EXHIBIT 10.27
LIFE TIME FITNESS, INC. (FORMERLY KNOWN AS FCA, LTD.)
FIRST AMENDMENT AND WAIVER RELATING TO
STOCK PURCHASE AGREEMENT
DATED AUGUST 16, 2000
July 19, 2001
To Each of the Persons (the "Purchasers")
Named in Schedule A to the Stock
Purchase Agreement dated August 16, 2000
Ladies and Gentlemen:
Each of you is named as a Purchaser in the Stock Purchase Agreement
dated August 16, 2000 among FCA, Ltd. (now known as LIFE TIME FITNESS, Inc.), a
Minnesota corporation (the "Company"), and the Purchasers named therein (the
"2000 Agreement"), relating to the sale by the Company to such Purchasers of
shares of series C convertible preferred stock (the "Series C Preferred Stock").
The Company is a party to a Stock Purchase Agreement dated May 7, 1996,
as amended by the First Amendment and Waiver relating to Stock Purchase
Agreement dated May 7, 1996 and as amended by the Second Amendment and Waiver
relating to Stock Purchase Agreement dated May 7, 1996 (the "1996 Agreement")
relating to the sale by the Company to the Purchasers named therein of 958,487
shares of series A convertible preferred stock (the "Series A Preferred Stock").
The Company is a party to a Stock Purchase Agreement dated December 8, 1998, as
amended by the First Amendment and Waiver relating to Stock Purchase Agreement
dated December 8, 1998 (the "1998 Agreement") relating to the sale by the
Company to the Purchasers named therein of 1,000,000 shares of series B
convertible preferred stock (the "Series B Preferred Stock") and warrants to
purchase shares of common stock of the Company (the "1998 Warrants"). The
Company has entered into a Stock Purchase Agreement dated July 19, 2001 (the
"2001 Agreement") relating to the sale by the Company to the Purchasers named
therein of up to 2,000,000 shares of series D convertible preferred stock (the
"Series D Preferred Stock"). Section 7A.14 of the 2001 Agreement provides that
it is a condition to closing the transaction contemplated by the 2001 Agreement
that the 2000 Agreement be amended and the rights of first refusal of the
Purchasers under the 2000 Agreement be waived as provided below.
The shares of Common Stock into which the Series C Preferred Stock is
convertible are hereinafter sometimes referred to as the "Conversion Stock"; the
shares of Common Stock into which the Series A Preferred Stock is convertible
are hereinafter sometimes referred to as the "Series A Conversion Stock"; the
shares of Common Stock into which the Series D Preferred Stock is convertible
are hereinafter sometimes referred to as the "Series D Conversion Stock"; the
shares of Common Stock issuable upon
exercise of the 1998 Warrants are hereinafter sometimes referred to as the "1998
Warrant Stock"; and the shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock are hereinafter
collectively referred to as the "Preferred Stock".
All defined terms used herein which are not otherwise defined herein
shall have the meanings set forth in the 2000 Agreement.
1. Amendments to the 2000 Agreement. In connection with and as an
inducement to the closing of the transactions contemplated by the 2001
Agreement, each of you by executing this amendment and waiver (the "Amendment")
hereby consents to the following amendments to the 2000 Agreement, such
amendments to be effective from and after the Closing referred to in the 2001
Agreement:
A. The term "Certificate", wherever used in the 2000 Agreement, shall
be amended to mean the Amendment and Restatement of the Statement of Designation
of Rights, Preferences and Limitations of Series C Convertible Preferred Stock
as amended and restated in connection with the issuance of the Series D
Preferred Stock and the 2001 Agreement.
B. Section 8.9 of the 2000 Agreement is hereby amended in its entirety
as follows:
"8.9 Directors' and Shareholders' Meetings. The holders of the Preferred Shares
shall have the right to elect directors of the Company as set forth in the
Certificate.
The Company shall reimburse such holders of Preferred Shares for the
reasonable out-of-pocket expenses incurred by them or the directors elected by
them pursuant to the Certificate in connection with the attending of meetings by
their director designees or carrying out any other duties by such director
designees that may be specified by the Board of Directors; shall pay such
director designees the same directors' fees paid to the other investor-designee
non-employee directors (other than ▇▇▇▇ ▇. ▇▇▇▇) of the Company (it being
understood that the Company's stock option plan may provide for stock option
grants to only those non-employee directors who, together with their affiliates,
do not own more than one percent of outstanding capital stock of the Company);
and shall maintain as part of its Articles of Incorporation or Bylaws a
provision for the indemnification of its directors to the full extent permitted
by law.
The Company agrees, as a general practice, to hold a meeting of its
Board of Directors at least once every three months, and during each year to
hold its annual meeting of shareholders on or approximately on the date provided
in its Bylaws.
The Company shall ensure that its Board of Directors maintains an Audit
Committee and a Compensation Committee. The director elected by the holders of
the Series C Preferred Stock and Series D Preferred Stock, exclusively and
voting as a single class (pursuant to subparagraph (2)(b)(iv) of the
Certificate) shall serve on the Audit Committee and the Compensation Committee.
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The Company shall allow one observer designated by Norwest Equity
Partners VII, LP and one observer designated by APAX Excelsior VI, L.P. to
attend all meetings of the Company's Board of Directors in a nonvoting capacity,
and in connection therewith, the Company shall give such observer copies of all
notices, minutes, consents and other materials, financial or otherwise, which
the Company provides to its Board of Directors.
The Company shall provide for indemnification of the members of the Company's
Board of Directors to the maximum extent permitted by law. No later than the
Closing Date, the Company shall have obtained, and shall maintain in full force
and effect, a directors and officers insurance policy with respect to its
directors and officers (such policy to have such terms and conditions as are
reasonable and customary)."
C. Section 9.1 of the 2000 Agreement is hereby amended in its entirety
as follows:
"9.1 Dividends on or Redemption of Junior Stock. Without the prior approval of
the holders of a majority of the Series C Preferred Shares and Series D
Preferred Shares, voting together as a class, the Company will not declare or
pay any dividend or make any other distribution on any shares of Junior Stock
(as hereinafter defined), or purchase, redeem or otherwise acquire for any
consideration (other than in exchange for or out of the net cash proceeds of the
contemporaneous issue or sale of other shares of Junior Stock or debt securities
convertible into other shares of Junior Stock), or set aside a sinking fund or
other fund for the redemption or repurchase of any shares of Junior Stock or any
warrants, rights or options to purchase shares of Junior Stock.
D. Section 9.2 of the 2000 Agreement is hereby amended in its entirety
as follows:
"9.2 Future Registration Rights. Except for any registration
expressly permitted by Section 10 hereof, the 2000 Agreement, the 1998 Agreement
and the 1996 Agreement, the Company will not, without the prior approval of the
holders of a majority of the Series C Preferred Shares and Series D Preferred
Shares, voting together as a class, agree with the holders of any securities
issued or to be issued by the Company to register such securities under the
Securities Act nor will it grant any incidental registration rights."
E. Section 9.3 of the 2000 Agreement is hereby amended in its entirety
as follows:
"9.3 Other Matters Requiring Prior Approval of Purchasers. The Company will not
without the prior approval of the holders of a majority of the Series C
Preferred Shares and Series D Preferred Shares, voting together as a class:
(a) guarantee, endorse or otherwise be or become contingently
liable, or permit any Subsidiary to guarantee, endorse or
otherwise become
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contingently liable, in connection with the obligations,
securities or dividends of any person, firm, association or
corporation, other than the Company or any of its
Subsidiaries, except that the Company and any Subsidiary may
endorse negotiable instruments for collection in the ordinary
course of business;
(b) make or permit any Subsidiary to make loans or advances to any
person (including without limitation to any officer, director
or shareholder of the Company or any Subsidiary), firm,
association or corporation, except loans and advances to the
Company and its wholly-owned Subsidiaries and advances to
suppliers and employees made in the ordinary course of
business (provided that the outstanding balance of loans and
advances to employees of the Company or any Subsidiary shall
not at any time exceed $250,000 in the aggregate or $50,000
for any one individual or members of his family);
(c) pay, or permit any Subsidiary to pay, compensation, whether by
way of salaries, bonuses, participations in pension or profit
sharing plans, fees under management contracts or for
professional services or fringe benefits to any officer in
excess of amounts fixed by the Board of Directors of the
Company prior to any payment to such officer;
(d) effect a merger or consolidation of the Company with another
entity (other than a merger effected solely for the purpose of
changing the state of incorporation of the Company to the
State of Delaware);
(e) sell all, or substantially all, of the assets of the Company;
(f) materially alter the rights, preferences or privileges of the
shares of Series C Preferred Stock or Series D Preferred
Stock;
(g) increase or decrease the number of authorized shares of Series
C Preferred Stock or Series D Preferred Stock or reissue any
shares of Series C Preferred Stock or Series D Preferred Stock
reacquired by the Company by reason of a conversion or
otherwise;
(h) issue, or permit any Subsidiary to issue, new Senior
Indebtedness in an amount equal to or greater than $30,000,000
in any single transaction or a series of related transactions
(however, the financing of separate projects under a single
financing facility shall not be deemed a "series of related
transactions"), provided, that the replacement of existing
Senior Indebtedness on substantially similar terms shall not
constitute new Senior Indebtedness for this purpose;
(i) increase, or permit any Subsidiary to increase, existing
Senior Indebtedness by an amount equal to or greater than
$30,000,000 in any
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single transaction or a series of related transactions
(however, the financing of separate projects under a single
financing facility shall not be deemed a "series of related
transactions");
(j) borrow, or permit any Subsidiary to borrow, an amount equal to
or greater than $30,000,000 to finance the development of any
single Company project;
(k) approve, or permit any Subsidiary to make, capital
expenditures in an amount equal to or greater than $30,000,000
in connection with any single Company project;
(l) increase the number of persons eligible to serve on its Board
of Directors;
(m) create a new Subsidiary;
(n) except for securities excepted from the definition of
Additional Securities by clauses (a), (b), (c), (d) and (e) of
the first paragraph of Section 8.16 hereof, issue any
additional capital stock of the Company or securities
convertible into any such capital stock;
(o) reclassify capital stock of the Company or securities
convertible into any such capital stock;
(p) pay dividends to the holders of any shares of the Company's
capital stock;
(q) redeem capital stock of the Company or securities convertible
into any such capital stock;
(r) purchase or invest, or permit any Subsidiary to purchase or
invest, in the stock, obligations or assets of any other
person, firm or corporation, other than a wholly-owned
Subsidiary;
(s) amend its By-Laws or Articles of Incorporation so as to
materially and adversely alter any existing provision relating
to Series C Preferred Stock or Series D Preferred Stock or the
holders thereof, whether such amendment is by merger,
consolidation, recapitalization or otherwise, or waive any of
the rights granted to the holders of the Series C Preferred
Stock or Series D Preferred Stock granted by the Articles of
Incorporation;
(t) make any material change in the nature of its business as
carried on at the date of this Agreement; or
(u) enter into any agreement binding upon the Company to take any
such actions."
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F. Section 11.2 of the 2000 Agreement is hereby amended in its entirety
as follows:
"11.2 Remedies Upon Events of Default. Upon the occurrence of an Event of
Default of the type specified in (i) paragraphs (a), (b), (c), (d), (e), (g) or
(h) of Section 11.1, and (ii) paragraph (f) of Section 11.1 if the
representation or warranty at issue was made with reckless disregard for the
truth or falsity thereof, and so long as such Event of Default continues
unremedied, then, unless such Event of Default shall have been waived by the
holders of a majority of the Series C Preferred Stock and Series D Preferred
Stock then outstanding, voting together as a class, the holders (acting together
as a class) of a majority of the Series C Preferred Stock and Series D Preferred
Stock may require the Company immediately to redeem all Series C Preferred Stock
and Series D Preferred Stock then outstanding as provided in Section 4(b) of the
Certificate and thereupon the Company shall be obligated to redeem all Series C
Preferred Stock and Series D Preferred Stock then outstanding. Upon the
occurrence of any Event of Default hereunder, unless such Event of Default shall
have been waived by the holders of at least sixty percent of the outstanding
shares of each of the Series A Preferred Stock and Series B Preferred Stock and
by the holders of a majority of the Series C Preferred Stock and Series D
Preferred Stock then outstanding, voting together as a class, the Board of
Directors shall be reconstituted as provided in Section 5 of the Shareholders
Agreement and subparagraph (2)(c) of the Certificate, the Amendment and
Restatement of the Statement of Designation of Rights, Preferences and
Limitations of Series A Convertible Preferred Stock, the Amendment and
Restatement of the Statement of Designation of Rights, Preferences and
Limitations of Series B Convertible Preferred Stock or the Statement of
Designation of Rights, Preferences and Limitations of Series D Convertible
Preferred Stock, as the case may be."
G. Section 13.1 of the 2000 Agreement is hereby amended in its entirety
as follows:
"13.1 "Additional Shares of Common Stock" shall mean all shares of
Common Stock of the Company issued by the Company on or after the Closing Date,
except the Conversion Stock, shares of Common Stock issued upon conversion of
Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock
and shares of Common Stock issued upon exercise of the Warrants (as defined in
the 1998 Agreement)."
H. Section 13.14 of the 2000 Agreement is hereby amended in its
entirety as follows:
"13.14 "Preferred Stock" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series D Preferred Stock and the Preferred
Shares."
I. Section 13.15 of the 2000 Agreement is hereby amended in its
entirety as follows:
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"Purchased Stock" shall mean the Preferred Shares and the Conversion Stock, and
the stock or other securities of the Company issued in a stock split or
reclassification of, or a stock dividend or other distribution on or in
substitution or exchange for, or otherwise in connection with, any of the
foregoing securities, or in a merger or consolidation involving the Company or a
sale of all or substantially all of the Company's assets. Solely for the
purposes of Section 10 of this Agreement, "Purchased Stock" shall also include
the Series D Preferred Stock and the Series D Conversion Stock, and the stock or
other securities of the Company issued in a stock split or reclassification of,
or a stock dividend or other distribution on or in substitution or exchange for,
or otherwise in connection with, any of the foregoing securities, or in a merger
or consolidation involving the Company or a sale of all or substantially all of
the Company's assets. Nothing in this Section 13.15 shall be deemed to require
the Company to register any Preferred Shares or Series D Preferred Stock, it
being understood that the registration rights granted by Section 10 hereof
relate only to shares of Common Stock and securities issued in substitution or
exchange therefor."
J. Section 13.16 of the 2000 Agreement is hereby amended in its
entirety as follows:
"13.16 "Securities" shall mean the Preferred Shares, the Conversion
Stock, the Series A Preferred Stock, the Series A Conversion Stock, the Series B
Preferred Stock, the Series B Conversion Stock, the Series D Preferred Stock,
the Series D Conversion Stock, the Warrants (as defined in the 1998 Agreement),
the Warrant Stock (as defined in the 1998 Agreement) and any stock or other
securities of the Company issued in a stock split or reclassification of, or a
stock dividend or other distribution on or in substitution or exchange for, or
otherwise in connection with, any of the foregoing securities, or in a merger or
consolidation involving the Company or a sale of all or substantially all of the
Company's assets."
K. Section 14 of the 2000 Agreement is hereby amended in its entirety
as follows:
"14. "Consents; Waivers and Amendments. Except as otherwise
specifically provided herein, in each case in which approval of the Purchasers
is required by the terms of this Agreement, such requirement shall be satisfied
by a vote or the written consent of Purchasers under this Agreement owning a
majority of the shares of Purchased Stock then owned by such Purchasers. With
the written consent of Purchasers owning a majority of the shares of Purchased
Stock then owned by the Purchasers, the obligations of the Company under this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), and with the same approval the Company may
enter into a supplementary agreement for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of any supplemental agreement or modifying in any manner the rights and
obligations of the holders of the Preferred Shares and of the Company; provided,
however, that any waiver, consent or agreement of amendment, modification or
supplement relating to Sections 9.1, 9.2, 9.3 or 10 shall require the written
consent of the holders of a majority of the Series C Preferred Stock and Series
D Preferred Stock, voting
7
together as a class. Written notice of any such waiver, consent or agreement of
amendment, modification or supplement shall be given to the record holders of
the Preferred Shares who have not previously consented thereto in writing."
2. Waiver of Right of First Refusal. In connection with the
closing of the transactions contemplated by the 2001 Agreement, each of you by
executing this Amendment hereby waives the Company's compliance with the
requirements of, and any and all of your rights under, Section 8.16 of the 2000
Agreement with respect to the issuance and sale of the shares of Series D
Preferred Stock and the Series D Conversion Stock.
3. Consent to the 2001 Agreement. By executing this Amendment,
each of you hereby consents to the transactions contemplated by the 2001
Agreement.
4. Consent to Grant of Registration Rights. In connection with
the closing of the transactions contemplated by the 2001 Agreement, each of you
by executing this Amendment hereby consents to the grant of the registration
rights in Section 10 of the 2001 Agreement pursuant to your right to approve of
the grant of such registration rights pursuant to Section 9.2 of the 2000
Agreement.
5. Effect of Amendment. Except as amended hereby, the 2000
Agreement shall continue in full force and effect in accordance with its terms.
[SIGNATURE PAGES FOLLOW]
8
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
Very truly yours,
LIFE TIME FITNESS, INC.
By___________________________
Its__________________________
[AMENDMENT TO 2000 AGREEMENT]
The foregoing Agreement is hereby accepted as of the date first above written.
APAX EXCELSIOR VI, L.P.
By: Apax Excelsior VI Partners, L.P.,
its General Partner
By: Patricof & Co. Managers, Inc.,
its General Partner
By: _____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
[AMENDMENT TO 2000 AGREEMENT]
PATRICOF PRIVATE INVESTMENT CLUB III, L.P.
By: Apax Excelsior VI Partners, L.P.,
its General Partner
By: Patricof & Co. Managers, Inc.,
its General Partner
By: _____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
[AMENDMENT TO 2000 AGREEMENT]
APAX EXCELSIOR VI-A C.V. L.P.
By: Apax Excelsior VI Partners, L.P.,
its General Partner
By: Patricof & Co. Managers, Inc.,
its General Partner
By: _____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
[AMENDMENT TO 2000 AGREEMENT]
APAX EXCELSIOR VI-B C.V. L.P.
By: Apax Excelsior VI Partners, L.P.,
its General Partner
By: Patricof & Co. Managers, Inc.,
its General Partner
By: _____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
[AMENDMENT TO 2000 AGREEMENT]
NORWEST EQUITY PARTNERS VII, LP
A MINNESOTA LIMITED PARTNERSHIP
By: ITASCA LBO VII, LLP
Its: General Partner
By____________________________
Its__________________________
[AMENDMENT TO 2000 AGREEMENT]
LIFE TIME FITNESS, INC.
(FORMERLY FCA, LTD.)
================================================================================
STOCK PURCHASE AGREEMENT
================================================================================
AUGUST 16, 2000
================================================================================
TABLE OF CONTENTS
PAGE
----
1. Authorization of Securities......................................................... 1
2. Sale and Purchase of Securities..................................................... 1
3. Closing............................................................................. 1
4. Restriction on Transfer of Securities............................................... 2
4.1. Restrictions............................................................... 2
4.2. Legend..................................................................... 2
4.3. Removal of Legend.......................................................... 2
4.4. Register of Securities..................................................... 3
5. Representations and Warranties by Company........................................... 3
5.1. Organization, Standing, etc. .............................................. 3
5.2. Qualification.............................................................. 3
5.3. Financial Statements....................................................... 3
5.4. Tax Returns and Audits..................................................... 4
5.5. Changes, Dividends, etc.................................................... 4
5.6. Title to Properties and Encumbrances....................................... 5
5.7. Litigation; Governmental Proceedings....................................... 5
5.8. Compliance with Applicable Laws and Other Instruments...................... 5
5.9. Preferred Shares and Conversion Stock...................................... 5
5.10. Securities Laws............................................................ 6
5.11. ▇▇▇▇-▇▇▇▇▇ Filing.......................................................... 6
5.12. Patents and Other Intangible Rights........................................ 6
5.13. Capital Stock.............................................................. 7
5.14. Outstanding Debt........................................................... 7
5.15. Schedule of Assets and Contracts........................................... 7
5.16. Corporate Acts and Proceedings............................................. 9
5.17. Purchase Commitments and Outstanding Bids.................................. 9
5.18. Insurance Coverage......................................................... 9
5.19. No Brokers or Finders...................................................... 10
5.20. Conflicts of Interest...................................................... 10
5.21. Licenses................................................................... 10
5.22. Registration Rights........................................................ 10
5.23. Retirement Plans........................................................... 10
5.24. Environmental and Safety Laws.............................................. 10
5.25. Employees.................................................................. 12
5.26. Absence of Restrictive Agreements.......................................... 12
5.27. Application of Proceeds.................................................... 12
5.28. Disclosure................................................................. 12
6. Representations and Warranties of Purchasers........................................ 13
6.1. Investment Intent.......................................................... 13
6.2. Location of Principal Office and Qualification as Accredited Investor...... 13
6.3. Acts and Proceedings....................................................... 13
6.4. No Brokers or Finders...................................................... 14
7A. Conditions of Each Purchaser's Obligation.................................. 14
7A.1 No Errors, etc. ........................................................... 14
7A.2 Compliance with Agreement.................................................. 14
7A.3 Certificate of Officers.................................................... 14
7A.4 Opinion of Company's Counsel............................................... 14
7A.5 No Event of Default........................................................ 17
7A.6 Qualification Under State Securities Laws.................................. 17
7A.7 Proceedings and Documents.................................................. 17
7A.8 Shareholders Agreement..................................................... 18
7A.9 Confidentiality Agreements................................................. 18
7A.10 Antares Consent............................................................ 18
7A.11 Mr. Akradi's Insurance..................................................... 18
7A.12 Second Amendment of 1996 Agreement and Waiver.............................. 18
7A.13 First Amendment of 1998 Agreement and Waiver............................... 18
7A.14 Amended and Restated Series A Certificate.................................. 18
7A.15 Amended and Restated Series B Certificate.................................. 18
7A.16 Dissenters' Rights......................................................... 18
7A.17 ▇▇▇▇-▇▇▇▇▇ Filing.......................................................... 18
7B. Conditions of Company's Obligation......................................... 18
7B.1 No Errors, etc............................................................. 19
7B.2 Payment of Purchase Price.................................................. 19
7B.3 ▇▇▇▇-▇▇▇▇▇ Filing.......................................................... 19
8. Affirmative Covenants............................................................... 19
8.1. Corporate Existence........................................................ 19
8.2. Books of Account and Reserves.............................................. 19
8.3. Furnishing of Financial Statements and Information......................... 19
8.4. Inspection................................................................. 21
8.5. Preparation and Approval of Budgets........................................ 21
8.6. Payment of Taxes and Maintenance of Properties............................. 22
8.7. Insurance.................................................................. 22
8.8. Payment of Indebtedness and Discharge of Obligations....................... 22
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8.9. Directors' and Shareholders' Meetings...................................... 23
8.10. Application of Proceeds.................................................... 24
8.11. Retirement Plans........................................................... 24
8.12. Filing of Reports.......................................................... 24
8.13. Patents and Other Intangible Rights........................................ 24
8.14. Insurance on Life of ▇▇▇▇▇▇ ▇▇▇▇▇▇......................................... 24
8.15. Rule 144A.................................................................. 24
8.16. Right of First Refusal..................................................... 25
8.17. Conversion Stock Fully Paid; Reservation of Shares......................... 26
8.18. Form D Filing; Blue Sky Law Filings........................................ 26
9. Negative Covenants.................................................................. 26
9.1. Dividends on or Redemption of Junior Stock................................. 26
9.2. Future Registration Rights................................................. 26
9.3. Other Matters Requiring Prior Approval of Purchasers....................... 27
9.4. Approval of Board Super-Majority........................................... 29
10. Registration of Stock............................................................... 29
10.1. Required Registration...................................................... 29
10.2. Incidental Registration.................................................... 30
10.3. Reduction of Offering...................................................... 30
10.4. Registration Procedures.................................................... 32
10.5. Expenses................................................................... 33
10.6. Indemnification............................................................ 34
11. Default............................................................................. 36
11.1. Events of Default.......................................................... 36
11.2. Remedies Upon Events of Default............................................ 37
11.3. Notice of Defaults......................................................... 37
11.4. Suits for Enforcement...................................................... 37
11.5. Remedies Cumulative........................................................ 38
11.6. Remedies not Waived........................................................ 38
12. Termination of Certain Covenants.................................................... 38
13. Definitions......................................................................... 38
13.1. "Additional Shares of Common Stock"........................................ 38
13.2. "Amended and Restated Series A Certificate"................................ 38
13.3. "Amended and Restated Series B Certificate"................................ 38
13.4. "Common Stock"............................................................. 39
13.5. "Conversion Price"......................................................... 39
13.6. "Conversion Stock"......................................................... 39
13.7. "Convertible Securities"................................................... 39
13.8. "Indebtedness for Borrowed Money".......................................... 39
iii
13.9. "Second Amendment to 1996 Agreement and Waiver"............................ 39
13.10. "First Amendment to 1998 Agreement and Waiver"............................. 39
13.11. "Junior Stock"............................................................. 39
13.12. "Permitted Liens".......................................................... 39
13.13. "Preferred Shares"......................................................... 40
13.14. "Preferred Stock".......................................................... 40
13.15. "Purchased Stock".......................................................... 40
13.16. "Securities"............................................................... 40
13.17. "Senior Indebtedness"...................................................... 40
13.18. "Series A Conversion Stock"................................................ 40
13.19. "Series B Conversion Stock"................................................ 41
13.20. "Subsidiary"............................................................... 41
14. Consents; Waivers and Amendments.................................................... 41
15. Voting Agreement.................................................................... 41
16. Changes, Waivers, etc............................................................... 41
17. Payment of Fees and Expenses of Purchasers.......................................... 41
18. Understanding Among Purchasers...................................................... 42
19. Notices............................................................................. 42
20. Survival of Representations and Warranties, etc..................................... 42
21. Parties in Interest................................................................. 43
22. Headings............................................................................ 43
23. Choice of Law....................................................................... 43
24. Waiver of Jury Trial................................................................ 43
25. Counterparts........................................................................ 43
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Schedule A Purchasers
Schedule B Holders of at least 4% of the outstanding shares of the
Company's capital stock
Schedule C Company's executives
Exhibit 1 -- Certificate of Designation of Rights and Preferences of
Series C Preferred Stock
Exhibit 2 -- Intentionally Omitted
Exhibit 3 -- Exception Schedule
Exhibit 4 -- Financial Statements
Exhibit 5 -- Schedule of Assets and Contracts
Exhibit 6 -- Form of Shareholders Agreement
Exhibit 7 -- Form of Confidentiality Agreement
Exhibit 8 -- Second Amendment of 1996 Agreement and Waiver
Exhibit 9 -- First Amendment of 1998 Agreement and Waiver
Exhibit 10 -- Amended and Restated Series A Certificate
Exhibit 11 -- Amended and Restated Series B Certificate
Exhibit 12 -- Quarterly Financial Summary
Exhibit 13 -- Intentionally Omitted
Exhibit 14 -- Intentionally Omitted
Exhibit 15 -- Consent and Waiver of Antares Leveraged Capital Corp.
Exhibit 16 -- Letter Agreement, dated March 31, 2000, from U.S. Bancorp ▇▇▇▇▇
▇▇▇▇▇▇▇ Inc.
v
LIFE TIME FITNESS, INC.
STOCK PURCHASE AGREEMENT
August 16, 2000
To Each of the Persons Named in
Schedule A to this Agreement
(the "Purchasers")
Ladies and Gentlemen:
In consideration of the agreement of the Purchasers to purchase the
Preferred Shares (as hereinafter defined), as provided for herein, the
undersigned LIFE TIME FITNESS, Inc. (formerly known as FCA, Ltd.), a Minnesota
corporation (the "Company"), hereby agrees with each of the Purchasers as
follows:
1. Authorization of Securities.
The Company proposes to authorize, issue and sell an aggregate of up to
4,500,000 shares of series C convertible preferred stock of the Company (the
"Series C Preferred Stock"), to be issued pursuant to and be entitled to the
benefits of a Certificate of Designation of Rights and Preferences (the
"Certificate") containing the terms set forth in Exhibit 1 hereto. The term
"Preferred Shares" as used herein shall mean the shares of Series C Preferred
Stock set forth in Schedule A hereto and all preferred shares of the Company
issued in exchange or substitution therefor.
2. Sale and Purchase of Securities.
Subject to the terms and conditions hereof, the Company agrees to sell
to each Purchaser, and each Purchaser agrees to purchase from the Company, the
number of Preferred Shares set forth opposite such Purchaser's name in Schedule
A hereto, at the purchase price set forth opposite such Purchaser's name in
Schedule A hereto.
3. Closing.
The closing of the sale to, and purchase by, the Purchasers of the
Preferred Shares (the "Closing") shall occur at the offices of ▇▇▇▇▇▇▇ Berlin
Shereff ▇▇▇▇▇▇▇▇, LLP, 405 Lexington Avenue, New York, New York, at the hour of
10:00 A.M., New York time, on August 16, 2000 or on such other day or at such
other time or place as the Purchasers and the Company shall agree upon (the
"Closing Date").
At the Closing, the Company will deliver to the Purchasers certificates
representing the Preferred Shares being purchased by the Purchasers, registered
in their respective names as stated in Schedule A hereto (or in the names of
their respective nominees as may be specified to the Company at least 48 hours
prior to the Closing Date), against delivery to the Company of the amounts set
forth after their respective names in Schedule A hereto by wire transfer or
certified
check in payment of the total purchase price of the Preferred Shares being
purchased by the Purchasers.
4. Restriction on Transfer of Securities.
Restrictions. The Preferred Shares and the shares of Common Stock into which the
Preferred Shares are convertible and all shares of Common Stock of the Company
issued in exchange or substitution therefor (the "Conversion Stock") are
"restricted securities" as defined under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations promulgated thereunder and
may be transferred only pursuant to (a) a registration statement covering the
sale of such securities that has been declared effective under the Securities
Act, (b) Rule 144 (or any similar rule then in effect) adopted under the
Securities Act, if such rule is available, and (c) subject to the conditions
elsewhere specified in this Section 4, any other legally available means of
transfer.
Legend. 5. Each certificate representing Preferred Shares shall be endorsed with
the following legend:
"The securities evidenced hereby may not be transferred
without (i) the opinion of counsel satisfactory to the Company
that such transfer may be lawfully made without registration
under the Federal Securities Act of 1933 and all applicable
state securities laws or (ii) such registration."
Upon the conversion of any Preferred Shares, unless the Company receives an
opinion of counsel from the holder of such a security satisfactory to the
Company to the effect that a sale, transfer, assignment, pledge or distribution
of the Conversion Stock issuable upon such conversion or exercise may be made
without registration, or unless such Conversion Stock is being disposed of
pursuant to registration under the Securities Act and any applicable state act,
the same legend shall be endorsed on the certificate evidencing such Conversion
Stock.
(a) Stop Transfer Order. A stop transfer order shall be
placed with the Company's transfer agent preventing transfer of any of the
securities referred to in paragraph (a) above pending compliance with the
conditions set forth in any such legend (except as otherwise provided in
paragraph (a) above).
Removal of Legend. Any legend endorsed on a certificate or instrument evidencing
a security pursuant to Section 4.2 hereof shall be removed, and the Company
shall issue a certificate or instrument without such legend to the holder of
such security, (a) if such security is being disposed of pursuant to a
registration statement covering the sale of such security that has been declared
effective under the Securities Act and any applicable state acts or pursuant to
Rule 144 or any similar rule then in effect, or (b) if such holder provides the
Company with an opinion of counsel satisfactory to the Company to the effect
that a sale, transfer, assignment, offer, pledge or distribution for value of
such security may be made without registration and that such legend is not
required to satisfy the applicable exemption from registration.
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Register of Securities. The Company or its duly appointed agent shall maintain a
separate register for the Preferred Shares in which it shall register the
issuance and transfer of all Preferred Shares. All transfers of Preferred Shares
shall be recorded on the register maintained by the Company or its agent, and
the Company shall be entitled to regard the registered holder of such securities
as the actual owner of the securities so registered until the Company or its
agent is required to record a transfer of such securities on its register. The
Company or its agent shall be required to record any such transfer when it
receives (a) the security to be transferred duly and properly endorsed by the
registered holder thereof or by its attorney duly authorized in writing, and (b)
the opinion of counsel referred to in Sections 4.2 and 4.3 hereof or evidence of
compliance with the registration provisions referred to in those Sections.
Representations and Warranties by Company. Except as disclosed in Exhibit 3
hereto, the Company represents and warrants to the Purchasers that:
Organization, Standing, etc. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has the requisite corporate power and authority to own its properties and to
carry on its business in all material respects as it is now being conducted. The
Company has the requisite corporate power and authority to issue the Preferred
Shares and the Conversion Stock, and to otherwise perform its obligations under
this Agreement. The copies of the articles of incorporation of the Company,
including certificates of designation for preferred stock (the "Articles of
Incorporation"), and bylaws of the Company (the "Bylaws") delivered to the
Purchasers or their agents prior to the execution of this Agreement are true and
complete copies of the duly and legally adopted Articles of Incorporation and
Bylaws in effect as of the date of this Agreement. The Company does not have any
direct or indirect equity interest in any other firm, corporation, partnership,
joint venture association or other business organization except as set forth in
Exhibit 3 hereto. If any Subsidiary (as hereinafter defined) is listed on
Exhibit 3 hereto, the representations and warranties set forth in this Section 5
are being hereby restated with respect to such Subsidiary.
Qualification. The Company is duly qualified or licensed as a foreign
corporation in good standing in each jurisdiction wherein the nature of its
activities or of its properties owned or leased makes such qualification or
licensing necessary and failure to be so qualified or licensed would have a
material adverse impact on its business.
Financial Statements. Attached hereto as Exhibit 4 are (a) consolidated balance
sheets as of December 31, 1999, 1998 and 1997, together with the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three fiscal years in the period ended December 31, 1999, and the
report thereon of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, independent public accountants, and (b)
an unaudited consolidated balance sheet as of June 30, 2000 (the "Balance Sheet
Date"), and the related consolidated statements of operations and cash flow for
the six months then ended, prepared by the Company. Such financial statements
(i) are in accordance with the books and records of the Company, (ii) present
fairly the financial condition of the Company at December 31, 1999 and at the
Balance Sheet Date and the results of its operations for the periods therein
specified, and (iii) have, in all material respects, been prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
prior accounting periods, subject, with respect to the unaudited statements, to
year-end adjustments
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which, in the aggregate, are not material. Specifically, but not by way of
limitation, the balance sheets or notes thereto disclose all of the debts,
liabilities and obligations of any nature (whether absolute, accrued or
contingent and whether due or to become due) of the Company at December 31, 1999
or at the Balance Sheet Date, as applicable, which, individually or in the
aggregate, are material and which in accordance with generally accepted
accounting principles would be required to be disclosed in such balance sheets,
and the omission of which would, in the aggregate, have a material adverse
impact on the Company. The balance sheets include appropriate reserves for all
taxes and other liabilities accrued at each such date but not yet payable.
Tax Returns and Audits. All required federal, state and local tax returns or
appropriate extension requests of the Company have been filed, and all federal,
state and local taxes required to be paid with respect to such returns have been
paid or due provision for the payment thereof has been made. The Company is not
delinquent in the payment of any such tax or in the payment of any assessment or
governmental charge. The Company has not received notice of any tax deficiency
proposed or assessed against it, and has not executed any waiver of any statute
of limitations on the assessment or collection of any tax. None of the Company's
tax returns has been audited by governmental authorities in a manner to bring
such audits to the Company's attention. The Company does not have any tax
liabilities except those reflected in Exhibit 4 hereto and those incurred in the
ordinary course of business since the Balance Sheet Date.
Changes, Dividends, etc. Except for the transactions contemplated by this
Agreement, since the Balance Sheet Date the Company has not: (a) incurred any
debts, obligations or liabilities, absolute, accrued or contingent and whether
due or to become due, except current liabilities incurred in the ordinary course
of business, which (individually or in the aggregate) will not materially and
adversely affect the business, properties or prospects of the Company; (b) paid
any obligation or liability other than, or discharged or satisfied any liens or
encumbrances other than those securing, current liabilities, in each case in the
ordinary course of business; (c) declared or made any payment or distribution to
its shareholders as such, or purchased or redeemed any of its shares of capital
stock or other securities, or obligated itself to do so; (d) mortgaged, pledged
or subjected to lien, charge, security interest or other encumbrance any of its
assets, tangible or intangible, except in the ordinary course of business; (e)
sold, transferred or leased any of its assets except in the ordinary course of
business; (f) cancelled or compromised any debt or claim, or waived or released
any right of material value; (g) suffered any physical damage, destruction or
loss (whether or not covered by insurance) materially and adversely affecting
the properties, business or prospects of the Company; (h) entered into any
transaction other than in the ordinary course of business; (i) encountered any
labor difficulties or labor union organizing activities; (j) issued or sold any
shares of capital stock or other securities or granted any options, warrants or
other purchase rights with respect thereto other than as contemplated by this
Agreement; (k) made any acquisition or disposition of any material assets or
become involved in any other material transaction, other than for fair value in
the ordinary course of business; (l) increased the compensation payable, or to
become payable, to any of its directors or employees, or made any bonus payment
or similar arrangement with any directors or employees or increased the scope or
nature of any fringe benefits provided for its employees or directors; or (m)
agreed to do any of the foregoing other than pursuant hereto. There has been no
material adverse change in the
4
financial condition, operations, results of operations or business of the
Company since the Balance Sheet Date.
Title to Properties and Encumbrances. The Company has good and marketable title
to all its owned properties and assets, including without limitation the
properties and assets reflected in Exhibit 4 hereto and the properties and
assets used in the conduct of its business, except for property disposed of in
the ordinary course of business since the Balance Sheet Date, which properties
and assets are not subject to any mortgage, pledge, lease, lien, charge,
security interest, encumbrance or restriction, except (a) those which are shown
and described in Exhibit 4 hereto or the notes thereto, and (b) Permitted Liens
(as hereinafter defined). The plant, offices and equipment owned and leased by
the Company have been kept in good condition and repair in the ordinary course
of business.
Litigation; Governmental Proceedings. There are no legal actions, suits,
arbitrations or other legal, administrative or governmental proceedings or
investigations pending or, to the knowledge of the Company, threatened against
the Company, its properties, assets or business, and the Company is not aware of
any facts which are likely to result in or form the basis for any such action,
suit or other proceeding. The Company is not in default with respect to any
judgment, order or decree of any court or any governmental agency or
instrumentality. The Company has not been threatened with any action or
proceeding under any building or zoning ordinance, law or regulation.
Compliance with Applicable Laws and Other Instruments. The business and
operations of the Company have been and are being conducted in accordance with
all applicable laws, rules and regulations of all governmental authorities
except where noncompliance with such laws, rules and regulations would not have
a material adverse effect on the business, financial condition or results of
operations of the Company. Neither the execution nor delivery of, nor the
performance of or compliance with, this Agreement nor the consummation of the
transactions contemplated hereby will conflict with, or, with or without the
giving of notice or passage of time, result in any breach of, or constitute a
default under, or result in the imposition of any lien or encumbrance upon any
asset or property of the Company pursuant to, any applicable law, administrative
regulation or judgment, order or decree of any court or governmental body, any
agreement or other instrument to which the Company is a party or by which it or
any of its properties, assets or rights is bound or affected, and will not
violate the Articles of Incorporation or Bylaws. The Company is not in violation
of, or in default under, any lien, indenture, mortgage, lease, agreement,
instrument, commitment or arrangement where such violation or default would have
a material adverse effect on the business, financial condition or results of
operation of the Company, nor in violation of its Articles of Incorporation or
its Bylaws.
Preferred Shares and Conversion Stock. The Preferred Shares when issued and paid
for pursuant to the terms of this Agreement, will be duly authorized, validly
issued and outstanding, fully paid, nonassessable and free and clear of all
pledges, liens, encumbrances and restrictions, except as set forth in Section 4
hereof, and the shares of Conversion Stock issuable upon conversion of the
Preferred Shares have been reserved for issuance based upon the initial
Conversion Price (as hereinafter defined) of the Preferred Shares and when
issued upon conversion will be duly authorized, validly issued and outstanding,
fully paid, nonassessable and free and clear of all
5
pledges, liens, encumbrances and restrictions, except as set forth in Section 4
hereof and except for pledges, liens, encumbrances and restrictions created by
the Purchasers. The certificates representing the Preferred Shares to be
delivered by the Company hereunder, and the certificates representing the
Conversion Stock to be delivered upon the conversion of the Preferred Shares,
will be genuine, and the Company has no knowledge of any fact which would impair
the validity thereof.
Securities Laws. Based in part upon the representations and warranties contained
in Section 6 hereof, no consent, authorization, approval, permit or order of or
filing with any governmental or regulatory authority is required under current
laws and regulations in connection with the execution and delivery of this
Agreement or the offer, issuance, sale or delivery of the Preferred Shares or
the offer of the Conversion Stock other than any filings required by the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act and filing of a notice on Form D by
the Company with the Securities and Exchange Commission (the "Commission") and
any filings that may be required under any applicable state securities laws. The
Company has not, directly or through an agent, offered the Preferred Shares, the
Conversion Stock or any similar securities for sale to, or solicited any offers
to acquire such securities from, persons other than the Purchasers and other
accredited investors. Under the circumstances contemplated hereby, the offer,
issuance, sale and delivery of the Preferred Shares and the offer of the
Conversion Stock will not under current laws and regulations require compliance
with the prospectus delivery or registration requirements of the Securities Act.
▇▇▇▇-▇▇▇▇▇ Filing. The Company has filed with the Federal Trade Commission and
Department of Justice, Antitrust Division all documents required to be filed
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act in connection with the
transactions contemplated by this Agreement.
Patents and Other Intangible Rights. The Company (a) owns or has the exclusive
right to use, free and clear of all material liens, claims and restrictions,
except as otherwise disclosed in Exhibit 3 hereto, all worldwide patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing, used in the conduct of its business as now conducted,
(b) is not obligated or under any liability whatsoever to make any payments of a
material nature by way of royalties, fees or otherwise to any owner of, licensor
of, or other claimant to, any patent, trademark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise, (c) owns or has the unrestricted right to
use all trade secrets, including know-how, inventions, designs, processes,
computer programs and technical data necessary to the development, operation and
sale of all products and services sold or proposed to be sold by it, free and
clear of any rights, liens or claims of others, and (d) is not using any
confidential information or trade secrets of others. To the Company's knowledge,
the Company is not infringing upon or otherwise acting adversely to any known
right or claimed right of any person under or with respect to any patents,
trademarks, service marks, trade names, copyrights, licenses or rights with
respect to the foregoing.
Capital Stock. The authorized capital stock of the Company consists of
50,000,000 common shares, of which 10,644,000 shares are issued and outstanding
and 10,000,000 shares of preferred stock, 1,958,487 of which are issued and
outstanding, consisting of 958,487 shares of Series A Convertible Preferred
Stock (the "Series A Preferred Stock") and 1,000,000 shares of Series B
6
Convertible Preferred Stock (the "Series B Preferred Stock"). All of the
outstanding shares of capital stock of the Company were duly authorized and
validly issued and are fully paid and nonassessable. There are no outstanding
subscriptions, options, warrants, calls, contracts, demands, commitments,
Convertible Securities (as hereinafter defined) or other agreements or
arrangements of any character or nature whatever, except for the outstanding
shares of Series A Preferred Stock, Series B Preferred Stock and as otherwise
disclosed in Exhibit 3 hereto or as contemplated by this Agreement, under which
the Company is or may be obligated to issue capital stock or other securities of
any kind representing an ownership interest or contingent ownership interest in
the Company. Neither the offer nor the issuance or sale of the Preferred Shares
or the Conversion Stock, constitutes an event under any anti-dilution provisions
of any securities issued or issuable by the Company or any agreements with
respect to the issuance of securities by the Company, which will either increase
the number of shares issuable pursuant to such provisions or decrease the
consideration per share to be received by the Company pursuant to such
provisions. No holder of any security of the Company is entitled to any
preemptive or similar rights to purchase securities from the Company except as
otherwise contemplated by this Agreement, the Stock Purchase Agreement dated
December 8, 1998 among the Company and the Purchasers named therein (as the same
may be amended, restated or otherwise modified including by the First Amendment
to 1998 Agreement and Waiver (as hereinafter defined), the "1998 Agreement") or
the Stock Purchase Agreement dated May 7, 1996 among the Company and the
Purchasers named therein (as the same may be amended, restated or otherwise
modified, including by the First Amendment to 1996 Agreement and Waiver (as
defined in the 1998 Agreement) and the Second Amendment to 1996 Agreement and
Waiver (as hereinafter defined), the "1996 Agreement"). All outstanding
securities of the Company have been issued in full compliance with an exemption
or exemptions from the registration and prospectus delivery requirements of the
Securities Act and from the registration and qualification requirements of all
applicable state securities laws.
Outstanding Debt. The Company has no Indebtedness for Borrowed Money (as
hereinafter defined) except as otherwise set forth in Exhibit 4 hereto or the
notes thereto. The Company is not in default in the payment of the principal of
or interest or premium on any such Indebtedness for Borrowed Money, and no event
has occurred or is continuing under the provisions of any instrument, document
or agreement evidencing or relating to any such Indebtedness for Borrowed Money
which with the lapse of time or the giving of notice, or both, would constitute
an event of default thereunder.
Schedule of Assets and Contracts. Attached hereto as Exhibit 5 is a Schedule of
Assets and Contracts containing:
(b) Annex A: a listing of all real properties
owned by the Company;
(c) Annex B: a listing of each indenture, lease,
sublease, license or other instrument under which the Company claims or
holds a leasehold interest in real property;
(d) Annex C: a listing of all written and oral
contracts, agreements, subcontracts, purchase orders, commitments and
arrangements involving payments
7
remaining to or from the Company in excess of $100,000 and other
agreements material to the Company's business to which the Company is a
party or by which it is bound, under which full performance (including
payment) has not been rendered by any party thereto;
(e) Annex D: a listing of all collective
bargaining agreements, employment agreements, consulting agreements,
noncompetition agreements, nondisclosure agreements, executive
compensation plans, profit sharing plans, bonus plans, deferred
compensation agreements, employee pension retirement plans and employee
benefit stock option or stock purchase plans and other employee benefit
plans, entered into or adopted by the Company;
(f) Annex E: a listing of all deeds of trust,
mortgages, security agreements, pledge agreements and other agreements
or arrangements whereby any of the assets or properties of the Company
are subject to any lien, encumbrance, security interest or charge;
(g) Annex F: a listing of all leases of personal
property involving payment remaining to or from the Company in excess
of $100,000;
(h) Annex G: a listing of all bank accounts (or
accounts with other financial institutions) maintained by the Company,
together with the persons authorized to make withdrawals from such
accounts;
(i) Annex H: the name of each employee of the
Company whose annual compensation is in excess of $100,000 and the
remuneration currently payable to each such employee;
(j) Annex I: the name of each shareholder of the
Company and the number of shares owned by such shareholder;
(k) Annex J: a listing of all insurance policies
in force and referred to in Section 5.17 hereof; and
(l) Annex K: a listing of all patents, royalty
and license agreements, trademarks, trade names, service marks and
copyrights (including applications therefor) relating to Company
products.
Prior to the Closing Date, the Company shall provide or otherwise make available
to legal counsel for the Purchasers a true and complete copy of each document
referred to above which such counsel requests to examine.
The Company has substantially performed all obligations required to be
performed by it to date and is not in default in any respect under any of the
contracts, agreements, leases, documents, commitments or other arrangements to
which it is a party or by which it is otherwise bound except where such default
would not have a material adverse effect on the business, financial condition or
results of operation of the Company. All instruments referred to above are
8
in effect and enforceable against the Company according to their respective
terms (except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the enforcement
of creditors' rights generally, and except for judicial limitations on the
enforcement of the remedy of specific performance and other equitable remedies),
and there is not under any of such instruments any existing material default or
event of default or event, in each case on the part of the Company, which, with
notice or lapse of time or both, would constitute an event of default
thereunder. To the Company's knowledge, all third parties having material
contractual arrangements with the Company are in substantial compliance
therewith and the Company is not aware of any material default in any respect
thereunder by any such third party to such contractual arrangements. All plans
or arrangements listed pursuant to clause (d) above are fully funded to the
extent that such funding is required by generally accepted accounting
principles.
Corporate Acts and Proceedings. This Agreement, the First Amendment to 1998
Agreement and Waiver, the First Amendment to 1996 Agreement and Waiver and the
Second Amendment to 1996 Agreement and Waiver have been duly authorized by all
necessary corporate action on behalf of the Company, and have been duly executed
and delivered by authorized officers of the Company. All corporate action
necessary for the authorization, creation, issuance and delivery of the
Preferred Shares and the Conversion Stock has been taken on the part of the
Company, or will be taken by the Company on or prior to the Closing Date. This
Agreement, the First Amendment to 1998 Agreement and Waiver, the First Amendment
to the 1996 Agreement and Waiver and the Second Amendment to 1996 Agreement and
Waiver, are valid and binding agreements of the Company enforceable against the
Company in accordance with their terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except for judicial limitations on the enforcement of the remedy of specific
enforcement and other equitable remedies.
Purchase Commitments and Outstanding Bids. No purchase commitment of the Company
is in excess of normal, ordinary and usual requirements of its business, or was,
to the Company's knowledge, made at any price in excess of the then current
market price, or contains, to the Company's knowledge, terms and conditions more
onerous than those usual and customary in the industry. There is no outstanding
material bid, sales proposal, contract or unfilled order of the Company which
(a) will, or could if accepted, require the Company to supply goods or services
at a cost to the Company in excess of the revenues to be received therefrom, or
(b) quotes prices which do not include a ▇▇▇▇-up over reasonably estimated costs
consistent with past ▇▇▇▇-ups on similar business or market conditions current
at the time.
Insurance Coverage. There are in full force policies of insurance issued by
insurers of recognized responsibility insuring the Company, its properties and
business against such losses and risks, and in such amounts, as in the Company's
best judgment, after advice from its insurance broker, are acceptable for the
nature and extent of its business and the Company's resources.
No Brokers or Finders. No person, firm or corporation, other than U.S. Bancorp
▇▇▇▇▇ ▇▇▇▇▇▇▇ Inc. pursuant to the letter agreement annexed hereto as Exhibit
16, has or will have, as a result of any act or omission of the Company, any
right, interest or valid claim against or upon the
9
Company or any Purchaser for any commission, fee or other compensation as a
finder or broker, or in any similar capacity, in connection with the
transactions contemplated by this Agreement. The Company will indemnify and hold
each Purchaser harmless against any and all liability with respect to any such
commission, fee or other compensation which may be payable or determined to be
payable in connection with the transactions contemplated by this Agreement.
Conflicts of Interest. No officer or director of the Company or any affiliate
(as such term is defined in Rule 405 under the Securities Act) of any such
person or, to the Company's knowledge, no shareholder or any affiliate of any
such person, has any direct or indirect interest (a) in any entity which does
business with the Company, or (b) in any property, asset or right which is used
by the Company in the conduct of its business, or (c) in any contractual
relationship with the Company other than as an employee. For the purpose of this
Section 5.19, there shall be disregarded any interest which arises solely from
the ownership of less than a 1% equity interest in a corporation whose stock is
regularly traded on any national securities exchange or in the over-the-counter
market.
Licenses. The Company possesses from the appropriate agency, commission, board
and government body and authority, whether state, local or federal, all
licenses, permits, authorizations, approvals, franchises and rights which (a)
are necessary for it to engage in the business currently conducted by it, and
(b) if not possessed by the Company would have a material adverse effect on the
business, financial condition or results of operations of the Company. The
Company has no knowledge that would lead it to believe that it will not be able
to obtain all licenses, permits, authorizations, approvals, franchises and
rights that may be required for any business the Company proposes to conduct.
Registration Rights. Other than under this Agreement, the 1998 Agreement and the
1996 Agreement, the Company has not agreed to register any of its authorized or
outstanding securities under the Securities Act.
Retirement Plans. The Company does not have any retirement plan in which any
employees of the Company participate that is subject to any provisions of the
Employee Retirement Income Security Act of 1974, as amended, and of the
regulations adopted pursuant thereto ("ERISA").
5.2. Environmental and Safety Laws.
(a) For purposes of this Agreement,
(i) "Environmental Law" means the Comprehensive
Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901
et seq., the Federal Water Pollution Control Act, 33
U.S.C. Section 1201 et seq., the Clean Water Act, 33
U.S.C. Section 1321 et seq., the Clean Air Act, 42
U.S.C. Section 7401 et seq., and any other federal,
state, local or other governmental statute,
regulation, law or ordinance dealing with the
protection of human health, natural resources or the
environment;
10
(ii) "Hazardous Substance" means any pollutant,
contaminant, hazardous substance or waste, solid
waste, petroleum or any fraction thereof, or any
other chemical, substance or material listed or
identified in or regulated by any Environmental Law;
(iii) "RCRA Hazardous Waste" means a hazardous waste, as
that term is defined in and pursuant to the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901
et seq.; and
(iv) "Real Estate" means the real property owned or leased
by the Company at any time.
(b) To the Company's knowledge, no Hazardous Substances have ever
been buried, spilled, leaked, discharged, emitted, generated,
stored, used or released, and no Hazardous Substances are now
present, in, on, or under the Real Estate except for
immaterial quantities stored or used by the Company in the
ordinary course of its business and in accordance with all
applicable Environmental Laws.
(c) To the Company's knowledge, the Real Estate is not being used,
and the Real Estate has never been used, in connection with
the business of manufacturing, storing or transporting
Hazardous Substances, and no RCRA Hazardous Wastes have been
treated, stored or disposed of on the Real Estate.
(d) To the Company's knowledge, there are not now and never have
been any underground or aboveground storage tanks or other
containment facilities of any kind on the Real Estate which
contain or ever did contain any Hazardous Substances.
(e) The Real Estate is not and never has been listed on the
National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System or any
similar federal, state or local list, schedule, log, inventory
or database.
(f) The Company has delivered to the Purchasers true and complete
copies of all material reports, authorizations, permits,
licenses, disclosures and other documents in its possession,
custody or control describing or relating in any way to the
Real Estate which describe, mention or discuss the status
thereof with respect to any Environmental Law.
(g) To the best knowledge of the Company, there are not and there
never have been any requests, notices, investigations, claims,
demands, actions, suits or other legal or administrative
proceedings relating in any way to the Company or the Real
Estate, alleging liability under, violation of or
noncompliance with, any Environmental Law or any license,
permit or other authorization issued pursuant thereto. No such
matter is threatened or impending, nor does there exist any
substantial basis therefor.
11
(h) The Company operates, and at all times has operated, the
business in accordance with all applicable Environmental Laws,
and all licenses, permits and other authorizations required
pursuant to any Environmental Law and necessary for the lawful
and efficient operation of the business are in the Company's
possession and are in full force and effect. To the knowledge
of the Company, there is no threat that any such permit,
license or other authorization will be withdrawn, terminated,
not renewed, or otherwise materially limited or changed.
Employees. To the Company's knowledge, no officer of the Company or employee of
the Company whose annual compensation is in excess of $100,000 has any plans to
terminate his or her employment with the Company. The Company has complied in
all material respects with all laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes, and the Company has
not encountered any material labor difficulties. The Company does not know of
any worker's compensation liabilities, except those reflected in Exhibit 4
hereto.
Absence of Restrictive Agreements. To the Company's knowledge, no employee of
the Company is subject to any secrecy or non-competition agreement or any
agreement or restriction of any kind that would impede in any way the ability of
such employee to carry out fully all activities of such employee in furtherance
of the business of the Company. To the Company's knowledge, no employer or
former employer of any employee of the Company has any claim of any kind
whatsoever in respect of any of the rights described in Section 5.12 hereof.
Application of Proceeds. The proceeds from the issuance and sale of Preferred
Shares pursuant to this Agreement will be used to fund working capital and other
general corporate purposes.
Disclosure. The Company has not knowingly withheld from the Purchasers any
material facts relating to the assets, business, operations, financial condition
or prospects of the Company. No representation or warranty in this Agreement or
in any certificate or schedule furnished or to be furnished to any Purchaser
pursuant hereto contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated herein or
therein or necessary to make the statements herein or therein not misleading.
Representations and Warranties of Purchasers. Each of the Purchasers severally
represents and warrants for itself that:
Investment Intent. The Preferred Shares being acquired by such Purchaser
hereunder are being purchased, and the Conversion Stock acquired by such
Purchaser upon conversion of such Preferred Shares will be acquired, for such
Purchaser's own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act. Such Purchaser understands that the Preferred Shares and the
Conversion Stock, have not been registered under the Securities Act or any
applicable state laws by reason of their issuance or contemplated issuance in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act and such state laws, and that the reliance of the Company and
others upon this exemption is predicated in part upon this representation and
warranty. Such Purchaser further understands that the Preferred Shares and the
Conversion
12
Stock may not be transferred or resold without (a) registration under the
Securities Act and any applicable state securities laws, or (b) an exemption
from the requirements of the Securities Act and applicable state securities
laws.
Such Purchaser understands that an exemption from such registration is
not currently available pursuant to Rule 144 promulgated under the Securities
Act by the Commission and that in any event such Purchaser may not sell any
securities pursuant to Rule 144 prior to the expiration of a one-year period
after such Purchaser has acquired the securities. Such Purchaser understands
that any sales pursuant to Rule 144 may only be made in full compliance with the
provisions of Rule 144.
Location of Principal Office and Qualification as Accredited Investor. The state
in which such Purchaser's principal office (or domicile, if such Purchaser is an
individual) is set forth in such Purchaser's address in Schedule A hereto. Such
Purchaser qualifies as an accredited investor within the meaning of Rule 501
under the Securities Act for the reasons specified on such Purchaser's
Certification attached to this Agreement. Such Purchaser has such knowledge and
experience in financial and business matters that such Purchaser is capable of
evaluating the merits and risks of the investment to be made hereunder by such
Purchaser. Such Purchaser has and has had access to all of the Company's
material books and records and access to the Company's executive officers has
been provided to such Purchaser or to such Purchaser's qualified agents.
Acts and Proceedings. This Agreement has been duly authorized by all necessary
action on the part of such Purchaser, has been duly executed and delivered by
such Purchaser, and is a valid and binding agreement upon the part of such
Purchaser enforceable against such Purchaser in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting enforcement of
creditors' rights generally, and except for judicial limitations on the
enforcement of the remedy of specific enforcement and other equitable remedies.
No Brokers or Finders. No person, firm or corporation has or will have, as a
result of any act or omission by such Purchaser, any right, interest or valid
claim against the Company for any commission, fee or other compensation as a
finder or broker, or in any similar capacity, in connection with the
transactions contemplated by this Agreement. Such Purchaser will indemnify and
hold the Company harmless against any and all liability with respect to any such
commission, fee or other compensation which may be payable or determined to be
payable as a result of the actions of such Purchaser in connection with the
transactions contemplated by this Agreement.
Conditions of Each Purchaser's Obligation. The obligation to purchase and pay
for the Preferred Shares which each Purchaser has agreed to purchase on the
Closing Date is subject to the fulfillment prior to or on the Closing Date of
the following conditions. In the event that any such condition is not satisfied
to the satisfaction of each Purchaser, then no Purchaser shall be obligated to
proceed with the purchase of such Preferred Shares.
13
No Errors, etc. The representations and warranties of the Company under this
Agreement shall be true in all material respects as of the Closing Date with the
same effect as though made on and as of the Closing Date.
Compliance with Agreement. The Company shall have performed and complied with
all agreements or conditions required by this Agreement to be performed or
complied with by it prior to or as of the Closing Date.
Certificate of Officers. The Company shall have delivered to the Purchasers a
certificate, dated the Closing Date, executed by the President and the senior
financial officer of the Company and certifying to the satisfaction of the
conditions specified in Sections 7A.1, 7A.2 and 7A.5 hereof.
Opinion of Company's Counsel. The Company shall have delivered to each of the
Purchasers an opinion or opinions of Faegre & ▇▇▇▇▇▇ LLP, special counsel for
the Company, dated the Closing Date, to the effect that:
(a) The Company is duly incorporated, validly
existing and in good standing under the laws of the State of
Minnesota with the corporate power to enter into this
Agreement, the First Amendment to 1998 Agreement and Waiver;
the First Amendment to 1996 Agreement and Waiver, the Second
Amendment to 1996 Agreement and Waiver and the Shareholders
Agreement, to issue and sell the Preferred Shares and the
Conversion Stock as contemplated by this Agreement, to carry
out the provisions of this Agreement, the First Amendment to
1998 Agreement and Waiver, the First Amendment to 1996
Agreement and Waiver, the Second Amendment to 1996 Agreement
and Waiver and the Shareholders Agreement and to conduct any
lawful business activity; and qualified to do business as a
foreign corporation in good standing in any state or
jurisdiction wherein the nature of its activities or of its
properties owned or leased makes such qualification necessary
and failure to be so qualified would have a material adverse
effect upon the Company.
(b) This Agreement(1), the First Amendment to
1998 Agreement and Waiver, the First Amendment to 1996
Agreement and Waiver, the Second Amendment to 1996 Agreement
and Waiver and the Shareholders Agreement (as defined in
Section 7A.8 herein) have been duly authorized by all
requisite corporate action, executed and delivered by the
Company, and are valid and binding agreements of the Company
enforceable in accordance with their respective terms.
(c) The Certificate, the Amended and Restated
Series A Certificate (as hereinafter defined) and the Amended
and Restated Series B Certificate (as hereinafter defined)
have been duly adopted by all necessary corporate action and
------------------
(1) For this purpose, counsel may assume that the laws of Minnesota and New York
are the same.
14
have been duly filed with the Secretary of State of the State
of Minnesota (no other or additional filing or recording being
necessary in order to create the Series C Preferred Stock or
to amend the terms of the Series A Preferred Stock or the
Series B Preferred Stock). No holder of capital stock of the
Company has dissenters' rights under Chapter 302A of the
Minnesota Statutes in connection with the adoption and filing
of the Certificate, the Amended and Restated Series A
Certificate or the Amended and Restated Series B Certificate,
except for the holders of Series A Preferred Stock and Series
B Preferred Stock and all such holders have waived any such
rights by failing to give notice of such holders' intent to
dissent from the adoption of the Amended and Restated Series A
Certificate or the Amended and Restated Series B Certificate,
as the case may be.
(d) The Preferred Shares are entitled to the
rights, preferences and provisions of the Certificate. The
Series A Preferred Stock is entitled to the rights,
preferences and provisions of the Amended and Restated Series
A Certificate. The Series B Preferred Stock is entitled to the
rights, preferences and provisions of the Amended and Restated
Series B Certificate. The Preferred Shares are entitled to the
benefits of this Agreement applicable thereto.
(e) The Preferred Shares are duly authorized and
validly issued, fully paid and nonassessable. The certificates
for the Preferred Shares are in valid and sufficient form.
(f) The shares initially issuable upon
conversion of the Preferred Shares have been duly authorized
and reserved for issuance and when issued upon such conversion
in accordance with the terms and conditions of the Preferred
Shares will be duly authorized, validly issued, fully paid and
nonassessable.
(g) The Company is authorized by its Articles of
Incorporation to issue 60,000,000 shares of capital stock, of
which 50,000,000 shares have been designated Common Stock,
958,487 shares have been designated Series A Preferred Stock,
1,000,000 shares are designated Series B Preferred Stock,
4,500,000 shares are designated Series C Preferred Stock, and
3,541,513 shares are undesignated as to rights and
preferences. The outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are
fully paid and nonassessable. Based solely upon a review of
the minute books of the Company and the contracts, agreements,
leases, documents, commitments and arrangements disclosed in
Exhibit 5 to this Agreement, there are no outstanding
securities convertible into common shares of the Company or
outstanding options, warrants or other rights to acquire
securities of the Company, other than (i) the Preferred
Shares, (ii) options and warrants disclosed in Exhibit 3 to
this Agreement, (iii) the outstanding shares of Series A
Preferred Stock and (iv) the outstanding shares of Series B
Preferred Stock. None of the contracts, agreements, leases,
documents, commitments or arrangements disclosed in Exhibit 5
to this Agreement (except the 1998 Agreement and the 1996
Agreement) grants or creates any right with respect to the
registration of any
15
securities of the Company under the Securities Act or creates
any obligation on the part of the Company to purchase or
redeem any outstanding shares of capital stock of the Company.
(h) Based solely upon a review of the minute
books of the Company and the contracts, agreements, leases,
documents, commitments and arrangements disclosed in Exhibit 5
to this Agreement, except as provided in the 1996 Agreement
and the 1998 Agreement, no security holder of the Company is
entitled to preemptive or similar rights to subscribe for or
to purchase any shares of capital stock of the Company in
connection with the transactions contemplated hereby, nor will
any security holder of the Company be entitled to any such
rights as a result of the execution or delivery of this
Agreement or the issuance of the Preferred Shares or the
Conversion Stock.
(i) Assuming the accuracy of the representations
of the Purchasers set forth in Section 6 hereof, the Company
has obtained the approval or consent of all governmental
agencies or bodies required to be obtained by it for the valid
offer, issuance and sale of the Preferred Shares and the offer
of the Conversion Stock to the Purchasers through conversion
by them of the Preferred Shares. The execution, delivery and
performance of this Agreement, the First Amendment to the 1998
Agreement and Waiver, the First Amendment to the 1996
Agreement and Waiver, the Second Amendment to the 1996
Agreement and Waiver and the Shareholders Agreement, the
offer, issuance and sale of the Preferred Shares and the
Conversion Stock, and the consummation of the transactions
contemplated by this Agreement will not result in any breach
or violation of the terms or provisions of, or constitute a
default under, the Articles of Incorporation or the Bylaws or
a violation of any contract, agreement, lease, document,
commitment or arrangement listed in Exhibit 5 to this
Agreement or any judgment, decree or order known to such
counsel and applicable to the Company or to such counsel's
knowledge any statute, rule or regulation of the United States
or the State of Minnesota or any governmental authority or
regulatory body thereof.
(j) Assuming the accuracy of the representations
of the Purchasers set forth in Section 6 hereof, the offer,
sale, issuance and delivery of the Preferred Shares, and the
offer of the Conversion Stock to the Purchasers through
conversion by them of the Preferred Shares under the
circumstances contemplated by the Certificate and this
Agreement, are exempt from the registration and prospectus
delivery requirements of the Securities Act, and all
registrations, qualifications, permits and approvals required
under applicable state securities laws for the lawful offer,
sale, issuance and delivery of the Preferred Shares and the
Conversion Stock have been obtained, other than the filing of
a notice on Form D by the Company with the Commission which
may be made subsequent to such offer, sale, issuance and
delivery and any filings that may be required to be made
subsequent to the Closing under any applicable state
securities laws.
16
(k) Other than as disclosed on Exhibit 3 to this
Agreement, such counsel have no knowledge of any litigation,
proceeding or governmental investigation pending or threatened
against the Company, its key management employees in their
capacity as employees, properties or business.
No Event of Default. There shall exist at the time of Closing no condition or
event which would constitute an Event of Default (as hereinafter defined) or
which, after notice or lapse of time or both, would constitute an Event of
Default.
Qualification Under State Securities Laws. All registrations, qualifications,
permits and approvals required under applicable state securities laws for the
lawful execution and delivery of this Agreement and the offer, sale, issuance
and delivery of the Preferred Shares and the offer of the Conversion Stock shall
have been obtained, other than the filing of any Form D's with the Commission
and such other filings that are required to be made subsequent to the Closing
under any applicable state securities laws that the Company has agreed to make
under this Agreement.
7A.1 Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transaction shall be satisfactory in
form and substance to the Purchasers and their special counsel.
7A.2 Shareholders Agreement. The parties listed on
Schedule B annexed hereto shall have entered into a Shareholders Agreement (the
"Shareholders Agreement") substantially in the form of Exhibit 6 hereto.
Confidentiality Agreements. The Company shall have entered into Confidentiality
Agreements with the persons listed on Schedule C annexed hereto substantially in
the form of Exhibit 7 hereto.
Antares Consent. Antares Leveraged Capital Corp. shall have executed a Consent
and Waiver substantially in the form of Exhibit 15 hereto.
Mr. Akradi's Insurance. The Company shall have obtained insurance on the life of
▇▇▇▇▇▇ ▇▇▇▇▇▇, as more fully described in Section 8.14 hereof.
Second Amendment of 1996 Agreement and Waiver. The 1996 Agreement shall have
been amended and the rights of first refusal granted pursuant thereto shall have
been waived as set forth in Exhibit 8 hereto.
First Amendment of 1998 Agreement and Waiver. The 1998 Agreement shall have been
amended and the rights of first refusal granted pursuant thereto shall have been
waived as set forth in Exhibit 9 hereto.
Amended and Restated Series A Certificate. The Statement of Designation of
Rights, Preferences and Limitations of Series A Convertible Preferred Stock
shall have been amended as set forth in Exhibit 10 hereto.
17
Amended and Restated Series B Certificate. The Statement of Designation of
Rights, Preferences and Limitations of Series B Convertible Preferred Stock
shall have been amended as set forth in Exhibit 11 hereto.
Dissenters' Rights. No shareholder of the Company shall have exercised
dissenters' rights under the Minnesota Business Corporation Act in connection
with the adoption and filing of the Certificates, the Amended and Restated
Series A Certificate or the Amended and Restated Series B Certificate.
▇▇▇▇-▇▇▇▇▇ Filing. The waiting period in connection with the filing required by
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act shall have expired.
7B. Conditions of Company's Obligation.
The obligation of the Company to issue and sell the Preferred Shares pursuant to
the terms of this Agreement is subject to the fulfillment prior to or on the
Closing Date of the following conditions.
7B.1 No Errors, etc. The representations and warranties of
each Purchaser under this Agreement shall be true in all material respects as of
the Closing Date with the same effect as though made on and as of the Closing
Date.
Payment of Purchase Price. The Purchasers shall have each paid the purchase
price set forth opposite each such Purchaser's name in Schedule A hereto.
▇▇▇▇-▇▇▇▇▇ Filing. The waiting period in connection with the filing required by
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act shall have expired.
8. Affirmative Covenants. Subject to the provisions of Section 12
hereof, the Company covenants and agrees that:
Corporate Existence. The Company will maintain, and will cause each Subsidiary
(as hereinafter defined) to maintain, its corporate existence in good standing
and comply with all applicable laws and regulations of the United States or of
any state or states thereof or of any political subdivision thereof and of any
governmental authority where failure to so comply would have a material adverse
impact on the Company or its business or operations.
Books of Account and Reserves. The Company will, and will cause each of its
Subsidiaries to, keep books of record and account in which full, true and
correct entries are made of all of its and their respective dealings, business
and affairs, in accordance with generally accepted accounting principles. The
Company will employ certified public accountants selected by the Board of
Directors of the Company who are "independent" within the meaning of the
accounting regulations of the Commission and who are one of the so-called "Big
Five" accounting firms, and have annual audits made by such independent public
accountants in the course of which such accountants shall make such
examinations, in accordance with generally accepted auditing standards, as will
enable them to give such reports or opinions with respect to the financial
statements of the Company and its Subsidiaries as will satisfy the requirements
of the
18
Commission in effect at such time with respect to certificates and opinions of
accountants. Such certified public accountants must be approved by the holders
of a majority of the Preferred Shares, provided, that such holders approve the
firm of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP.
Furnishing of Financial Statements and Information. The Company will deliver to
each Purchaser:
(a) as soon as practicable, but in any event within 30 days after
the close of each month, copies of (i) (A) the balance sheet
of the Company as of the end of such month, (B) statements of
operations of the Company for such month, and (C) statements
of cash flows of the Company for such month setting forth in
each case in comparative form the corresponding figures for
the preceding month and for the Budget (as such term is
defined in Section 8.5 hereof), for the year to date and for
the comparable periods in the preceding year, all in
reasonable detail, prepared in accordance with GAAP
consistently applied throughout the periods involved and
certified as being correct and complete and fairly presenting
the results of operations of the Company for the month
indicated, subject to year-end audit adjustment, by the Chief
Financial Officer of the Company;
(b) as soon as practicable, but in any event within 30 days after
the end of each fiscal quarter, a quarterly financial summary
in the form attached hereto as Exhibit 12 completed and signed
by the Chief Financial Officer of the Company;
(c) as soon as practicable, but in any event within 120 days after
the end of each fiscal year, copies of (i) the balance sheet
of the Company as of the end of such fiscal year, (ii)
statements of operations of the Company for such fiscal year,
and (iii) statements of cash flows of the Company for such
fiscal year, setting forth in each case in comparative form
the corresponding figures of the previous annual period, all
in reasonable detail, prepared in accordance with GAAP
consistently applied throughout the periods involved and
certified, without qualification, by a firm of independent
certified public accountants of recognized national standing
approved by the holders of a majority of the Preferred Shares,
provided, that such holders approve the firm of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP;
(d) concurrently with the delivery of any financial statements
referred to in paragraphs (a), (b) and (c) of this Section
8.3, current schedules of Indebtedness for Borrowed Money and
Senior Indebtedness, as these terms are hereinafter defined,
together with a certificate of the Chief Financial Officer and
the principal accounting officer of the Company to the effect
that such schedules are accurate and correct and that there
exists no condition or event which constitutes an event of
default with respect to any indebtedness of the Company, or,
if any such condition or event exists, specify the nature and
period of existence thereof and what action the Company is
taking or proposes to take with respect thereto;
(e) concurrently with the delivery in each year of the financial
statements referred to in paragraph (c) of this Section 8.3, a
statement and report signed by the
19
independent public accountants who certified such financial
statements to the effect that they have read this Agreement
and that in the course of the audit upon which their
certificate was based they became aware of no condition or
event which constituted an Event of Default or which, after
notice or lapse of time or both, would constitute an Event of
Default or if such accountants did become aware of any such
condition or event, specifying the nature and period of
existence thereof;
(f) promptly after the submission thereof to the Company, copies
of all reports and recommendations submitted by independent
public accountants in connection with any annual or interim
audit of the accounts of the Company or any of its
Subsidiaries made by such accountants;
(g) promptly upon transmission thereof, copies of all reports,
proxy statements and other communications furnished to
shareholders of the Company;
(h) with reasonable promptness, such other financial data relating
to the business, affairs and financial condition of the
Company and any Subsidiaries as is available to the Company
and as from time to time the Purchasers may reasonably
request;
(i) at least 30 days prior to the earlier of (i) the execution of
any agreement relating to any merger or consolidation of the
Company or any of its Subsidiaries with another corporation,
or a plan of exchange involving the outstanding capital stock
of the Company or any of its Subsidiaries, or the sale,
transfer or other disposition of all or substantially all of
the property, assets or business of the Company or any of its
Subsidiaries to another corporation, or (ii) the holding of
any meeting of the shareholders of the Company for the purpose
of approving such action, provide written notice of the terms
and conditions of such proposed merger, consolidation, plan of
exchange, sale, transfer or other disposition; and
(j) within 10 days after the Company learns in writing of the
commencement or threatened commencement of any material suit,
legal or equitable, or of any material administrative,
arbitration or other proceeding against the Company, any of
its Subsidiaries or their respective businesses, assets or
properties, written notice of the nature and extent of such
suit or proceeding.
Inspection. The Company will permit each Purchaser and any of its partners,
officers or employees, or any outside representatives designated by such
Purchaser and reasonably satisfactory to the Company, to visit and inspect at
such Purchaser's expense any of the properties of the Company or its
Subsidiaries, including their books and records (and to make photocopies thereof
or make extracts therefrom), and to discuss their affairs, finances, and
accounts with their officers, lawyers and accountants, except with respect to
trade secrets and similar confidential information, which need not be disclosed,
all to such reasonable extent and at such reasonable times and intervals as such
Purchaser may reasonably request. Except as otherwise required by laws or
regulations applicable to a Purchaser, the Purchasers shall
20
maintain, and shall require their representatives to maintain, all information
obtained pursuant to Section 8.3 hereof, this Section 8.4 and Section 8.5 hereof
on a confidential basis.
Preparation and Approval of Budgets. At least one month prior to the beginning
of each fiscal year of the Company, the Company shall prepare and submit to its
Board of Directors, for its review and approval, a proposed annual operating
budget and strategic plan for the Company for the succeeding fiscal year,
containing forecasts of profit and loss and cash flow with monthly breakdowns
and management's reasonably estimated projections of indebtedness and
commitments for the succeeding fiscal year (the "Budget"), in such detail as the
Board of Directors may reasonably request. Each Budget shall be modified as
often as is necessary in the judgment of the Board of Directors to reflect
changes required as a result of operating results and other events that occur,
or may be reasonably expected to occur, during the year covered by the Budget,
and copies of each such modification shall be submitted to the Board of
Directors. The Company will, simultaneously with the submission thereof to the
Board of Directors, deliver a copy of each such Budget and modification thereof
to each Purchaser.
Payment of Taxes and Maintenance of Properties. The Company will, and will cause
each Subsidiary to:
(k) pay and discharge promptly, or cause to be paid and discharged
promptly when due and payable, all taxes, assessments and
governmental charges or levies imposed upon it or upon its
income or upon any of its properties, as well as all material
claims of any kind (including claims for labor, material and
supplies) which, if unpaid, might by law become a lien or
charge upon its property; provided, however, that neither the
Company nor any Subsidiary shall be required to pay any such
tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and if the Company or
such Subsidiary as the case may be shall have set aside on its
books reserves (segregated to the extent required by generally
accepted accounting principles) deemed adequate by it with
respect thereto; and
(l) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and
from time to time make, or cause to be made, all repairs and
renewals and replacements which in the opinion of the Company
are necessary and proper so that the business carried on in
connection therewith may be properly and advantageously
conducted at all times; the Company will maintain or cause to
be maintained back-up copies of all valuable papers and
software.
Insurance. The Company will, and will cause each Subsidiary to, obtain and
maintain in force such property damage, public liability, business interruption,
worker's compensation, indemnity bonds and other types of insurance as the
Company's executive officers, after consultation with an accredited insurance
broker, shall determine to be necessary or appropriate to protect the Company
from the insurable hazards or risks associated with the conduct of the Company's
business. The Company's executive officers shall periodically report to the
Board of Directors on the status of such insurance coverage.
21
All insurance shall be maintained in at least such amounts and to such
extent as shall be determined to be reasonable by the Board of Directors; and
all such insurance shall be effected and maintained in force under a policy or
policies issued by insurers of recognized responsibility, except that the
Company or any Subsidiary may effect worker's compensation or similar insurance
in respect of operations in any state or other jurisdiction either through an
insurance fund operated by such state or other jurisdiction or by causing to be
maintained a system or systems of self-insurance which is in accord with
applicable laws.
Payment of Indebtedness and Discharge of Obligations. The Company will, and will
cause each Subsidiary to, pay or cause to be paid the principal of and interest
and premium, if any, on all Indebtedness for Borrowed Money heretofore or
hereafter incurred or assumed by it when and as the same shall become due and
payable, unless such Indebtedness for Borrowed Money is renewed or extended. The
Company will, and will cause each Subsidiary to, faithfully observe, perform and
discharge all of the material covenants, conditions and obligations which are
imposed on it by any and all indentures and other agreements securing or
evidencing such Indebtedness for Borrowed Money or pursuant to which such
Indebtedness for Borrowed Money is issued, and will not permit the continuance
of any act or omission which is or under the provisions thereof may be declared
to be a material default thereunder, unless such default is waived pursuant to
the provisions thereof. Neither the Company nor any Subsidiary shall be required
to make any payment or to take any other action by reason of this Section 8.8 at
any time while it shall be currently contesting in good faith by appropriate
proceedings its obligations to make such payment or to take such action provided
that the Company or such Subsidiary, as the case may be, shall have set aside on
its books reserves (segregated to the extent required by generally accepted
accounting principles) deemed adequate by it with respect thereto.
Directors' and Shareholders' Meetings. The holders of the Preferred Shares shall
have the right to elect directors of the Company as set forth in the
Certificate.
The Company shall reimburse such holders of Preferred Shares for the
reasonable out-of-pocket expenses incurred by them or the directors elected by
them pursuant to the Certificate in connection with the attending of meetings by
their director designees or carrying out any other duties by such director
designees that may be specified by the Board of Directors; shall pay such
director designees the same directors' fees paid to the other investor-designee
non-employee directors (other than ▇▇▇▇ ▇. ▇▇▇▇) of the Company (it being
understood that the Company's stock option plan may provide for stock option
grants to only those non-employee directors who, together with their affiliates,
do not own more than one percent of outstanding capital stock of the Company);
and shall maintain as part of its Articles of Incorporation or Bylaws a
provision for the indemnification of its directors to the full extent permitted
by law.
The Company agrees, as a general practice, to hold a meeting of its
Board of Directors at least once every three months, and during each year to
hold its annual meeting of shareholders on or approximately on the date provided
in its Bylaws.
The Company shall ensure that its Board of Directors maintains an Audit
Committee and a Compensation Committee. The director elected by the holders of
the Series C Preferred Stock,
22
exclusively and voting as a single class (pursuant to subparagraph (2)(b)(iv) of
the Certificate) shall serve on the Audit Committee and the Compensation
Committee.
The Company shall allow one observer designated by Norwest Equity
Partners VII, LP and one observer designated by APAX Excelsior VI, L.P. to
attend all meetings of the Company's Board of Directors in a nonvoting capacity,
and in connection therewith, the Company shall give such observer copies of all
notices, minutes, consents and other materials, financial or otherwise, which
the Company provides to its Board of Directors.
The Company shall provide for indemnification of the members of the
Company's Board of Directors to the maximum extent permitted by law. No later
than the Closing Date, the Company shall have obtained, and shall maintain in
full force and effect, a directors and officers insurance policy with respect to
its directors and officers (such policy to have such terms and conditions as are
reasonable and customary).
Application of Proceeds. Unless otherwise approved by the Purchasers, the net
proceeds received by the Company from the sale of the Preferred Shares shall be
used substantially for working capital purposes. Pending use of the proceeds in
the business, they shall be deposited in a bank or banks having deposits of
$150,000,000 or more, invested in money market mutual funds having assets of
$500,000,000 or more, or invested in securities issued or guaranteed by the
United States Government.
Retirement Plans. The Company will cause each retirement plan of the Company or
any of its Subsidiaries in which any employees of the Company or of any of its
Subsidiaries participate that is subject to the provisions of ERISA and the
documents and instruments governing each such plan to be conformed to when
necessary, and to be administered in a manner consistent with, those provisions
of ERISA which may, from time to time, become effective and operative with
respect to such plans; if requested by the Purchasers in writing from time to
time, furnish to the Purchasers a copy of any annual report with respect to each
such plan that the Company files with the Secretary of Labor pursuant to ERISA;
and at such time as such insurance shall be available at rates deemed
commercially reasonable by the Company, maintain insurance against the
contingent liability against the net worth of the Company imposed in respect of
each such plan by the provisions of ERISA.
Filing of Reports. The Company will, from and after such time as it has
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, or has securities registered pursuant to the Securities Act,
and until such time as the Purchasers are eligible to sell their Preferred
Shares pursuant to Rule 144(k) (or any successor rule) or until such earlier
time as the Purchasers have sold such Preferred Shares, make timely filing of
such reports as are required to be filed by it with the Commission so that Rule
144 under the Securities Act or any successor provision thereto will be
available to the Purchasers.
Patents and Other Intangible Rights. The Company will apply for, or obtain
assignments of, or licenses to use, all patents, trademarks, trademark rights,
trade names, trade name rights and copyrights which in the opinion of a prudent
and experienced businessman operating in the
23
industry in which the Company is operating are desirable or necessary for the
conduct and protection of the business of the Company.
Insurance on Life of ▇▇▇▇▇▇ ▇▇▇▇▇▇. The Company will maintain for its benefit,
or the benefit of the Company's lenders, life insurance under a policy or
policies issued by insurers of recognized standing in the amount of at least
$5,000,000 on the life of ▇▇▇▇▇▇ ▇▇▇▇▇▇, to the extent Mr. Akradi is insurable
and so long as he is an employee of the Company. Such policy or policies shall
name the Company as the beneficiary thereunder, and shall be in addition to any
policy or policies maintained by the Company to fund potential stock repurchase
obligations of the Company.
Rule 144A. The Company agrees that, upon the request of any holder of Preferred
Shares or Conversion Stock, or any prospective purchaser of Preferred Shares or
Conversion Stock, the Company shall promptly provide (but in any case within 15
days of a request) to such holder or potential purchaser the following
information: (a) a brief statement of the nature of the business of the Company
and its Subsidiaries and the products and services they offer; (b) the Company's
most recent consolidated balance sheets and statement of operations and
statement of shareholders' equity and similar financial statements for such part
of the two preceding fiscal years prior to such request as the Company has been
in operation (such financial information shall be audited, to the extent
reasonably available); and (c) such other information about the Company, its
Subsidiaries and their business, financial condition and results of operations
as the requesting person shall request in order to comply with Rule 144A
promulgated under the Securities Act and the antifraud provisions of the federal
and state securities laws.
The Company hereby represents and warrants to any such requesting
person that the information provided by the Company pursuant to this Section
8.15 will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
Right of First Refusal. In the event the Company desires to sell additional
shares of any capital stock of the Company or any warrants, securities
convertible into capital stock of the Company or other rights to subscribe for
or to purchase any capital stock of the Company, other than (a) shares of Common
Stock sold to the public pursuant to a registration statement filed under the
Securities Act, if such offering is underwritten on a firm commitment basis, (b)
shares of Common Stock awarded or issued upon the exercise of options granted
pursuant to employee and consultant benefit plans adopted by the Company, and
the grant of such options themselves, provided that the aggregate number of
shares thus awarded and issued and issuable pursuant to the exercise of all such
options shall not be in excess of 1,242,000 (appropriately adjusted to reflect
stock splits, stock dividends, reorganizations, consolidations and similar
changes hereafter effected), (c) shares of Common Stock issued upon conversion
of the Preferred Stock or the Warrants (as defined in the 1998 Agreement), (d)
dividends payable in Common Stock and (e) warrants issued in connection with
bona fide financing transactions (including, without limitation, equipment
financing arrangements and bank lines of credit) with conventional institutional
lenders entered into in the ordinary course of their business and shares of
Common Stock issued upon exercise of such warrants (provided that the aggregate
number of shares thus issued on exercise and covered by unexercised warrants
shall not be in excess of 600,000
24
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected)) (all
such capital stock, warrants, securities convertible into capital stock and
other rights, other than securities referred to in (a), (b), (c), (d) and (e)
above, being hereinafter sometimes collectively referred to as "Additional
Securities"), to a third party purchaser or purchasers, it shall provide written
notice thereof to each Purchaser and offer such Purchaser the opportunity to
purchase its pro rata share of such proposed sale for a period of 45 days
following its notice. If a Purchaser elects to accept such offer in whole or in
part, such Purchaser shall so accept by written notice to the Company given
within such 45-day period, provided, that, the closing of the sale of such
Additional Securities to such Purchaser is simultaneously held with the closing
of all Additional Securities proposed to be sold. If a Purchaser fails to accept
such offer in whole or in part within such 45-day period, any of such Additional
Securities not purchased by such Purchaser pursuant to such offer may be sold to
the third party purchaser or purchasers but only on the same terms and
conditions as those set forth in the Company's original notice of intention to
sell, provided, that, the closing of the sale of such Additional Securities to
such third party purchaser or purchasers takes place within a period of 45 days
following the expiration of the 45-day period afforded to the Purchasers
hereunder.
For purposes of the previous paragraph, a Purchaser's "pro rata share"
is the number of shares of Additional Securities (rounded to the nearest whole
share) as is equal to the product of (a)(i) the number of shares of Common Stock
issued, or issuable upon the exercise or conversion of rights, options or other
convertible securities without the payment of any additional cash consideration
or with the payment of a nominal cash consideration, as the case may be
(collectively, "Fully Paid Securities"), to such Purchaser immediately prior to
the issuance of the Additional Securities proposed to be sold divided by (ii)
the total number of Fully Paid Securities issued or issuable by the Company
immediately prior to the issuance of the Additional Securities, multiplied by
(b) the entire amount of Additional Securities proposed to be sold.
Conversion Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all Conversion Stock that may be issued upon conversion of the
Preferred Shares will, upon issuance in accordance with the terms of the
Certificate, be fully paid and nonassessable, and that the issuance thereof
shall not give rise to any preemptive rights on the part of any person. The
Company further covenants and agrees that the Company will at all times have
authorized and reserved a sufficient number of shares of its Common Stock for
the purpose of issue upon the conversion of the Preferred Shares.
Form D Filing; Blue Sky Law Filings. The Company covenants and agrees to file
with the Commission, not later than 15 days after the Closing, five copies of a
notice on Form D under the Securities Act (one of which will be manually signed
by a person duly authorized by the Company); to otherwise comply with the
requirements of Rule 503 under the Securities Act; and to furnish promptly to
each Purchaser upon request evidence of each such required timely filing
(including a copy thereof). The Company covenants and agrees to timely make any
filings that may be required to be made subsequent to the Closing under any
applicable state securities laws, and to furnish promptly to each Purchaser upon
request evidence of each such required timely filing (including a copy thereof).
25
Negative Covenants. Subject to the provisions of Section 12 hereof, the Company
will be limited and restricted as follows:
Dividends on or Redemption of Junior Stock. Without the prior approval of the
holders of a majority of the Preferred Shares, the Company will not declare or
pay any dividend or make any other distribution on any shares of Junior Stock
(as hereinafter defined), or purchase, redeem or otherwise acquire for any
consideration (other than in exchange for or out of the net cash proceeds of the
contemporaneous issue or sale of other shares of Junior Stock or debt securities
convertible into other shares of Junior Stock), or set aside a sinking fund or
other fund for the redemption or repurchase of any shares of Junior Stock or any
warrants, rights or options to purchase shares of Junior Stock.
Future Registration Rights. Except for any registration expressly permitted by
Section 10 hereof, the 1998 Agreement and the 1996 Agreement, the Company will
not, without the prior approval of the holders of a majority of the Preferred
Shares, agree with the holders of any securities issued or to be issued by the
Company to register such securities under the Securities Act nor will it grant
any incidental registration rights.
Other Matters Requiring Prior Approval of Purchasers. The Company will not
without the prior approval of the holders of a majority of the Preferred Shares:
(m) guarantee, endorse or otherwise be or become contingently
liable, or permit any Subsidiary to guarantee, endorse or
otherwise become contingently liable, in connection with the
obligations, securities or dividends of any person, firm,
association or corporation, other than the Company or any of
its Subsidiaries, except that the Company and any Subsidiary
may endorse negotiable instruments for collection in the
ordinary course of business;
(n) make or permit any Subsidiary to make loans or advances to any
person (including without limitation to any officer, director
or shareholder of the Company or any Subsidiary), firm,
association or corporation, except loans and advances to the
Company and its wholly-owned Subsidiaries and advances to
suppliers and employees made in the ordinary course of
business (provided that the outstanding balance of loans and
advances to employees of the Company or any Subsidiary shall
not at any time exceed $250,000 in the aggregate or $50,000
for any one individual or members of his family);
(o) pay, or permit any Subsidiary to pay, compensation, whether by
way of salaries, bonuses, participations in pension or profit
sharing plans, fees under management contracts or for
professional services or fringe benefits to any officer in
excess of amounts fixed by the Board of Directors of the
Company prior to any payment to such officer;
(p) effect a merger or consolidation of the Company with another
entity (other than a merger effected solely for the purpose of
changing the state of incorporation of the Company to the
State of Delaware);
26
(q) sell all, or substantially all, of the assets of the Company;
(r) materially alter the rights, preferences or privileges of the
shares of Series C Preferred Stock;
(s) increase or decrease the number of authorized shares of Series
C Preferred Stock or reissue any shares of Series C Preferred
Stock reacquired by the Company by reason of a conversion or
otherwise;
(t) issue, or permit any Subsidiary to issue, new Senior
Indebtedness in an amount equal to or greater than $30,000,000
in any single transaction or a series of related transactions
(however, the financing of separate projects under a single
financing facility shall not be deemed a "series of related
transactions"), provided, that the replacement of existing
Senior Indebtedness on substantially similar terms shall not
constitute new Senior Indebtedness for this purpose;
(u) increase, or permit any Subsidiary to increase, existing
Senior Indebtedness by an amount equal to or greater than
$30,000,000 in any single transaction or a series of related
transactions (however, the financing of separate projects
under a single financing facility shall not be deemed a
"series of related transactions");
(v) borrow, or permit any Subsidiary to borrow, an amount equal to
or greater than $30,000,000 to finance the development of any
single Company project;
(w) approve, or permit any Subsidiary to make, capital
expenditures in an amount equal to or greater than $30,000,000
in connection with any single Company project;
(x) increase the number of persons eligible to serve on its Board
of Directors;
(y) create a new Subsidiary;
(z) except for securities excepted from the definition of
Additional Securities by clauses (a), (b), (c), (d) and (e) of
the first paragraph of Section 8.16 hereof, issue any
additional capital stock of the Company or securities
convertible into any such capital stock;
(aa) reclassify capital stock of the Company or securities
convertible into any such capital stock;
(bb) pay dividends to the holders of any shares of the Company's
capital stock;
(cc) redeem capital stock of the Company or securities convertible
into any such capital stock;
27
(dd) purchase or invest, or permit any Subsidiary to purchase or
invest, in the stock, obligations or assets of any other
person, firm or corporation, other than a wholly-owned
Subsidiary;
(ee) amend its By-Laws or Articles of Incorporation so as to
materially and adversely alter any existing provision relating
to Series C Preferred Stock or the holders thereof, whether
such amendment is by merger, consolidation, recapitalization
or otherwise, or waive any of the rights granted to the
holders of the Series C Preferred Stock granted by the
Articles of Incorporation;
(ff) make any material change in the nature of its business as
carried on at the date of this Agreement; or
(gg) enter into any agreement binding upon the Company to take any
such actions.
Approval of Board Super-Majority. The Company will not, without the prior
approval of five (5) of the members of its Board of Directors, authorize the
issuance of Senior Indebtedness in the amount greater than $10,000,000 or
approve capital expenditures in the amount greater than $10,000,000.
9. Registration of Stock.
Required Registration. If, at any time after the expiration of any lock-up
period requested by any underwriter in connection with the closing of the first
public offering by the Company of shares of Common Stock (to the extent such
lock-up period is no longer than 180 days following such closing), and until
such time as all holders of the Purchased Stock are able to sell all of the
Purchased Stock owned by such holders pursuant to Rule 144(k) under the
Securities Act (or any successor rule), the Company shall receive a written
request therefor from any record holder or holders of an aggregate of a majority
of the shares of Purchased Stock not theretofore registered under the Securities
Act and sold, the Company shall prepare and file a registration statement under
the Securities Act covering the shares of Purchased Stock which are the subject
of such request and shall use its best efforts to cause a registration statement
filed under the Securities Act in connection with such offering to become
effective. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of shares of Purchased
Stock not theretofore registered under the Securities Act and sold that such
registration is to be effected. The Company shall include in such registration
statement such shares of Purchased Stock for which it has received written
requests to register by such other record holders within 30 days after the date
of the Company's written notice to such other record holders. The Company shall
be obligated to prepare, file and cause to become effective only two
registration statements (other than on Form S-3 or any successor form
promulgated by the Commission ("Form S-3")) pursuant to this Section 10.1, and
to pay the expenses associated with such registration statements;
notwithstanding the foregoing, the record holder or holders of an aggregate of a
majority of the shares of Purchased Stock not theretofore registered under the
Securities Act and sold may require, pursuant to this Section 10.1, the Company
to file, and to pay the expenses associated with, any number of registration
statements on Form S-3 (or any successor form), if such form is then available
for use by the Company and such record holder or
28
holders. In the event that the holders of a majority of the Purchased Stock for
which registration has been requested pursuant to this Section 10.1 determine
for any reason not to proceed with a registration at any time before a
registration statement has been declared effective by the Commission, and such
registration statement, if theretofore filed with the Commission, is withdrawn
with respect to the Purchased Stock covered thereby, and the holders of such
Purchased Stock agree to bear their own expenses incurred in connection
therewith and to reimburse the Company for the expenses incurred by it
attributable to the registration of such Purchased Stock, then the holders of
such Purchased Stock shall not be deemed to have exercised their right to
require the Company to register Purchased Stock pursuant to this Section 10.1.
Notwithstanding the foregoing, the Company may delay initiating the
preparation and filing of a registration statement on Form S-3 pursuant to the
preceding paragraph for a period not to exceed 90 days if in the good faith
judgment of the Company's principal investment banker such delay is necessary in
order not to affect in a significant and adverse manner equity financing efforts
then being undertaken by the Company.
If, at the time any written request for registration is received by the
Company pursuant to this Section 10.1, the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities by it or any of its security holders, such written request shall
be deemed to have been given pursuant to Section 10.2 hereof rather than this
Section 10.1, and the rights of the holders of Purchased Stock covered by such
written request shall be governed by Section 10.2 hereof.
Incidental Registration. Each time the Company shall determine to proceed with
the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities by it or any of its security holders (other than registration
statements on forms that do not permit the inclusion of shares by the Company's
security holders), the Company will give written notice of its determination to
all record holders of Purchased Stock not theretofore registered under the
Securities Act and sold. Upon the written request of a record holder of any
shares of Purchased Stock given within 30 days after the date of any such notice
from the Company, the Company will, except as herein provided, cause all such
shares of Purchased Stock, the record holders of which have so requested
registration thereof, to be included in such registration statement, all to the
extent requisite to permit the sale or other disposition by the prospective
seller or sellers of the Purchased Stock to be so registered; provided, however,
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying any such registration initiated by it; provided further, however, that
if the Company determines not to proceed with a registration after the
registration statement has been filed with the Commission and the Company's
decision not to proceed is primarily based upon the anticipated public offering
price of the securities to be sold by the Company, the Company shall promptly
complete the registration for the benefit of those selling security holders who
wish to proceed with a public offering of their securities and who bear all
expenses in excess of $25,000 incurred by the Company as the result of such
registration after the Company has decided not to proceed. If any registration
pursuant to this Section 10.2 shall be underwritten in whole or in part, the
Company may require, subject to Section 10.3 hereof, that the Purchased Stock
29
requested for inclusion pursuant to this Section 10.2 be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters.
9.1. Reduction of Offering.
(a) Required Registration. The Company may include in a required
registration pursuant to Section 10.1 hereof securities other
than the Purchased Stock on the same terms and conditions as
the Purchased Stock to be included therein; provided, however,
that (i) if the managing underwriter or underwriters of any
underwritten offering described in Section 10.1 herein have
informed the Company in writing that it is their opinion that
the total number of shares of Purchased Stock, and other
securities of the Company which the holders of such
securities, the Company and any other persons desiring to
participate in such registration intend to include in such
offering is such as to materially and adversely affect the
success of such offering, then the number of shares to be
offered for the account of the Company and for the account of
all such other persons (other than the holders of Purchased
Stock) participating in such registration shall be reduced or
limited pro rata in proportion to the respective number of
shares requested to be registered to the extent necessary to
reduce the total number of shares requested to be included in
such offering to the number of shares, if any, recommended by
such managing underwriter or underwriters, (ii) if, in the
event that following a reduction or limitation pursuant to the
preceding clause (i) of all the securities which the Company
and such other persons intended to include in such offering,
the managing underwriter or underwriters inform the Company in
writing that the total number of shares of Purchased Stock
which the holders thereof intend to include in such offering
is such as to materially and adversely affect the success of
such offering, then the number of shares to be offered for the
account of the holders of Purchased Stock participating in
such offering shall be reduced or limited pro rata in
proportion to their respective total number of shares owned by
such holders, to the extent necessary to reduce the total
number of shares requested to be included in such offering to
the number of shares, if any, recommended by such managing
underwriter or underwriters and (iii) if the offering is not
underwritten, no other person, including the Company, shall be
permitted to offer securities under any such required
registration unless the holders of a majority of the Purchased
Stock participating in the offering consent to the inclusion
of such shares therein.
(b) Incidental Registration. Notwithstanding anything contained
herein, if the managing underwriter or underwriters of any
underwritten offering described in Section 10.2 herein have
informed, in writing, the holders of the Company's securities
requesting inclusion in such offering that it is their opinion
that the total number of shares which the Company, such
holders and any other persons desiring to participate in such
registration intend to include in such offering is such as to
materially and adversely affect the success of such offering,
then, the number of shares to be offered shall be reduced or
limited in the following order of priority: first, the number
of shares to be offered by holders of securities of the
30
Company, other than the Securities, to the extent necessary to
reduce the total number of shares as recommended by such
managing underwriter or underwriters; and second, if further
reduction or limitation is required, the number of shares to
be offered by the holders of the Securities shall be reduced
or limited on a pro rata basis in proportion to the relative
number of Securities owned by such holders of Securities
participating in the registration to the extent necessary to
reduce the total number of shares as recommended by such
managing underwriter or underwriters.
Registration Procedures. If and whenever the Company is required by the
provisions of Section 10.1 or 10.2 hereof to effect the registration of shares
of Purchased Stock under the Securities Act, the Company will:
(c) prepare and file with the Commission a registration statement
with respect to such securities, and use its best efforts to
cause such registration statement to become and remain
effective for such period as may be reasonably necessary to
effect the sale of such securities, not to exceed nine months;
(d) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary to keep such
registration statement effective for such period as may be
reasonably necessary to effect the sale of such securities,
not to exceed nine months;
(e) furnish to the security holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the
registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering
of such securities;
(f) use its best efforts to register or qualify the securities
covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such
participating holders may reasonably request in writing within
20 days following the original filing of such registration
statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(g) notify the security holders participating in such
registration, promptly after it shall receive notice thereof,
of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of
such registration statement has been filed;
(h) 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;
31
(i) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to
such registration statement or prospectus which, in the
opinion of counsel for such holders (and concurred in by
counsel for the Company), is required under the Securities Act
or the rules and regulations thereunder in connection with the
distribution of the Purchased Stock by such holder;
(j) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or
supplement to such registration statement or prospectus as may
be necessary to correct any statements or omissions if, at the
time when a prospectus relating to such securities is required
to be delivered under the Securities Act, any event shall have
occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of
the circumstances in which they were made, not misleading;
(k) 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; and
(l) at the request of any such holder, furnish: (i) an opinion,
dated as of the closing date, of the counsel representing the
Company for the purposes of such registration, addressed to
the underwriters, if any, and to the holder or holders making
such request, covering such matters as such underwriters and
holder or holders may reasonably request; and (ii) letters
dated as of the effective date of the registration statement
and as of the closing date, from the independent certified
public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such
request, covering such matters as such underwriters and holder
or holders may reasonably request.
Expenses. With respect to each registration, including registrations pursuant to
Form S-3 (or any successor form), requested pursuant to Section 10.1 hereof
(except as otherwise provided in such Section with respect to registrations
voluntarily terminated at the request of the requesting security holders) and
with respect to each inclusion of shares of Purchased Stock in a registration
statement pursuant to Section 10.2 hereof (except as otherwise provided in
Section 10.2 with respect to registrations initiated by the Company but with
respect to which the Company has determined not to proceed), the Company shall
bear the following fees, costs and expenses: all registration, filing and NASD
fees, printing expenses, fees and disbursements of counsel and accountants for
the Company, fees and disbursements of one law firm acting as counsel to the
selling security holders, fees and disbursements of counsel for the underwriter
or underwriters of such securities (if the Company and/or selling security
holders are required to bear such fees and disbursements), all internal Company
expenses, all legal fees and disbursements and other
32
expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified, and the premiums and other costs of policies of insurance against
liability (if any) arising out of such public offering. Fees and disbursements
of accountants for the selling security holders, underwriting discounts and
commissions and transfer taxes relating to the shares of Purchased Stock
included in the offering by the selling security holders, and any other expenses
incurred by the selling security holders not expressly included above, shall be
borne by the selling security holders.
Indemnification. In the event that any Purchased Stock is included in a
registration statement under Section 10.1 or 10.2 hereof:
(m) The Company will indemnify and hold harmless each holder of
shares of Purchased Stock which are included in a registration
statement pursuant to the provisions of this Section 10, its
directors and officers, and any underwriter (as defined in the
Securities Act) for such holder and each person, if any, who
controls such holder or such underwriter within the meaning of
the Securities Act, from and against, and will reimburse such
holder and each such underwriter and controlling person with
respect to, any and all loss, damage, liability, cost and
expense to which such holder or any such underwriter or
controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, damages, liabilities,
costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that
the Company will not be liable in any such case to the extent
that any such loss, damage, liability, cost or expense arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in
conformity with information furnished by such holder, such
underwriter or such controlling person in writing specifically
for use in the preparation thereof.
(n) Each holder of shares of Purchased Stock which are included in
a registration pursuant to the provisions of this Section 10
will indemnify and hold harmless the Company, its directors
and officers, any underwriter and each person, if any, who
controls the Company or such underwriter from and against, and
will reimburse the Company, its directors and officers, any
underwriter and each person, if any, who controls the Company
or such underwriter with respect to, any and all loss, damage,
liability, cost or expense to which the Company or any
underwriter and each person, if any, who controls the Company
or such underwriter may become subject under the Securities
Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue or
alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact
33
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, provided, however, that such holder
of shares of Purchased Stock shall not be liable in any such
case to the extent that prior to the filing of any such
registration statement or prospectus or amendment thereof or
supplement thereto, such holder of shares of Purchased Stock
has furnished in writing to the Company information expressly
for use in such registration statement or prospectus or
amendment thereof or supplement thereto which corrected or
made not misleading information previously furnished to the
Company. In no event shall the liability of any selling holder
of shares of Purchased Stock hereunder be greater in amount
than the dollar amount of the proceeds received by such
selling holder of shares of Purchased Stock upon the sale of
the shares of Purchased Stock giving rise to such
indemnification obligation.
(o) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 10.5 of
notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions such indemnified
party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said
paragraph (a) or (b), promptly notify the indemnifying party
of the commencement thereof; but the omission to so notify the
indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any
indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have
the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, provided, however, if
the defendants in any action -------- ------- include both the
indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there
may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those
available to the indemnifying party, or if there is a conflict
of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the
indemnified party or parties shall have the right to select
separate counsel to participate in the defense of such action
on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party pursuant to
the provisions of said paragraph (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable
costs of investigation, unless (i) the indemnified party shall
have employed counsel in accordance with the proviso of the
preceding sentence, (ii) the indemnifying party shall not have
34
employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after
the notice of the commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying
party.
10. Default.
Events of Default. Each of the following events shall be an event of default (an
"Event of Default") for purposes of this Agreement:
(a) if the Company or any Subsidiary becomes insolvent or
bankrupt, or admits in writing its inability to pay its debts
as they mature, or makes an assignment for the benefit of
creditors, or ceases doing business as a going concern (except
that a Subsidiary may cease to do business if approved in
advance by the Board of Directors of the Company), or the
Company or any Subsidiary applies for or consents to the
appointment of a trustee or receiver for the Company or any
Subsidiary, or for the major part of the property of either;
or
(b) if a trustee or receiver is appointed for the Company or any
Subsidiary or for the major part of the property of either and
the order of such appointment is not discharged, vacated or
stayed within 30 days after such appointment; or
(c) if any judgment, writ or warrant of attachment or of any
similar process in an amount in excess of $50,000 shall be
entered or filed against the Company or any Subsidiary or
against any of the property or assets of either and remains
unpaid, unvacated, unbonded or unstayed for a period of 30
days; or
(d) if an order for relief shall be entered in any Federal
bankruptcy proceeding in which the Company or any Subsidiary
is the debtor; or if bankruptcy, reorganization, arrangement,
insolvency, or liquidation proceedings, or other proceedings
for relief under any bankruptcy or similar law or laws for the
relief of debtors, are instituted by or against the Company or
any Subsidiary and, if instituted against the Company or any
Subsidiary, are consented to or, if contested by the Company
or the Subsidiary, are not dismissed by the adverse parties or
by an order, decree or judgment within 30 days after such
institution; or
(e) if the Company or any Subsidiary shall default in any material
respect in the due and punctual performance of any covenant or
agreement in any note, bond, indenture, loan agreement, note
agreement, mortgage, security agreement or other instrument
evidencing or related to Indebtedness for Borrowed Money, and
such default shall continue for more than the period of notice
and/or grace, if any, therein specified and shall not have
been waived; or
(f) if any representation or warranty made by or on behalf of the
Company in this Agreement or in any certificate or schedule
furnished pursuant hereto shall prove to have been untrue or
incorrect in any material respect as of the date of this
35
Agreement or as of the Closing Date and (ii) if any report,
certificate, financial statement or financial schedule or
other instrument prepared by the Company or any officer of the
Company furnished or delivered under or pursuant to this
Agreement after the Closing Date hereunder shall prove to be
untrue or incorrect in any material respect as of the date it
was made, furnished or delivered; or
(g) if default shall be made in the Company's obligation to redeem
the Preferred Stock (as hereinafter defined), as required to
be redeemed as of a particular date specified in the
applicable Certificate of Designation, whether or not funds
are legally available therefor, provided, however, that it
shall not be an Event of Default if the Company's failure to
so redeem the Preferred Stock results from the failure of the
holders of Preferred Stock entitled to vote on or consent to
such redemption to give their consent to the redemption and
the Company otherwise has funds legally available to redeem
the Preferred Stock; or
(h) if default shall be made in the due and punctual performance
or observance of any other term contained in this Agreement,
and such default shall have continued for a period of 15 days
after written notice thereof to the Company by the holder of
any Preferred Stock.
Remedies Upon Events of Default. Upon the occurrence of an Event of Default of
the type specified in (i) paragraphs (a), (b), (c), (d), (e), (g) or (h) of
Section 11.1, and (ii) paragraph (f) of Section 11.1 if the representation or
warranty at issue was made with reckless disregard for the truth or falsity
thereof, and so long as such Event of Default continues unremedied, then, unless
such Event of Default shall have been waived by the holders of a majority of the
Preferred Shares then outstanding, the holders of a majority of the Preferred
Shares then outstanding may require the Company immediately to redeem all
Preferred Shares then outstanding as provided in Section 4(b) of the Certificate
and thereupon the Company shall be obligated to redeem all Preferred Shares then
outstanding. Upon the occurrence of any Event of Default hereunder, unless such
Event of Default shall have been waived by the holders of a majority of the
Preferred Shares then outstanding, the Board of Directors shall be reconstituted
as provided in Section 5 of the Shareholders Agreement and subparagraph (2)(c)
of the Certificate.
Notice of Defaults. When, to its knowledge, any Event of Default has occurred or
exists, the Company agrees to give written notice within three business days of
such Event of Default to the holders of all outstanding Preferred Shares. If the
holder of any Preferred Shares shall give any notice or take any other actions
in respect of a claimed Event of Default, the Company will forthwith give
written notice thereof to all other holders of Preferred Shares at the time
outstanding, describing such notice or action and the nature of the claimed
Event of Default.
Suits for Enforcement. In case any one or more Events of Default shall have
occurred and be continuing, unless such Events of Default shall have been waived
in the manner provided in Section 11.2 hereof, the holders of a majority of the
Preferred Shares may proceed to protect and enforce their rights under Section
11 by suit in equity or action at law. It is agreed that in the event of such
action such holders of Preferred Shares shall be entitled to receive all
reasonable fees, costs and expenses incurred, including without limitation such
reasonable fees and expenses
36
of attorneys (whether or not litigation is commenced) and reasonable fees, costs
and expenses of appeals.
Remedies Cumulative. No right, power or remedy conferred upon any holder of
Preferred Shares shall be exclusive, and each such right, power or remedy shall
be cumulative and in addition to every other right, power or remedy, whether
conferred hereby or by any such security or now or hereafter available at law or
in equity or by statute or otherwise.
Remedies not Waived. No course of dealing between the Company and any Purchaser
or the holder of any Preferred Shares, and no delay in exercising any right,
power or remedy conferred hereby or by any such security or now or hereafter
existing at law or in equity or by statute or otherwise, shall operate as a
waiver of or otherwise prejudice any such right, power or remedy; provided,
however, that this Section 11.6 shall not be construed or applied so as to
negate the provisions and intent of any statute which is otherwise applicable.
Termination of Certain Covenants. The obligations of the Company under Sections
8 and 9 hereof and the obligations of the Purchasers under Section 15 hereof,
other than its obligations under Section 8.12 hereof, shall, notwithstanding any
provisions hereof apparently to the contrary, terminate and shall be of no
further force or effect from and after the date on which the Company completes a
public offering of shares of Common Stock under circumstances that would result
in the mandatory conversion of the Preferred Shares into Conversion Stock as set
forth in the Certificate.
11. Definitions. Unless the context otherwise requires, the terms
defined in this Section 13 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined below shall,
except as otherwise expressly provided, be determined by reference to the
Company's books of account and in conformity with generally accepted accounting
principles as applied to such books of account in the opinion of the independent
certified public accountants selected by the Board of Directors of the Company
as required under the provisions of Section 8.2 hereof.
"Additional Shares of Common Stock" shall mean all shares of Common Stock of the
Company issued by the Company on or after the Closing Date, except the
Conversion Stock, shares of Common Stock issued upon conversion of Series A
Preferred Stock and Series B Preferred Stock and shares of Common Stock issued
upon exercise of the Warrants (as defined in the 1998 Agreement).
"Amended and Restated Series A Certificate" shall mean the Amendment and
Restatement of Statement of Designation of Rights, Preferences and Limitations
of Series A Convertible Preferred Stock that is approved and adopted in
substantially the form set forth in Exhibit 10 hereto.
"Amended and Restated Series B Certificate" shall mean the Amendment and
Restatement of Statement of Designation of Rights, Preferences and Limitations
of Series B Convertible
37
Preferred Stock that is approved and adopted in substantially the form set forth
in Exhibit 11 hereto.
"Common Stock" shall mean the Company's authorized common shares, any additional
common shares which may be authorized in the future by the Company, and any
stock into which such common shares may hereafter be changed, and shall also
include stock of the Company of any other class which is not preferred as to
dividends or as to distributions of assets on liquidation, dissolution or
winding up of the Company over any other class of stock of the Company, and
which is not subject to redemption.
"Conversion Price" shall mean such price at which the Preferred Shares are
convertible into Common Stock pursuant to the Certificate.
"Conversion Stock" shall mean the shares of Common Stock into which the
Preferred Shares are convertible and all shares of Common Stock of the Company
issued in exchange or substitution therefor.
"Convertible Securities" shall mean evidences of indebtedness, shares of stock
or other securities which are at any time directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
"Indebtedness for Borrowed Money" shall include only indebtedness of the Company
and its Subsidiaries incurred as the result of a direct borrowing of money and
shall not include any other indebtedness including, but not limited to,
indebtedness incurred with respect to trade accounts.
"Second Amendment to 1996 Agreement and Waiver" shall mean that amendment
entered into between the Company and the Purchasers under the 1996 Agreement and
that waiver by such Purchasers of their preemptive rights in substantially the
form set forth in Exhibit 8 hereto.
"First Amendment to 1998 Agreement and Waiver" shall mean that amendment entered
into between the Company and the Purchasers under the 1998 Agreement and that
wavier by such Purchasers of their preemptive rights in substantially the form
set forth in Exhibit 9 hereto.
"Junior Stock" shall mean Series A Preferred Stock, Series B Preferred Stock,
Common Stock and all other shares of stock of any other class of the Company at
any time created and issued ranking junior to the Preferred Shares with respect
to the right to receive dividends and/or the right to the distribution of assets
upon liquidation, dissolution or winding up of the Company.
"Permitted Liens" shall mean (a) liens for taxes and assessments or governmental
charges or levies not at the time due or in respect of which the validity
thereof shall currently be contested in good faith by appropriate proceedings;
and (b) liens in respect of pledges or deposits under worker's compensation laws
or similar legislation, carriers', warehousemen's, mechanics', laborers' and
materialmen's, landlord's and statutory and similar liens, if the obligations
secured by such liens are not then delinquent or are being contested in good
faith, and liens and encumbrances incidental to the conduct of the business of
the Company or any Subsidiary which were not incurred in connection with the
borrowing of money or the obtaining of advances or
38
credits and which do not in the aggregate materially detract from the value of
its property or materially impair the use thereof in the operation of its
business.
"Preferred Shares" shall mean the shares of Series C Preferred Stock set forth
in Schedule A hereto and to all preferred shares of the Company issued in
exchange or substitution therefor.
"Preferred Stock" shall mean the shares of Series A Preferred Stock, Series B
Preferred Stock and the Preferred Shares.
"Purchased Stock" shall mean the Preferred Shares and the Conversion Stock, and
the stock or other securities of the Company issued in a stock split or
reclassification of, or a stock dividend or other distribution on or in
substitution or exchange for, or otherwise in connection with, any of the
foregoing securities, or in a merger or consolidation involving the Company or a
sale of all or substantially all of the Company's assets. Nothing in this
Section 13.13 shall be deemed to require the Company to register any Preferred
Shares, it being understood that the registration rights granted by Section 10
hereof relate only to shares of Common Stock and securities issued in
substitution or exchange therefor.
"Securities" shall mean the Preferred Shares, the Conversion Stock, the Series A
Preferred Stock, the Series A Conversion Stock, the Series B Preferred Stock,
the Series B Conversion Stock, the Warrants (as defined in the 1998 Agreement),
the Warrant Stock (as defined in the 1998 Agreement) and any stock or other
securities of the Company issued in a stock split or reclassification of, or a
stock dividend or other distribution on or in substitution or exchange for, or
otherwise in connection with, any of the foregoing securities, or in a merger or
consolidation involving the Company or a sale of all or substantially all of the
Company's assets.
"Senior Indebtedness" shall mean (a) the principal of all Indebtedness for
Borrowed Money of the Company and its Subsidiaries, (b) the present value of net
minimum lease payments of all leases under which the Company or any of its
Subsidiaries is the lessee and which are required to be capitalized under
generally accepted accounting principles, (c) the principal of all indebtedness
of the Company or any of its Subsidiaries under installment purchase agreements
and purchase money obligations other than trade accounts, and (d) the principal
of all indebtedness of the Company or any of its Subsidiaries to the owners of
any real property leased by the Company for leasehold improvements financed by
such owners to the extent disclosed on the Company's balance sheets.
11.1. "Series A Conversion Stock" shall mean the shares of
Common Stock into which the Series A Preferred Stock are convertible and all
shares of Common Stock of the Company issued in exchange or substitution
therefor.
"Series B Conversion Stock" shall mean the shares of Common Stock into which the
Series B Preferred Stock are convertible and all shares of Common Stock of the
Company issued in exchange or substitution therefor.
39
"Subsidiary" shall mean any corporation, association or other business entity
more than a majority (by number of votes) of the voting stock of which is owned
or controlled, directly or indirectly, by the Company or by one or more of its
Subsidiaries or both.
Consents; Waivers and Amendments. Except as otherwise specifically provided
herein, in each case in which approval of the Purchasers is required by the
terms of this Agreement, such requirement shall be satisfied by a vote or the
written consent of Purchasers under this Agreement owning a majority of the
shares of Purchased Stock then owned by such Purchasers. With the written
consent of Purchasers owning a majority of the shares of Purchased Stock then
owned by the Purchasers, the obligations of the Company under this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively), and with the same approval the Company may enter into a
supplementary agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of any
supplemental agreement or modifying in any manner the rights and obligations of
the holders of the Preferred Shares and of the Company. Written notice of any
such waiver, consent or agreement of amendment, modification or supplement shall
be given to the record holders of the Preferred Shares who have not previously
consented thereto in writing.
12. Voting Agreement. Each of the Purchasers individually agrees
to vote all of the shares of Purchased Stock owned by such Purchaser in favor of
the election of ▇▇▇▇▇▇ ▇▇▇▇▇▇ to the Board of Directors of the Company so long
as he is Chief Executive Officer of the Company, provided, that such vote by the
Purchasers shall not constitute Mr. Akradi as the director elected exclusively
by the holders of the Series C Preferred Stock pursuant to Section 2(b)(iv) of
the Certificate and provided further, that, he may be removed from the Board of
Directors pursuant to Section 2(c) of the Certificate. The parties intend that
▇▇▇▇▇▇ ▇▇▇▇▇▇ be a third party beneficiary of the provisions contained in this
Section 15.
Changes, Waivers, etc. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by a statement in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, except to the extent provided in Section 14
hereof.
Payment of Fees and Expenses of Purchasers. Upon the consummation of the sale of
the Preferred Shares anticipated by this Agreement or upon failure by the
Company to consummate such sales, the Company will pay the reasonable
out-of-pocket expenses incurred by the Purchasers in connection with the
transactions herein contemplated, including without limitation: (i) the
reasonable fees and out-of-pocket expenses of ▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇,
LLP for their services as special counsel to the Purchasers in connection with
the transactions herein contemplated, (ii) the reasonable fees and out-of-pocket
expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP for their services as accountants and
consultants to the Purchasers in connection with the transactions herein
contemplated, (iii) travel expenses, incurred by the Purchasers, ▇▇▇▇▇▇▇ Berlin
Shereff ▇▇▇▇▇▇▇▇, LLP and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, related to consummating the
transactions herein contemplated and (iv) any fees and out-of-pocket expenses
related to filings pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act.
The Company will also pay (a) all fees and expenses incurred by the Purchasers
with respect to any amendments or waivers requested by the Company (whether or
not the same become effective) under or in respect of this Agreement or
40
the agreements contemplated hereby, and (b) all fees and expenses incurred by
the Purchasers with respect to the enforcement of the rights granted under this
Agreement or the agreements contemplated hereby.
Understanding Among Purchasers. The determination by each of the Purchasers to
purchase Preferred Shares pursuant to this Agreement has been made by such
Purchaser independently of the other Purchasers, and independently of any
statements or opinions as to the advisability of such purchase or as to the
properties, business, prospects or condition (financial or otherwise) of the
Company which may have been made or given by the other Purchasers or by any
agent or employee of the other Purchasers. In addition, it is acknowledged by
each of the Purchasers that the other Purchasers have not acted as such
Purchaser's agent in connection with making its investment hereunder and that
the other Purchasers will not be acting as such Purchaser's agent in connection
with monitoring such Purchaser's investment hereunder.
Notices. All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be (i) hand delivered, (ii)
mailed first-class postage prepaid, registered or certified mail, (iii)
delivered by overnight delivery service of recognized reputation, or (iv)
delivered by telefacsimile,
(a) if to any holder of any Purchased Stock, addressed to such
holder at its address as shown on the books of the Company, or
at such other address as such holder may specify by written
notice to the Company, or
(b) if to the Company, addressed to the Company, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, attention Chief
Financial Officer, (612-947-0077) or to such other address as
the Company may specify by written notice to the Purchasers,
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given (w) upon delivery,
if delivered personally, (x) five days after deposit, if sent by mail, (y) the
day after delivery to an overnight delivery service, or (z) upon receipt of
electronic confirmation of receipt, if delivered by telefacsimile.
Survival of Representations and Warranties, etc. All representations and
warranties contained herein shall survive the execution and delivery of this
Agreement, any investigation at any time made by the Purchasers or on their
behalf, and the sale and purchase of the Preferred Shares and payment therefor.
All statements contained in any certificate or schedule delivered by or on
behalf of the Company pursuant hereto (other than legal opinions) shall
constitute representations and warranties by the Company hereunder.
Parties in Interest. All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not, and,
in particular, shall be binding upon, inure to the benefit of and be enforceable
by and against the holder or holders at the time of any of the Purchased Stock,
provided that if such holder or holders is not a Purchaser, such holder or
holders acquired such Purchased Stock in compliance with Section 4 of this
Agreement.
41
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.
Choice of Law. It is the intention of the parties that the laws of New York,
other than the choice of law provisions thereof, shall govern the validity of
this Agreement, the construction of its terms and the interpretation of the
rights and duties of the parties.
Waiver of Jury Trial. Each party hereto acknowledges and agrees that any
controversy which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each party hereto hereby
irrevocably and unconditionally waives any right such party may have to a trial
by jury in respect or any litigation directly or indirectly arising out of or
relating to this Agreement, or the breach, termination or validity of this
Agreement, or the transactions contemplated by this Agreement. Each party hereto
certifies and acknowledges that (i) no representative, agent or attorney of any
other party hereto has represented, expressly or otherwise, that such other
party hereto would not, in the event of litigation, seek to enforce the
foregoing waiver, (ii) each such party hereto understands and has considered the
implications of this waiver, (iii) each such party hereto makes this waiver
voluntarily, and (iv) each such party hereto has been induced to enter into this
Agreement by, among other things, the mutual waivers and certifications in this
Section 23.
Counterparts. This Agreement may be executed concurrently in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding contract among you and
the undersigned.
42
Very truly yours,
LIFE TIME FITNESS, INC.
By____________________________
Its__________________________
[SERIES C STOCK PURCHASE AGREEMENT]
43
The foregoing Agreement is hereby accepted as of the date first above
written.
APAX EXCELSIOR VI, L.P.
By: Apax Excelsior VI Partners, L.P.,
its General Partner
By: Patricof & Co. Managers, Inc.,
its General Partner
By: _____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
[SERIES C STOCK PURCHASE AGREEMENT]
44
PATRICOF PRIVATE INVESTMENT CLUB III, L.P.
By: Apax Excelsior VI Partners, L.P.,
its General Partner
By: Patricof & Co. Managers, Inc.,
its General Partner
By: _____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
[SERIES C STOCK PURCHASE AGREEMENT]
45
NORWEST EQUITY PARTNERS VII, LP
A MINNESOTA LIMITED PARTNERSHIP
By: ITASCA LBO VII, LLP
Its: General Partner
By____________________________
Its__________________________
[SERIES C STOCK PURCHASE AGREEMENT]
46
PURCHASER CERTIFICATION
The undersigned, in connection with the Stock Purchase Agreement dated
August 16, 2000 among LIFE TIME FITNESS, Inc. (the "Company") and certain
Purchasers listed in Schedule A thereto, hereby makes each of the
representations contained in Section 6 of such Stock Purchase Agreement. The
undersigned further represents either (a) that he/she/it qualifies as an
"accredited investor", as that term is used in Regulation D promulgated under
the Securities Act of 1933 (the "Act"), because (check one):
(1)_____ it is a bank as defined in Section 3(a)(2) of the Act, or a savings and
loan association or other institution as defined in Section 3(a)(5) of
the Act, whether acting in its individual or fiduciary capacity; a
broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in Section 2(13)
of the Act; an investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that act; a Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; a plan established
and maintained by a state, its political subdivisions, or any
instrumentality of a state or its subdivisions, for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such act,
which is either a bank, savings and loan association, insurance company
or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors;
(2)_____ it is a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3)_____ it is an organization described in Section 501(c)(3) of the Internal
Revenue Code, a corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
(4)_____ he or she is a director or executive officer of the Company;
(5)_____ he or she is an individual who has an individual net worth, or joint
net worth with his or her spouse, in excess of $1,000,000;
(6)_____ he or she is an individual who had an income in excess of $200,000 in
each of the two most recent years or joint income with his or her
spouse in excess of
47
$300,000 in each of those years and who reasonably expects an income in
excess of the same level in the current year;
(7)_____ it is a trust with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) under the Act; or
(8)_____ it is an entity, all of whose equity owners are accredited investors.
APAX EXCELSIOR VI, L.P.
By: Apax Excelsior VI Partners, L.P.,
its General Partner
By: Patricof & Co. Managers, Inc.,
its General Partner
By: _____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
48
PURCHASER CERTIFICATION
The undersigned, in connection with the Stock Purchase Agreement dated
August 16, 2000 among LIFE TIME FITNESS, Inc. (the "Company") and certain
Purchasers listed in Schedule A thereto, hereby makes each of the
representations contained in Section 6 of such Stock Purchase Agreement. The
undersigned further represents either (a) that he/she/it qualifies as an
"accredited investor", as that term is used in Regulation D promulgated under
the Securities Act of 1933 (the "Act"), because (check one):
(1)_____ it is a bank as defined in Section 3(a)(2) of the Act, or a savings and
loan association or other institution as defined in Section 3(a)(5) of
the Act, whether acting in its individual or fiduciary capacity; a
broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in Section 2(13)
of the Act; an investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that act; a Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; a plan established
and maintained by a state, its political subdivisions, or any
instrumentality of a state or its subdivisions, for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such act,
which is either a bank, savings and loan association, insurance company
or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors;
(2)_____ it is a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3)_____ it is an organization described in Section 501(c)(3) of the Internal
Revenue Code, a corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
(4)_____ he or she is a director or executive officer of the Company;
(5)_____ he or she is an individual who has an individual net worth, or joint
net worth with his or her spouse, in excess of $1,000,000;
(6)_____ he or she is an individual who had an income in excess of $200,000 in
each of the two most recent years or joint income with his or her
spouse in excess of
49
$300,000 in each of those years and who reasonably expects an income in
excess of the same level in the current year;
(7)_____ it is a trust with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) under the Act; or
(8)_____ it is an entity, all of whose equity owners are accredited investors.
PATRICOF PRIVATE INVESTMENT CLUB III, L.P.
By: Apax Excelsior VI Partners, L.P.,
its General Partner
By: Patricof & Co. Managers, Inc.,
its General Partner
By: _____________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
50
PURCHASER CERTIFICATION
The undersigned, in connection with the Stock Purchase Agreement dated
August 16, 2000 among LIFE TIME FITNESS, Inc. (the "Company") and certain
Purchasers listed in Schedule A thereto, hereby makes each of the
representations contained in Section 6 of such Stock Purchase Agreement. The
undersigned further represents either (a) that he/she/it qualifies as an
"accredited investor", as that term is used in Regulation D promulgated under
the Securities Act of 1933 (the "Act"), because (check one):
(1)_____ it is a bank as defined in Section 3(a)(2) of the Act, or a savings and
loan association or other institution as defined in Section 3(a)(5) of
the Act, whether acting in its individual or fiduciary capacity; a
broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in Section 2(13)
of the Act; an investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that act; a Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; a plan established
and maintained by a state, its political subdivisions, or any
instrumentality of a state or its subdivisions, for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such act,
which is either a bank, savings and loan association, insurance company
or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors;
(2)_____ it is a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3)_____ it is an organization described in Section 501(c)(3) of the Internal
Revenue Code, a corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
(4)_____ he or she is a director or executive officer of the Company;
(5)_____ he or she is an individual who has an individual net worth, or joint
net worth with his or her spouse, in excess of $1,000,000;
51
(6)_____ he or she is an individual who had an income in excess of $200,000 in
each of the two most recent years or joint income with his or her
spouse in excess of $300,000 in each of those years and who reasonably
expects an income in excess of the same level in the current year;
(7)_____ it is a trust with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) under the Act; or
(8)_____ it is an entity, all of whose equity owners are accredited investors.
NORWEST EQUITY PARTNERS VII, LP
A MINNESOTA LIMITED PARTNERSHIP
By: ITASCA LBO VII, LLP
Its: General Partner
By____________________________
Its__________________________
52
SCHEDULE A
Number of Preferred Aggregate Purchase
Names and Addresses of Purchasers Shares to be Purchased Price
--------------------------------------------------------------------------------------------
APAX Excelsior VI, L.P. 3,399,550 $33,995,500
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
--------------------------------------------------------------------------------------------
Patricof Private Investment Club III, L.P. 100,450 $1,004,500
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
--------------------------------------------------------------------------------------------
Norwest Equity Partners VII, LP 1,000,000 $10,000,000
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
--------------------------------------------------------------------------------------------
4,500,000 $45,000,000
TOTAL
53
SCHEDULE B
Norwest Equity Partners V, LP
Norwest Equity Partners VI, LP
Norwest Equity Partners VII, LP
APAX Excelsior VI, L.P.
Patricof Private Investment Club III, L.P.
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, F.T. Weyerhauser and ▇.▇. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇, Trustees under
Trust Agreement dated June 13, 1958 FBO W. ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇▇ and ▇.▇. ▇▇▇▇▇▇▇▇, Trustees U/A dated 10/30/95 with W. ▇▇▇▇
▇▇▇▇▇▇▇▇
WWF & Co.
54
SCHEDULE C
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇
55