a condition precedent to the Transfer all holders
of equity or other ownership interests in such entity shall enter into an
agreement with Investor, which shall be mutually satisfactory to Investor and
the transferee, under which the outstanding equity or other ownership interests
in such transferee shall be subjected to the same restrictions against Transfer
that appear in Sections 2, 3, 4, 5 and 7 of this Agreement.
(e) Transfers in Violation. Any attempted Transfer of any shares
of Common Stock in violation of the provisions of this Agreement shall be null
and void, and the Company shall not in any way give effect to any such
impermissible Transfer.
6. Tag-Along Rights.
(a) If Investor enters into an agreement to transfer, sell or
otherwise dispose of all of the Purchased Shares (a "Tag-Along Sale"), then
each Holder shall have the right, but not the obligation, to participate in
such Tag-Along Sale by selling up to the number of shares of Common Stock (the
"Maximum Tag-Along Shares of Common Stock") equal to the product of (i) the
total number of Purchased Shares proposed to be sold or otherwise disposed of
by Investor (but with the Preferred Stock and Warrant deemed to have been
converted and exercised in full), multiplied by (ii) a fraction, the numerator
of which shall equal the aggregate number of Holder Shares owned by the Holders
immediately prior to the Tag-Along Sale and the denominator of which shall
equal the sum of (A) the aggregate number of shares of Common Stock owned by
the Holders who have elected to participate in such Tag-Along Sale, plus (B)
the aggregate number of Purchased Shares owned by Investor (but with the
Preferred Stock and Warrant deemed to have been converted and exercised in
full) immediately prior to the Tag-Along Sale. Any such sale by any Holder
shall be on the same terms and conditions as the proposed Tag-Along Sale by
Investor; provided, however, that (1) in the event that the purchaser or
transferee is purchasing warrants, the sales price of the warrants shall be
adjusted for the subscription price payable upon exercise of such warrants, and
(2) all Holders shall share pro rata, based upon the number of shares of Common
Stock being sold by each (x) in all transaction expenses, (y) in any indemnity
liabilities to the proposed transferee or purchaser in the Tag-Along Sale
(other than representations as to unencumbered ownership of and ability to
transfer the shares of Common Stock being sold of any other seller in the
Tag-Along Sale, which shall be the sole responsibility of such other seller),
and (z) in any escrow for the purpose of satisfying any such indemnity
liabilities.
(b) Investor shall promptly provide each Holder with written
notice (the "Tag-Along Sale Notice") not more than sixty (60) nor less than
thirty (30) days prior to the proposed date of the Tag-Along Sale (the
"Tag-Along Sale Date"). In order to facilitate the prompt delivery of the
Tag-Along Sale Notices, the Company hereby covenants to provide Investor access
to the record books of the Company. Each Tag-Along Sale Notice shall set forth
(i) the name and address of each proposed transferee or purchaser of Purchased
Shares in the Tag-Along Sale; (ii) the number of Purchased Shares proposed to
be transferred or sold by Investor (expressed in number of shares of Common
Stock issuable upon conversion or exercise of the Purchased Shares to the
extent they have not been converted and exercised in full); (iii) the proposed
amount and form of consideration to be paid for such Purchased Shares and the
terms and conditions of payment offered by each proposed transferee or
purchaser; (iv) the aggregate number of shares of Common Stock held of record
as of the close of business on the date of the Tag-Along Sale Notice (the
"Tag-Along Notice Date") by the Holder to whom the notice is sent and the
aggregate number of shares of Common Stock outstanding on the Tag-Along Notice
Date; (v) the aggregate number of Purchased Shares held of record as of the
Tag-Along Notice Date by Investor (expressed in number of shares of Common
Stock issuable upon conversion or exercise of the Purchased Shares, to the
extent they have not been converted and exercised in full); (vi) the maximum
number of shares of Common Stock that the Holder to whom the notice is sent is
entitled to include in the Tag-Along Sale, assuming that each Holder elected to
participate in the Tag-Along Sale and elected to sell the maximum number of
shares of Common Stock owned by such Holder; (vii) the Tag-Along Sale Date; and
(viii) confirmation that, with respect to the shares of Common Stock to be
received by the proposed transferee or purchaser, the proposed transferee or
purchaser agrees in writing to be bound by, and covenants that each transferee
of all such shares of Common Stock shall be bound by, the provisions of this
Agreement as if it were Investor and a party hereto.
(c) Each Holder shall provide written notice (the "Tag-Along
Notice") to Investor as to its decision to participate in the Tag-Along Sale no
less than fifteen (15) days prior to the Tag-Along Sale Date. The Tag-Along
Notice shall set forth the number of shares of Common Stock, if any, that such
Holder desires to include in the Tag-Along Sale (which shall not exceed such
Holder's Maximum Tag-Along Shares of Common Stock). The Tag-Along Notice shall
also specify the aggregate number of additional shares of Common Stock owned of
record as of the Tag-Along Notice Date by such Holder, if any, which such
Holder desires also to include in the Tag-Along Sale ("Additional Shares of
Common Stock") in the event there is an aggregate undersubscription for the
entire Maximum Tag-Along Shares of Common Stock. In the event there is an
aggregate undersubscription by the Holders for the entire Maximum Tag-Along
Shares of Common Stock, Investor shall apportion the unsubscribed Maximum
Tag-Along Shares of Common Stock to Holders whose Tag-Along Notices specified
an amount of Additional Shares of Common Stock, which apportionment shall be on
a pro rata basis among such Holders in accordance with the number of Additional
Shares of Common Stock specified by all such Holders in their Tag-Along
Notices.
(d) Investor shall determine the aggregate number of shares of
Common Stock to be sold by each participating Holder in any given Tag-Along
Sale in accordance with the terms hereof, and the Tag-Along Notices given by
the Holders shall constitute their binding respective agreements to sell such
shares of Common Stock on the terms and conditions applicable to such sale
(including the requirements of this Section 6).
(e) If a Tag-Along Notice is not received by Investor in the
Tag-Along Sale from a Holder within the fifteen (15) day period specified
above, Investor shall have the right to sell or otherwise transfer the number
of Purchased Shares specified in the Tag-Along Sale Notice to the proposed
purchaser or transferee without any participation by such Holder, but only on
the terms and conditions stated in such Tag-Along Sale Notice and only if such
sale occurs on a date within ninety (90) days of the Tag-Along Sale Date.
(f) The provisions of this Section 6 shall apply regardless of
the form of consideration received in the Tag-Along Sale.
(g) Notwithstanding anything herein to the contrary, the
provisions of this Section 6 shall not apply to any Transfer from Investor to
any entity that is an Affiliate of Investor.
(h) If any Holder has Transferred any Common Stock in a
transaction described in clause (i), (ii) or (iii) of Section 5(d), the
transferee (an "Exempt Transferee") shall have the same right to participate in
a Tag-Along Sale upon the same terms, conditions and restrictions that apply to
such Holder or would apply to such Holder (if such Holder either does not
exercise its Tag-Along Rights or no longer holds Common Stock). Any Tag-Along
Sale Notice given to a Holder shall be deemed to have been effectively given to
its Exempt Transferee when given to such Holder.
(i) For the purpose of computing the number of shares of Common
Stock held by Investor or any Holder all shares of Common Stock underlying any
warrant or Series B Preferred Stock (or other convertible securities) held of
record by such Person shall be deemed owned by such Person.
(j) To the extent that Investor is obligated to make any payment
upon the exercise of any warrant held by it or is entitled to receive any
payment upon exercise of any warrant or conversion of any security held by it
that is convertible into Common Stock, the price it receives in the Tag-Along
Sale may be less than the price per share of Common Stock received by any
Holder (to adjust for the subscription price payable upon the exercise of any
warrant or upon the conversion of any convertible security) or may be greater
than the price per share of Common Stock received by any Holder (to adjust for
any amount receivable by Investor upon exercise of such warrant or conversion
of such convertible security).
7. Drag-Along Rights.
(a) If Investor, either alone or with any other Person,
determines to accept an offer from any Person (other than a Person that is an
Affiliate of Investor) to purchase any Purchased Shares and as a result of such
purchase (and the sale of Holder Shares to such Person as provided in this
Section 7) the offeror will have the ability to elect a majority of the members
of the Board, then, at the request of Investor, each Holder shall sell all
shares of Common Stock held by such Holder pursuant to such offer to purchase
(the "Drag-Along Sale"). All Holders of shares of Common Stock in such
Drag-Along Sale (i) shall receive the same consideration per share of Common
Stock, shall be subject to the same terms and conditions of sale and shall
otherwise be treated equally or, where appropriate, pro rata based upon the
number of shares of Common Stock, as the case may be, held by each Holder, and
(ii) shall execute such documents and take such actions as may be reasonably
required by Investor. For purposes of Drag-Along Sales, the number of shares
owned by each Holder shall include all shares underlying any options, warrants
and/or any other securities exercisable, convertible or exchangeable for Common
Stock (the "Convertible Securities"), which Convertible Securities will be
exercised by the Holder thereof immediately prior to and contingent upon
consummation of the Drag-Along Sale; provided, however, that at the option of
the holder of any Convertible Securities it may sell rather than exercise the
Convertible Securities (x) at a reduced price per share of Common Stock
equivalent that takes into account any amount payable by such holder to effect
such exercise, and (y) at an increased price per share of Common Stock
equivalent that takes into account any amount receivable by such holder upon
such exercise.
(b) Subject to the proviso in Section 7(a), any such sale by any
Holder shall be on the same terms and conditions as the proposed Drag-Along
Sale by Investor; provided, however, that all Holders shall share pro rata,
based upon the number of shares of Common Stock being sold by each (i) in all
transaction expenses (to the extent not borne by the Company), (ii) in any
indemnity liabilities to the purchaser in the Drag-Along Sale (other than
representations as to unencumbered ownership of and ability to transfer the
shares of Common Stock being sold of any other seller in the Drag-Along Sale,
which shall be the sole responsibility of such other seller), and (iii) in any
escrow for the purpose of satisfying any such indemnity liabilities.
(c) Investor shall promptly provide each Holder with written
notice (the "Sale Notice") not more than sixty (60) nor less than thirty (30)
days prior to the scheduled date of the Drag-Along Sale (the "Drag-Along Sale
Date"). Each Sale Notice shall set forth: (i) the name and address of each
proposed transferee or purchaser of shares of Common Stock in the Drag-Along
Sale; (ii) the proposed amount and form of consideration to be paid for such
shares of Common Stock and the terms and conditions of payment offered by each
proposed transferee or purchaser; (iii) confirmation that the proposed
purchaser or transferee has been informed of the "Drag-Along Rights" provided
for herein and has agreed to purchase shares of Common Stock (or, if requested
by Investor or a Holder, Convertible Securities) in accordance with the terms
hereof; and (iv) the Drag-Along Sale Date.
(d) The provisions of this Section 7 shall apply regardless of
the form of consideration received in the Drag-Along Sale, and if any non-cash
consideration is proposed for shares of Common Stock in the Drag-Along Sale,
each Holder shall accept its pro rata share of such non-cash consideration for
the shares of Common Stock based on its proportional ownership of shares of
Common Stock sold in such Drag-Along Sale.
(e) Each Exempt Transferee shall be obligated to sell all Common
Stock held by it in the Drag-Along Sale on the same terms and conditions that
apply to the Holder from whom it acquired Common Stock or would apply to such
Holder (in the case of a Holder who no longer holds Common Stock). Any
Drag-Along Sale Notice given to a Holder shall be deemed to have been
effectively given to its Exempt Transferee when given to such Holder.
(f) Each Holder and each Exempt Transferee shall execute such
documentation and take such further action as shall be requested in good faith
by Investor in order to effectuate the timely completion of the Drag-Along
Sale.
8. Holders' Non-Competition and Non-Solicitation Covenants.
(a) Each Holder hereby covenants and agrees with the Company and
Investor that, for the period beginning on the date hereof and ending on the
fifth (5th) anniversary of the Closing Date under the Securities Purchase
Agreement (the "Covenant Period") (provided, however, that such period shall be
extended automatically by and for the duration of any period of time during
which such Holder is in violation of any provision hereof), such Holder shall
not, directly or indirectly, acting alone or as a member of a partnership,
limited liability company or other business entity or as a holder of any
security of any class (other than as holder of less than one percent (1%) of
the outstanding amount of any security listed on a national securities exchange
or designated as a Nasdaq National Market security by the National Association
of Securities Dealers, Inc.) or as an officer, director, partner, employee,
consultant, agent or representative of or as an advisor or lender to any
corporation or other business entity:
(i) engage in any business within any geographic territory
in which the Company is conducting business during the Covenant Period, which
business is in direct competition with any business conducted by the Company at
any time during the Covenant Period;
(ii) request, induce or attempt to influence any customer or
supplier of the Company at any time during the Covenant Period to limit,
curtail or cancel its business with the Company; or
(iii) request, induce or attempt to influence any officer,
director or employee, of the Company at any time during the Covenant Period to
(x) terminate his, her or its employment or business relationship with the
Company or (y) commit any act that, if committed by Holder, would constitute a
breach of any provision hereof.
(b) The provisions of clauses (i), (ii) and (iii) above are
separate and distinct commitments independent of each of the other such
clauses. Each Holder agrees that neither the Company nor Investor has an
adequate remedy at law for any breach or threatened or attempted breach by
Holder of the covenants and agreements set forth in Section 8(a) hereof, and,
accordingly, such Holder also agrees that the Company and Investor may, in
addition to the other remedies that may be available to either of them under
this Agreement or at law, commence proceedings in equity for an injunction
temporarily or permanently enjoining such Holder from breaching or threatening
or attempting any such breach of any covenant or agreement set forth in Section
8(a) hereof, and with respect to any such proceeding in equity, it shall be
presumed that the remedies at law available to the Company and Investor would
be inadequate and that they would suffer irreparable harm as a result of the
violation of any provision hereof by such Holder. The prevailing party or
parties in any proceeding in equity or at law commenced in respect of this
Agreement shall be entitled to recover from the non-prevailing party or parties
to such proceeding all reasonable fees, costs and expenses (including
reasonable fees and disbursements of counsel) incurred in connection with such
proceeding and any appeals therefrom.
(c) The parties hereto acknowledge and agree that if the scope or
duration of any covenant set forth in Section 8(a) hereof is deemed by any
court to be overly broad, the court may reduce the scope thereof to that which
it deems reasonable under the circumstances. If any one or more provisions
hereof are held to be invalid or unenforceable, the validity and enforceability
of the remaining provisions shall not be affected thereby.
9. Holders' Confidentiality Covenant.
(a) Each Holder hereby agrees that such Holder will maintain in
confidence and not disclose, divulge or otherwise communicate to others or use
for any purpose, except as may be necessary to perform such Holder's duties as
an employee of or consultant to the Company, where applicable, any Confidential
Information (as hereinafter defined) except as expressly set forth in Section
9(c) hereof. Each Holder agrees (i) to cause each of its employees, directors,
officers or advisors to whom any Confidential Information of the Company has
been divulged or communicated to keep such Confidential Information strictly
confidential and to not disclose, divulge or communicate the same to any other
Person or use for any purpose, except as provided in Section 9(c), and (ii) to
be responsible for any disclosure or misuse of Confidential Information by such
employees, directors, officers or advisors.
(b) As used herein, the term "Confidential Information" refers to
any and all financial, technical, commercial or other information concerning
the business and affairs of the Company, whether prepared by employees, agents
or advisors of the Company or otherwise, that has heretofore been, or may
hereafter be, provided to any Holder, irrespective of the form or source of the
communication, including, without limitation, business plans, product
development plans, product pricing, information about actual or prospective
customers or suppliers, computer programs, codes, technical information, data,
reports, know-how, patent positioning, financial information, analyses,
compilations, market data, studies and plans. The term "Confidential
Information"does not include information which (i) at the time of disclosure or
thereafter is generally available to or known by the public otherwise than by
reason of a Holder's disclosure thereof in violation of this Section 9, or (ii)
becomes available to a Holder on a nonconfidential basis from a source other
than the Company or its agents; provided that such Holder, after due inquiry,
had no reason to believe that such source was bound by a confidentiality
agreement with the Company.
(c) In the event that any Holder or Person to whom any Holder
furnishes Confidential Information as permitted by this Agreement receives a
request to disclose all or any part of the information contained in the
Confidential Information under the terms of a subpoena, order, civil
investigative demand or similar process issued by a court of competent
jurisdiction or by a governmental body or agency, subject to the following
sentence, such Holder agrees (i) to notify the Company immediately of the
existence, terms and circumstances surrounding such a request, (ii) to consult
with the Company on the advisability of taking legally available steps to
resist or narrow such request, (iii) if disclosure of such information is
required, to furnish only that portion of the Confidential Information which,
in the opinion of counsel for such Holder, such Holder is legally compelled to
disclose and to advise Company as far in advance of such disclosure as is
possible so that the Company may seek an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the
Confidential Information, and (iv) not to oppose actions by the Company to
obtain an appropriate protective order or reliable assurance that confidential
treatment will be accorded the Confidential Information. Nothing in this
Section 9 shall prevent Holder from disclosing Confidential Information to his
or her counsel, the court and witnesses in connection with Holder's enforcement
of its rights under this Agreement.
10. Miscellaneous.
(a) Construction. As used in this Agreement, the masculine,
feminine or neuter gender, and the singular or plural shall be deemed to
include the others or other whenever and wherever the context so requires.
(b) Waivers and Amendments. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only by the
written consent of: (i) as to the Company, only by the Company by action
authorized by the Board, (ii) as to Investor, only by Investor, and (iii) as to
the Holders, by Holders holding more than fifty percent (50%) in interest of
the Holder Shares held by all Holders. Any amendment or waiver effected in
accordance with clauses (i), (ii) and (iii) of this Section 10(b) shall be
binding upon the Company, Investor, and the Holders and their respective
successors and assigns. No waiver by any party of the breach of any term or
provision contained in this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
the Agreement.
(c) Entire Agreement; Assignment of Rights. This Agreement, the
Stock Purchase Agreement and the written agreements referenced therein
constitute the entire agreement among the parties hereto relative to the
subject matter hereof. Any previous agreement among the parties relative to the
specific subject matter hereof is superceded by this Agreement; provided, that
nothing herein contained shall in any manner negate any provision of the
Securities Purchase Agreement or any other written agreement referred to in the
Securities Purchase Agreement. This Agreement and the rights and obligations of
the parties hereunder shall inure to the benefit of, and be binding upon, their
respective successors, assigns and legal representatives.
(d) Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to the Company to:
JD American Workwear, Inc.
46 Old Flat River Road
Coventry, Rhode Island 02816
Attention: Mr. David N. DeBaene, President and
Chief Executive Officer
Telecopier: (401) 397-6804
with a copy to
Gerard S. DiFiore, Esq.
Reed, Smith, Shaw & McClay LLP
One Riverfront Plaza
Newark, NJ 07102-5400
Telecopier: (973) 621-3199
if to Investor to:
Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attention: Mr. Michael R. Steed, Senior Vice President
Telecopier: (202) 682-7970
with a copy to:
Alan J. Barton, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street - 23rd Floor
Los Angeles, CA 90071
Telecopier: (213) 627-0705
if to any Holder at the address or to the telecopier number set
forth beneath such Holder's name on the signature page(s) to this
Agreement, with a copy to Girard S. DiFiore, Esq., as provided
above,
or to such other address or telecopier number as such party may specify for the
purpose of notice to the other party or parties to this Agreement, as the case
may be. A copy of any notice to Investor or any Holder shall also be given to
each other Holder. Any notice, request, consent or other communication
hereunder shall be deemed to have been given and received on the day on which
it is delivered (by any means including personal delivery, overnight air
courier, United States mail) or telecopied (or, if such day is not a business
day or if the notice, request, consent or communication is not telecopied
during business hours of the intended recipient, at the place of receipt, on
the next following business day).
(e) 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.
(f) Headings. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(g) Choice of Law. It is the intention of the parties that the
internal substantive laws, and not the laws of conflicts, of New York shall
govern the enforceability and validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties.
(h) Expenses. Except as provided in the Securities Purchase
Agreement or below, each party shall be responsible for all of its own fees and
expenses arising or incurred in connection with this Agreement and consummation
of the transactions contemplated hereby.
(i) Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
(j) Term. This Agreement shall commence upon the date hereof and
shall terminate upon the tenth anniversary of the date hereof; provided, that
Sections 4 and 5(b) shall terminate upon the expiration of the underwriters'
lock-up period in connection with a Qualified Offering.
(k) Further Assurances.
(i) Each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable legal
requirements or otherwise, to make effective the transactions contemplated by
this Agreement.
(ii) If at any time Investor believes in good faith that any
further action is necessary or desirable on the part of the Company or any
Holder or Holders to carry out the purposes of this Agreement, each of the
Holders and the Company, as the case may be, shall, as requested by Investor in
writing, take or cause to be taken all such necessary or convenient action and
execute, and deliver and file, or cause to be executed, delivered and filed,
all necessary or convenient documentation.
(l) Non-Reliance on Investor and its Counsel. Each Holder
acknowledges and agrees that it is being represented in connection with this
Agreement by Reed, Smith, Shaw & McClay LLP, and such Holder has not received
any information or advice from, and is not relying upon any statement made by
Investor or Investor's special counsel, Paul, Hastings, Janofsky & Walker LLP,
in entering into or in connection with this Agreement or the transactions
contemplated hereby.
(m) Expenses of Enforcement. If any party seeks to enforce its
rights under this Agreement against another party, the prevailing party in any
arbitration, litigation or dispute shall be entitled to receive from the party
or parties against which it has prevailed the reasonable fees and expenses
incurred by the prevailing party in connection therewith including, without
limitation, the reasonable fees and expenses of counsel, advisors and expert
witnesses.
(n) Further Enforcement Matters. Each party hereby agrees that
each other party shall be entitled to equitable relief, including an injunction
and specific performance, in the event of any breach of the provisions of this
Agreement, in addition to all other remedies available at law or in equity.
Each party further agrees to waive, and to use its best efforts to cause its
officers, directors, employees and agents to waive, any requirement for the
securing or posting of any bond in connection with such remedy. Each party also
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the United States of America located in the
District of Columbia for any actions, suits or proceedings arising out of or
relating to this Agreement or any matter contemplated hereby, and each party
agrees not to commence any action, suit or proceeding related thereto except in
such courts. Each party further agrees that service of any process, summons,
notice or document by United States mail, registered or certified, to its
address set forth or referred to in Section 10(d) shall be effective service of
process for any action, suit or proceeding against the party being served in
any such court. Each party hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of or relating to this Agreement, in the courts of the United States of America
located in the District of Columbia, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
(o) Authorship of Documents. This Agreement shall not be
construed for or against any party by reason of authorship or alleged
authorship of any provisions hereof or by reason of the status of the
respective parties.
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Stockholders Agreement
to be duly executed as of the day and year first above written.
JD AMERICAN WORKWEAR, INC.
By: /s/ DAVID N. DEBAENE
David N. DeBaene, President and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
By: /s/ HERBERT C. CANAPARY
Name: Herbert C. Canapary
Title: Vice President--Investments
HOLDERS
/s/ DAVID N. DEBAENE /s/ THOMAS A. LISI
David N. DeBaene Thomas A. Lisi
Address:__________________________ Address:__________________________
__________________________________ __________________________________
__________________________________ __________________________________
/s/ ANTHONY P. SANTUCCI /s/ NORMAN DEBAENE
Anthony P. Santucci Norman DeBaene
Address:__________________________ Address:__________________________
__________________________________ __________________________________
__________________________________ __________________________________
/s/ STEEV PANNETON /s/ ANNETEE DEBAENE
Steev Panneton Annetee DeBaene
Address:__________________________ Address:__________________________
__________________________________ __________________________________
__________________________________ __________________________________
EXHIBIT A
Number of Shares of
Name of Holder Common Stock Held
------------------- -------------------
David N. DeBaene 587,500 shares
Thomas A. Lisi 50,000 shares
Anthony P. Santucci 0 shares
Norman DeBaene 48,000 shares
Annette DeBaene 48,000 shares
Steev Panneton 62,500 shares
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as
of April 9, 1998, by and between JD AMERICAN WORKWEAR, INC. (the "Company"), a
Delaware corporation, and THE UNION LABOR LIFE INSURANCE COMPANY, a Maryland
corporation ("Investor").
R E C I T A L S
A. Concurrently with entering into this Agreement, the Company and
Investor are entering into a Securities Purchase Agreement bearing the same
date as this Agreement under which Investor is agreeing to purchase 2,500
shares of Series B Preferred Stock and Detached Ten-Year Stock Purchase
Warrants to purchase 799,000 shares of Common Stock (the "Investor Warrants")
and Investor may subsequently be issued Detached Ten-Year Warrants to purchase
a total of 213,552 shares of Common Stock as dividends appropriately increased
to adjust for the effect of anti-dilution provisions of the Series A Preferred
Stock, (the "Dividend Warrants") from the Company on the terms and subject to
the conditions appearing therein. The Investor Warrants and the Dividend
Warrants are referred to collectively herein as the "Warrants".
B. The execution and delivery of this Agreement by the parties hereto
are a condition to Investor's obligation to purchase the Series B Preferred
Stock and the Investor Warrants.
A G R E E M E N T
THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Unless the context otherwise requires, the terms
defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined.
"Agreement" means this Registration Rights Agreement.
"Board" means the Board of Directors of the Company.
"Common Stock" means the common stock of the Company.
"Commission" means the Securities and Exchange Commission.
"Dividend Warrants" shall have the meaning assigned to it in the Recital
A.
"Equity Security" has the meaning assigned to it in the Preferred Stock
Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" of any security means the record or beneficial owner of such
security. A Holder of Preferred Stock shall be treated as the Holder of the
Registrable Securities underlying such Preferred Stock.
"Holders of a Majority of the Registrable Securities" means the Person or
Persons who are the Holders of greater than 50% of the shares of Registrable
Securities then outstanding.
"Initiating Holders" means (i) with respect to each registration pursuant
to Section 2, other than on Form S-3, the Holder or Holders of at least 40% of
the shares of Registrable Securities then outstanding, and (ii) with respect to
a registration on Form S-3, the Holder or Holders of Registrable Securities
having an anticipated public offering price of at least $5.0 million at the
time the demand for registration is given under Section 2.
"Investor" has the meaning assigned to it in the introductory paragraph
of this Agreement.
"Investor Warrants" shall have the meaning assigned to it in the Recital
A.
"Person" includes any natural person, corporation, trust, association,
company, partnership, joint venture and other entity and any government,
governmental agency, instrumentality or political subdivision.
"Preferred Stock" means the Series B Preferred Stock of the Company.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" means (1) all Common Stock owned now or in the
future by Investor, (2) the Common Stock issued or issuable upon conversion of
the Preferred Stock or exercise of the Warrants, whether owned by Investor or
not, and (3) any securities issued or issuable with respect to the Common Stock
referred to in clauses (1) and (2) above by way of a stock dividend or stock
split or in connection with a combination of shares, reclassification,
recapitalization, merger or consolidation or reorganization; provided, however,
that such shares of Common Stock shall only be treated as Registrable
Securities if and so long as they have not been (i) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction, or (ii) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
to such Common Stock are removed upon the consummation of such sale and the
seller and purchaser of such Common Stock receive an opinion of counsel for the
Company, which shall be in form and content reasonably satisfactory to the
seller and buyer and their respective counsel, to the effect that such Common
Stock in the hands of the purchaser is freely transferable without restriction
or registration under the Securities Act in any public or private transaction.
"Registration Notice" shall have the meaning assigned to it in Section
2(a).
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated as of April 9, 1998, between the Company and Investor.
"Warrants" shall have the meaning assigned to it in the Recital A.
2. Required Registration.
(a) No sooner than six (6) months after the execution of this
Agreement, if and whenever the Company shall receive a written request therefor
from Initiating Holders, the Company agrees to prepare and file promptly a
registration statement under the Securities Act covering the shares of
Registrable Securities which are the subject of such request and agrees to use
its best efforts to cause such registration statement to become effective as
expeditiously as possible. Upon the receipt of such request, the Company agrees
to give promptly written notice to all Holders of Registrable Securities that
such registration is to be effected (the "Registration Notice"). The Company
agrees to include in such registration statement such shares of Registrable
Securities for which it has received written requests to register such shares
by the Holders thereof within thirty (30) days after the receipt of written
notice from the Company.
(b) The Company shall not be obligated to prepare, file and cause
to become effective more than two registration statements pursuant to this
Section 2, excluding registration statements on Form S-3 which shall not count
for purposes of this limitation. The Company shall not be obligated to effect
more than one registration on Form S-3 under this Section 2 during any
six-month period and shall not be obligated to prepare, file and cause to
become effective more than six registration statements on Form S-3 pursuant to
this Section 2.
(c) The Company shall not be required by this Section 2 to effect
a registration of Registrable Securities pursuant to any registration
statement, other than on Form S-3, unless the proposed public offering price of
the securities to be included in such registration shall be at least $5.0
million (before deducting underwriting discounts and commissions). A
registration under this Section 2 shall be on a form selected by the Holders of
a majority of the shares of Registrable Securities to be included in such
registration.
(d) If the Holders initiating a request for the registration of
Registrable Securities pursuant to this Section 2 intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they agree to provide the Company with the name of the managing underwriter or
underwriters (the "managing underwriter") that a majority interest of the
Initiating Holders requesting such registration propose to employ, as a part of
their request made pursuant to this Section 2, and the Company agrees to
include such information in its written notice referred to in Section 2(a). In
such event the right of any Holder to registration pursuant to this Section 2
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to
the extent requested (unless otherwise mutually agreed by the Holders of a
Majority of the Registrable Securities initiating such request for registration
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting agree to enter into
(together with the Company) an underwriting agreement with the underwriter or
underwriters selected for such underwriting, in the manner set forth above,
provided that such underwriting agreement is in customary form and is
reasonably acceptable to the Holders of a majority of the shares of Registrable
Securities to be included in such registration.
(e) Notwithstanding any other provision of this Section 2, if the
managing underwriter of an underwritten distribution advises the Company and
the Holders of Registrable Securities participating in such registration in
writing that in its good faith judgment the number of shares of Registrable
Securities requested to be included in such registration exceeds the number of
shares of Registrable Securities which can be sold in such offering, then (i)
the number of shares of Registrable Securities so requested to be included in
such registration shall be reduced to that number of shares which in the good
faith judgment of the managing underwriter can be sold in such offering and
(ii) this reduced number of shares shall be allocated among all Holders thereof
in proportion, as nearly as practicable, to the respective number of shares of
Registrable Securities held by such Holders at the time of filing the
registration statement. Those Registrable Securities and other securities which
are excluded from the underwriting by reason of the managing underwriter's
marketing limitation and all other Registrable Securities not originally
requested to be so included shall not be included in such registration and
shall be withheld from the market by the Holders thereof for a period, not to
exceed one hundred and eighty (180) days, which the managing underwriter
reasonably determines is necessary to effect the underwritten public offering.
(f) If the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company and, subject to the
requirements of Section 7 hereof, other holders of the Company's securities may
include securities for its (or their) own account in such registration if the
managing underwriter so agrees and if the number of Registrable Securities
which would otherwise have been included in such registration and underwriting
will not thereby be limited.
(g) If the Company is required to effect a registration pursuant
to this Section 2 and the Company furnishes to the Holders of Registrable
Securities requesting such registration, a certificate signed by the president
of the Company stating that in the good faith judgment of the Board it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed on or before the date such filing would otherwise be
required hereunder and it is therefore necessary to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after the expiration of the thirty-day
response period referred to in the last sentence of Section 2(a) above;
provided, that during such time the Company may not file a registration
statement (other than on Form S-8) for securities to be issued and sold for its
own account or that of anyone other than the Holder or Holders of Registrable
Securities requesting such registration; provided, further, that the Company
shall only have the right to invoke a delay in the filing of a registration
statement once during any twelve-month period. The Company shall not be
obligated to effect a registration pursuant to this Section 2 during the period
starting with the date thirty (30) days prior to the Company's estimated date
of filing of, and ending on a date ninety (90) days following the effective
date of, a registration statement pertaining to an underwritten public offering
of securities for the account of the Company; provided, that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and the Company's estimate of the
date of filing such registration statement is made in good faith by a
resolution of the Board adopted prior to the Company's receipt of the
registration request made pursuant to Section 2(a).
(h) Notwithstanding anything herein to the contrary, the Company
shall not be required to effect any registration pursuant to this Section 2
within 90 days following the effective date of any other registration statement
of the Company (other than another registration statement on Form S-8).
(i) Notwithstanding the foregoing but subject to the other
provisions of this Section 2, (1) the right of a holder of Registrable
Securities to require registration under this Section 2 shall not be
exercisable (A) less than six (6) months following the date upon which a
previous Registration Notice (unless withdrawn) issued in respect of an
offering of securities for cash for the account of the Company (and in which
such Holders have the right to sell Registrable Securities without limitation
as to the number of Registrable Securities to be sold) shall have become
effective, or (B) within six (6) months following the date upon which a
Registration Notice (unless withdrawn) is first delivered to a holder of
Registrable Securities if the registration statement described therein becomes
effective within one hundred twenty (120) days following the date of such
notice, and (2) the Company shall not be required to register any Registrable
Securities on behalf of a holder of Registrable Securities to the extent such
Registrable Securities may then be sold in a public or private securities
transaction and without any limitation on the number of Registrable Securities
to be sold without restrictive legend in compliance with all of the applicable
terms of Rule 144 under the Securities Act and provided further that the
Company takes all such steps (including the payment of fees and the delivery of
all necessary documentation) as are necessary or appropriate to permit the
transfer of such shares under such Rule and provided that such Holder receives
opinions from counsel for the Company and from counsel to such Holder (which
opinions and counsel shall be reasonable satisfactory to such Holder) to the
effect that such Registrable Securities may be so sold in reliance on Rule 144.
3. Incidental Registration.
(a) Each time the Company shall determine to file a registration
statement under the Securities Act other than pursuant to Section 2 hereof and
other than on Form S-4 or S-8 in connection with the proposed offer and sale
for money of any of its securities either for its own account or on behalf of
any other security holder, the Company agrees to give promptly written notice
of its determination to all Holders of Registrable Securities. Upon the written
request of a Holder of any shares of Registrable Securities given within thirty
(30) days after the receipt of such written notice from the Company, the
Company agrees to cause all such Registrable Securities, the Holders of which
have so requested registration thereof, to be included in such registration
statement and registered under the Securities Act, all to the extent requisite
to permit the sale or other disposition by the prospective seller or sellers of
the Registrable Securities to be so registered.
(b) If the registration of which the Company gives written notice
pursuant to Section 3(a) is for a public offering involving an underwriting,
the Company agrees to so advise the Holders as a part of its written notice. In
such event the right of any Holder to registration pursuant to this Section 3
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their
Registrable Securities through such underwriting agree to enter into (together
with the Company and the other holders distributing their securities through
such underwriting) an underwriting agreement with the underwriter or
underwriters selected for such underwriting by the Company, provided that such
underwriting agreement is in customary form and is reasonably acceptable to the
Holders of a majority of the shares of Registrable Securities requested to be
included in such registration.
(c) Notwithstanding any other provision of this Section 3, if the
managing underwriter of an underwritten distribution advises the Company and
the Holders of the Registrable Securities participating in such registration in
writing that in its good faith judgment the number of shares of Registrable
Securities and the other securities requested to be registered exceeds the
number of shares of Registrable Securities and other securities which can be
sold in such offering, then (i) the number of shares of Registrable Securities
and other securities so requested to be included in the offering shall be
reduced to that number of shares which in the good faith judgment of the
managing underwriter can be sold in such offering (except for shares to be
included pursuant to demand registration rights granted by the Company in
accordance with Section 7 hereof, in an offering initiated upon the exercise of
such rights, and except for shares to be issued by the Company in an offering
initiated by the Company, which shall have priority over the shares of
Registrable Securities), and (ii) such reduced number of shares shall be
allocated among all participating Holders of Registrable Securities and the
holders of other securities in proportion, as nearly as practicable, to the
respective number of shares of Registrable Securities and other securities held
by such Holders and other holders at the time of filing the registration
statement. All Registrable Securities and other securities which are excluded
from the underwriting by reason of the underwriter's marketing limitation and
all other Registrable Securities not originally requested to be so included
shall not be included in such registration and shall be withheld from the
market by the Holders thereof for a period, not to exceed one hundred and
eighty (180) days, which the managing underwriter reasonably determines is
necessary to effect the underwritten public offering.
4. Registration Procedures. If and whenever the Company is required by
the provisions of Section 2 or 3 hereof to effect the registration of
Registrable Securities under the Securities Act, the Company, at its expense
and as expeditiously as possible, agrees to:
(a) In accordance with the Securities Act and all applicable
rules and regulations, prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective until the securities
covered by such registration statement have been sold, and prepare and file
with the Commission such amendments and supplements to such registration
statement and the prospectus contained therein as may be necessary to keep such
registration statement effective and such registration statement and prospectus
accurate and complete until the securities covered by such registration
statement have been sold;
(b) If the offering is to be underwritten in whole or in part,
enter into a written underwriting agreement in form and substance reasonably
satisfactory to the managing underwriter of the public offering and the Holders
of a majority of the Registrable Securities participating in such offering;
(c) Furnish to the Holders of securities participating in such
registration and to the underwriters of the securities being registered such
number of copies of the registration statement and each amendment and
supplement thereto, preliminary prospectus, final prospectus and such other
documents as such underwriters and Holders may reasonably request in order to
facilitate the public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as such participating Holders and underwriters may
reasonably request within ten (10) days prior to the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified;
(e) Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the date and time when such
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(f) Notify such Holders promptly of any request by the Commission
for the amending or supplementing of such registration statement or prospectus
or for additional information;
(g) Prepare and file with the Commission, promptly upon the
request of any such Holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Holders, is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Registrable Securities by such Holders;
(h) Prepare and file promptly with the Commission, and promptly
notify such Holders of the filing of, such amendments or supplements to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(i) In case any of such Holders or any underwriter for any such
Holders is required to deliver a prospectus at a time when the prospectus then
in circulation is not in compliance with the Securities Act or the rules and
regulations of the Commission, prepare promptly upon request such amendments or
supplements to such registration statement and such prospectus as may be
necessary in order for such prospectus to comply with the requirements of the
Securities Act and such rules and regulations;
(j) Advise such Holders, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(k) Not file any registration statement or prospectus or any
amendment or supplement to such registration statement or prospectus to which
the Holders of a majority of the Registrable Securities included or to be
included in a registration have reasonably objected on the grounds that such
registration statement or prospectus or amendment or supplement thereto does
not comply in all material respects with the requirements of the Securities Act
or the rules and regulations thereunder, after having been furnished with a
copy thereof at least five (5) business days prior to the filing thereof;
provided, however, that the failure of such Holders or their counsel to review
or object to any registration statement or prospectus or any amendment or
supplement to such registration statement or prospectus shall not affect the
rights of such Holders or their respective officers, directors, partners, legal
counsel, accountants or controlling Persons or any underwriter or any
controlling Person of such underwriter under Section 6 hereof;
(l) Make available for inspection upon request by any Holder of
Registrable Securities covered by such registration statement, by any managing
underwriter of any distribution to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
Holder or any such underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause all of the
Company's officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney, accountant or
agent in connection with such registration statement; and
(m) At the request of any Holder of Registrable Securities
covered by such registration statement, furnish to such Holder on the effective
date of the registration statement or, if such registration includes an
underwritten public offering, at the closing provided for in the underwriting
agreement, (i) an opinion dated such date of the counsel representing the
Company for the purposes of such registration, addressed to the underwriters,
if any, and to the Holder or Holders making such request, covering such matters
with respect to the registration statement, the prospectus and each amendment
or supplement thereto, proceedings under state and federal securities laws,
other matters relating to the Company, the securities being registered and the
offer and sale of such securities as are customarily the subject of opinions of
issuer's counsel provided to underwriters in underwritten public offerings, and
such opinion of counsel shall additionally cover such legal and factual matters
with respect to the registration as such requesting Holder or Holders may
reasonably request, and (ii) letters dated each of such effective date and such
closing date, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and to the Holder or Holders making such
request, stating that they are independent certified public accountants within
the meaning of the Securities Act and dealing with such matters as the
underwriters may request, or if the offering is not underwritten that in the
opinion of such accountants the financial statements and other financial data
of the Company included in the registration statement or the prospectus or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act, and additionally
covering such other accounting and financial matters, including information as
to the period ending not more than five (5) business days prior to the date of
such letter with respect to the registration statement and prospectus, as such
requesting Holder or Holders may reasonably request.
5. Expenses.
(a) With respect to each registration effected pursuant to
Section 2 hereof and with respect to each inclusion of shares of Registrable
Securities in a registration statement pursuant to Section 3 hereof, the
Company agrees to bear all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith; provided,
however, that security holders participating in any such registration agree to
bear their pro rata share of the underwriting discount and commissions.
(b) The fees, costs and expenses of registration to be borne as
provided in paragraph (a) above, shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements
of counsel and accountants for the Company, fees and disbursements of counsel
for the underwriter or underwriters of such securities (if the Company and/or
selling security holders are otherwise required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified, reasonable fees
and disbursements of one firm of counsel for the selling security holders,
selected by the Holders of a majority of the shares of Registrable Securities
to be included in such registration, and the premiums and other costs of
policies of insurance against liability arising out of such public offering.
6. Indemnification.
(a) The Company hereby agrees to indemnify and hold harmless each
Holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of this Agreement and each of such Holder's
officers, directors, partners, legal counsel and accountants, and each Person
who controls such Holder within the meaning of the Securities Act and any
underwriter (as defined in the Securities Act) for such Holder, and any Person
who controls such underwriter within the meaning of the Securities Act, from
and against, and agrees to reimburse such Holder, its officers, directors,
partners, legal counsel, accountants and controlling Persons and each such
underwriter and controlling Person of such underwriter with respect to, any and
all claims, actions (actual or threatened), demands, losses, damages,
liabilities, costs and expenses to which such Holder, its officers, directors,
partners, legal counsel, accountants or controlling Persons, or any such
underwriter or controlling Person of such underwriter may become subject under
the Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent
that any such claim, action, demand, loss, damage, liability, cost or expense
is caused by an untrue statement or alleged untrue statement or omission or
alleged omission so made in strict conformity with written information
furnished by such Holder, such underwriter or such controlling Person
specifically for use in the preparation thereof.
(b) Each Holder of shares of Registrable Securities which are
included in a registration statement pursuant to the provisions of this
Agreement hereby agrees, severally (in the proportion that the number of shares
sold by it bears to the total number of shares sold in the applicable
registration) and not jointly, to indemnify and hold harmless the Company, its
officers, directors, legal counsel and accountants and each Person who controls
the Company within the meaning of the Securities Act, from and against, and
agrees to reimburse the Company, its officers, directors, legal counsel,
accountants and controlling Persons with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs or expenses to which the
Company, its officers, directors, legal counsel, accountants or such
controlling Persons may become subject under the Securities Act or otherwise,
insofar as such claims, actions, demands, losses, damages, liabilities, costs
or expenses are caused by any untrue or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or are caused by the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by such Holder
specifically for use in the preparation thereof. Notwithstanding the foregoing,
no Holder of Registrable Securities shall be obligated hereunder to pay more
than the net after-tax proceeds realized by it upon its sale of Registrable
Securities included in such registration statement.
(c) Promptly after receipt by a party indemnified pursuant to the
provisions of subsection (a) or (b) of this Section 6 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of subsection
(a) or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6 and shall not relieve the indemnifying party from liability under
this Section 6 unless such indemnifying party is prejudiced by such omission.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying parties similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel (in which case the indemnifying
party shall not have the right to direct the defense of such action on behalf
of the indemnified party or parties). Upon the permitted assumption by the
indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party shall not be liable to
such indemnified party under subsection (a) or (b) for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof (other than reasonable costs of investigation) unless (i) the
indemnified party shall have employed separate counsel in connection with the
assertion of legal defenses in accordance with the proviso to the next
preceding sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time, (iii) the indemnifying party and its counsel do not actively
and vigorously pursue the defense of such action, or (iv) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. No indemnifying party shall be liable to an
indemnified party for any settlement of any action or claim without the consent
of the indemnifying party and no indemnifying party may unreasonably withhold
its consent to any such settlement. No indemnifying party will consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim or
litigation.
(d) If the indemnification provided for in subsection (a) or (b)
of this Section 6 is held by a court of competent jurisdiction to be
unavailable to a party to be indemnified with respect to any claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to therein,
then each indemnifying party under any such subsection, in lieu of indemnifying
such indemnified party thereunder, hereby agrees to contribute to the amount
paid or payable by such indemnified party as a result of such claims, actions,
demands, losses, damages, liabilities, costs or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such claims, actions, demands,
losses, damages, liabilities, costs or expenses, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the amount
any Holder of Registrable Securities shall be obligated to contribute pursuant
to this subsection (d) shall be limited to an amount equal to the per share
public offering price (less any underwriting discount and commissions)
multiplied by the number of shares of Registrable Securities sold by such
Holder pursuant to the registration statement which gives rise to such
obligation to contribute (less the aggregate amount of any damages which such
Holder has otherwise been required to pay in respect of such claim, action,
demand, loss, damage, liability, cost or expense or any substantially similar
claim, action, demand, loss, damage, liability, cost or expense arising from
the sale of such Registrable Securities).
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
hereunder from any person who was not guilty of such fraudulent
misrepresentation.
(e) In addition to its other obligation under this Section 6, the
Company further agrees to reimburse each Holder of Registrable Securities
included in a registration statement pursuant to this Agreement (and each of
such Holder's controlling Persons, officers, directors, parties, legal counsel,
accountants and underwriters (and controlling Persons of such underwriters)) on
a monthly basis for all reasonable legal fees and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or admission, described in subsection (a) of
this Section 6, notwithstanding the possibility that such payments might later
be held to be improper. To the extent that any payment is ultimately held to be
improper, each Person receiving such payment shall promptly refund such
payment.
7. Future Registration Rights. Except as expressly permitted by this
Agreement and except for an underwriting agreement between the Company and one
or more professional underwriters of securities, the Company shall not enter
into any agreement to register any Equity Securities under the Securities Act
unless such agreement specifically provides that (a) the holder of such Equity
Securities may not participate in any registration requested pursuant to
Section 2 hereof without the written consent of the Holders of a majority of
the shares of Registrable Securities included in such registration unless (i)
the sale of the Registrable Securities is to be underwritten on a firm
commitment basis and the managing underwriter in its good faith judgment
concludes that the public offering or sale of such Equity Securities would not
cause the number of shares of Registrable Securities and such Equity Securities
to exceed the number which can be sold in such offering, and (ii) the Holders
of Registrable Securities shall have the right to participate, to the extent
that they may request, in any registration statement initiated under a demand
registration right exercised by the holder of such Equity Securities, except
that if the managing underwriter of a public offering made pursuant to such a
demand registration limits the number of shares of Common Stock to be sold, the
participation of the Holders of Registrable Securities and the holders of all
other Common Stock (other than the Equity Securities held by such holder of
Equity Securities) shall be pro rata based upon the number of shares of
Registrable Securities and Common Stock held at the time of filing the
registration statement, (b) the holder of such Equity Securities may not
participate in any registration requested pursuant to Section 3 hereof if the
sale of Registrable Securities is to be underwritten unless, if the managing
underwriter limits the total number of securities to be sold, the holders of
such Equity Securities and the Holders of Registrable Securities are entitled
to participate in such underwritten distribution pro rata based upon the number
of shares of Common Stock and Registrable Securities held at the time of filing
the registration statement, and (c) all Equity Securities excluded from any
registration as a result of the foregoing limitations shall not be included in
such registration and may not be publicly offered or sold for such period as
the managing underwriter of such registered distribution may reasonably
request.
8. Reporting Requirements Under the Exchange Act. When it is first
legally required to do so, the Company agrees to register its Common Stock
under Section 12 of the Exchange Act and agrees to keep effective such
registration and to file timely such information, documents and reports as the
Commission may require or prescribe under Section 13 of the Exchange Act. The
Company agrees to file timely (whether or not it shall then be required to do
so) such information, documents and reports as the Commission may require or
prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange
Act. The Company forthwith upon request agrees to furnish to any Holder of
Registrable Securities (a) a written statement by the Company that it has
complied with such reporting requirements, (b) a copy of the most recent annual
or quarterly report of the Company and (c) such other reports and documents
filed by the Company with the Commission as such Holder may reasonably request
in availing itself of an exemption for the sale of Registrable Securities
without registration under the Securities Act. The Company acknowledges and
agrees that the purposes of the requirements contained in this Section 9 are
(a) to enable any such Holder to comply with the current public information
requirement contained in paragraph (c) of Rule 144 under the Securities Act
should such Holder ever wish to dispose of any of the securities of the Company
acquired by it without registration under the Securities Act in reliance upon
Rule 144 (or any other similar exemptive provision) and (b) to qualify the
Company for the use of registration statements on Form S-3. In addition, the
Company agrees to take such other measures and file such other information,
documents and reports, as shall be required of it hereafter by the Commission
as a condition to the availability of Rule 144 under the Securities Act (or any
similar exemptive provision hereafter in effect) and the use of Form S-3. The
Company also covenants to use its best efforts, to the extent that it is
reasonably within its power to do so, to qualify for the use of Form S-3.
9. Shareholder Information. The Company may request each Holder of
Registrable Securities as to which any registration is to be effected pursuant
to this Agreement to furnish the Company with such information with respect to
such Holder and the distribution of such Registrable Securities as the Company
may from time to time reasonably request in writing and as shall be required by
law or by the Commission in connection therewith, and each Holder of
Registrable Securities as to which any registration is to be effected pursuant
to this Agreement agrees to furnish the Company with such information.
10. Forms. All references in this Agreement to particular forms of
registration statements are intended to include, and shall be deemed to
include, references to all successor forms which are intended to replace, or to
apply to similar transactions as, the forms herein referenced.
11. Miscellaneous.
11.1 Waivers and Amendments. With the written consent of the
Holders of a Majority of the Registrable Securities, the obligations of the
Company and the rights of Investor under this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively
and either for a specified period of time or indefinitely), and with the same
consent the Company, when authorized by resolution of its Board, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement
or of any supplemental agreement or modifying in any manner the rights and
obligations hereunder of Investor and the Company; provided, however, that no
such waiver or supplemental agreement shall reduce the aforesaid proportion of
Registrable Securities, the Holders of which are required to consent to any
waiver or supplemental agreement, without the consent of the Holders of all of
the Registrable Securities. Upon the effectuation of each such waiver, consent
or agreement of amendment or modification, the Company agrees to give promptly
written notice thereof to the Holders of the Registrable Securities who have
not previously consented thereto in writing. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally or by
course of dealing, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this Section 11.1. Specifically, but
without limiting the generality of the foregoing, the failure of Investor at
any time or times to require performance of any provision hereof by the Company
shall in no manner affect the right of Investor at a later time to enforce the
same. No waiver by any party of the breach of any term or provision contained
in this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
11.2 Effect of Waiver or Amendment. Investor acknowledges that by
operation of Section 11.1 hereof the Holders of a Majority of the Registrable
Securities will, subject to the limitations contained in such Section 11.1,
have the right and power to diminish or eliminate certain rights of Investor
under this Agreement.
11.3 Rights of Investor Inter Se. Investor shall have the absolute
right to exercise or refrain from exercising any right or rights which Investor
may have by reason of this Agreement or any Registrable 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 Investor shall not incur any liability to any Holder or
Holders of Registrable Securities with respect to exercising or refraining from
exercising any such right or rights.
11.4 Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to the Company to:
JD American Workwear, Inc.
46 Old Flat River Road
Coventry, Rhode Island 02816
Attention: Mr. David N. DeBaene, President and
Chief Executive Officer
Telecopier: 401-397-6804
with a copy to
Gerald S. DiFiore, Esq.
Reed Smith Shaw & McClay LLP
One Riverfront Plaza
Newark, New Jersey 07102-5400
Telecopier: (973) 621-3199
if to Investor to:
Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attention: Mr. Michael R. Steed, Senior Vice President
Telecopier: (202) 682-7970
with a copy to:
Alan J. Barton, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street - 23rd Floor
Los Angeles, CA 90071
Telecopier: (213) 627-0705
if to any other Holder of Registrable Securities to such Holder at
the address or to the telecopier number as such Holder may specify
by notice to the Company from time to time,
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. A copy of any notice to the Company or to Investor or any other Holder
of Registrable Securities shall also be given to each other Holder of
Registrable Securities. Any notice, request, consent or other communication
hereunder shall be deemed to have been given and received on the day on which
it is delivered (by any means including personal delivery, overnight air
courier, United States mail) or telecopied (or, if such day is not a business
day or if the notice, request, consent or communication is not telecopied
during business hours of the intended recipient, at the place of receipt, on
the next following business day).
11.5 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.
11.6 Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not and, in particular, shall inure to the benefit of and be
enforceable by the Holder or Holders at the time of any of the Registrable
Securities. Subject to the immediately preceding sentence, this Agreement shall
not run to the benefit of or be enforceable by any Person other than a party to
this Agreement and its successors and assigns; provided, however, that (i)
registration rights under this Agreement may only be assigned in connection
with a transfer by a Holder of at least 100,000 shares of Registrable
Securities, and (ii) such assignment shall not be effective unless and until
notice of the assignment has been delivered to the Company.
11.7 Headings. The headings of the sections, subsections and
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
11.8 Choice of Law. It is the intention of the parties that the
internal substantive laws, and not the laws of conflicts, of New York should
govern the enforceability and validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties.
11.9 Expenses. The Company agrees to pay and hold Investor and
Holders of the Registrable Securities harmless from liability for the payment
of, (i) the fees and expenses incurred in connection with any requested waiver
of the right of Investor or the consent of Investor to contemplated acts of the
Company not otherwise permissible by the terms of this Agreement, (ii) the fees
and expenses incurred with respect to any amendment to this Agreement proposed
by the Company (whether or not the same becomes effective), (iii) the fees and
expenses incurred in respect of the enforcement of the rights granted under
this Agreement, and (iv) all costs of the Company's performance of and
compliance with this Agreement.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers thereof as of the day and year
first above written.
JD AMERICAN WORKWEAR, INC.
By: /s/ DAVID N. DEBAENE
David N. DeBaene, President and Chief
Executive Officer
THE UNION LABOR LIFE INSURANCE COMPANY
By: /s/ HERBERT C. CANAPARY
Name: Herbert C. Canapary
Title: Vice President--Investments
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF,
AND, EXCEPT AS STATED IN THE SECURITIES PURCHASE AGREEMENT DATED APRIL 9,
1998, PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED, SUCH SECURITIES MAY NOT
BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT OR REGULATION A NOTIFICATION UNDER THE ACT COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE
COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE
COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT.
JD AMERICAN WORKWEAR, INC.
No. ____
WARRANT TO PURCHASE
799,000 SHARES (SUBJECT TO ADJUSTMENT) OF
COMMON STOCK
void after April 1, 2008
This certifies that for value received THE UNION LABOR LIFE INSURANCE
COMPANY, or registered assigns ("Holder"), is entitled, subject to the terms
set forth below, at any time from and after April 9, 1998 (the "Issue Date")
and before 5:00 P.M., Eastern Time, on April 1, 2008, to purchase from JD
AMERICAN WORKWEAR, INC., a Delaware corporation (the "Company"), 799,000
shares (subject to adjustment as described herein), of the Common Stock, par
value $.002 per share (which authorized class of shares is herein called the
"Common Stock") of the Company, as constituted on the Issue Date, upon
surrender hereof, at the principal office of the Company referred to below,
with a duly executed subscription form in the form attached hereto as
Exhibit A and simultaneous payment therefor in lawful money of the United
States or otherwise as hereinafter provided, at the price of one cent ($.01)
per share (the "Purchase Price"). The number and character of such shares
of Common Stock are subject to further adjustment as provided below, and the
term "Common Stock" shall include, unless the context otherwise requires,
the stock and other securities and property at the time receivable upon the
exercise of this Warrant. The term "Warrants" as used herein shall include
this Warrant and any warrants delivered in substitution or exchange therefor
as provided herein.
1. Exercise. This Warrant may be exercised at any time or from time
to time from and after the Issue Date and before 5:00 P.M., Eastern Time, on
April 1, 2008, on any business day, for the full number of shares of Common
Stock called for hereby, by surrendering it at the principal office of the
Company, at 46 Old Flat River Road, Coventry, Rhode Island 02816, with the
subscription form duly executed, together with payment in an amount equal to
(a) the number of shares of Common Stock called for on the face of this
Warrant, as adjusted in accordance with the preceding paragraph of this
Warrant (without giving effect to any further adjustment herein) multiplied
(b) by the Purchase Price. Payment of this amount may be made (1) by
payment in cash or by corporate check, payable to the order of the Company,
or (2) by the Company not issuing that number of shares of Common Stock
subject to this Warrant having a Fair Market Value (as defined below) on the
date of exercise equal to such sum, as Holder may determine. This Warrant
may be exercised for less than the full number of shares of Common Stock at
the time called for hereby, except that the number of shares receivable upon
the exercise of this Warrant as a whole, and the sum payable upon the
exercise of this Warrant as a whole, shall be proportionately reduced. Upon
a partial exercise of this Warrant in accordance with the terms hereof, this
Warrant shall be surrendered, and a new Warrant of the same tenor and for
the purchase of the number of such shares not purchased upon such exercise
shall be issued by the Company to Holder without any charge therefor. A
Warrant shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder
of such shares of record as of the close of business on such date. As soon
as practicable on or after such date, the Company shall issue and deliver to
the person or persons entitled to receive the same a certificate or
certificates for the number of full shares of Common Stock issuable upon
such exercise, together with cash, in lieu of any fraction of a share, equal
to such fraction of the then Fair Market Value on the date of exercise of
one full share of Common Stock.
"Fair Market Value" shall mean, as of any date, (i) if shares of the
Common Stock are listed on a national securities exchange, the average of
the closing prices as reported for composite transactions during the 20
consecutive trading days preceding the trading day immediately prior to such
date or, if no sale occurred on a trading day, then the mean between the
closing bid and asked prices on such exchange on such trading day; (ii) if
shares of the Common Stock are not so listed but are traded on the Nasdaq
National Market ("NMM"), the average of the closing prices as reported on
the NMM during the 20 consecutive trading days preceding the trading day
immediately prior to such date or, if no sale occurred on a trading day,
then the mean between the highest bid and lowest asked prices as of the
close of business on such trading day, as reported on the NMM; or (iii) if
the shares of the Common Stock are not traded on a national securities
exchange or the NMM but are otherwise traded over-the-counter, the
arithmetic average (for consecutive trading days) of the mean between the
highest bid and lowest asked prices as of the close of business during the
20 consecutive trading days preceding the trading day immediately prior to
such date as quoted on the National Association of Securities Dealers
Automated Quotation system or an equivalent generally accepted reporting
service.
2. Payment of Taxes. All shares of Common Stock issued upon the
exercise of a Warrant shall be validly issued, fully paid and
non-assessable, and the Company shall pay all taxes and other governmental
charges that may be imposed in respect of the issue or delivery thereof.
3. Transfer and Exchange. This Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained
for such purpose at its principal office referred to above by Holder in
person or by duly authorized attorney, upon surrender of this Warrant
together with a completed and executed assignment form in the form attached
as Exhibit B and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any partial transfer,
the Company will issue and deliver to Holder a new Warrant or Warrants with
respect to the shares of Common Stock not so transferred. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees
that this Warrant when endorsed in blank shall be deemed negotiable and that
when this Warrant shall have been so endorsed, the holder hereof may be
treated by the Company and all other persons dealing with this Warrant as
the absolute owner hereof for any purpose and as the person entitled to
exercise the rights represented hereby, or to the transfer hereof on the
books of the Company, any notice to the contrary notwithstanding; but until
such transfer on such books, the Company may treat the registered Holder
hereof as the owner for all purposes.
This Warrant is exchangeable at such office for Warrants for the same
aggregate number of shares of Common Stock, each new Warrant to represent
the right to purchase such number of shares as the Holder shall designate at
the time of such exchange.
4. A. Adjustment for Dividends in Other Stock and Property;
Reclassifications. In case at any time or from time to time the holders of
the Common Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible shareholders,
shall have become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property
(other than cash) by way of dividend,
(2) any cash or other property paid or payable out of any
source other than retained earnings (determined in accordance with
generally accepted accounting principles), or
(3) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification,
combination of shares or similar corporate rearrangement,
(other than (x) additional shares of Common Stock or any other stock or
securities into which such Common Stock shall have been changed, (y) any
other stock or securities convertible into or exchangeable for such Common
Stock or such other stock or securities or (z) any Stock Purchase Rights,
issued as a stock dividend or stock-split, adjustments in respect of which
shall be covered by the terms of Section 4.C, 4.D, 4.E or 4.I), then and in
each such case Holder, upon the exercise hereof as provided in Section 1,
shall be entitled to receive the amount of stock and other securities and
property (including cash in the cases referred to in clauses (2) and (3)
above) which such Holder would hold on the date of such exercise if on the
Issue Date Holder had been the holder of record of the number of shares of
Common Stock called for on the face of this Warrant, as adjusted in
accordance with the first paragraph of this Warrant, and had thereafter,
during the period from the Issue Date to and including the date of such
exercise, retained such shares and/or all other or additional stock and
other securities and property (including cash in the cases referred to in
clause (2) and (3) above) receivable by it as aforesaid during such period,
giving effect to all adjustments called for during such period by Sections
4.A and 4.B.
B. Adjustment for Reorganization, Consolidation and Merger. In case
of any reorganization of the Company (or any other corporation the stock or
other securities of which are at the time receivable on the exercise of this
Warrant) after the Issue Date, or in case, after such date, the Company (or
any such other corporation) shall consolidate with or merge into another
corporation or entity or convey all or substantially all its assets to
another corporation or entity, then and in each such case Holder, upon the
exercise hereof as provided in Section 1 at any time after the consummation
of such reorganization, consolidation, merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise of this Warrant prior to such consummation, the
stock or other securities or property to which such Holder would have been
entitled upon such consummation if Holder had exercised this Warrant
immediately prior thereto, all subject to further adjustment as provided in
Sections 4.A, 4.B, 4.C, 4.D and 4.E; in each such case, the terms of this
Warrant shall be applicable to the shares of stock or other securities or
property receivable upon the exercise of this Warrant after such
consummation.
C. Sale of Shares Below Subscription Price.
(1) If at any time or from time to time the Company issues or
sells, or is deemed by the express provisions of this Section 4.C to
have issued or sold, Additional Shares of Common Stock (as hereinafter
defined), other than as a dividend or other distribution on any class
of stock as provided in Section 4.D and other than upon a subdivision
or combination of shares of Common Stock as provided in Section 4.E,
for an Effective Price (as hereinafter defined) less than $5.00 (the
"Subscription Price") or, if an adjustment in the Subscription Price
has theretofore been made, then less than the existing Subscription
Price, then and in each such case
(A) the Holder of this Warrant shall be entitled to
receive, in lieu of the number of shares theretofore receivable
upon the exercise of this Warrant, a number of shares of Common
Stock determined by (i) dividing $5.00 (which amount shall not
be subject to adjustment) by the Subscription Price as adjusted
as a result of such issue or sale (as provided below), and (ii)
multiplying the resulting quotient by the number of shares of
Common Stock called for on the face of this Warrant, as adjusted
in accordance with the first paragraph of this Warrant; and
(B) the then existing Subscription Price shall be
reduced, as of the opening of business on the date of such issue
or sale, as follows:
(I) if such issuance or deemed issuance occurs
during the twelve-month period immediately following the
Issue Date and constitutes a Financing Transaction (as
hereinafter defined), the Subscription Price shall be
reduced to the Effective Price at which the Additional
Shares of Common Stock were issued or deemed to have been
issued; and
(II) if such issuance or deemed issuance occurs
during the twelve-month period immediately following the
Issue Date and does not constitute a Financing Transaction
or occurs after the twelve-month period immediately
following the Issue Date, the Subscription Price shall be
reduced to a price determined by multiplying that
Subscription Price by a fraction (i) the numerator of
which shall be (a) the number of shares of Common Stock
outstanding at the close of business on the day next
preceding the date of such issue or sale, plus (b) the
number of shares of Common Stock which the aggregate
consideration received (or by the express provisions
hereof deemed to have been received) by the Company for
the total number of Additional Shares of Common Stock so
issued would purchase at such Subscription Price, plus (c)
the number of shares of Common Stock into which all
outstanding shares of Series B Preferred Stock of the
Company are convertible at the close of business on the
date next preceding the date of such issue or sale, plus
(d) the number of shares of Common Stock into which all
outstanding shares of Series A Preferred Stock of the
Company are convertible at the close of business on the
date next preceding the date of such issue or sale, plus
(e) the number of shares of Common Stock into which all
outstanding shares of Series A Preferred Stock of the
Company are convertible at the close of business on the
date next preceding the date of such issue or sale, plus
(f) the number of shares of Common Stock underlying all
Other Securities (as hereinafter defined) at the close of
business on the date next preceding the date of such issue
or sale, and (ii) the denominator of which shall be (a)
the number of shares of Common Stock outstanding at the
close of business on the date of such issue or sale after
giving effect to such issue of Additional Shares of Common
Stock, plus (b) the number of shares of Common Stock into
which all outstanding shares of Series B Preferred Stock
of the Company are convertible at the close of business on
the date next preceding the date of such issue or sale,
plus (c) the number of shares of Common Stock into which
all outstanding shares of all Series A Preferred Stock of
the Company are convertible at the close of business on
the date next preceding the date of such issue or sale,
plus (d) the number of shares of Common Stock underlying
the Other Securities at the close of business on the date
next preceding the date of such issue or sale.
"Financing Transaction" means any transaction or series of
related transactions in which Additional Shares of Common
Stock are issued or sold, or are deemed to have been
issued or sold, for at least $250,000 in the aggregate.
(2) For the purpose of making any adjustment required under
this Section 4.C, the consideration received by the Company for any
issue or sale of securities shall (i) to the extent it consists of
cash be computed at the amount of cash received by the Company,
(ii) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good
faith by the Board of Directors of the Company (the "Board"), (iii) if
Additional Shares of Common Stock, Convertible Securities (as
hereinafter defined) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued
or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably
determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or
options, and (iv) be computed after reduction for all expenses payable
by the Company in connection with such issue or sale.
(3) For the purpose of the adjustment required under this
Section 4.C, if the Company issues or sells any rights or options for
the purchase of, or stock or other securities convertible into or
exchangeable for, Additional Shares of Common Stock (such convertible
or exchangeable stock or securities being hereinafter referred to as
"Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than the Subscription Price
then in effect, then in each case the Company shall be deemed to have
issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise, conversion or exchange thereof
and to have received as consideration for the issuance of such shares
an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such rights or options or
Convertible Securities, plus, in the case of such rights or options,
the minimum amounts of consideration, if any, payable to the Company
upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any,
payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the
conversion or exchange thereof. No further adjustment of the
Subscription Price, adjusted upon the issuance of such rights, options
or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any
such rights or options or the conversion or exchange of any such
Convertible Securities. If any such rights or options or the
conversion or exchange privilege represented by any such Convertible
Securities shall expire without having been exercised, the
Subscription Price adjusted upon the issuance of such rights, options
or Convertible Securities shall be readjusted to the Subscription
Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued
were the Additional Shares of Common Stock, if any, actually issued or
sold on the exercise of such rights or options or rights of conversion
or exchange of such Convertible Securities, and such Additional Shares
of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus
the consideration received for issuing or selling the Convertible
Securities actually converted or exchanged, plus the consideration, if
any, actually received by the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities)
on the conversion or exchange of such Convertible Securities.
(4) For the purpose of the adjustment required under this
Section 4.C, if the Company issues or sells, or is deemed by the
express provisions of this subsection to have issued or sold, any
rights or options for the purchase of Convertible Securities and if
the Effective Price of the Additional Shares of Common Stock
underlying such Convertible Securities is less than the Subscription
Price then in effect, then in each such case the Company shall be
deemed to have issued at the time of the issuance of such rights or
options the maximum number of Additional Shares of Common Stock
issuable upon conversion or exchange of the total amount of
Convertible Securities covered by such rights or options and to have
received as consideration for the issuance of such Additional Shares
of Common Stock an amount equal to the amount of consideration, if
any, received by the Company for the issuance of such rights or
options, plus the minimum amounts of consideration, if any, payable to
the Company upon the exercise of such rights or options and plus the
minimum amount of consideration, if any, payable to the Company
other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) upon the conversion or exchange of such
Convertible Securities. No further adjustment of the Subscription
Price, adjusted upon the issuance of such rights or options, shall be
made as a result of the actual issuance of the Convertible Securities
upon the exercise of such rights or options or upon the actual
issuance of Additional Shares of Common Stock upon the conversion or
exchange of such Convertible Securities. The provisions of paragraph
(3) above for the readjustment of the Subscription Price upon the
expiration of rights or options or the rights of conversion or
exchange of Convertible Securities shall apply mutatis mutandis to the
rights, options and Convertible Securities referred to in this
paragraph (4).
(5) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Company on or after the Original Issue
Date, whether or not subsequently reacquired or retired by the
Company, other than (i) shares of Common Stock issued upon conversion
of the Series B Preferred Stock of the Company in accordance with the
applicable certificate of designation, (ii) shares of Common Stock
issued upon conversion of the Series A Preferred Stock of the Company
in accordance with the applicable certificate of designation, (iii)
shares of Common Stock issued upon the exercise of this Warrant, and
(iv) shares of Common Stock issued upon the exercise of Dividend
Warrants issued pursuant to Section 7.19 of the Purchase Agreement.
The "Effective Price" of Additional Shares of Common Stock shall mean
the quotient determined by dividing the total number of Additional
Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Company under this Section 4.C, into the aggregate
consideration received, or deemed to have been received, by the
Company for such issue under this Section 4.C, for such Additional
Shares of Common Stock. "Other Securities" with respect to an issue
or sale of Additional Shares of Common Stock shall mean (1)
Convertible Securities (other than the Series B Preferred Stock of the
Company and the Series A Preferred Stock of the Company), and (2)
this Warrant; "the number of shares of Common Stock underlying Other
Securities" on a particular date shall mean the number of shares of
Common Stock issuable upon the exercise, conversion or exchange, as
the case may be, of such Other Securities at the close of business on
such date.
(6) Any reduction in the conversion price of any Convertible
Security, whether outstanding on the Issue Date or thereafter, or the
subscription price of any option, warrant or right to purchase Common
Stock or any Convertible Security (whether such option, warrant or
right is outstanding on the Issue Date or thereafter), to an Effective
Price less than the then Subscription Price shall be deemed to be an
issuance of such Convertible Security and the issuance of all such
options, warrants or subscription rights, and the provisions of
Section 4.C(3) and (4) shall apply thereto mutatis mutandis.
(7) Dilution in Case of Other Stock or Securities. In case any
shares of stock or other securities, other than Common Stock of the
Company, shall at the time be receivable upon the exercise of this
Warrant, and in case any additional shares of such stock or any
additional such securities (or any stock or other securities
convertible into or exchangeable for any such stock or securities)
shall be issued or sold for a consideration per share such as to
dilute the purchase rights evidenced by this Warrant, then and in each
such case the Subscription Price shall forthwith be adjusted,
substantially in the manner provided for above in this Section 4.C, so
as to protect the holder of this Warrant against the effect of such
dilution.
(8) Record Date Deemed Date of Issuance. In case the Company
shall take a record of the holders of shares of its stock of any class
for the purpose of entitling them (a) to receive a dividend or a
distribution payable in Common Stock or in Convertible Securities, or
(b) to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the Additional Shares of Common Stock
issued or sold or deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution,
or the date of the granting of such rights of subscription, purchase
or other acquisition, as the case may be.
D. Adjustment for Certain Dividends and Distributions. If the
Company at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in additional shares of Common Stock, then and
in each such event
(1) the Subscription Price then in effect shall be decreased as
of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying
the Subscription Price then in effect by a fraction (A) the numerator
of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date, and (B) the denominator of
which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date as the case may be, plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed
and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Subscription Price shall be
recomputed accordingly as of the close of business on such record
date, and thereafter the Subscription Price shall be adjusted pursuant
to this Section 4.D as of the time of actual payment of such dividends
or distributions; and
(2) the number of shares of Common Stock theretofore receivable
upon the exercise of this Warrant shall be increased, as of the time
of such issuance or, in the event such record date is fixed, as of the
close of business on such record date, in inverse proportion to the
decrease in the Subscription Price.
E. Stock Split and Reverse Stock Split. If the Company at any time
or from time to time effects a reverse stock split or subdivision of the
outstanding Common Stock, the Subscription Price then in effect immediately
before that stock split or subdivision shall be proportionately decreased
and the number of shares of Common Stock theretofore receivable upon the
exercise of this Warrant shall be proportionately increased. If the Company
at any time or from time to time effects a reverse stock split or combines
the outstanding shares of Common Stock into a smaller number of shares, the
Subscription Price then in effect immediately before that reverse stock
split or combination shall be proportionately increased and the number of
shares of Common Stock theretofore receivable upon the exercise of this
Warrant shall be proportionately decreased. Each adjustment under this
Section 4.E shall become effective at the close of business on the date the
stock split, subdivision, reverse stock split or combination becomes
effective.
F. No Dilution or Impairment. The Company will not, by amendment of
its certificate of incorporation or through reorganization, consolidation,
merger, dissolution, issue or sale of securities, sale of assets or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of the Warrants, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of
the holders of the Warrants against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not increase
the par value of any share of stock receivable upon the exercise of the
Warrants above the amount payable therefor upon such exercise, and (b) will
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable shares
upon the exercise of all Warrants at the time outstanding.
G. Accountants' Certificate as to Adjustment. In each case of an
adjustment in the number of shares of Common Stock or the number or type of
other stock, securities or property receivable on the exercise of the
Warrants, the Company at its expense shall cause independent public
accountants of recognized standing selected by the Company (who may be the
independent public accountants then auditing the books of the Company) to
compute such adjustment in accordance with the terms of the Warrants and
prepare a certificate setting forth such adjustment and showing in detail
the facts upon which such adjustment is based, including a statement of (a)
the consideration received or to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been
issued or sold, (b) the number of shares of Common Stock outstanding or
deemed to be outstanding, and (c) the Subscription Price. The Company will
forthwith mail a copy of each such certificate to each holder of a Warrant
at the time outstanding.
H. Notices of Record Date. In case
(1) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon
the exercise of the Warrants) for the purpose of entitling them to
receive any dividend or other distribution, or any right to subscribe
for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or
(2) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(3) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to
each holder of a Warrant at the time outstanding a notice specifying, as the
case may be, (a) the date on which a record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (b) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is expected to take place, and the
time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise
of the Warrants) shall be entitled to exchange their shares of Common Stock
(or such other stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up, such notice
shall be mailed at least 30 days prior to the date therein specified.
I. Stock Purchase Rights. If at any time or from time to time, the
Company grants or issues to the record holders of the Common Stock any
options, warrants or subscription rights (collectively, the "Stock Purchase
Rights") entitling a holder to purchase Common Stock or any security
convertible into or exchangeable for Common Stock or to purchase any other
stock or securities of the Company, the Holder shall be entitled to acquire,
upon the terms applicable to such Stock Purchase Rights, the aggregate Stock
Purchase Rights which Holder could have acquired if Holder had been the
record holder of the maximum number of shares of Common Stock issuable upon
exercise of this Warrant on both (x) the record date for such grant or
issuance of such Subscription Rights, and (y) the date of the grant or
issuance of such Stock Purchase Rights.
J. No Payment of Subscription Price. The Holder shall not be
obligated to pay all or any portion of the Subscription Price because the
Subscription Price is only used herein for the purpose of determining the
number of shares of Common Stock that are issuable upon exercise of this
Warrant upon the occurrence of one or more events that the Company has
agreed should result in an adjustment in the number of such shares.
5. Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to it (in the exercise of reasonable discretion) of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
and (in the case of loss, theft or destruction) of indemnity satisfactory to
it (in the exercise of reasonable discretion), and (in the case of
mutilation) upon surrender and cancellation thereof, the Company will
execute and deliver in lieu thereof a new Warrant of like tenor.
6. Reservation of Common Stock. The Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants.
7. Securities Purchase Agreement and Registration Rights Agreement.
This Warrant has been issued pursuant to the Securities Purchase Agreement
dated as of April 9, 1998 between the Company and The Union Labor Life
Insurance Company (the "Purchase Agreement"), and the transferability of
this Warrant and the Common Stock issuable upon the exercise hereof are
subject to the Purchase Agreement. In addition, the Holder of this Warrant
and the Common Stock issuable upon the exercise hereof are entitled to have
such Common Stock registered under the Securities Act of 1933 in accordance
with the Registration Rights Agreement referred to in the Purchase
Agreement.
8. Notices. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first-class registered or
certified mail, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an
address to the Company in writing.
9. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.
10. Headings. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
11. Law Governing. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws, and not the law of
conflicts of laws, of the State of New York.
DATED: April 7, 1998
JD AMERICAN WORKWEAR, INC.
By: /s/ DAVID DEBAENE
David DeBaene, President
EXHIBIT A
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant and purchases _______ of the number of shares of Common Stock
of JD American Workwear, Inc., purchasable with this Warrant, and herewith
makes payment therefor, all at the price and on the terms and conditions
specified in this Warrant.
DATED:__________________
_______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip)
EXHIBIT B
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ______________________
Attorney to make such transfer on the books of JD American Workwear, Inc.,
maintained for the purpose, with full power of substitution in the premises.
DATED:__________________
_______________________________
(Signature)
_______________________________
(Witness)
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
the 9th day of April, 1998, by and among THE UNION LABOR LIFE INSURANCE
COMPANY, a Maryland corporation ("Investor"), JD AMERICAN WORKWEAR, INC., a
Delaware corporation (the "Company") and MARINE MIDLAND BANK, N.A. (the "Escrow
Agent"). For purposes of this Agreement, all capitalized terms shall have the
meanings ascribed to such terms in the Securities Purchase Agreement (defined
below) unless otherwise defined herein.
RECITALS
--------
A. Concurrently with entering into this Agreement, Investor and the
Company have entered into that certain Securities Purchase Agreement of even
date herewith (the "Securities Purchase Agreement") pursuant to which Investor
is agreeing to purchase 2,500 shares of the Company's Series B Cumulative
Convertible Preferred Stock, $.001 par value per share (the "Preferred Stock"),
and a detached ten-year Stock Purchase Warrant (the "Warrant") to purchase
799,000 shares of the Common Stock.
B. Pursuant to Section 7.4(b) of the Securities Purchase Agreement,
the Company is obligated to, among other things, as soon as available, and in
any event by May 29, 1998, deliver financial statements prepared on a
consolidated basis (together with consolidating statements in support thereof)
consisting of a balance sheet of the Company, as of the end of such fiscal
year, together with statements of income, stockholders' equity and cash flow
for such fiscal year, all in reasonable detail, and duly certified by an
opinion unqualified as to scope of a firm of independent certified public
accountants, which firm is one of the four or five largest national accounting
firms (the "Financial Statements").
C. Pursuant to Sections 3 and 6.1(m) of the Securities Purchase
Agreement, the Company is obligated to deposit the Escrow Amount with the
Escrow Agent to be held in escrow and either paid to Investor or returned to
the Company depending upon whether the conditions specified in Section 7.20 of
the Securities Purchase Agreement have been satisfied.
D. The execution and delivery of this Agreement and deposit of the
Escrow Amount with the Escrow Agent are conditions precedent to the obligations
of Investor to consummate the transactions contemplated in the Securities
Purchase Agreement.
NOW THEREFORE, in consideration of the covenants and agreements contained
in this Agreement, and intending to be legally bound, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.01 Definitions. Unless otherwise expressly defined in this
Agreement or the context otherwise requires, the capitalized terms appearing in
this Agreement shall have the meanings ascribed to them in the Securities
Purchase Agreement.
ARTICLE II
ESCROW
------
SECTION 2.01 Escrow. The Company hereby delivers to the Escrow Agent
the sum of One million five hundred eighty five thousand five hundred
fifty-eight and 03/100 dollars ($1,585,558.03) (the "Escrow Amount"), the
receipt of which the Escrow Agent hereby acknowledges. The Escrow Amount shall
be deposited in an account established at the Escrow Agent for receipt of such
amount (the "Escrow Account") and shall be held in such Escrow Account and
distributed in accordance with the terms and provisions of this Agreement.
SECTION 2.02 Investment of Escrow Amount. The Escrow Amount shall be
held and invested or reinvested by the Escrow Agent at the written or oral
request of the Company in any of the following securities:
(a) obligations issued or guaranteed by the United States of
America or any person controlled or supervised by and acting as an
instrumentality of the United States pursuant to authority granted by Congress;
and
(b) certificates of deposit of banks or trust companies,
including those of the Escrow Agent, organized under the laws of the United
States of America.
Such investments shall be made subject to any orders of the Company with
respect thereto, provided that investments of monies in the Escrow Account
shall in any event mature or be redeemable or be subject to liquidation by sale
or otherwise at the option of the Escrow Agent at such time as may be necessary
to make timely disbursements from said Escrow Account. Subject to any such
orders with respect thereto, or in the absence of any orders from the Company,
the Escrow Agent may from time to time sell such investments and reinvest the
proceeds therefrom in other investments of the type described in this Section
maturing or redeemable as aforesaid. Any such investments may be purchased from
the Escrow Agent or any affiliate of the Escrow Agent. The Escrow Account shall
be credited with all proceeds of sale and income from such investments (which
income is herein called "Escrow Income").
SECTION 2.03 Term of Escrow Account. Subject to claims against the
Escrow Account as hereinafter provided, the term of the Escrow Account shall
commence on the date hereof and terminate at 5:00 p.m. Eastern Time on June 30,
1998 (the "Expiration Date").
SECTION 2.04 Claim Against Escrow Account.
(a) If the Company has failed to deliver the Financial Statements
to the Investor by May 29, 1998, the Investor shall give written notice to the
Company and the Escrow Agent of such failure to deliver the Financial
Statements. The Escrow Agent shall, without further instructions, immediately
pay to investor, out of the Escrow Account, the Escrow Amount and to the
Company, the Escrow Income.
(b) If within thirty (30) days of Investor's receipt of the
Financial Statements, Investor claims either (x) that the Financial Statements
are not in conformity with the requirements of Section 7.4(b) of the Securities
Purchase Agreement, or (y) in Investor's reasonable judgment the financial
condition, results of operations and cash flows of the Company reflected in the
Financial Statements are not in material conformity with the information
previously furnished to Investor with respect to these financial matters
(either a "Claim"), then Investor shall give written notice of the Claim (the
"Claim Notice") to the Company and the Escrow Agent, stating in general terms
the reason for its position; provided, however, that in no event shall Investor
be entitled to make the claim against the Escrow Amount after the Expiration
Date. If the Company objects to the Claim, it shall give written notice of such
objection (the "Objection Notice") to the Investor and the Escrow Agent within
ten (10) days after the date of receipt of the Claim Notice, and shall state in
general terms the basis for such objection. If no Objection Notice is given to
the Escrow Agent and Investor within such ten (10) day period, the Escrow Agent
shall, without further instructions, promptly pay to the Investor, out of the
Escrow Account, the Escrow Amount and to the Company the Escrow Income.
(c) If the Company provides timely notice of objection to the
Claim, Investor and the Company shall attempt to resolve the dispute and, if
they are able to do so, shall give written notice to the Escrow Agent of the
resolution of the dispute and the amount of the Escrow Amount, if any, to be
paid to the Investor. Upon receipt of such notice, the Escrow Agent shall,
without further instructions, pay to the Investor, out of the Escrow Account,
such amount of the Escrow Amount set forth in the notice and to the Company the
balance of the Escrow Amount, if any, and the Escrow Income.
(d) If Investor and the Company are unable informally to resolve
a disputed claim pursuant to Section 2.04(c) above within twenty (20) days
after the date the Company's Objection Notice is given, the dispute shall be
settled by arbitration in accordance with Section 2.05 hereof. Any decision or
award of the arbitrators shall be final and conclusive on the parties to this
Agreement, their respective affiliates, and there shall be no appeal therefrom
other than as expressly set forth herein.
SECTION 2.05 Arbitration.
(a) Mandatory Arbitration. Any controversy, dispute or claim
arising out of or in connection with this Agreement which is not resolved by
negotiation, shall be resolved by arbitration in accordance with the provisions
of this Section 2.05. Except as otherwise expressly provided in this Agreement,
neither the Company nor the Investor shall initiate or prosecute any lawsuit or
administrative action in any way related to the Claim or the Company's
objection thereto. The Company and the Investor agree that the validity of any
provision of this Section 2.05 shall also be subject to arbitration.
(b) Arbitration Procedures.
(1) Sponsoring Organization and Location of Arbitration.
The arbitration will be held in Washington, D.C. under the auspices of the
American Arbitration Association ("AAA"). The Company and the Investor agree
that except as provided in this Agreement, the arbitration shall be in
accordance with the then-current arbitration procedures of the AAA. The
arbitration shall be conducted by a panel of three arbitrators two of whom
shall be retired judges or attorneys licensed to practice law in Washington,
D.C. and one of whom shall be a practicing certified public accountant who is
an audit partner at any of the five largest national accounting firms (other
than Coopers & Lybrand) (the "Arbitrators").
(2) Selection of Arbitrators. The Arbitrators shall be
selected as follows. The Company, on the one hand, and the Investor, on the
other, shall select an arbitrator from a list of arbitrators provided by the
AAA, and meeting the criteria set forth above. The two arbitrators so selected
shall select a third arbitrator who also meets the above criteria. If the two
named arbitrators are unable to agree upon the third arbitrator or fail to
designate such arbitrator within thirty (30) days from the day the matter is
submitted to arbitration, then, on application of either the Company or the
Investor, the third arbitrator shall be designated by the AAA.
(3) Law Applicable. The Arbitrators shall apply the
substantive law (and the law of remedies, if applicable) of the State of New
York. The Arbitrators are without jurisdiction to apply any different
substantive law or different law of remedies. The Company and the Investor
agree that the Arbitrators shall have the authority and power to render awards
for equitable relief.
(4) Discovery and Procedure. The Company and the Investor
each shall have the right to take the deposition of four individuals and any
expert witness designated by the other party. The Company and the Investor each
also shall have the right to make requests for production of documents to the
other. The subpoena right specified below shall be applicable to discovery
pursuant to this paragraph. Additional discovery may be had only where the
arbitrator selected pursuant to this Agreement so orders, upon a showing of
reasonable and substantial need. At least thirty (30) days before the
arbitration, the Company and the Investor must exchange lists of witnesses,
including any expert, and copies of all exhibits intended to be used at the
arbitration. The Company and the Investor shall have the right to subpoena
witnesses and documents for the arbitration. The Arbitrators shall have
jurisdiction to hear and rule on pre-hearing disputes and are authorized to
hold pre-hearing conferences by telephone or in person, as the Arbitrators deem
necessary. The Arbitrators shall have the authority to entertain a motion to
dismiss and/or a motion for summary judgment by either the Company or the
Investor and shall apply the standards governing such motions under the Federal
Rules of Civil Procedure. Either the Company or the Investor at its expense,
may arrange for and pay the cost of a court reporter to provide a stenographic
record of proceedings. Either the Company or the Investor upon request at the
close of hearing, shall be given leave to file a post-hearing brief. The time
for filing such a brief shall be set by the Arbitrators.
(5) Arbitration Award and Opinion. The decision of any two
(2) Arbitrators shall constitute a final decision and award hereunder. The
Arbitrators shall render an award and opinion outlining in reasonable detail
the findings of fact and conclusions of law upon which the award is based.
(c) Rights to Reconsideration. Either the Company or the Investor
shall have the right, within twenty (20) days of issuance of the Arbitrators'
proposed opinion, to file with the Arbitrators a motion to reconsider
(accompanied by a supporting brief), and the other party shall have twenty (20)
days from the date of the motion to respond. The Arbitrators thereupon shall
reconsider the issues raised by the motion and, promptly, either confirm or
change the decision, which (except as provided by this Agreement) shall then be
final and conclusive upon the Company and the Investor. The costs of such a
motion for reconsideration and written opinion of the Arbitrators shall be
borne by the party prevailing on the motion, unless the Arbitrators order
otherwise.
(d) Finality of Arbitrators' Award. The Arbitrators, and not any
federal, state, or local court or agency, shall have exclusive authority to
resolve any dispute relating to the Claim. The arbitration shall be final and
binding upon the Company and the Investor.
(e) Arbitration Fees and Costs. The Company and the Investor
shall equally share the fees and costs of the Arbitrators. Each party to the
arbitration will deposit funds or post other appropriate security for its share
of the Arbitrators' fees and costs, in an amount and manner determined by the
Arbitrators, ten (10) days before the first day of hearing.
(f) Disbursement of Escrow Amount Upon Final Resolution. After
the Arbitrators' rendering of an award and opinion and the explanation or
resolution of any rights to reconsideration pursuant to the terms hereof, the
Company or the Investor shall deliver to the Escrow Agent notice of the
Arbitrators' award and opinion (together with a copy of such award and
opinion). Upon receipt of such notice, the Escrow Agent shall, without further
instructions, pay to the Investor, out of the Escrow Account, such amount of
the Escrow Amount set forth in the notice and to the Company, the balance of
the Escrow Amount, if any, and the Escrow Income.
SECTION 2.06 No Limitation on Liability of the Company. Notwithstanding
any provision to the contrary contained in this Agreement, Investor and the
Company expressly acknowledge and agree that Investor's rights against the
Company, and the obligations and liabilities of the Company to Investor, under
the Securities Purchase Agreement are not, and shall not be, limited to claims
against the Escrow Amount.
SECTION 2.07 Escrow Agent.
(a) The duties of the Escrow Agent hereunder shall be entirely
administrative and not discretionary. The Escrow Agent shall be obligated to
act only as specifically set forth in this Agreement and in written
instructions received by it pursuant hereto. The Escrow Agent is hereby
authorized to comply with any orders, judgments or decrees of any court and
shall not be liable as a result of its compliance with the same.
(b) As to any legal questions arising in connection with the
administration of this Agreement, the Escrow Agent may rely absolutely upon the
opinions given to it by its counsel and shall be free of liability for acting
in reliance on such opinions.
(c) The Escrow Agent may rely absolutely upon the genuineness and
authorization of the signature and purported signature of any party upon any
instruction, notice, release, receipt or other document delivered to it
pursuant to this Agreement.
(d) The Escrow Agent may, as a condition to the disbursement of
monies as provided herein, require from the payee or recipient a receipt
therefor and, upon final payment, a release of the Escrow Agent from any
liability arising out of its execution or performance of this Agreement, such
release to be in a form satisfactory to the Escrow Agent.
(e) The Escrow Agent shall be entitled to refrain from taking any
action contemplated by this Agreement in the event it becomes aware of any
dispute between Investor and the Company (other than a dispute subject to the
provisions of Section 2.04 of this Agreement) as to any material facts or as to
the happening of any event precedent to such action.
(f) The Company agrees to pay to the Escrow Agent, as
compensation for its services hereunder, a fee equal to $2,000, plus reasonable
out-of-pocket expenses.
SECTION 2.08 Indemnity.
(a) Investor and the Company agree to and hereby do waive any
suit, claim, demand or cause of action of any kind which they may have or may
assert against the Escrow Agent arising out of or relating to the execution or
performance by the Escrow Agent of this Agreement, unless such suit, claim,
demand or cause of action is based upon the willful or reckless misconduct or
gross negligence or bad faith of the Escrow Agent. They further agree to
indemnify the Escrow Agent against and from any and all claims, demands, costs,
liabilities and expenses, including reasonable counsel fees, which may be
asserted against it or to which it may be exposed or which it may incur by
reason of its execution or performance of this Agreement. Investor and the
Company hereby agree that any obligations to indemnify the Escrow Agent arising
under this Section 2.08 shall be shared equally between the Investor, on the
one hand, and the Company on the other. Such agreement to indemnify shall
survive the termination of this Agreement until extinguished by any applicable
statute of limitations.
(b) In case any litigation is brought against the Escrow Agent in
respect of which indemnity may be sought hereunder, the Escrow Agent shall give
prompt notice of that litigation to the parties hereto, and the parties upon
receipt of that notice shall have the obligation and the right to assume the
defense of such litigation, provided that failure of the Escrow Agent to give
that notice shall not relieve the parties hereto from any of their obligations
under this Section unless that failure prejudices the defense of such
litigation by said parties. At its own expense, the Escrow Agent may employ
separate counsel and participate in the defense. The parties hereto shall not
be liable for any settlement without their respective consents.
SECTION 2.09 Acknowledgment by the Escrow Agent. By execution and
delivery of this Agreement, the Escrow Agent acknowledges that the terms and
provisions of this Agreement are acceptable and it agrees to carry out the
provisions of this Agreement on its part.
SECTION 2.10 Resignation or Removal of Escrow Agent; Successors.
(a) The Escrow Agent may resign as such following the giving of
thirty (30) days' prior written notice to the other parties hereto. Similarly,
the Escrow Agent may be removed and replaced following the giving of thirty
(30) days' prior written notice to the Escrow Agent by Investor and the
Company. In either event, the duties of the Escrow Agent shall terminate thirty
(30) days after the date of such notice (or as of such earlier date as may be
mutually agreeable); and the Escrow Agent shall then deliver the balance of the
Escrow Account then in its possession to a successor Escrow Agent as shall be
appointed by the other parties hereto as evidenced by a written notice filed
with the Escrow Agent.
(b) If for any reason any successor bank or escrow company is
unwilling to serve as successor Escrow Agent and if the other parties hereto
are unable to agree upon a successor or shall have failed to appoint a
successor prior to the expiration of thirty (30) days following the date of the
notice of resignation or removal, the then acting Escrow Agent may petition any
court of competent jurisdiction for the appointment of a successor Escrow Agent
or other appropriate relief; and any such resulting appointment shall be
binding upon all of the parties hereto.
(c) Every successor appointed hereunder shall execute,
acknowledge and deliver to its predecessor and also to Investor and the
Company, an instrument in writing accepting such appointment hereunder, and
thereupon such successor, without any further act, shall become fully vested
with all the duties, responsibilities and obligations of its predecessor; but
such predecessor shall, nevertheless, on the written request of its successor
or any of the parties hereto, execute and deliver an instrument or instruments
transferring to such successor all the rights of such predecessor hereunder,
and shall duly assign, transfer and deliver all securities held by it pursuant
to this Agreement to its successor. Should any instrument be required by any
successor for more fully vesting in such successor the duties, responsibilities
and obligations hereby vested or intended to be vested in the predecessor, any
and all such instruments in writing shall, on the request of any of the other
parties hereto, be executed, acknowledged and delivered by the predecessor.
(d) Upon acknowledgment by any successor Escrow Agent of the
receipt of the then remaining balance of the Escrow Account, the then acting
Escrow Agent shall be fully released and relieved of all duties,
responsibilities and obligations under this Agreement.
SECTION 2.11 Acknowledgment by the Company. The Company acknowledges
that in no event shall any resolution of the Claim or payment of any portion of
the Escrow Amount to Investor require the return, revocation, or recission of
any of the Preferred Stock or the Warrant.
ARTICLE III
MISCELLANEOUS
-------------
SECTION 3.01 Assignment; Successors and Assigns; Third Parties. Except
as otherwise provided herein, no party to this Agreement shall convey, assign
or otherwise transfer any of its rights or obligations under this Agreement
without the express written consent of the Investor and of the Company;
provided, that, without such consent, Investor may collaterally assign its
rights hereunder to any lending institutions providing financing for the
transactions contemplated hereby, so long as Investor provides notice to the
Stockholders of such assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Subject to the immediately preceding sentence, this
Agreement is not intended to benefit, and shall not run to the benefit of or be
enforceable by, any other person or entity other than the parties hereto and
their permitted successors and assigns.
SECTION 3.02 Entire Agreement. This Agreement contains the entire
agreement (including representations, warranties and covenants) among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations, discussions, arrangements or
understandings with respect thereto.
SECTION 3.03 Waiver; Remedies. 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 by such party 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.
SECTION 3.04 Severability. If any provision of this Agreement, or any
covenant, obligation or agreement contained herein, is determined by a court to
be invalid or unenforceable, such determination shall not affect any other
provision, covenant, obligation or agreement, each of which shall be construed
and enforced as if such invalid or unenforceable portion were not contained
therein. Such invalidity or unenforceability shall not affect any valid and
enforceable application thereof, and each such provision, covenant, obligation
or agreement shall be deemed to be effective, operative, made, entered into or
taken in the manner and to the full extent permitted by law.
SECTION 3.05 Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to the Escrow Agent:
Marine Midland Bank, N.A.
140 Broadway
New York, New York 10005-1180
Attention: Anthony R. Bufinsky
Corporate Trust Administration
Telecopier: (212) 658-6425
if to the Company:
Mr. David N. De Baene
President and Chief Executive Officer
JD American Workwear, Inc.
46 Old Flat River Road
Coventry, Rhode Island 02816
Telecopier: (401) 397-6804
with a copy to
Gerard S. DiFiore, Esq.
Reed Smith Shaw & McClay LLP
One Riverfront Plaza
Newark, NJ 07102-5400
Telecopier: (973) 621-3199
if to Investor to:
Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attention: Mr. Michael R. Steed, Senior Vice President
Telecopier: (202) 682-7970
with a copy to:
Alan J. Barton, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street - 23rd Floor
Los Angeles, CA 90071
Telecopier: (213) 627-0705
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. Any notice, request, consent or other communication hereunder shall be
deemed to have been given and received on the day on which it is delivered (by
any means including personal delivery, overnight air courier, United States
mail) or telecopied (or, if such day is not a business day or if the notice,
request, consent or communication is not telecopied during business hours of
the intended recipient, at the place of receipt, on the next following business
day).
SECTION 3.06 Amendments. This Agreement may be modified or amended only
by a written agreement signed by Investor and the Company (but not the Escrow
Agent); provided, however, that any amendment to Article II hereof shall
require the written consent of the Escrow Agent.
SECTION 3.07 Expenses. Except as otherwise provided for herein or the
Securities Purchase Agreement, each party shall be responsible for its own
costs and expenses with respect to matters involving this Agreement.
SECTION 3.08 Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws (and not the law of
conflicts) of the State of New York.
SECTION 3.09 Execution Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be regarded as an original and
all of which shall constitute but one and the same instrument.
SECTION 3.10 Captions. The captions and headings in this Agreement
shall be solely for convenience of reference and shall in no way define, limit
or describe the scope or intent of any provisions or sections of this
Agreement.
SECTION 3.11 Gender. Words of the masculine gender include the feminine
and the neuter, and when the context so requires, words of the neuter gender
may refer to any gender.
SECTION 3.12 Authorship. This Agreement shall not be construed for or
against any party by reason of the authorship or claimed authorship of any
provision of this Agreement or by reason of the status of the respective
parties.
SECTION 3.13 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, with
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same agreement.
SECTION 3.14 Entire Agreement. This Agreement, the Securities Purchase
Agreement and any agreement, document or instrument referred to herein or
therein, constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof, and supersede all other prior
agreements or undertakings with respect thereto, both written and oral.
[SIGNATURE PAGE TO ESCROW AGREEMENT]
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the day and year first above written.
JD AMERICAN WORKWEAR, INC.
By: /s/ DAVID N. DEBAENE
David N. DeBaene, President and Chief
Executive Officer
THE UNION LABOR LIFE INSURANCE COMPANY
By: /s/ HERBERT C. CANAPARY
Name: Herbert C. Canapary
Vice President--Investments
MARINE MIDLAND BANK, N.A.
By: /s/ ROBERT CONRAD
Name: Robert Conrad
Title: Vice President-Corporate Trust
NEWS NEWS NEWS
- ---- ---- ----
FOR IMMEDIATE RELEASE
JD AMERICAN WORKWEAR, INC.
ANNOUNCES 2.5 MILLION DOLLAR EQUITY INVESTMENT
BY UNION LABOR LIFE INSURANCE COMPANY
Coventry, RI, April 13, 1998 -- JD American Workwear, Inc. (OTCBB:
"JDAW") the Coventry based headquarters of the patented industrial safety
workwear manufacturer has formally announced a $2.5 million dollar equity
investment made by the Union Labor Life Insurance Company (ULLICO). This
investment caps an agreement signed on November 25, 1997 between JDAW and the
Union of Needletrades, Industrial and Textile Employees, AFL-CIO, CLC (UNITE).
The result of these relationships will benefit both JDAW and the many different
Union Members and was the beginning of an inter-union partnership.
In December of 1997 JD American Workwear, Inc. began making its Patented
Safety Work Pants at Fine Vines Manufacturing in Greenville, Mississippi.
"Really and truly it has been a lifesaver", said Thelma Kennedy, the Union
Representative at Fine Vines. "We are excited to have this work and to be
putting in the Union Labels". Because of this multi-union solidarity effort,
and the direction of Joseph Nigro, President of The Boston Building Trades,
Union construction workers on site in Boston snapped up and bought the first of
the new Unite-Union made JD American Workwear, Inc. Patented Safety Work Pants.
David DeBaene, President and CEO, stated, "We are proud and excited to
have ULLICO as a shareholder. This strategic investment will be advantageous
for all parties involved and will be primarily used for Union production and
marketing under the new Union-Made Program. The production of JD Safety
Workwear by Union Workers presents tremendous marketing opportunities for our
Company, as this program will be directed to all sixteen million AFL-CIO
members nationwide. Many jobs, particularly in the garment industry, have been
taken from Americans and sent overseas. This new multi-union partnership will
create hundreds of jobs for UNITE in the garment industry and provide high
quality Patented Safety Workwear for millions of Union members."
The Company designs, markets and sells a complete line of commercial and
industrial safety workwear built to increase and insure worker safety and
comfort. The Company's product line is highlighted by its unique patented
proprietary denim JD Safety Work Jeans and the cotton/poly blend JD Safety Work
Pant, an industrial uniform style work pant. These products incorporate a
patented safety design with built-in innovative waterproof foam knee pads and
special protective sheathing on the knees and buttocks designed to protect the
worker and provide durability and comfort. In addition to its safety workwear
products, the Company offers a complete line of commercial and industrial
footwear.
For further information please contact Randolph Beimel at JD American
Workwear, Inc. at (800) 435-3267.
