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▇.▇. ▇▇▇▇▇▇▇▇, INC.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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SECURITIES EXCHANGE AGREEMENT
Dated as of March 15, 2000
To ▇▇▇▇ ▇▇▇▇▇▇▇ Mutual Life Insurance Company
Ladies and Gentlemen:
The undersigned, ▇.▇. ▇▇▇▇▇▇▇▇, Inc., a California
corporation (the Company), hereby agrees with you as follows:
SECTION 1. AUTHORIZATION AND EXCHANGE OF
SECURITIES.
1.1 Authorization of Securities.
(a) Existing Securities. The Company has sold
to you 500,000 shares of its 12% Senior Redeemable Preferred
Stock (the Senior Preferred Stock) and warrants to purchase up to
1,346,788 Shares of its Common Stock (the Warrants) pursuant to
that certain Securities Purchase Agreement dated as of March 27,
1996, by and between you and the Company.
(b) Prior Exchange of Securities. The Company
has sold to you 250,000 shares of its 12% Series A Senior
Redeemable Exchangeable Preferred Stock (the Series A Preferred
Stock) and $2,500,000 in aggregate principal amount of its 14%
Unsecured Subordinated Notes for an aggregate purchase price of
500,000 shares of the Senior Preferred Stock pursuant to that certain
Securities Exchange Agreement dated as of March 15, 1999, by and
between you and the Company.
(c) Subordinated Notes. The Company has duly
authorized the issuance and sale of up to $2,500,000 in aggregate
principal amount of its 14% Unsecured Subordinated Notes
substantially in the form annexed hereto as Exhibit A (the Notes).
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(d) No Effect on Warrants. The Warrants remain
in full force and effect and shall not be affected by the transactions
contemplated by this Securities Exchange Agreement.
1.2 Exchange of Securities.
(a) The Company agrees to sell to you, and upon
and subject to the terms and conditions hereof and in reliance upon
the representations and warranties of the Company contained
herein, you agree to purchase from the Company (i) $2,500,000 in
principal amount of Notes which shall be issued to you in exchange
for your surrender to the Company of 250,000 shares of Series A
Preferred Stock (the Purchase Price). The 250,000 shares of
Series A Preferred Stock shall be cancelled upon their delivery to
you and may not be reissued. The Notes are to be sold and
delivered together at a closing to be held on March 15, 2000 at
10:00 A.M., California time, or such other date and time as shall be
agreed upon by you and the Company (such date and time being
hereinafter called the Closing Date), at the offices of ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇.
(b) On the Closing Date, the Company will
deliver to you one or more duly executed Notes dated the Closing
Date, registered in your name or the name of your nominee, in such
principal amounts as are specified on Schedule I, registered in your
name or the name of your nominee as specified on Schedule I. The
delivery of such Notes to you shall be made against your delivery to
the Company of the shares of Series A Preferred Stock representing
the Purchase Price.
(c) If at the closing the Company shall fail to
tender any of the Notes to you as provided above in this 1.2 or any
of the conditions specified in Section 4 hereof shall not have been
fulfilled to your satisfaction, at your election you shall be relieved
of all obligations under this Securities Exchange Agreement,
without thereby waiving any other rights you may have by reason of
such failure or such nonfulfillment.
1.3 Definitions, etc. Certain terms used in this Securities
Exchange Agreement are defined in 11.1 hereof; references to a
Schedule or Exhibit are, unless otherwise specified, to the
Schedules and Exhibits attached to this Securities Exchange
Agreement; and hereof, herein, hereunder and other words of
similar import shall be construed to refer to this Securities
Exchange Agreement as a whole and not to any particular Section
or other subdivision. All of the Schedules and Exhibits attached to
this Securities Exchange Agreement are hereby incorporated by
reference herein in their entirety.
SECTION 2. GENERAL REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to
you, as of the Closing Date, as follows:
2.1 Capital Stock; Subsidiaries.
(a) After giving effect to the exchange
contemplated hereby on the Closing Date, the authorized and
outstanding capital stock of the Company consists of: 12,500,000
shares of Common Stock, which is vested with 100% of the present
right to elect directors of the Company, of which 6,695,331 shares
are issued and outstanding; and 5,000,000 shares of
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Preferred Stock, of which no shares are issued and outstanding. All such
outstanding shares have been duly authorized, validly issued and
are fully paid, nonassessable and free of preemptive rights. No
shares of stock are held in the treasury of the Company. The
Company has no Subsidiaries.
(
b) All issued and outstanding securities (as
defined in the Securities Act) of the Company have been offered,
issued, sold and delivered in compliance with, or pursuant to
exemptions from, all applicable federal and state laws, and the rules
and regulations of federal and state regulatory bodies governing the
offering, issuance, sale and delivery of securities.
(c) Except as specified on Item 2.1(c) of
Schedule II, there are no subscriptions, options, warrants or calls
relating to the issuance by the Company of any shares of its capital
stock, including any right of conversion or exchange under any
outstanding security or other instrument. There are no voting trusts
or other agreements or understandings with respect to the voting of
the capital stock of the Company to which the Company is a party.
To the knowledge of the Company, there are no voting trusts or
other agreements or understandings with respect to the voting of the
capital stock of the Company. The Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any security
convertible into or exchangeable for any of its capital stock. The
Company has not granted registration rights to any holders of its
securities except as specified on Item 2.1(c) of Schedule II.
2.2 Organization and Authority. The Company:
(a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation;
(b) has all requisite power and authority
(corporate and other) (i) to own and operate its properties, (ii) to
conduct its business as currently conducted and as currently
proposed to be conducted, (iii) to offer, issue, sell and deliver the
Notes, (iv) to enter into this Securities Exchange Agreement and
(v) to perform its respective obligations under such agreement and
the Articles of Incorporation; and
(c) has made all filings and holds all franchises,
licenses, permits and registrations which are required under the
laws of each jurisdiction in which the properties owned (or held
under lease) by it or the nature of its activities makes such filings,
franchises, licenses, permits or registrations necessary, except for
filings, franchises, licenses, permits or registrations which
individually or in the aggregate are not material to the Company.
2.3 Corporate Proceedings. The Company has taken all
corporate action necessary to be taken by it to authorize the
execution and delivery of this Securities Exchange Agreement, the
offer, issuance, sale and delivery of the Notes and the performance
of all obligations to be performed by it hereunder and thereunder.
2.4 Validity of Agreement and Notes. This Securities
Exchange Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with
its terms, except as limited by applicable bankruptcy, insolvency,
fraudulent conveyance and similar laws
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regarding debtor/creditor
relationships and the effect of general principles of equity. The
Notes, when executed and delivered by the Company will constitute
the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, fraudulent conveyance and
similar laws regarding debtor/creditor relationships and the effect of
general principles of equity.
2.5 Consent, etc. No prior consent, approval or
authorization of, registration, qualification, designation, declaration
or filing with, or notice to any federal, state or local governmental
or public authority or agency including, without limitation, any
filing under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, is or was required for (a) the valid execution,
delivery or performance of this Securities Exchange Agreement by
the Company or (b) the valid offer, execution, issuance, sale or
delivery of the Notes or the performance of the Notes by the
Company. The Company has obtained all consents, approvals or
authorizations of, made all declarations or filings with, and given all
notices to, all applicable federal, state or local governmental or
public authorities or agencies which are necessary for the continued
conduct by the Company of its businesses as now conducted or as
proposed to be conducted and which the failure to so obtain, make
or give could have a Material Adverse Effect.
2.6 Business.
(a) The Company does not presently contemplate
conducting a business other than the business presently conducted
by it.
(b) The address of the principal place of business
and chief executive office of the Company is the same as the
address for notices to the Company provided in 12.1 hereof.
(c) The primary business of the Company is the
production and distribution of premium wine.
2.7 Financial Statements.
The Company has heretofore furnished to you
complete and accurate copies of: (i) audited consolidated financial
statements of the Company or its predecessor for the Fiscal Years
ended December 31, 1996, December 31, 1997 and December 31,
1998, including audited consolidated balance sheets of the
Company as of the end of each such Fiscal Year and statements of
income, changes in stockholders equity and cash flows of the
Company for each such Fiscal Year, together with the opinion
thereon of KPMG Peat Marwick LLP, independent public
accountants, for the years ended December 31, 1996 and 1997 and
Ernst & Young LLP, independent public accountants, for the year
ended December 31, 1998 (the Audited Financial Statements). In
addition, the Company has furnished to you unaudited consolidated
financial statements of the Company for the nine month period
ended September 30, 1999 (the "Interim Financial Statements," and
together with the Audited Financial Statements, the Financial
Statements). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied
on a consistent basis during the respective periods, except as therein
noted, and except with the omission of certain footnote disclosures
in the Interim Financial Statements. The Financial Statements are
complete and present fairly the financial position of the Company
as of such dates and the results of their operations and changes in
their
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financial position or cash flows, as the case may be, for such
periods in all material respects. The Company does not have any
material obligation or liability, individually or in the aggregate, of
the nature required to be disclosed on a balance sheet prepared in
accordance with generally accepted accounting principles that is not
disclosed by the Financial Statements referred to above.
2.8 No Material Adverse Change. Since September 30,
1999, there has been no material adverse change in the business,
earnings, properties or condition (financial or other) of the
Company.
2.9 Licenses, Registrations, etc. The Company owns or
possesses, and holds free from burdensome restrictions or known
conflicts with the rights of others, all licenses, registrations, permits,
copyrights, trademarks, service marks, trade names and patents, and
all rights with respect to the foregoing, necessary for the conduct of
its business as now conducted and as proposed to be conducted, and
is in full compliance with the terms and conditions, if any, of all
such licenses, registrations, franchises, permits, copyrights,
trademarks, service marks, trade names, patents and all rights with
respect to the foregoing and the terms and conditions of any
agreements relating thereto, except for such restrictions, conflicts or
noncompliance which, either individually or in the aggregate, do
not have, and in the future will not have, a Material Adverse Effect.
2.10 Properties.
(a) The Company has good and valid fee title to
the Real Property described under the heading Fee Real Property
in Item 2.10(a) of Schedule II and leases the other Real Property
described under the heading Leased Real Property in such
schedule.
(b) Set forth on Item 2.10(b) of Schedule II is a
list of all grower agreements to which the Company is a party,
copies of which have been provided to you.
2.11 Compliance with Other Instruments, etc. The
Company is not: (a) in violation of any term of its charter or by-
laws; or (b) in default in the performance, observance or fulfillment
of any of the obligations, covenants or conditions contained in, and
is not otherwise in default under, (i) any evidence of Indebtedness
for Money Borrowed, or any other evidence of Indebtedness or any
instrument or agreement under or pursuant to which any evidence
of Indebtedness for Money Borrowed or other evidence of
Indebtedness has been issued; or (ii) any other instrument or
agreement to which it is a party or by which it is bound or any of its
properties is affected any which default would have a Material
Adverse Effect.
2.12 No Conflict, etc. Neither the execution, delivery or
performance of this Securities Exchange Agreement by the
Company nor the offer, issuance, sale or delivery of the Notes by
the Company or the performance of the Notes by the Company does
or will: (a) conflict with or violate the charter or by-laws of the
Company; (b) conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in
the creation of any Lien on any of the properties or assets of the
Company pursuant to the terms of, any evidence of Indebtedness, or
any instrument or agreement under or pursuant to which any
evidence of Indebtedness has been issued, or any other instrument
or agreement to which the Company is a
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party or by which it is
bound in each case resulting in a Material Adverse Effect; or
(c) require the consent of, or other action by, any stockholder,
trustee or any creditor of, any lessor to or any investor in, the
Company or any other non-governmental Person.
2.13 No Materially Adverse Contracts, etc.
(a) The Company is not a party to or bound by
(nor are any of its properties affected by) any contract or agreement,
or subject to any order, writ, injunction or decree or other action of
any court or any governmental department, commission, bureau,
board or other administrative agency or official, or any charter or
other corporate or contractual restriction, which has a Material
Adverse Effect.
(b) The Company is not a party to any contract
or agreement with any Affiliate the terms of which are not
commercially reasonable or are less favorable to it than it would
obtain in a comparable arms length transaction with a person other
than an Affiliate.
2.14 Compliance with Law, etc. The Company is in full
compliance with all laws and ordinances and all governmental rules
and regulations to which it is subject, the violation of which would
have a Material Adverse Effect. Neither the execution, delivery or
performance of this Securities Exchange Agreement by the
Company, the offer, issuance, sale or delivery of the Notes by the
Company nor the performance of the Notes, does or will cause the
Company to be in violation of any statute, law or ordinance or any
judgment, decree, writ, injunction, order, award or other action of
any court or governmental authority or arbitrator or any order, rule
or regulation, of any federal, state, county, municipal or other
governmental or public authority or agency. The Company uses
and operates the Real Property for lawful purposes in full
compliance in all material respects with all laws and ordinances and
all governmental rules and regulations to which it is subject.
2.15 Compliance with ERISA; Multiemployer Plans.
(a) Neither (i) the execution and delivery of this
Securities Exchange Agreement by the Company, (ii) the offer,
issuance, sale and delivery of the Notes by the Company, (iii) the
acquisition of the Notes by you, (iv) the application by the
Company of the proceeds of the sale of the Notes nor (v) the
consummation of any of the other transactions contemplated by this
Securities Exchange Agreement will result in a prohibited
transaction as described in Section 406(a) of ERISA or a tax under
Section 4975 of the Code. The Company has delivered to you a
complete and correct list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA) with respect to which the
Company or any ERISA Affiliate of the Company is a party in
interest (within the meaning of Section 3(14) of ERISA) or with
respect to which its securities are employer securities (within the
meaning of Section 407(d)(1) of ERISA).
(b) Each Plan is in compliance in all respects
with applicable provisions of ERISA, the Code and applicable
foreign law. The Company and each ERISA Affiliate has made all
contributions to the Plans required to be made by it.
(c) Except for liabilities to make contributions
and to pay PBGC premiums and administrative costs, neither the
Company nor any ERISA Affiliate of the Company has
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incurred any material liability to or on account of any Plan or Pension Plan
under applicable provisions of ERISA, the Code or applicable
foreign law, and no condition exists which presents a material risk
to the Company or any ERISA Affiliate of the Company of
incurring any such liability. No Pension Plan has an accumulated
funding deficiency (within the meaning of Section 412 of the
Code), whether or not waived. None of the Company, any ERISA
Affiliate of the Company, the PBGC or any other Person has
instituted any proceedings or taken any other action to terminate
any Pension Plan.
(d) The actuarial present value of all accrued
benefit liabilities under each Pension Plan based on the assumptions
used in the funding of such Pension Plan, which assumptions are
reasonable, and determined as of the last day of the most recent plan
year of such Pension Plan for which an annual report has been filed
with the Internal Revenue Service did not exceed the current fair
market value of the assets of such Pension Plan as of such last day.
(e) None of the Plans is a Multiemployer
Plan, and neither the Company nor any ERISA Affiliate of the
Company has contributed or been obligated to contribute to any
Multiemployer Plan at any time within the preceding six years and
(ii) neither the Company nor any ERISA Affiliate of the Company
maintains or has any obligation to maintain any plan, program or
other arrangement for the provision of post-employment group
health or other welfare benefits for its retired or former employees
except to the extent required under Section 601 et seq. of ERISA or
Section 4980B of the Code.
2.16 Pending Litigation, etc. Except as specified in
Item 2.16 of Schedule II, there is no action at law, suit in equity or
other proceeding or, to the Companys knowledge, investigation
(whether or not purportedly on behalf of the Company), in any
court or by or before any other governmental or public authority or
agency, or any arbitrator or arbitration panel pending or, to the best
knowledge of the Company, threatened against or affecting the
Company, or any of their properties that, either individually or in
the aggregate, (a) could reasonably be expected to have a Material
Adverse Effect or (b) could reasonably be expected to question the
validity or enforceability of this Securities Exchange Agreement or
the Notes. The Company is not in default with respect to any order,
writ, injunction, judgment or decree of any court or other
governmental or public authority or agency or arbitrator or
arbitration panel.
2.17 Taxes. All federal, state and other tax returns of the
Company required by law to be filed have been duly filed or a valid
extension for such filing has been obtained, and all federal, state
and other taxes, assessments, fees and other governmental charges
upon the Company or upon any of its properties, income or assets
that are due and payable have been paid, except where they are
being protested or contested in good faith by appropriate
proceedings. No extensions of the time for the assessment of
deficiencies have been granted by the Company. The Company
does not know of any proposed, asserted or assessed tax deficiency
against the Company. The Company is not a party to or bound by
or obligated under any tax sharing or similar agreement. There are
no Liens on any properties or assets of the Company imposed or
arising as a result of the delinquent payment or the non-payment of
any tax, assessment, fee or other governmental charge other than
Permitted Liens. Federal and state income tax returns for the
Company have never been audited by the Internal Revenue Service
or the appropriate state authorities. The Company (a) has not
assumed and is not liable for any
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federal, state or other income tax
liability of any other Person, including any predecessor corporation,
as a result of any purchase of assets or other business acquisition
transaction and (b) has not indemnified any other Person or
otherwise agreed to pay on behalf of any other Person tax liability
growing out of or which may be asserted on the basis of any tax
treatment adopted with respect to all or any aspect of such a
business acquisition transaction. The charges, accruals and
reserves, if any, on the books of the Company in respect of federal,
state and local corporate franchise and income taxes for all fiscal
periods to date are adequate in accordance with generally accepted
accounting principles, and the Company does not know of any
additional unpaid assessments for such periods or of any basis
therefor. There are no applicable taxes, fees or other governmental
charges payable by the Company in connection with the execution
and delivery of this Securities Exchange Agreement or the offer,
issuance, sale and delivery of the Notes.
2.18 Holding Company Act; Investment Company Act.
(a) The Company is not, and the ownership of its
properties by the Company does not cause it to be, (i) a public
utility company or a holding company, or a subsidiary
company of a holding company, or an affiliate of a holding
company or of a subsidiary company of a holding company, as
such terms are defined in the Public Utility Holding Company Act
of 1935, as amended or (ii) a public utility within the meaning of
the Federal Power Act, as amended.
(b) The Company is not an investment
company or an affiliated person of an investment company or
a company controlled by an investment company, as such terms
are defined in the Investment Company Act of 1940, as amended,
that is subject to registration and regulation under such act. The
Company is not an investment adviser or an affiliated person of
an investment adviser as such terms are defined in the Investment
Advisers Act of 1940, as amended.
2.19 No Margin Regulation Violation. None of the
transactions contemplated by this Securities Exchange Agreement
(including, without limitation, the direct or indirect use of the
proceeds from the sale of the Notes) will violate or result in a
violation of Section 7 of the Exchange Act or any regulations issued
pursuant thereto, including, without limitation, Regulation T (12
C.F.R., Part 220), as amended, Regulation U (12 C.F.R., Part 221),
as amended and Regulation X (12 C.F.R., Part 224), as amended, of
the Board of Governors of the Federal Reserve System, or will
require you to obtain a statement in conformity with the
requirements of Federal Reserve Form FR G-3 or to register on
Federal Reserve Form FR G-1 under such regulations. The
proceeds from the sale of the Notes by the Company will not be
used to purchase or carry any margin securities within the
meaning of such regulations.
2.20 Compliance with Environmental Laws. The
Company is, and will continue to be in full compliance in all
material respects with all applicable Environmental Laws,
regulations and ordinances governing its business, products,
properties or assets with respect to all Hazardous Materials.
2.21 Labor Relations. The Company is not engaged in
any unfair labor practice which could have a Material Adverse
Effect. There is (a) no unfair labor practice complaint pending or,
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to the best knowledge of the Company, threatened against the
Company before the National Labor Relations Board or any court
or labor board, and no grievance or arbitration proceedings arising
out of or under collective bargaining agreements is so pending or, to
the best knowledge of the Company, threatened; (b) no strike, labor
dispute, slowdown or stoppage pending or, to the best knowledge of
the Company, threatened against the Company; and (c) to the best
of the Company's knowledge, no union representation question
existing with respect to the employees of the Company and no
union organizing activities are taking place with respect to any
thereof. The Company is not a party to any collective bargaining
agreement.
2.22 Insurance. The Company has obtained insurance,
with respect to its properties and businesses, with financially sound
insurers of nationally recognized stature and responsibility, of such
a nature, with such terms and in such amounts as a reasonably
prudent person would maintain with respect to similar properties
and a similar business and which otherwise satisfies the
requirements of 8.14 hereof.
2.23 Offerees. Neither the Company nor any other Person
authorized by the Company to act as an agent, broker, dealer or
otherwise in connection with the offering or sale of the Notes has,
either directly or through any agent, offered any of the Notes or any
similar securities for sale to, or solicited any offers to buy any
thereof from, or otherwise approached or negotiated in respect
thereof with, any Person or Persons other than you and not more
than 16 other Institutional Investors. The Company agrees that
neither it, nor any agent on behalf of it, will sell or offer any of the
Notes or any similar securities to, or solicit offers to buy any thereof
from, or otherwise approach or negotiate in respect thereof with,
any other Person or Persons whomsoever, or take any other action,
so as to bring the issuance and sale of any of the Notes within the
provisions of Section 5 of the Securities Act or the provisions of
any state securities law requiring registration of securities,
notification of the issuance and sale thereof or confirmation of the
availability of any exemption from registration thereof.
2.24 Other Names. Except as specified on Item 2.24 of
Schedule II, the businesses conducted by the Company prior to the
date hereof have not been conducted under any corporate, trade or
fictitious name.
2.25 Investments. The Company has no Investment in
any Person and is not engaged in any joint venture or partnership
with any other Person.
2.26 Broker's or Finder's Commissions. No broker's or
finder's placement fee or commission will be payable by the
Company with respect to the issuance, sale and delivery of the
Notes or any of the transactions contemplated hereby.
2.27 Full Disclosure. Neither this Securities Exchange
Agreement or any report or financial statement referred to in 10.1
hereof, nor any certificate, report or other written statement
delivered to you by or on behalf of the Company in connection with
the negotiation of this Securities Exchange Agreement or the
transactions contemplated hereby or the sale of the Notes, contains
any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein
not misleading in light of the circumstances under which such
statements were made. There is no fact known to the Company
(other than general economic, environmental, horticultural and
weather conditions known to the public
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generally) that has not been
disclosed to you in writing that (a) could reasonably be expected to
have a Material Adverse Effect or (b) adversely affects in any
material respect or could reasonably be expected to adversely affect
in any material respect the ability of the Company to perform its
obligations under this Securities Exchange Agreement.
SECTION 3. REPRESENTATIONS OF THE PURCHASER.
3.1 Investment Intent, etc. This Securities Exchange
Agreement is made with you in reliance upon the following
representations to the Company, which by your acceptance hereof
you confirm:
(a) You are purchasing the Notes for your own
account for investment and not with a view to or for sale in
connection with any distribution thereof; provided that the
disposition of your property shall be at all times within your own
control, and that your right to sell or otherwise dispose of all or any
part of the Notes purchased or acquired by you pursuant to an
effective registration statement under the Securities Act or under an
exemption from such registration available under the Securities Act
(including but not limited to the exemption provided by Rule 144A
of the SEC thereunder) and in accordance with any applicable state
securities law shall not be prejudiced.
(b) You are an accredited investor as defined
in Rule 501 under the Securities Act.
SECTION 4. CONDITIONS OF OBLIGATION TO PURCHASE
NOTES.
Your obligation to purchase and pay for the Notes to
be purchased by you hereunder on the Closing Date shall be subject
to the satisfaction, prior to or concurrently with such purchase and
payment, of the following conditions:
4.1 Opinion of Special Counsel. You shall have
received from ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, your special
counsel, such assurances as you may request with respect to the
Notes to be purchased by you hereunder and the transactions
contemplated hereby.
4.2 Opinions of Counsel for the Company. You shall
have received from ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇▇, LLP, counsel for the
Company, an opinion, dated the Closing Date, in form and
substance satisfactory to you and your special counsel, to the effect
set forth in Schedule III hereto. The Company hereby instructs
such counsel to prepare and deliver such opinion to you pursuant to
this 4.2.
4.3 Performance of Obligations. The Company shall
have performed all of its obligations to be performed hereunder
prior to or on the Closing Date, and you shall have received an
Officer's Certificate of the Company, dated the Closing Date, to
such effect.
4.4 Representations True. The representations and
warranties of the Company contained herein shall be true on and as
of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the
Closing Date, except for changes contemplated by the terms hereof
occurring in the ordinary course of business between the date
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hereof and the Closing Date. You shall have received an Officer's
Certificate of the Company, dated the Closing Date, to the effect of
the foregoing.
4.5 Certificate of Company. You shall have received a
certificate from the Company, dated the Closing Date and in form
and substance satisfactory to you, certifying (i) that attached thereto
are true, correct and complete copies of (A) its Articles of
Incorporation, by-laws and any amendments thereto and (B) the
resolutions of its Board authorizing the issuance and sale of the
Notes, and (ii) the incumbency, specimen signatures and corporate
authority of those officers executing such agreements and
instruments and other instruments contemplated therein.
4.6 Private Placement Number. The CUSIP Service
Bureau of Standard & Poor's Ratings Group shall have assigned
private placement numbers to the Notes and evidence thereof shall
have been delivered to you and your special counsel.
4.7 Fees and Disbursements of Your Special Counsel.
Your special counsel shall have received payment of any invoice
rendered for its reasonable fees and disbursements posted through
the date of such invoice (with the understanding that a supplemental
statement for fees and disbursements subsequently posted is to be
rendered at a later date) in connection with its representation of you.
4.8 Legality. The Notes shall qualify as a legal
investment for you under all applicable laws (without resort to any
so-called basket clause of any such law) and your purchase
thereof shall not cause you to be subject to any onerous or
burdensome legal requirement or penalty.
4.9 Consents and Approvals. The Company shall have
delivered to the Purchaser an Officer's Certificate, dated the
Closing Date, certifying that any necessary consents, waivers,
approvals, authorizations, registrations, filings and notifications of
the character referred to in 2.5 hereof have been obtained or made
and are in full force and effect.
4.10 No Material Adverse Change. There shall have been
no material adverse change in the financial condition, business,
earnings, properties, or operations of the Company since
September 30, 1999, and you shall have received an Officer's
Certificate of the Company, dated the Closing Date and in form and
substance satisfactory to you, to such effect.
4.11 Notes. The Company shall have executed and
delivered Notes registered in your name or such nominee as shall be
indicated on Schedule I hereto.
4.12 Insurance. The Company shall have furnished to
you (a) a certificate of an insurance broker, effective through the
Closing Date, which certificate shall be satisfactory in substance to
you and your special counsel, and shall certify that the Company is
in compliance with the requirements of 8.14 hereto, and (b) copies
of all applicable policies, endorsements and riders.
4.13 Proceedings, Instruments, etc. All proceedings and
actions taken on or prior to the Closing Date in connection with the
transactions contemplated by this Securities Exchange Agreement
and all instruments incident thereto shall be in form and substance
satisfactory to you and your special counsel, and you and your
special counsel shall have received copies of all
12
documents that you
or they may request in connection with such proceedings, actions
and transactions (including, without limitation, copies of court
documents, certifications and evidence of the correctness of the
representations and warranties contained herein and certifications
and evidence of the compliance with the terms and the fulfillment
of the conditions of this Securities Exchange Agreement, in form
and substance satisfactory to you and your special counsel).
SECTION 5. NOTE PAYMENTS.
5.1 Required Amortizing Payments. The Company shall
on March 15 and September 15 of each year, commencing on
September 15, 2000 (each such date, a Note Payment Date) make
the payments of principal and interest on the Notes as set forth in,
and subject to the terms and conditions of, the Notes.
5.2 Optional Prepayments with Premium.
(a) Upon the terms and subject to the conditions
hereinafter set forth and in the Notes, the Company, at its option,
upon notice as provided in 5.2(c) hereof, may prepay the
outstanding principal amount of the Notes on any Note Payment
Date occurring on or after March 15, 2001, either in whole or from
time to time in any part (but, if in part, then in partial payments of
not less than $100,000), at a prepayment price equal to the sum of
(i) the aggregate principal amount of the Notes so to be prepaid,
together with interest accrued on such principal amount to the date
fixed for prepayment, and (ii) the Note Make-Whole Amount for
such principal amount (as defined below) (the Optional Note
Prepayment Price).
(b) The Note Make-Whole Amount for any
principal amount shall equal the net present value (if positive) of the
payment stream equal to the difference between (i) each payment of
principal and interest the Purchaser would have received on account
of such principal amount at the interest rate set forth in the Notes
and (ii) each corresponding payment of principal and interest the
Purchaser would have received on account of such principal amount
at a rate equal to the rate then being paid on United States Treasury
Notes with maturities equal to the Weighted Average Life to
Maturity of the remaining aggregate principal amount of Notes at
the time of prepayment (the Note Treasury Rate), discounted at
the Note Treasury Rate; provided, however, that in no event shall
the Note Make-Whole Amount be less than zero.
(c) Notice of any prepayment of Notes pursuant
to this Section 6 shall be given to each holder of the Notes not less
than thirty (30) nor more than sixty (60) days before the date fixed
for prepayment (the Optional Note Prepayment Date) and shall be
accompanied by an Officer's Certificate of the Company certifying
as to: (i) the Optional Note Prepayment Date, (ii) the aggregate
principal amount of the Notes to be prepaid on such Optional Note
Prepayment Date, (iii) the principal amount of each Note held by
such holder to be prepaid on such Optional Note Prepayment Date,
(iv) the Optional Note Prepayment Price to be paid in respect of
each Note held by such holder on such Optional Note Prepayment
Date and (v) the amount of accrued interest to be paid to such
holder on such Optional Note Prepayment Date. Any notice of
prepayment pursuant to this 5.2(c) having been so given, the
aggregate Optional Note Prepayment Price payable in respect of the
aggregate principal amount of Notes specified in such notice shall
become due and payable on such Optional Note Prepayment Date.
13
(d) The aggregate principal amount of any partial
prepayment of Notes pursuant to this Section 6 shall be allocated
among the holders of the Notes to be prepaid in proportion, as
nearly as practicable, to the respective unpaid principal amounts of
Notes then held thereby, with adjustments, to the extent practicable,
to compensate for any prior prepayments not made in exactly such
proportion.
5.3 Restrictions on Prepayment. Except as otherwise
provided in this Section 6, there shall be no prepayment, in whole
or in part, of the principal of all or any of the Notes. The Company
waives any right to prepay the Notes except under the terms and
conditions as set forth in this Section 5 and agrees that if the Notes
are prepaid, the Company shall pay the Note Make-Whole Amount
(to the extent required by the terms hereof). The Company hereby
acknowledges that (a) the inclusion of this waiver of prepayment
rights and agreement to pay the Note Make-Whole Amount upon
prepayment of the Notes was separately negotiated with the
Purchaser, (b) the economic value of the various elements of this
waiver and agreement was discussed between the Company and the
Purchaser, (c) the consideration given by the Purchaser for the
Notes was adjusted to reflect the specific waiver and agreement
negotiated between the Company and the Purchaser and contained
herein and (d) this waiver is intended to comply with California
Civil Code 2954.10.
The Company's Initials
5.4 Application of Payments. Each payment on a Note
shall be applied, first, to the payment of accrued interest on such
Note to the date of such payment, second, to the payment of any
principal of and premium, if any, on such Note then due thereunder,
and third, to the payment of the installments of principal of and
premium, if any, on such Note remaining unpaid in the inverse
order of the maturity thereof.
5.5 Method of Payment. The principal of, premium, if
any, and interest on each Note shall be payable to each Note holder
by wire transfer of such amount in immediately available funds to
the banking institution with bank wire transfer facilities designated
in such notice for the account of such Note holder, with telephonic
and/or written confirmation of such transfer, to the extent specified
by such Note holder. All amounts payable with respect to any
Notes held by a Purchaser or its nominee (without the necessity for
any presentation or surrender thereof or any notation of such
payment thereon) shall be paid in immediately available funds by
12:00 p.m., Boston time, on the date payment is due in the manner
and at the address for such purpose specified below the Purchaser's
name in Schedule I to this Securities Exchange Agreement, or at
any other address as the Purchaser may from time to time direct in
writing.
5.6 No Set-off or Counterclaim. Each Note holder shall
be entitled to the principal of and premium, if any, and interest on
such Note free from all equities or rights of set-off or counterclaims
of the Company or any prior Note holder and all Persons may act
accordingly. The receipt by such Note holder of any payment of
principal, premium or interest shall be a good discharge to the
Company for the same, and the Company shall not be bound to
inquire into the title of any such Note holder.
14
5.7 Taxes.
(a) The Company shall make any and all
payments hereunder or under the Notes free and clear of, and
without deduction or withholding for or on account of, any present
or future taxes, levies, imposts, duties, fees, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in
the case of any Note holder, net income and franchise taxes
imposed on it by any jurisdiction (all such non-excluded taxes,
levies, imposts, duties, fees, deductions, charges, withholdings and
liabilities being hereinafter referred to as Taxes). The Company
understands that the transactions contemplated by this Securities
Exchange Agreement are not the Purchaser's only connections with
the State of California. If the Company shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder
or under any Note to any Note holder, (i) the sum payable shall be
increased to the extent necessary so that after making all required
deductions (including deductions applicable to additional sums
payable under this 5.7) such Note holder receives an amount equal
to the sum it would have received had no such deductions been
made, (ii) the Company shall make such deductions and (iii) the
Company shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable
law.
(b) In addition, the Company agrees to pay any
present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies that arise from any
payment made hereunder or under the Notes or from the execution
or delivery or otherwise with respect to this Securities Exchange
Agreement or the Notes (hereinafter referred to as Other Taxes).
(c) The Company shall indemnify each Note
holder for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this 5.7) paid by any Note
holder or any liability (including penalties, additions to tax, interest
and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within thirty (30) days from the
date such Note holder makes written demand therefor. Each Note
holder shall send to the Company copies of any notices it receives
regarding Taxes and Other Taxes promptly upon receipt, provided
that any failure to send any such copies shall not affect any Note
holder's rights to indemnification hereunder.
(d) Within thirty (30) days after the date of any
payment of Taxes by the Company, the Company shall furnish to
the Note holders the original or a certified copy of a receipt
evidencing payment thereof. The Company shall compensate each
Note holder for all reasonable losses and expenses sustained by
such Note holder as a result of any failure by the Company so to
furnish such copy of such receipt.
(e) The agreements and obligations of the
Company contained in this 5.7 shall survive the payment of the
Notes and the termination of this Securities Exchange Agreement.
5.8 Acquisition of Notes. The Company shall not, and
shall not permit any Subsidiary or Affiliate to, purchase, prepay,
redeem or otherwise acquire any Note except (a) as
15
expressly permitted by the terms hereof and of such Note or (b) pursuant
to an offer that is offered to all holders of Notes, as applicable,
on a pro rata basis.
SECTION 6. REGISTRATION, EXCHANGE AND REPLACEMENT OF NOTES.
6.1 Registration. The Notes issued on the Closing Date
shall be registered notes. The Company shall keep, at its office
required to be maintained pursuant to 12.1 hereof, books for the
registration and registration of transfer of Notes. Prior to
presentation of any Note for registration of transfer, the Company
shall treat the Person in whose name such Note is registered as the
owner and holder of such Note for all purposes whatsoever, whether
or not such Note shall be overdue, and the Company shall not be
affected by notice to the contrary.
6.2 Exchange. Any Note holder, at its option, may in
person or by duly authorized attorney surrender the same for
exchange at the office maintained pursuant to 12.1 hereof, and
promptly thereafter and at the expense of the Company, except as
provided below, receive in exchange therefor one or more new
Notes, each in the denomination requested by such holder, dated the
date to which interest shall have been paid on the Note so
surrendered or, if no interest shall have yet been so paid, dated the
date of the Note so surrendered and registered in the name of such
Person or Persons as shall have been designated in writing by such
holder or its attorney for the same principal amount as the then
unpaid principal amount of the Note so surrendered. Subject to
5.7 hereof, the Company may require payment of a sum sufficient
to cover any stamp or other tax or governmental charge imposed in
respect of any transfer involved in such exchange.
6.3 Replacement. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of any Note and (a) in the case
of loss, theft or destruction, of indemnity reasonably satisfactory to
it; provided that if the holder of such Note is the original Purchaser
listed on Schedule I hereto of the Notes or any Affiliate or nominee
thereof or any Institutional Investor or any nominee thereof, its own
unsecured agreement of indemnity shall be deemed to be
satisfactory; or (b) in the case of mutilation, upon surrender thereof,
the Company, at its expense, shall execute and deliver in lieu
thereof a new Note executed in the same manner as the Note being
replaced, in the same principal amount as the unpaid principal
amount of such Note and dated the date to which interest shall have
been paid on such Note or, if no interest shall have yet been so paid,
dated the date of such Note.
6.4 Effect of Transfer or Exchange. All Notes issued
upon any registration of transfer or exchange of Notes shall be the
valid obligations of the Company evidencing the same obligations
as the Notes surrendered upon such registration of transfer or
exchange.
SECTION 7. DEFAULTS AND REMEDIES.
7.1 Events of Default; Acceleration of Notes. Each of
the following conditions or events shall be deemed an Event of
Default hereunder:
(a) the Company shall fail to make any payment
or prepayment of principal of or premium or interest on any Note
when the same becomes due and payable, whether at maturity, at a
date fixed for prepayment, upon acceleration or otherwise; or
16
(b) any representation or warranty of the
Company contained in this Securities Exchange Agreement or in
any agreement, instrument, certificate, statement or other writing
furnished in connection herewith or pursuant hereto shall prove to
have been false or inaccurate in any material respect on the date as
of which such representation or warranty was made; or
(c) the Company shall default in the due and
punctual performance of or compliance with any covenant,
condition or agreement to be performed or observed by it under this
Securities Exchange Agreement; or
(d) any of the insurance policies required
pursuant to 8.14 shall lapse or expire without being replaced by
other insurance policies that comply with 8.14 prior to such lapse
or expiration; or
(e) a final judgment or judgments entered by a
court of competent jurisdiction for the payment of money in excess
of $500,000 in the aggregate shall be rendered against the Company
and shall remain in force undischarged and unstayed for a period of
more than thirty (30) days; or
(f) the Company shall (i) commence a voluntary
case under any chapter of the Federal Bankruptcy Code (11 U.S.C.
101, et seq., as amended) as now or hereafter in effect, or shall
consent to (or fail to controvert in a timely manner) the
commencement of an involuntary case against the Company under
said Code; (ii) institute proceedings for liquidation, rehabilitation,
readjustment or composition (or for any related or similar purpose)
under any law (other than the Federal Bankruptcy Code as now or
hereafter in effect) relating to financially distressed debtors, their
creditors or property, or shall consent to (or fail to controvert in a
timely manner) the institution of any such proceedings against the
Company; (iii) make an assignment for the benefit of creditors or
enter into any arrangement for the adjustment or composition of
debts or claims; (iv) apply for or consent to the appointment of, or
the taking possession by, a receiver, liquidator, assignee, trustee,
custodian or sequestrator (or other similar official) of itself or any
of its property; or (v) take corporate action for the purpose or with
the effect of authorizing, acknowledging or confirming the taking or
existence of any action or condition specified in clause (i), (ii), (iii)
or (iv) above; or
(g) the Company shall be insolvent (within the
meaning of any applicable law), or shall be unable, or shall admit in
writing its inability, to pay its debts as they become due, or take
corporate action for the purpose or with the effect of authorizing or
confirming the taking or existence of any action or condition
specified in this 7.1; or
(h) a court or other governmental authority or
agency having jurisdiction in the premises shall enter a decree or
order (i) for the appointment of a receiver, liquidator, assignee,
trustee, custodian or sequestrator (or other similar official) of the
Company of any part of its property, or for the winding-up or
liquidation of its affairs, and such decree or order shall remain in
force undischarged and unstayed for a period of more than thirty
(30) days or (ii) for the sequestration or attachment of any material
part of the property of the Company without its unconditional return
to the possession of the Company or its unconditional release from
such sequestration or attachment within thirty (30) days thereafter;
or
17
(i) a court having jurisdiction in the premises
shall enter an order for relief in any involuntary case commenced
against the Company under the Federal Bankruptcy Code as now or
hereafter in effect, and such order shall remain in force
undischarged and unstayed for a period of more than thirty (30)
days; or
(j) a court or other governmental authority or
agency having jurisdiction in the premises shall enter a decree or
order approving or acknowledging as properly filed or commenced
against the Company a petition or proceedings for liquidation,
rehabilitation, readjustment or composition (or for any related or
similar purpose) under any law (other than the Federal Bankruptcy
Code as now or hereafter in effect) relating to financially distressed
debtors, their creditors or property, and such petition or proceedings
shall not be dismissed within thirty (30) days of the date of filing or
commencement; or
(k) the Federal Trade Commission or any other
federal or state governmental authority shall impose sanctions or
other penalties on the Company for fraud or any other unlawful
business practice; or
(l) (i) any Pension Plan (other than a
Multiemployer Plan) shall incur an accumulated funding
deficiency (within the meaning of Section 412 of the Code) with
respect to any plan year; or (ii) any waiver shall be sought or
granted under Section 412(d) of the Code; or (iii) any Pension Plan
shall be, have been or be likely to be terminated or the subject of
termination proceedings under ERISA unless terminated in
accordance with law without incurring an obligation to contribute
funds to make the pension plan's assets sufficient to cover its benefit
liabilities upon its termination; or (iv) the Company or any ERISA
Affiliate shall incur or be likely to incur a liability to or on account
of a Pension Plan under Section 4062, 4063, 4064 or 4201 of
ERISA or any comparable provision of applicable foreign law, and
there shall result from one or more of the events set forth in the
foregoing clauses (i) through (iv) either a liability or a material risk
of incurring a liability to the PBGC, any foreign governmental
entity or a Pension Plan, which, in the opinion of the holders of
51% of the aggregate outstanding principal amount of the Notes,
could have a Material Adverse Effect; or
(m) the holder of any Indebtedness of at least
$100,000 of the Company accelerates the date for payment of such
Indebtedness.
7.2 Remedies of Note Holders Upon an Event of
Default.
(a) Upon the occurrence and continuance of any
of the Events of Default set forth in subsections (f) through (j),
inclusive, of 7.1, the Notes shall automatically mature and become
due and payable, together with interest accrued thereon, plus any
premium, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
(b) Upon the occurrence of any other Event of
Default hereunder, holders of at least 51% of the outstanding
principal balance of the Notes may, at their option and subject to the
subordination provisions of the Notes, by written notice or notices
to the Company, declare all of the Notes to be due and payable,
whereupon the same shall mature and become due and payable,
together with interest accrued thereon, plus any premium, without
presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived. If the maturity
18
of the Notes shall be
accelerated under this Section 7, there shall become due and
payable (and the Company shall pay), as compensation to the
holders of the Notes for the loss of their investment opportunity and
not as a penalty, an additional amount equal to the Note Make-
Whole Amount. A final determination of the Note Make-Whole
Amount payable on a prepayment pursuant to any acceleration of
the Notes pursuant to this Section 7 shall be made by the Note
holders as of the date of any prepayment. The Company hereby
acknowledges that (1) its agreement to pay the Note Make-Whole
Amount if the Notes are accelerated under this Section 7 was
separately negotiated with the Purchaser, (2) the economic value of
the various elements of this waiver and agreement was discussed
between the Company and the Purchaser, (3) the consideration
given by the Purchaser for the Notes was adjusted to reflect the
specific waiver and agreement negotiated between the Company
and the Purchaser and contained herein and (4) this waiver is
intended to comply with California Civil Code 2954.10.
The Company's Initials
(c) The holder of any Note then outstanding
may, subject to the subordination provisions of the Notes, exercise
any right, power or remedy permitted to it by law, either by suit in
equity or by action at law, or both, whether for specific performance
of any covenant or agreement contained in this Securities Exchange
Agreement or in such Note, or for an injunction against a violation
of any of the terms of this Securities Exchange Agreement or in
such Note, or may proceed to enforce payment of such Note or to
enforce any other legal or equitable right of the holder of such Note.
No remedy herein conferred upon any holder of a Note is intended
to be exclusive of any other remedy and each and every remedy
shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law, in equity, by
statute or otherwise. No course of dealing on the part of any holder
of any Note, or any delay or failure on the part of any holder of any
Note to exercise any right or power, shall operate as a waiver of
such right or power or otherwise prejudice the rights, powers and
remedies of such holder or of any other holder. No failure to insist
upon strict compliance with any covenant, term, condition or other
provision of this Securities Exchange Agreement or the Notes shall
constitute a waiver by any holder of any of the Notes of any such
covenant, term, condition or other provision or of any Default or
Event of Default in connection therewith. To the extent effective
under applicable law, the Company hereby agrees to waive, and
does hereby absolutely and irrevocably waive and relinquish, the
benefit and advantage of any valuation, stay, appraisement,
extension or redemption laws now existing or that may hereafter
exist that, but for this provision, might be applicable to any sale
made under any judgment, order or decree of any court, or
otherwise, based on the Notes or on any claim for interest on the
Notes. If an Event of Default shall occur, the Company will pay to
the holders of the Notes, to the extent not prohibited by applicable
law, such further amount as shall be sufficient to cover the
reasonable costs and expenses of collection, including, without
limitation, reasonable attorneys' fees and expenses.
(d) The Indebtedness of the Company under the
Notes shall be subordinated and junior in right of payment, to the
extent and in the manner set forth in the Notes, to all Senior Debt of
the Company. The term Senior Debt shall mean the principal of,
premium, if any, and interest on any present or future Indebtedness
of the Company that is not, by the express terms of the instrument
that evidences the Indebtedness or any related agreement,
subordinated in right of payment to any other Indebtedness of the
Company.
19
7.3 Rescission of Acceleration. If (a) the outstanding
principal amount of the Notes shall have become immediately due
and payable, (b) no judgment or decree for any amounts so
becoming due and payable shall have been entered, (c) all amounts
of principal, premium, if any, and interest that shall have become
due and payable in respect of all of the Notes otherwise than
pursuant to any acceleration shall have been paid in full, including
interest on all overdue principal, premium, if any, and interest at the
applicable rate or rates provided for in the Notes, (d) the Note
holders shall have been paid an amount sufficient to cover all costs
and expenses of collection incurred by or on behalf of the Note
holders (including, without limitation, reasonable counsel fees and
expenses) and (e) every other Event of Default shall have been
remedied or waived to the satisfaction of the Note holders, then the
Note holders may, with the written consent of the holders of 66?%
of the aggregate outstanding principal amount of the Notes, by
written notice or notices to the Company, rescind and annul any
acceleration of the Notes and its consequences, but no such
rescission and annulment shall extend to or affect any subsequent
Default or Event of Default or impair any right consequent thereon,
or shall require any Note holder to repay any interest, principal or
premium actually paid as a result of such acceleration.
7.4 Remedies. With respect to any material
misrepresentation or breach of warranty or covenant made by the
Company in this Securities Exchange Agreement, the holder of any
Note may exercise any right, power or remedy permitted to it by
law, either by suit, in equity or by action at law or both, whether for
specific performance of any covenant or agreement contained in
this Securities Exchange Agreement, or for an injunction against a
violation of any of the terms of this Securities Exchange
Agreement, or in aid of the exercise of any power granted in this
Securities Exchange Agreement, or may proceed to enforce any
other legal or equitable right of the holder of such Note. No remedy
herein conferred upon any holder of a Note is intended to be
exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law, in equity, by statute
or otherwise. No course of dealing on the part of any holder of a
Note, or any delay or failure on the part of any such holder to
exercise any right or power, shall operate as a waiver of such right
or power or otherwise prejudice the rights, powers and remedies of
such holder or of any other holder. No failure to insist upon strict
compliance with any covenant, term, condition or other provision of
this Securities Exchange Agreement shall constitute a waiver by
any holder of a Note of any such covenant, term, condition or other
provision or of any default in connection therewith. To the extent
effective under applicable law, the Company hereby agrees to
waive, and does hereby absolutely and irrevocably waive and
relinquish, the benefit and advantage of any valuation, stay,
appraisement, extension or redemption laws now existing or that
may hereafter exist that, but for this provision, might be applicable
to any sale made under any judgment, order or decree of any court,
or otherwise.
7.5 Remedies Cumulative. Each and every right, power
and remedy herein specifically given to the Note holders shall be
cumulative and shall be in addition to every other right, power and
remedy herein specifically given or now or hereafter existing at law,
in equity or by statute or otherwise, and each and every right, power
and remedy whether specifically herein given or otherwise existing
may be exercised from time to time and as often and in such order
as may be deemed expedient by the Note holders, and the exercise
or the beginning of the exercise of any right, power or remedy shall
not be construed to be a waiver of the right to exercise at the same
time or thereafter any other right, power or remedy. No delay or
omission by the Note holders in the exercise of any right, power or
remedy or in the pursuance of any
20
remedy shall impair any such
right, power or remedy or be construed to be a waiver of any default
on the part of the Company or to be an acquiescence therein.
7.6 Costs and Expenses, Attorneys Fees, etc. of the Note
holders. The Company shall pay all reasonable costs, fees and
expenses of the Note holders, their agents and counsel in connection
with the enforcement of their rights hereunder and under the Notes.
The Company shall pay to the Note holders on demand any
reasonable costs and expenses, including reasonable attorneys fees
and expenses, but excluding any costs attributable to in-house
counsel or any overhead costs, paid or incurred by the Note holders
in connection with the collection of any amount payable by the
Company to the Note holders hereunder, whether or not any legal
proceeding is commenced hereunder and whether or not any
Default or Event of Default shall have occurred and is continuing,
together with interest thereon at the higher applicable rate on the
Notes plus one percent from the date of payment or incurring by the
Note holders until paid by the Company.
7.7 No Waiver, etc. No failure by any Note holder to
insist upon the strict performance of any term hereof or under the
Notes, or to exercise any right, power or remedy consequent upon a
breach hereof or thereof, shall constitute a waiver of any such term
or of any such breach. No waiver of any breach shall affect or alter
this Securities Exchange Agreement, which shall continue in full
force and effect with respect to any other then existing or
subsequent breach. No waiver by any Note holder of any Default or
Event of Default shall be deemed to be a waiver of any other or
similar, previous or subsequent Default or Event of Default. By
accepting payment of any amount after its due date, the Note
holders shall not be deemed to waive their right either to require
prompt payment when due of all other amounts payable hereunder
or to declare a default for failure to effect such prompt payment.
SECTION 8. CERTAIN COVENANTS OF THE COMPANY.
The Company covenants and agrees for the benefit
of each holder of Notes that so long as any of the Notes shall
remain outstanding:
8.1 Maintenance of Office. The Company shall
maintain at the office located at the address for notices to the
Company provided in 12.1 hereof an office where notices,
presentations and demands in respect of this Securities Exchange
Agreement and the Notes may be given to and made upon the
Company; provided that the Company may, upon fifteen (15)
Business Days prior written notice to the holders of the Notes,
move such office to any other location within the continental
boundaries of the United States. The Company hereby agrees that it
shall pay, and shall save any holder of a Note issued by it harmless
against liability for, any stamp or other tax or governmental charge
imposed in respect of any transfer of the Note resulting from such
change in office; and said obligation of the Company shall survive
the payment of the Notes and the termination of this Securities
Exchange Agreement.
8.2 Corporate Existence. Each of the Company and the
Subsidiaries shall take and fulfill, or cause to be taken and fulfilled,
all actions and conditions necessary to preserve and keep in full
force and effect its existence, rights and privileges as a corporation,
shall not liquidate or dissolve and shall take and fulfill, or cause to
be taken and fulfilled, all actions and conditions necessary to
qualify, and to preserve and keep in full force and effect its
qualification
21
to do business as a foreign corporation in the
jurisdictions in which the failure to so qualify would have a
Material Adverse Effect.
8.3 General Maintenance of Properties and Business,
etc.
(a) Each of the Company and the Subsidiaries
shall:
(i) maintain its property in good condition,
subject to wear and tear in the ordinary course of business,
and make all reasonable and necessary renewals,
replacements, additions, betterments and improvements
thereof and thereto, so that the business carried on in
connection therewith may be conducted properly at all
times;
(ii) keep proper books of record and accounts in
which entries shall be made of its business transactions in
accordance with and to the extent required by generally
accepted accounting principles; and
(iii) set aside on its books from its earnings for
each Fiscal Year, in amounts deemed adequate in the
reasonable opinion of the Company, as the case may be, all
proper accruals and reserves that, in accordance with
generally accepted accounting principles, should be set aside
from such earnings in connection with its business,
including reserves for depreciation, obsolescence and/or
amortization, third party insurance payment and claims and
accruals for taxes based on or measured by income or profits
and for all other taxes.
(b) Neither the Company nor any Subsidiary
shall engage in any material line of business other than the lines of
business in which the Company and its Subsidiaries are engaged on
the Closing Date as generally described in 2.6 or in related
extensions of such lines of business.
8.4 Inspection. The Company shall permit, and shall
cause each of the Subsidiaries to permit, any holder of at least 15%
of the outstanding principal balance of the Notes (any such Person,
a Qualified Holder), by its representatives, agents or attorneys,
(a) to examine all of its books of account, records, reports and other
papers, (b) to make copies and take extracts from any thereof, (c) to
discuss its affairs, finances and accounts with its officers and
independent certified public accountants (and by this provision the
Company hereby authorizes said accountants to discuss with any
such holder the finances and accounts of the Company and the
Subsidiaries) and (d) to visit and inspect, at reasonable times, upon
reasonable prior notice, the properties of each of the Company and
the Subsidiaries, in each case to the extent permitted by applicable
federal and state law. Each such inspection shall be at the expense
of the Person making the inspection; provided that (i) each
Qualified Holder shall be entitled to have its expenses of one such
inspection during each Fiscal Year paid or reimbursed by the
Company and (ii) for so long as the Company is not in compliance
with any of its covenants or agreements specified herein, in the
Notes or the Articles of Incorporation, each Qualified Holder shall
be entitled to have its expenses of any additional inspections paid or
reimbursed by the Company. For purposes of the foregoing
proviso, no visit or inspection by any representative, agent or
designee of any Qualified Holder attending any meeting of the
Board as a member of the Board at or around the time of such
meeting of the Board shall be deemed to constitute an inspection
22
for the purposes of this 8.4. Notwithstanding the foregoing sentence,
it is understood and agreed by the Company that all expenses in
connection with any such inspection incurred by the Company or
any Subsidiary, any officers and employees thereof and the
attorneys and independent certified public accountants therefor shall
be expenses payable by the Company and shall not be expenses of
the Person making any inspection. Any information acquired in the
course of any such inspection shall not be used in violation of any
securities laws.
8.5 Compliance with Law, etc. Neither the Company
nor any Subsidiary shall (a) violate any laws, ordinances or
governmental rules or regulations to which it is or may become
subject, the violation of which is reasonably likely, in the aggregate,
to have a Material Adverse Effect, or (b) fail to obtain or maintain
any patents, trademarks, service marks, trade names, copyrights,
design patents, licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its property or to the
conduct of its business, except where the failure so to obtain or
maintain the foregoing, either individually or in the aggregate, is
not reasonably likely to have a Material Adverse Effect. The
Company shall use and operate its properties for lawful purposes in
full compliance in all material respects with all laws and ordinances
and all governmental rules and regulations to which it is subject.
8.6 Payment of Taxes and Claims. The Company shall
pay and discharge promptly when due prior to delinquency, all
taxes, assessments, levies and charges imposed by any public or
quasi-public authority or utility company upon the Company, its
income or profits or any of its properties; provided that none of the
foregoing need be paid while the same is being contested in good
faith by appropriate proceedings diligently conducted. The
Company shall not be a party to or bound by or obligated under any
tax sharing or similar agreement.
8.7 ERISA.
(a) The Company and the ERISA Affiliates each
shall take all actions and fulfill all conditions necessary to maintain
any and all Plans in substantial compliance with applicable
requirements of ERISA, the Code and applicable foreign law until
such Plans are terminated, and the liabilities thereof discharged, in
accordance with applicable law.
(b) No Pension Plan shall have any
accumulated funding deficiency (within the meaning of
Section 412 of the Code), which deficiency could have a Material
Adverse Effect.
8.8 Transactions with Affiliates. Except as specified in
Item 8.8 of Schedule II, neither the Company nor any of the
Subsidiaries shall enter into any transaction (including, without
limitation, the purchase, sale or exchange of property, the rendering
of any services or the payment of management fees) with any
Affiliate except in the ordinary course of, and pursuant to the
reasonable requirements of, its business, and in good faith and upon
terms that are commercially reasonable to the Company, directly or
indirectly, and that are no less favorable to the Company, directly or
indirectly, than it would obtain in a comparable arm's-length
transaction with a Person other than an Affiliate.
8.9 Merger or Consolidation. The Company shall not,
and shall not permit any of its Subsidiaries to, merge into or
consolidate with any other Person or permit any other Person to
23
merge into or consolidate with it unless (a) the Company is the
surviving entity or (b) the surviving entity assumes all obligations
of the Company hereunder and under the Notes.
8.10 Indemnification.
(a) Except as provided in subsection (c) below,
the Company shall defend, protect, indemnify and hold harmless
you, your directors, officers, employees, attorneys and agents and
each Person, if any, who controls you within the meaning of the
Securities Act or the Exchange Act (any and all of whom are
referred to as the Indemnified Party) against, and shall protect,
save and hold harmless each Indemnified Party from and against,
any and all claims, demands, loss, damage, liability (joint or
several), expense or cost (including all legal fees or other expenses
incurred by any Indemnified Party in connection with the
preparation for or defense of any pending or threatened claim,
action or proceeding, whether or not resulting in any liability)
imposed on, incurred by or asserted against such Indemnified Party
(whether or not such Indemnified Party is a party thereto) under any
applicable federal or state law or otherwise caused by or arising out
of, or allegedly caused by or arising out of this Securities Exchange
Agreement and any amendments, modifications, consents or
supplements hereto or any transaction contemplated hereby, other
than losses, claims, damages or liabilities resulting from any
misrepresentation made by you in Section 3 hereof, subject to
subsection (c) below.
(b) The matters covered by the indemnification
provided for in subsection (a) above shall include, without
limitation, any claim or penalty arising from (i) violations of laws,
or in tort (by application of the doctrine of strict liability or
otherwise), (ii) the negligence of any Indemnified Party, (iii) latent
or other defects, whether or not discoverable by such Indemnified
Party, the Company or any other Person, (iv) loss of or damage to
any property or the environment, (v) death of or injury to any
person and (vi) any claim for patent, trademark or copyright
infringement. In addition, each Indemnified Party shall be entitled
to indemnity hereunder whether such indemnity arises because of
an act or omission by such Indemnified Party or otherwise, whether
or not the claims giving rise to indemnity hereunder are also
indemnified against by any other Person under any other document,
and whether or not the transactions contemplated hereby are
consummated.
(c) Notwithstanding any of the indemnities set
forth above, the Company shall not indemnify any Indemnified
Party for any loss, damage, liability, cost or expense (i) arising from
the bad faith, willful misconduct or gross negligence of such
Indemnified Party or (ii) resulting from any untrue statement of a
material fact contained in a registration statement, prospectus,
preliminary prospectus or any amendment or supplement thereto or
any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the
extent that such untrue statement or omission is contained in any
information or affidavit furnished in writing by an Indemnified
Party.
(d) Promptly after receipt by an Indemnified
Party of notice of any claim, action or proceeding with respect to
which an Indemnified Party is entitled to indemnity hereunder, such
Indemnified Party shall notify the Company of such claim or the
commencement of such action or proceeding; provided that the
failure of an Indemnified Party to give notice as provided herein
shall not relieve the Company of its obligations under this 8.10
with respect to such Indemnified Party, except to the extent that the
Company is actually prejudiced by such
24
failure. The Company
shall assume the defense of such claim, action or proceeding and
shall employ counsel satisfactory to the Indemnified Party and shall
pay the fees and expenses of such counsel. Notwithstanding the
preceding sentence, the Indemnified Party shall be entitled, at the
expense of the Company, to employ counsel separate from counsel
for the Company and for any other party in such action if the
Indemnified Party reasonably determines that a conflict of interest
or other reasonable basis exists which makes representation by
counsel chosen by the Company not advisable. If an Indemnified
Party (or any of its officers, directors, employees or attorneys)
appears as a witness in any action or proceeding brought against the
Company in which an Indemnified Party is not named as a
defendant, the Company agrees to reimburse such Indemnified
Party for all out-of-pocket expenses incurred by it (including fees
and expenses of counsel) in connection with its appearing as a
witness. The obligations of the Company under this 8.10 shall
survive the payment of the Notes and termination of this Securities
Exchange Agreement.
8.11 Subsidiary Dividends. The Company shall not and
shall not permit any Subsidiary to enter into any agreement,
instrument or other document that prohibits or restricts in any way
the payment of dividends or other distributions on or with respect to
the capital stock of any Subsidiary if the effect thereof is (or could
reasonably be expected) to reduce the amount of cash payments to
be made (or permitted to be made), directly or indirectly, to the
Company.
8.12 Tax Consolidation. The Company shall not and shall
not permit any of its Subsidiaries to file or consent to the filing of
any consolidated income tax return with any Person other than a
Subsidiary.
8.13 Environmental Law Compliance.
(a) Hazardous Substances. The Company shall
at all times comply and cause each Subsidiary to comply, in all
material respects, with all Environmental Laws applicable to it,
except to the extent that the failure to comply therewith is not,
individually or in the aggregate, reasonably likely to have a
Material Adverse Effect and indemnify, pay and hold each holder of
Notes harmless from and against any and all losses, costs (including
attorneys' fees), liabilities and damages whatsoever incurred by
such holder of Notes by reason of (i) any liability of the Company
or any of the Subsidiaries under any applicable Environmental
Laws, (ii) any violation of any applicable Environmental Laws for
which the Company or any of the Subsidiaries is liable or which is
related to any real estate or other facility owned, leased or operated
by the Company or any of the Subsidiaries or (iii) the imposition of
any governmental Lien for the recovery of environmental cleanup
or response costs expended by reason of any such liability or
violation.
(b) Cleanup Orders; Further Assurance. The
Company shall provide each holder of Notes promptly with a copy
of any notice received by the Company or any Subsidiary from any
governmental agency stating that the Company or such Subsidiary
has become liable for the cost of investigating, removing or
remediating Hazardous Materials or subject to a cleanup order or
decree, or a fine or penalty issued or imposed, by an agency having
jurisdiction over the Company or any such Subsidiary if the
Company believes or reasonably should believe that the matter that
is the subject of such notice is, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect.
25
(c) The Company agrees that, with respect to all
of its properties, it will engage in such environmental monitoring
and, if necessary, remediation, as is prudent under the
circumstances.
8.14 Insurance. The Company shall maintain, or cause to
be maintained, in full force and effect, with such insurers, amounts,
coverages and forms reasonably satisfactory to and approved by the
Purchaser, insurance as follows:
(a) Required Insurance Coverages and Limits.
The Company agrees that it shall at its own cost and expense and at
all times during the term carry and maintain or cause to be carried
and maintained:
(i) Casualty Insurance -- all risk property
insurance on its property in an amount equal to the
replacement cost of such properties, provided that flood and
earthquake insurance shall be subject to availability on
commercially practicable terms;
(ii) Liability Insurance -- comprehensive general
liability insurance (including, without limitation, blanket
contractual, personal injury, XCU hazards,
products/completed operations, independent contractors,
sudden and accidental pollution liability, gradual pollution
liability, failure to supply and broad form property
damage) applicable to its properties in such amounts as from
time to time are usually carried by corporations similar to
the Company owning or leasing and operating similar
properties in similar locations, provided that gradual
pollution liability, sudden and accidental pollution liability
and failure to supply shall be subject to availability on
commercially practicable terms; and provided further that
the Company shall be required to carry and maintain
liability insurance in a minimum amount equal to
$9,000,000;
(iii) Worker's Compensation -- worker's
compensation insurance with respect to employees of the
Company sufficient to meet the statutory requirements of
the State of California; and
(iv) Other Insurance -- such other insurance with
respect to its property and business of such a nature, with
such terms and in such amounts, as a reasonably prudent
person would maintain with respect to similar properties and
a similar business, and, in any event, shall maintain
insurance on all its property of a character usually insured
by corporations engaged in the same or a similar business
similarly situated against loss or damage of the kinds and in
the amounts customarily insured against and for by such
corporations.
All the foregoing insurance policies shall be subject to such
deductible amounts and retentions as are usual and customary for
corporations similar to the Company owning or leasing and
operating similar properties, but in no event greater than reasonably
acceptable to the Purchaser. In addition, the Company shall require
worker's compensation and liability coverage by contractors and
major subcontractors at all times that any of the foregoing shall be
performing services on all or any portion of the property of the
Company.
(b) Acceptable Insurers. The Company agrees to
effect all insurance provided for in this 8.14 (i) with the insurance
companies presently providing insurance to the Company
26
specified
in the certificate of insurance delivered pursuant to 4.12, (ii) with
insurance companies with ratings from A.M. Best & Co. that are at
least as high as the higher of A+ or the ratings of the insurance
companies currently providing the same insurance or (iii) with such
other insurance companies as are reasonably acceptable to the
Purchaser. No Purchaser shall, by reason of accepting, rejecting,
approving or obtaining insurance incur any liability for the
existence, nonexistence, form or legal sufficiency thereof, the
solvency of any insurer, or the payment of any losses.
(c) Certificate. On or prior to the Closing Date,
and thereafter not less than thirty (30) days prior to the expiration
dates of the expiring policies required pursuant to this 8.14, the
Company shall deliver to you certificates of insurance issued by the
insurers thereunder or by an insurance broker authorized to bind
such insurers evidencing the insurance maintained pursuant to this
8.14.
8.15 Transfer and Sale of Assets. Neither the Company
nor any Subsidiary shall, directly or indirectly, in a single
transaction or a series of transactions, sell, lease, transfer, abandon
or otherwise dispose of or suffer to be sold, leased, transferred,
abandoned or otherwise disposed of, all or any part of its assets
other than in the ordinary course of its business; provided that the
Company or any Subsidiary may sell, lease, transfer or otherwise
dispose of any of its assets if the proceeds thereof are, within 180
days of receipt, (a) used to redeem the Notes in accordance with the
terms thereof or (b) reinvested in useful assets of the Company.
8.16 Reporting Company Status. The Company shall file
with the Securities and Exchange Commission all reports required
to be filed by issuers registered under Section 13 or Section 15(d) of
the Exchange Act.
8.17 Nasdaq Listing. The Company shall at all times
cause its Common Stock to be listed for trading on the Nasdaq
National Market or a national securities exchange.
8.18 Right of First Refusal. If at any time the Company
offers newly issued shares of Common Stock or any securities
convertible or exchangeable for shares of Common Stock (the
New Securities; it being understood that shares issued as stock
dividends or capital stock issued upon exercise or conversion of
securities do not constitute New Securities), the Company shall first
offer for sale to the Purchaser such New Securities upon the same
terms and conditions as the Company is proposing to issue such
New Securities to others; provided, however, that the Purchaser
shall have no right to purchase New Securities pursuant to this
8.18 in the case of New Securities (a) issued for a consideration
other than money or cash equivalents; (b) issued to employees,
directors or consultants of the Company or any of its Subsidiaries
pursuant to a stock option plan or other compensation plan;
(c) issued pursuant to a bona fide public offering of the Company's
securities that has been registered under the Securities Act; or
(d) issued pursuant to a plan of reorganization approved by a court
of competent jurisdiction; and provided further, that the Company
shall provide notice of not less than thirty (30) days to the Purchaser
prior to issuance of any New Securities, which notice shall state the
terms on which the New Securities will be offered. To the extent
that the Purchaser does not elect to purchase all or some of such
New Securities by giving written notice of its election to purchase
within twenty (20) days of receipt of notice from the Company of
the proposed issuance of any New Securities, the Company may,
for a period of one hundred twenty (120) days thereafter, offer the
remaining
27
New Securities to third parties, provided that any such
third party may not purchase the New Securities on terms more
favorable than the terms to such third party set forth in the notice to
the Purchaser.
SECTION 9. EXPENSES.
9.1 General Expenses. Whether or not the Notes shall
be sold or this Securities Exchange Agreement shall be terminated,
the Company agrees to pay, and to hold you harmless against
liability for, all costs and expenses relating to this Securities
Exchange Agreement, any other documents prepared in connection
herewith and the Notes and to any modification, amendment,
alteration or enforcement of this Securities Exchange Agreement,
any additional documents prepared in connection herewith, the
Notes or any agreement or instrument contemplated hereby
(whether or not the same shall have come into effect), including,
without limitation:
(a) the cost of preparing and reproducing this
Securities Exchange Agreement, any other documents prepared in
connection herewith, the Notes and every instrument of
modification, amendment or alteration hereof or thereof;
(b) the fees and disbursements of your special
counsel, which fees and disbursements the Company shall pay on
the Closing Date to the extent reflected on any invoices delivered
on or prior to such date, and of all counsel for the Company;
(c) the cost of delivering to your home office, to
your depository or as you may otherwise instruct in writing, insured
to your reasonable satisfaction, the Notes purchased by you on the
Closing Date;
(d) all costs and expenses (including, without
limitation, legal fees and any disbursements and other out-of-pocket
expenses) relating to any modifications, amendments, waivers or
consents involving the provisions of this Securities Exchange
Agreement, any other documents prepared in connection herewith,
or the Notes or relating to the enforcement of this Securities
Exchange Agreement or any other documents prepared in
connection herewith or the Notes;
(e) the fees of Standard & Poor's CUSIP Service
Bureau required to be paid in connection with the assignment of a
private placement number by it with respect to the Series A
Preferred Stock and the Notes; and
(f) any issuance or similar taxes payable by the
Company pursuant to 9.4 hereof.
9.2 Costs and Expenses, Attorneys Fees, etc. of Holders
of Notes. The Company shall pay all costs, fees and expenses of
the holders of Notes, their agents and counsel in connection with
the enforcement of their rights hereunder and under the Articles of
Incorporation and the Notes, including, without limitation, the costs
attributable to in-house counsel, and shall pay all taxes (except
federal and state income taxes) or other governmental charges or
impositions imposed on the holders of Notes by reason of their
interest in the Notes or this Securities Exchange Agreement. The
Company shall pay to the holders of Notes on demand any
28
costs and expenses, including attorneys fees and expenses, paid or
incurred by the holders of Notes in connection with the collection of
any amount payable by the Company to the holders of Notes,
whether or not any legal proceeding is commenced hereunder,
together with interest thereon at the higher applicable rate on the
Notes plus one percent per annum from the date of payment or
incurring by the holders of Notes until paid by the Company.
9.3 Delivery Expenses. If you shall surrender any
certificate representing any Series A Preferred Stock or Note to the
Company pursuant to this Securities Exchange Agreement, or if the
Company shall issue any new Note pursuant to this Securities
Exchange Agreement, the Company shall pay all costs and
expenses of delivery of the surrendered Note and any Note or Notes
issued in exchange or replacement for, or on registration of transfer
of, the surrendered Note or any such new Note, as the case may be,
in each case insured to your satisfaction. The obligations of the
Company under this 9.3 shall survive the payment of the Notes
and the termination of this Securities Exchange Agreement.
9.4 Issuance Taxes. The Company shall pay all issuance
and similar taxes, if any, in connection with the execution and
delivery of this Securities Exchange Agreement, the issuance and
sale of the Notes by the Company and any modification of this
Securities Exchange Agreement or the Notes issued by it, and shall
save you and any subsequent holder of the Notes harmless, without
limitation as to time, against any and all liabilities (including,
without limitation, any interest or penalty for nonpayment or delay
in payment, or any income taxes paid by you in connection with any
reimbursement by the Company of any such taxes paid by you) with
respect to all such taxes. The obligations of the Company under
this 9.4 shall survive the payment of the Notes and the termination
of this Securities Exchange Agreement.
9.5 Survival. The obligations of the Company under this
Section 9 shall survive the payment of the Notes and the
termination of this Securities Exchange Agreement.
SECTION 10. INFORMATION TO BE FURNISHED TO HOLDERS OF NOTES.
10.1 Financial Statements of the Company. The
Company shall deliver to each holder of Notes one (1) copy of the
following:
(a) as soon as practicable and, in any case,
within ninety (90) days after the close of each Fiscal Year of the
Company, the Company's Report on Form 10-K (or any successor
form) filed with the Securities and Exchange Commission, which
shall include the audited consolidated financial statements of the
Company and its Subsidiaries consisting of the audited consolidated
balance sheet of the Company and its Subsidiaries as of the end of
such Fiscal Year and the audited consolidated statements of income,
changes in stockholders' equity and cash flows of the Company and
its Subsidiaries for such Fiscal Year, setting forth in each case, in
comparative form, the figures for the preceding Fiscal Year, all in
reasonable detail, such consolidated financial statements to be
accompanied by an opinion thereon of Ernst & Young LLP or
another firm of independent certified public accountants of
recognized national standing in the United States, which opinion
(i) shall be unqualified as to application of GAAP and unqualified
as to audit scope, and (ii) shall state that (A) the examination of
such accountants in connection with such financial statements has
been made in accordance with generally accepted
29
auditing
standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as were considered
necessary in the circumstances, and (B) such financial statements
present fairly the financial position of the Company and its
Subsidiaries at such date and the results of operations and cash
flows thereof for such period and have been prepared in accordance
with generally accepted accounting principles consistently applied
(except as otherwise disclosed therein with respect to changes in
application in which such accountants concur), and also
accompanied by management's discussion and analysis of
variances;
(b) as soon as practicable and, in any case,
within forty-five (45) days after the end of each of the first three (3)
Fiscal Quarters in each Fiscal Year of the Company, the Company's
Report on Form 10-Q (or any successor form) filed with the
Securities and Exchange Commission, which shall include the
unaudited consolidated financial statements of the Company and its
Subsidiaries, consisting of the unaudited consolidated balance sheet
of the Company and its Subsidiaries as of the end of such Fiscal
Quarter and the unaudited consolidated statements of income,
changes in stockholders' equity and cash flows of the Company and
its Subsidiaries for such Fiscal Quarter and for the Fiscal Year to
date, setting forth in each case in comparative form, the figures for
the corresponding periods of the preceding Fiscal Year, all in
reasonable detail and certified by the chief financial officer or the
treasurer of the Company as being a complete and correct copy of
the Company's financial statements which have been prepared in
accordance with generally accepted accounting principles
consistently applied (except as otherwise disclosed therein) and
which present fairly the financial position of the Company and its
Subsidiaries and results of operations and cash flows thereof
subject, in each case, to changes resulting from year-end audit
adjustments, together with management's discussion and analysis of
variances; and
(c) contemporaneously with the filing thereof
with the Securities and Exchange Commission, all other reports
filed by the Company with the Securities and Exchange
Commission including, without limitation, Reports on Form 8-K
and proxy statements.
10.2 Notice of Certain Events and Conditions. The
Company shall give prompt written notice to each holder of Notes
of the following:
(a) upon the Company's knowledge, (i) any
Default or Event of Default or (ii) any default or event of default
(whether by the Company or any other party) under any other
agreement to which the Company is a party, if such default or event
of default would cause, or in the future may cause, a Material
Adverse Effect;
(b) any (i) ERISA Termination Event;
(ii) prohibited transaction (within the meaning of Section 4975 of
the Code or Section 406 of ERISA) with respect to any Plan
maintained by the Company or any of its Subsidiaries, other than
one to which an exemption applies; (iii) failure to make a timely
contribution to any Plan, if such failure has given rise to a Lien
imposed upon the Company or any of its Subsidiaries under
Section 412(n) of the Code; or (iv) actual, asserted or alleged
violation of ERISA or the Code that, with respect to any of the
events set forth in the foregoing clauses (i) through (iv), is
reasonably likely to result in the imposition of a tax or other penalty
on the Company or any Subsidiary in connection with any Plan that
would result in a Material Adverse Effect, including, when known,
a description of any
30
action taken by the Internal Revenue Service,
the U.S. Department of Labor or the PBGC with respect thereto;
(c) the institution of any suit, action or
proceeding (i) against the Company or any Subsidiary which is
reasonably likely to have a Material Adverse Effect, (ii) in which
the amount involved exceeds $250,000 or in which injunctive or
similar relief is sought or (iii) between the Company and any
governmental authority (such notice shall in any event be given
within thirty (30) days after any officer of the Company shall have
knowledge of such event or condition);
(d) any failure by the Company to comply with
any of its covenants or agreements specified herein, in the Notes or
in the Articles of Incorporation; and
(e) since the date hereof, to the knowledge of the
Company, any Material Adverse Effect.
Each notice pursuant to this 10.2 shall be in the form of an
Officer's Certificate of the Company specifying (A) the nature and
period of existence of the particular event, (B) what action the
Company has taken or is taking or proposes to take with respect
thereto and (C) if appropriate, an estimate of the time necessary to
cure such condition or event.
10.3 Other Information. The Company shall deliver to
each holder of any Note the following:
(a) promptly after the submission thereof to the
Company, copies of any detailed reports (including the auditors'
comment letter to management, if any such letter is prepared)
submitted to the Company by its independent auditors in connection
with each annual or interim audit of the accounts of the Company
made by such accountants;
(b) promptly upon distribution thereof, copies of
all financial or other statements (including proxy statements),
reports and notices as the Company shall send to any class of its
shareholders, any of its bank lenders or any holder of any of its
Indebtedness for Money Borrowed;
(c) promptly upon the formation or the
acquisition thereof, notice of the formation or acquisition, as the
case may be, of any new Subsidiary of the Company;
(d) promptly, and in any event within ten (10)
days after transmission thereof, copies of all material press releases
and other statements made available generally by the Company or
any of its Subsidiaries to the public concerning material
developments in the business, earnings, prospects, properties or
condition (financial or other) of the Company or any of its
Subsidiaries;
(e) prompt notice of any proposed amendment,
modification or supplement to the charter or bylaws of the
Company at least fifteen (15) days prior to the proposed execution
and delivery thereof by the shareholders; and
31
(f) promptly upon request therefor, such other
data, filings and information concerning the Company or any
Subsidiary as any holder of a Security that is a Purchaser or an
Institutional Investor may from time to time reasonably request.
Any information provided pursuant to this 10.3 shall not be used
in violation of any securities laws.
SECTION 11. INTERPRETATION OF AGREEMENT AND NOTES.
11.1 Definitions. Except as the context shall otherwise
require, the following terms shall have the following meanings for
all purposes of this Securities Exchange Agreement (the definitions
to be applicable to both the singular and the plural form of the terms
defined, where either such form is used in this Securities Exchange
Agreement):
Affiliate, with respect to any Person, shall mean
(a) any director, officer or employee of such Person, (b) any Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person, and (c) any Person
beneficially owning or holding 10% or more of the Voting Stock of
such Person or any corporation of which such Person beneficially
owns or holds, in the aggregate, 10% or more of the Voting Stock;
provided that neither you nor any Person directly or indirectly
controlled by you nor any other Person which is an institution shall
be deemed to be an Affiliate of the Company or any Subsidiary
solely by reason of ownership of the Warrants, the Warrant Shares
(as defined in the Warrants) or other securities issued in exchange
for any of such Warrants or Warrant Shares or by reason of having
the benefits of any agreements or covenants of the Company
contained in this Securities Exchange Agreement. The term
control means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract
or otherwise. The term Affiliate, when used herein without
reference to any Person, shall mean an Affiliate of the Company.
Articles of Incorporation shall mean the Articles of
Incorporation of the Company, as amended from time to time.
Beneficially Owned shall mean beneficial
ownership of capital stock determined in the manner set forth in
Rule 13d-3 of the Securities Exchange Act of 1934, as amended.
Board shall mean the Board of Directors of the
Company.
Business Day shall mean any day on which
commercial banks are not authorized or required to close in San
Francisco, California, or Boston, Massachusetts.
Capital Lease shall mean any lease which is
required to be capitalized on a balance sheet of the lessee in
accordance with generally accepted accounting principles or for
which the amount of the asset and liability thereunder as if so
capitalized should be disclosed in a
32
note to such balance sheet.
Capitalized Lease Obligations with respect to any
Person, shall mean the aggregate amount which, in accordance with
generally accepted accounting principles, is required to be reported
as a liability on the balance sheet of such Person at such time in
respect of such Person's interest as lessee under a Capital Lease.
Closing Date shall have the meaning set forth in
1.2(a) hereof.
Code shall mean the Internal Revenue Code of
1986, as amended from time to time. Reference to a specific
section of the Code shall include such section, any regulations
promulgated thereunder and any comparable provision of any future
legislation amending, supplementing or superseding such section.
Commission shall mean the Securities and
Exchange Commission (or any successor thereto performing similar
functions).
Common Stock shall mean the Common Stock, no
par value, of the Company.
Company shall have the meaning set forth in the
preamble hereto.
Default shall mean an event or circumstance that,
with the passage of time or giving of notice, would become an
Event of Default.
Environmental Laws shall mean each applicable
statute referred to in the definition of Hazardous Material below,
and all applicable federal, state and local environmental laws, rules,
regulations and ordinances, whether currently in existence or
hereinafter enacted, governing the Real Property and its business,
products, properties or assets with respect to all Hazardous
Materials, discharges into the ground and surface water, emissions
into the ambient air and generation, control, accumulation, storage,
treatment, transportation, removal, labeling or disposal of waste
materials or process by-products, the existence, cleanup and/or
remedy of contamination on property, the protection of the
environment from soil, air or water pollution, or from spilled,
deposited or otherwise emplaced contamination.
ERISA shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to time.
Reference to a specific section of ERISA shall include such section,
any regulations promulgated thereunder and any comparable
provision of any future legislation amending, supplementing or
superseding such section.
ERISA Affiliate shall mean any Person (other than
the Company or any of its Subsidiaries) which is under common
control (within the meaning of Section 414(b) or (c) of the Code or
Section 4001(a)(14) of ERISA) with the Company or any
Subsidiary thereof.
ERISA Termination Event shall mean (a) a
reportable event (within the meaning of Section 4043 of ERISA)
with respect to a Pension Plan (other than a reportable event as to
which the PBGC has by regulation waived the 30-day notice
requirement under Section 4043(a) of ERISA); provided that a
failure to meet the minimum funding standards of Section 412 of
the Code shall be an ERISA Termination Event regardless of the
issuance of any waiver under Section 412(d) of the Code; (b) the
withdrawal of the Company, any Subsidiary or any ERISA Affiliate
from a Pension Plan which is subject to Section 4063 of ERISA
during a
33
plan year in which it was a substantial employer (within
the meaning of Section 4001(a)(2) of ERISA); (c) the complete or
partial withdrawal of the Company, any Subsidiary or any ERISA
Affiliate from a Multiemployer Plan under Section 4201 or 4204 or
ERISA; (d) the receipt by the Company, any Subsidiary or any
ERISA Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvent under Section 4241 or 4245 of ERISA
or that it intends to terminate or has terminated under
Section 4041A or ERISA; (e) the providing of a notice of intent to
terminate a Pension Plan maintained by the Company or any of its
Subsidiaries pursuant to Section 4041(a)(2) of ERISA or the
treatment of a Pension Plan amendment as a termination under
Section 4041(e) of ERISA; (f) the institution of proceedings by the
PBGC to terminate a Pension Plan or the appointment of a trustee to
administer any such Pension Plan under Section 4042 of ERISA;
(g) the receipt by the Company or any Subsidiary of a notice from
any Multiemployer Plan that any action described in clause (f) has
been taken with respect to that Multiemployer Plan; or (h) any other
event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan.
Event of Default shall have the meaning specified
in 7.1 hereof.
Exchange Act shall mean the Securities Exchange
Act of 1934, as amended from time to time.
Financial Statements shall have the meaning set
forth in 2.7 hereof.
Fiscal Quarter shall mean a fiscal quarter of the
Company, which shall be any quarterly period ending on March 31,
June 30, September 30 and December 31 of any year.
Fiscal Year shall mean a fiscal year of the
Company, which as at the Closing Date is a fiscal year ending
December 31.
generally accepted accounting principles shall
mean, as of the date of any determination with respect thereto,
generally accepted accounting principles as used by the Financial
Accounting Standards Board and/or the American Institute of
Certified Public Accountants, consistently applied and maintained
throughout the periods indicated.
Guaranty, with respect to any Person, shall mean
all obligations of such Person guaranteeing or in effect guaranteeing
any Indebtedness, dividend or other obligation or investment of any
other Person (the primary obligor) in any manner, whether
directly or indirectly, including without limitation, obligations for
which such Person is liable by reason of such Person being a
partner in or of the primary obligor or a member of a joint venture
that is the primary obligor, and obligations incurred through an
agreement, contingent or otherwise, (a) to purchase such
Indebtedness, obligation or investment or any property or assets
constituting security therefor; (b) to advance or supply funds (i) for
the purchase or payment of such Indebtedness, obligation or
investment or (ii) to maintain working capital or equity capital, or
otherwise to advance or make available funds for the purchase or
payment of such Indebtedness, obligation or investment; (c) to
purchase property, securities or services primarily for the purpose
of assuring the owner of such Indebtedness, obligation or
investment of the ability of the primary
34
obligor to make payment of
such Indebtedness, obligation or investment; or (d) otherwise to
assure the owner of such Indebtedness, obligation or investment
against loss in respect thereof.
Hazardous Materials shall mean any hazardous or
toxic substance, material, pollutant, chemical, or waste which is
regulated by any applicable federal, state or local governmental
authority, including, but not limited to, the following, in each case,
as applicable: (a) hazardous substances as defined under the
Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. 9601 et seq.; (b) hazardous
waste as defined under the Solid Waste Disposal Act, as amended,
42 U.S.C. 6901 et seq.; (c) air pollutants regulated under the
Clean Air Act as amended, 42 U.S.C. 7401 et seq.; (d) pollutants
as defined under the Clean Water Act, as amended, 33 U.S.C.
1251 et seq.; (e) any pesticide as defined by the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended, 7 U.S.C.
136 et seq.; (f) any hazardous chemical substance or mixture or
imminently hazardous substance or mixture regulated by the Toxic
Substances Control Act, as amended, 15 U.S.C. 2601 et seq.;
(g) any hazardous material regulated by the Resource Conservation
and Recovery Act (RCRA), 42 U.S.C. 6901 et seq.; (h) any
hazardous material regulated by the Hazardous Materials
Transportation Act, 49 U.S.C. 1801 et seq.; (i) any hazardous
material regulated by the Federal Water Pollution Control Act, 33
U.S.C. 1251 et seq.; (j) any substance listed in the United States
Department of Transportation Table at 49 CFR 172.101; (k) any
substance regulated by the California Hazardous Waste Control
Law (HWCL), Cal. Health & Safety 25100 et seq.; (l) any
substance regulated by the Hazardous Substance Account Act
(HSAA), Cal. Health & Safety Code 25300 et seq.; (m) any
substance regulated by the Underground Storage of Hazardous
Substances Act, Cal. Health & Safety 25280 et seq.; (n) any
material regulated by the ▇▇▇▇▇▇-Cologne Water Quality Control Act
(the ▇▇▇▇▇▇-Cologne Act), Cal. Water Code 13000 et seq.;
(o) any products regulated by the Safe Drinking Water and Toxic
Enforcement Act of 1986 (Proposition 65); (p) any materials
regulated by Title 22 of the California Code of Regulations,
Division 4, Chapter 30; (q) any hazardous or toxic chemical or
substance regulated by the Emergency Planning and Community
Right to ▇▇▇▇ ▇▇▇, ▇▇ ▇.▇.▇. ▇▇▇▇▇, et seq.; (r) any petroleum
product, any explosives, any radioactive material, any asbestos
containing material, any urea formaldehyde foam insulation, any
transformer or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls, or radon gas, any
other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority or
agency or may or could pose a hazard to the health and safety of the
occupants of the Real Property or the owners and/or occupants of
property adjacent to or surrounding the Real Property, or any other
person coming upon the Real Property or adjacent property; and
(s) any other chemical, materials or substance regulated by any
governmental authority which may or could pose a hazard to the
environment.
holder, with respect to any of the Notes, shall
mean the Person in whose name such Notes shall be registered.
Indebtedness, with respect to any Person, shall
mean all items (other than capital stock, capital surplus, retained
earnings and deferred credits), which in accordance with generally
accepted accounting principles would be included in determining
total liabilities of such Person as shown on the liability side of a
balance sheet of such Person as at the date on which Indebtedness is
to be determined. The term Indebtedness shall also include,
whether or
35
not so reflected, (a) indebtedness, obligations and
liabilities secured by any Lien on property of such Person whether
or not the indebtedness secured thereby shall have been assumed by
such Person, (b) all obligations in respect of Capital Leases and
(c) all Guaranties of any of the above. Notwithstanding the
foregoing, in determining the indebtedness of the Company and its
Subsidiaries, there shall be included all indebtedness of the
Company or such Subsidiaries of the character referred to in the
foregoing clauses (a), (b) and (c) deemed to be extinguished under
generally accepted accounting principles but for which such Person
remains legally liable.
Indebtedness for Money Borrowed, with respect to
any Person, shall mean and include the aggregate amount of,
without duplication: (a) all obligations of such Person for borrowed
money; (b) all obligations of such Person evidenced by bonds,
debentures, notes, or other similar instruments, and all
reimbursement or other obligations of such Person in respect of
letters of credit or banker's acceptances; (c) all obligations of such
Person to pay the deferred purchase price of assets or services;
(d) all Capitalized Lease Obligations of such Person; (e) all
obligations or liabilities of others secured by a Lien on any asset
owned by such Person, irrespective of whether such obligation or
liability is assumed, to the extent of the lesser of such obligation or
liability or the fair market value of such asset; and (f) any
Guaranties of such Person of any Indebtedness for Money
Borrowed of another Person.
Indemnified Party shall have the meaning set forth
in 8.10 hereof.
Institutional Investor shall mean any one or more
of the following Persons: (a) any bank, savings institution, trust
company or national banking association, acting for its own account
or in a fiduciary capacity; (b) any charitable foundation; (c) any
insurance company or Affiliate thereof or fraternal benefit
association; (d) any pension, retirement or profit-sharing trust or
fund; (e) any public employees' pension or retirement system or
any other governmental agency supervising the investment of
public funds; or (f) any investment fund owned or managed by a
Person described in clause (a), (b), (c), (d) or (e) above, or by an
Affiliate of such Person.
Investment shall mean, with respect to any Person,
any investment made by such Person in any other Person by stock
purchase, capital contribution, loan, advance, acquisition of
Indebtedness (other than acquisition of accounts receivable in the
ordinary course of business), Guaranty or otherwise.
Lien shall mean any interest in property securing
an obligation owed to, or a claim by, any Person other than the
owner of the property, whether such interest shall be based on the
common law, statute or contract, whether or not such interest shall
be recorded or perfected and whether or not such interest shall be
contingent upon the occurrence of some future event or events or
the existence of some future circumstance or circumstances, and
including the lien or security interest arising from a mortgage,
encumbrance, pledge, adverse claim or charge, conditional sale or
trust receipt, or from a lease, consignment or bailment for security
purposes. The term Lien shall also include reservations,
exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and
encumbrances affecting property. For the purposes of this
Securities Exchange Agreement, a Person shall be deemed to be the
owner of any property that such Person shall have acquired or shall
hold subject to a conditional sale agreement or other arrangement
(including a leasing
36
arrangement) pursuant to which title to the
property shall have been retained by or vested in some other Person
for security purposes.
Material Adverse Effect shall mean, with respect
to any event or occurrence, an effect that is materially adverse to
(a) the business, prospects, earnings, properties or condition
(financial or other) of the Company or its Subsidiaries; (b) the
ability of the Company to perform its obligations hereunder, under
the Notes or under the Articles of Incorporation; or (c) the
enforceability of this Securities Exchange Agreement or the Notes.
Multiemployer Plan shall mean any Pension Plan
that is a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA).
NAIC shall mean the National Association of
Insurance Commissioners.
Note shall have the meaning specified in 1.1(c)
hereof.
Note Make-Whole Amount shall have the meaning
specified in 5.2(b) hereof.
Note Payment Date shall have the meaning
specified in 5.1 hereof.
Note Treasury Rate shall have the meaning
specified in 5.2(b) hereof.
Officer's Certificate shall mean a certificate
executed on behalf of a corporation by any of its chief executive
officer, president or chief financial officer.
Optional Note Prepayment Date shall have the
meaning specified in 5.2(c) hereof.
Optional Note Prepayment Price shall have the
meaning specified in 5.2(a) hereof.
outstanding, with respect to any of the Notes shall
mean, as of the date of determination, all Notes theretofore
delivered pursuant to this Securities Exchange Agreement, except
(a) Notes theretofore cancelled or delivered for cancellation and
(b) Notes in exchange or replacement for which other Notes have
been delivered pursuant to this Securities Exchange Agreement.
PBGC shall mean the Pension Benefit Guaranty
Corporation or any successor thereto.
Pension Plan shall mean any Plan that is an
employee pension benefit plan (within the meaning of
Section 3(2) of ERISA) subject to Title IV of ERISA.
Permitted Liens shall mean:
(a) Liens securing taxes, assessments,
governmental charges or levies, statutory Liens of landlords and
Liens of carriers, warehousemen, materialmen, mechanics and other
like Persons not yet due or the payment of which is not then
required; provided that this
37
clause (a) shall not be deemed to permit
any Liens which may be imposed pursuant to Section 4068 of
ERISA or Section 412(n) of the Code;
(b) Liens of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which
shall not have expired, or in respect of which the obligor shall at
any time in good faith be prosecuting an appeal or proceeding for a
review and in respect of which a stay of execution pending such
appeal or proceeding for review shall have been secured;
(c) Liens incurred or deposits made in the
ordinary course of business (i) in connection with workers'
compensation, unemployment insurance and other types of social
security, or (ii) to secure (or to obtain letters of credit that secure)
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, performance bonds, purchase, construction or
sales contracts and other similar obligations; provided that (A) any
such Lien shall not be created in connection with and shall not
secure Indebtedness for Money Borrowed; (B) any obligation
secured by any such Lien shall not be overdue or, if overdue, is
being contested in good faith by appropriate actions or proceedings
during which there is no right to exercise remedies and adequate
book reserves have been established in accordance with generally
accepted accounting principles; and (C) all such Liens, pledges and
deposits shall not in the aggregate materially impair the use or value
of the properties of the Company or any Subsidiary in the operation
of its respective businesses; and, provided further that this clause (c)
shall not be deemed to permit any Liens which may be imposed
pursuant to Section 4068 of ERISA or Section 412(n) of the Code;
(d) current real property taxes and assessments
not yet delinquent; and
(e) encumbrances, easements or reservations,
encroachments or rights of others for rights-of-way, utilities and
easements and other similar purposes, or zoning or other covenants,
conditions or restrictions as to the use of real properties which could
not have a material adverse effect on the current use and enjoyment
of all or any portion of the Real Property.
Person shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
estate, unincorporated organization or government (or any agency
or political subdivision thereof), or any other entity, whether acting
in an individual, fiduciary or other capacity.
Plan shall mean any employee benefit plan
(within the meaning of Section 3(3) of ERISA) that the Company,
any Subsidiary or any ERISA Affiliate maintains, contributes to or
is obligated to contribute to for the benefit of employees or former
employees of the Company, any Subsidiary or any ERISA Affiliate.
Purchaser shall mean the purchasers of Notes
named in Schedule I hereto.
Purchase Price shall have the meaning set forth in
1.2 hereof.
Qualified Holder shall have the meaning set forth
in 8.4 hereof.
38
Real Property shall mean the real property
described in Items 2.10(a) and 2.10(b) of Schedule II.
Rule 144A shall mean Rule 144A under the
Securities Act, as presently in effect and as hereafter amended from
time to time, or any superseding or substituted rule adopted by the
Commission from time to time.
Securities Act shall mean the Securities Act of
1933, as amended from time to time.
Securities Exchange Agreement shall mean this
Securities Exchange Agreement (including the annexed Exhibits
and Schedules), as it may from time to time be amended,
supplemented or modified in accordance with its terms.
Senior Debt shall have the meaning specified in
7.2(d) hereof.
Senior Preferred Stock shall have the meaning set
forth in 1.1(a) hereof.
Series A Preferred Stock shall have the meaning
set forth in 1.1(b) hereof.
Subsidiary, with respect to any corporation (the
parent), shall mean a corporation, partnership or other entity of
which the parent, at the time in respect of which such term is used,
owns directly, or controls with power to vote, indirectly through
one or more Subsidiaries, shares comprising more than fifty percent
(50%) of its Voting Stock. The term Subsidiary, when used
herein without reference to any particular Person, shall mean a
Subsidiary of the Company. Notwithstanding the foregoing, for
purposes of 2.15, 8.7 and 10.2(b), and for the definitions of
ERISA Affiliate, ERISA Termination Event and Plan hereunder,
the term Subsidiary shall be defined by substituting the words at
least eighty percent (80%) for greater than fifty percent (50%) in
the immediately preceding sentence.
Voting Stock shall mean the stock or other
securities of a corporation, partnership or other entity the holders of
which are ordinarily, in the absence of contingencies, entitled to
elect members of the board of directors (or other governing body)
of such entity.
Warrant shall have the meaning set forth in 1.1(a)
hereof.
11.2 Directly or Indirectly. Any provision in this
Securities Exchange Agreement referring to action to be taken by
any Person, or that such Person if prohibited from taking, shall be
applicable whether such action is taken directly or indirectly by
such Person.
11.3 Accounting Terms. All accounting terms used
herein that are not otherwise expressly defined shall have the
respective meanings given to them in accordance with generally
accepted accounting principles at the particular time.
11.4 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
CALIFORNIA WITHOUT REFERENCE TO CONFLICTS OF LAW RULES.
39
11.5 Independence of Covenants. Each covenant made
by the Company herein is independent of each other covenant so
made and independent of restrictions placed on the Company by
law. The fact that the operation of any such covenant permits a
particular action to be taken or condition to exist does not mean that
such action or condition is not prohibited, restricted or conditioned
by the operation of the provisions of any other covenant herein or
by law.
11.6 Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action required or permitted
hereby or by the Articles of Incorporation shall be a Saturday,
Sunday or a day which is not a Business Day, then such action may
be taken on the next succeeding day which is a Business Day in
such city.
SECTION 12. MISCELLANEOUS.
12.1 Notices.
(a) All communications under this Securities
Exchange Agreement or any of the Notes shall be in writing and
shall be delivered, mailed or sent by overnight air courier (i) if to
you, to you at your address set forth in Schedule I hereto, marked
for attention as there indicated, or at such other address as you may
have furnished to the Company in writing, (ii) if to any other holder
of Notes, to it at its address listed in the books for registration and
registration of transfer of the Notes to be maintained by the
Company, or at such other address as such holder shall have
furnished to the Company in writing, and (iii) if to the Company, to
it at the address shown at the head of this Securities Exchange
Agreement, or at such other address as it shall have given notice of
to you and all other holders of Notes issued by it and at the time
outstanding in accordance with the terms of this 12.1.
(b) Any written communication so addressed
shall be deemed to have been given upon receipt thereof, and if
delivery is refused, receipt shall be deemed to have been given
when such delivery is refused.
12.2 Survival. All representations, warranties and
covenants made by the Company herein or in any certificate or
other instrument delivered under or in connection with this
Securities Exchange Agreement shall be considered to have been
relied upon by you and shall survive the delivery to you of the
Notes regardless of any investigation made by you or on your
behalf. All statements in any such certificate or other instrument
shall constitute representations and warranties of the Company as
applicable hereunder.
12.3 Successors and Assigns; Transfer of Notes. This
Securities Exchange Agreement shall be binding upon the parties
hereto and their respective successors and permitted assigns and
shall inure to the benefit of and be enforceable by the parties hereto
and their respective successors and permitted assigns hereunder.
12.4 Amendment and Waiver.
(a) This Securities Exchange Agreement may be
amended or supplemented, and the observance of any term hereof
or thereof may be waived, with the written consent of the
40
Company
and (A) on or prior to the Closing Date, you, and (B) after the
Closing Date, the holders of 51% of the outstanding Notes.
(b) The Company shall not solicit, request or
negotiate for or with respect to any proposed waiver or amendment
of any of the provisions of this Securities Exchange Agreement or
the Notes unless each holder of the Notes (irrespective of the
amount of Notes then owned by it) shall be informed thereof by the
Company and shall be afforded the opportunity, if eligible to
participate, of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an
informed decision with respect thereto. Executed or true and
correct copies of any waiver effected pursuant to the provisions of
this 12.4 shall be delivered by the Company to each holder of
outstanding Notes forthwith following the date on which the same
shall have been executed and delivered by the holder or holders of
the requisite percentage of outstanding Notes. The Company shall
not, directly or indirectly, pay or cause to be paid any remuneration,
whether by way of supplemental or additional interest, fee or
otherwise, to any holder of the Notes as consideration for or as an
inducement to the entering into by any holder of the Notes of any
waiver or amendment of any of the terms and provisions of this
Securities Exchange Agreement unless such remuneration is
concurrently paid, on the same terms, ratably to the holders of all of
the Notes then outstanding.
12.5 Confidentiality. The information contained in the
financial statements and any information contained in any other
document and delivered by the Company to, and any other
information received by, any holder of Notes pursuant to this
Securities Exchange Agreement that shall have been designated in
writing as confidential shall be held in confidence by such holder in
accordance with such internal procedures as such holder shall apply
generally to confidential information; provided that such holder
may disclose any such information (a) as has become generally
available to the public, (b) as may be required in any report,
statement or testimony required to be submitted to any municipal,
state or federal regulatory body having or claiming to have
jurisdiction over such holder including, without limitation, the
NAIC or similar organizations or their successors, (c) as may be
required in response to any summons or subpoena or in connection
with any litigation, (d) to the extent that such holder believes it
appropriate in order to comply with any law, order, regulation or
ruling applicable to such holder, (e) to a prospective transferee in
connection with any contemplated transfer of a Note by such holder
(provided that such prospective transferee agrees to be bound by the
terms of this 12.5) and (f) as such holder deems appropriate in
connection with the enforcement of any rights hereunder, under the
Notes or under the Articles of Incorporation.
12.6 Integration. This Securities Exchange Agreement
together with all exhibits and schedules hereto and the Notes
constitute the entire agreement among the parties hereto pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or
written, of the parties.
12.7 Consent to Jurisdiction and Venue. The Company
hereby irrevocably (a) agrees that any suit, action or other legal
proceeding arising out of or relating to this Securities Exchange
Agreement or any Note may be brought in a court of record in the
State of California or in the courts of the United States of America
located in such State, (b) consents to the jurisdiction of each such
court in any such suit, action or proceeding, and (c) waives any
objection which it may have to the laying of venue of any such
claim that any such suit, action or
41
proceeding has been brought in
an inconvenient forum and covenants that it shall not seek to
challenge the jurisdiction of any such court or seek to oust the
jurisdiction of any such court, whether on the basis of inconvenient
forum or otherwise. The Company irrevocably consents to the
service of any and all process in any such suit, action or proceeding
by mail copies of such process to the Company at its address for
notices provided in 12.1 hereof. The Company agrees that a final
judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in
any other manner provided by law. All mailings under this 12.7
shall be by registered or certified mail, return receipt requested.
Nothing in this 12.7 shall affect your right to serve legal process in
any other manner permitted by law or affect your right to bring any
suit, action or proceeding against the Company or any of its
properties in the courts of any other jurisdiction.
12.8 Waiver of Jury Trial. ALL PARTIES HERETO
IRREVOCABLY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION ARISING OUT OF OR IN CONNECTION
WITH THIS SECURITIES EXCHANGE AGREEMENT OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THIS SECURITIES EXCHANGE AGREEMENT.
The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the
subject matter of this Securities Exchange Agreement, including,
without limitation, contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. The parties
each acknowledge that this waiver is a material inducement to enter
into a business relationship, that each party will rely on this waiver,
and that each will continue to rely on this waiver in their related
future dealings. Each party further warrants and represents that
each has reviewed this waiver with its legal counsel, and that each
knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS SECURITIES EXCHANGE
AGREEMENT. In the event of litigation, this Securities Exchange
Agreement may be filed as a written consent to a trial by the court.
12.9 Counterparts. This Securities Exchange
Agreement may be executed and delivered to you simultaneously in
one or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one
and the same instrument.
12.10 Reproduction of Documents. This Securities
Exchange Agreement, and all documents relating hereto (other than
the Notes), including, without limitation, (a) consents, waivers and
modifications that may hereafter be executed, (b) documents
received by you at the closing of your purchase of Notes, and
(c) financial statements, certificates and other information
heretofore or hereafter furnished to you, may be reproduced by you
by any photographic or other similar process and you may destroy
any original document so reproduced. The Company agrees and
stipulates that, to the extent permitted by applicable law and court
or agency rules, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether
or not such reproduction was made by you in the regular course of
business) and that any enlargement, facsimile or further
reproduction of such reproduction shall be admissible in evidence to
the same extent.
42
If the foregoing is satisfactory to you, please sign the
form of acceptance on the enclosed counterparts hereof and return
the same to the Company, whereupon this Securities Exchange
Agreement, as so accepted, shall become a binding contract
between you and the undersigned.
Very truly yours,
▇.▇. ▇▇▇▇▇▇▇▇, INC.
By:
Name:
Title:
The foregoing Securities
Exchange Agreement is
hereby accepted.
▇▇▇▇ ▇▇▇▇▇▇▇ LIFE
INSURANCE COMPANY
By:
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Investment Officer
43
SCHEDULE I
To Securities Exchange Agreement
PURCHASER OF THE NOTES
1. Name and Address of Purchaser Aggregate Principal
Amount of Notes
▇▇▇▇ ▇▇▇▇▇▇▇ LIFE INSURANCE COMPANY $2,500,000
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
a. All payments on account of the Notes or other obligations in
accordance with the provisions thereof shall be made no later than
12:00 noon, Boston time, in immediately available funds at the
opening of business on the due date by electronic funds transfer,
properly identified, through the Automated Clearing House system
to the following account:
Bank Boston
ABA No. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Account of ▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
Private Placement Collection Account
Account Number: 541-55417
On Order of: [Name of Issuer] [PPN No.]
[Full name, interest rate and maturity date of the Notes or other
obligations]
b. Contemporaneous with such wire transfer, a notice setting
forth (i) the full name, interest rate and maturity date of the Notes,
(ii) allocation of payment between principal and interest and any
other charges, and (iii) the name and address of the bank from which the
wire transfer was sent, shall be delivered or faxed AND mailed as follows:
▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Manager, Investment Accounting Division, B-3
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Schedule I-1
44
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
c. All notices with respect to prepayments, both scheduled and
unscheduled, whether partial or in full, and notice of maturity
shall be delivered or faxed AND mailed to:
▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Manager, Accounting Division, B-3
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Investment Law Division, T-50
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
d. All other communications which shall include, but not be
limited to, financial statements and certificates of compliance
with financial covenants, shall be delivered or faxed AND
mailed to:
▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Bond & Corporate Finance Department, T-57
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Schedule I-2
45
e. A copy of any notices relating to change in issuer's name,
address or principal place of business or location of collateral
and a copy of any legal opinions shall be delivered or
faxed AND mailed to:
▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Investment Law Division, T-50
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
f. All securities shall be registered in the name of ▇▇▇▇
▇▇▇▇▇▇▇ Life Insurance Company,
Tax I.D. No. ▇▇-▇▇▇▇▇▇▇.
Schedule I-3
46
SCHEDULE II
TO SECURITIES
EXCHANGE AGREEMENT
The following are Schedules to the Securities Exchange
Agreement (the Agreement) between ▇.▇. ▇▇▇▇▇▇▇▇, Inc. (the Company)
and ▇▇▇▇ ▇▇▇▇▇▇▇ Mutual Life Insurance Company, which are being
provided by the Company pursuant to that Agreement.
Schedule 2.1(c): Warrants, Options, Convertible Securities,
Registration Rights
Pursuant to Section 8.20 of the Agreement, the Company has
granted to ▇▇▇▇▇▇▇ a right of first refusal to purchase
additional shares of the Company's stock, with certain
exceptions as set forth in Section 8.20.
Under the Company's 1995 Stock Option Plan, which was approved
by the Board of Directors on May 17, 1995 (the Plan), the
Company may grant employees, directors and consultants options
to purchase up to as aggregate of 815,000 shares of the
Company's Common Stock (the Common Stock). The Plan provides
for the issuance of Incentive Stock Options, as defined in
the Code (ISOs), and Nonstatutory Stock Options (NSOs).
The exercise price for each option is determined at the date of grant
by the Stock Option committee of the Board of Directors, provided
that the exercise price for ISOs may not be less than 85% of
the market price for the NSOs as of the date of grant. There
are currently options to purchase 682,532 shares of Common Stock
outstanding. Options generally vest ratably over a four-year
period following the date of grant and terminate 10 years
following the date of grant.
The Company granted to ▇▇▇ ▇▇▇▇▇▇ and Company (▇▇▇ ▇▇▇▇▇▇)
a warrant to purchase an aggregate of 122,000 shares of Common
Stock at a price of $5.25 per share (the ▇▇▇ ▇▇▇▇▇▇ Warrant).
The ▇▇▇ ▇▇▇▇▇▇ Warrant is currently exercisable and expires,
if not sooner exercised, on July 29, 2001. The ▇▇▇ ▇▇▇▇▇▇ Warrant
was issued by the Company in connection with ▇▇▇ ▇▇▇▇▇▇'▇
services as underwriter of the Company's second public offering.
The Company granted to ▇▇▇▇ ▇▇▇▇▇▇▇ Mutual Life Insurance Company
(▇▇▇▇ ▇▇▇▇▇▇▇) warrants to purchase as aggregate of 1,346,788
shares if Common Stock at a price of $4.00 per share (the
▇▇▇▇▇▇▇ Warrants). The ▇▇▇▇▇▇▇ Warrants are currently
exercisable and expire, if not sooner exercised, on March 27,
2006. The ▇▇▇▇▇▇▇ Warrants were issued by the Company in
connection with the March 27, 1996 Securities Purchase Agreement.
1
47
The holders of the ▇▇▇ ▇▇▇▇▇▇ Warrant and the ▇▇▇▇▇▇▇ Warrants
have a right, that can be exercised once, to require the Company
to register the shares issuable under these respective warrants
under the Securities Act of 1933, as amended (the Securities
Act). In addition, the Company has granted the holders of the
▇▇▇ ▇▇▇▇▇▇ Warrant and the ▇▇▇▇▇▇▇ Warrants so-called piggy-back
registration rights, pursuant to which the Company will include,
at the request of the holders, the shares purchasable upon exercise
of these warrants in registration of other securities of the
Company under the Securities Act.
▇.▇. ▇▇▇▇▇▇▇▇ established a stock purchase plan in July 1999
(the 1999 Plan), under which most employees may participate.
A total of 150,000 shares of common stock have been reserved
for issuance under the 1999 Plan. The 1999 Plan is
administered by the Board of Directors or by a committee
appointed by the Board of Directors. Employees can elect
to have from two to ten percent of their monthly gross
salary deducted during each offering period and applied to
the purchase of common stock. The purchase price is an
amount equal to 85% of the fair market value of a share
of common stock on the purchase date. The first offering
period commenced in September 1999 and ended in March 2000.
During the year ended December 31, 1999, no shares of common
stock were sold under the 1999 Plan.
Schedule 2.10(a) and (b): Real Property and Grower's Agreements
(a) The Company owns various parcels of real property,
consisting of approximately 2,325 acres, in Yolo County,
California, on which the Company's vineyards and winery
facilities are located. A description of these properties
is set forth in Attachment A to these schedules.
In May 1997, the Company sold 371 acres of land being developed
into vineyard to ▇▇▇▇ ▇▇▇▇▇▇▇ Mutual Life Insurance Company
(▇▇▇▇▇▇▇). In connection with that transaction, the Company
now manages, operates and leases the land and vineyards from
a subtenant of ▇▇▇▇▇▇▇, Farmland Management Services,
for a term that expires on December 31, 2012. The Company
has a right of first refusal to repurchase the land and
vineyards at the end of the lease term.
The Company leases approximately 23 acres of land from ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Ranch. The lease is for a six-year period beginning
January 1, 1998. The Company has the right to extend the lease
for up to five consecutive two-year terms. The Company has planted
an experimental vineyard on the land.
The Company currently has an oral agreement with ▇▇▇▇▇▇▇▇ Hills,
a California general partnership (▇▇▇▇▇▇▇▇ Hills), pursuant
to which the Company provides farm management and agricultural
services. The agreement requires the Company to manage
the farming operations of 304 acres of vineyard owned by
▇▇▇▇▇▇▇▇ Hills and located in Yolo County.
The Company has an oral agreement with Rolling Hills, a
California general partnership (Rolling Hills), pursuant
to which the Company provides vineyard development farm
management and agricultural services. The agreement requires the
company to develop and manage the farming operations of 180
acres of vineyard owned by Rolling Hills and located in Yolo County.
2
48
On September 15, 1999, the Company purchased 313 acres of
land for $490,000, and immediately began development of 115
acres of the land into vineyards. On September 29, 1999,
▇.▇. ▇▇▇▇▇▇▇▇ sold the land and improvements to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (▇▇▇▇▇▇) for $989,000, and entered
into a Vineyard Development and Lease Agreement (the Vineyard
Agreement) with ▇▇▇▇▇▇. ▇▇. ▇▇▇▇▇▇ is a shareholder of the
Company, attends meetings of the Board of Directors,
and serves as an advisor. Under the terms of the Vineyard
Agreement, the Company is required to complete the
development of the 115-acre vineyard. The development
period began September 29, 1999 and ends December 31,
2001 (the Development Period). Subject to certain
limitations, ▇▇▇▇▇▇ is required to reimburse the Company
for all costs it incurs during the Development Period in
developing the vineyard. The Company is required to lease
and operate the vineyards for the ten year period ended
December 31, 2011, and is entitled to all crop produced
during this period. Rent payments are due quarterly
beginning January 1, 2002, and are equal to 2.8% of the sum
of (i) development costs and (ii) finance costs during
the Development Period equal to 11.2% per annum of vineyard
development and land costs.
(b) The Company is party to a contract pursuant to which it
has agreed to sell to ▇▇▇▇ ▇▇▇▇▇ Winery and Vineyards (▇▇▇▇
▇▇▇▇▇) all production obtained from 15 acres of the
Company's vineyards. The agreement provides that the
percentage of production derived from those vineyards
that the Company must sell to ▇▇▇▇ ▇▇▇▇▇ is reduced by
25% per year, beginning in 1998. The Company is also
party to various contracts to purchase grapes form other producers.
A more complete explanation of rights and obligations of the company
with respect to these contracts is set forth in the contracts
themselves, copies of which will be delivered to ▇▇▇▇▇▇▇ upon request.
Schedule 2.16: Litigation
▇▇▇▇▇▇▇▇ Farms, a partnership operating a winery in Lodi,
California, filed a lawsuit against the Company on August
5, 1999 in the Superior Court of the State of
California, County of San ▇▇▇▇▇▇▇. ▇▇▇▇▇▇▇▇ Farms is
suing the Company for alleged trademark infringement,
dilution and unfair competition arising out of the Company's use
of the name ▇▇▇▇▇▇▇▇ in connection with the sale of wine.
▇▇▇▇▇▇▇▇ Farms also alleges that the Company has publicly
disparaged the quality of the wine ▇▇▇▇▇▇▇▇ Farms sells.
▇▇▇▇▇▇▇▇ Farms is seeking damages in an amount to be
determined by the court at trial, but in no event less than
$500,000, and a preliminary and permanent injunction prohibiting
the Company's use of any infringing trademarks among other relief.
3
49
The Company believes that is has meritorious defenses
to the claims of ▇▇▇▇▇▇▇▇ Farms and also has legal
claims against ▇▇▇▇▇▇▇▇ Farms. On October 4, 1999, the
Company filed a cross complaint against ▇▇▇▇▇▇▇▇
Farms for infringement of the Company's trademarks
and trade dress, among other actions.
Schedule 2.17: Taxes
The California Franchise Tax Board (the FTB) is
presently conducting an audit of the California state
income tax returns of the Company for the 1996, 1997 and 1998
tax years. The FTB has not yet informed the Company
of any adjustments to those returns which the FTB will
require the Company to make.
Schedule 2.24: Other Trade Names
Prior to June 1994, the business of the Company was
conducted by ▇.▇. ▇▇▇▇▇▇▇▇ Partners, a California limited
partnership. The Company and ▇.▇. ▇▇▇▇▇▇▇▇ Partners used,
and the Company continues to use, the name ▇.▇. ▇▇▇▇▇▇▇▇
Vineyard as a trade name and fictitious business name.
The Company also uses the name ▇.▇. ▇▇▇▇▇▇▇▇ Wine Company.
The Company sells its Christmas product, Chateau St. ▇▇▇▇▇▇▇▇,
under the name The ▇▇▇▇ ▇▇▇▇▇▇ Wine Company.
Schedule 9.8: Transaction with Affiliates
The Company is the holder of as promissory note payable
by RHP Vineyards, Inc. The note evidences loan to that
corporation by ▇.▇. ▇▇▇▇▇▇▇▇ Partners and the assumption
by that corporation in 1993 of payment obligations
previously owed by certain persons to ▇.▇. ▇▇▇▇▇▇▇▇
Partners. The amount payable under the note as of December 31, 1999,
was $221,352, which bears interest at a rate of 7% per
annum. The note and other obligations are payable in full
on July 30, 2000. ▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇ each own one-
third of the outstanding shares of RHP Vineyards, Inc.,
constitute two out of three members of its Board of Directors
and are the President and Secretary, respectively, of that corporation.
The Company is the holder of a promissory note payable
by ▇▇▇▇ ▇▇▇▇▇▇▇▇. The amount payable under the note as
of December 31, 1999, was $6,839. The note bears
interest at 7% per annum and is due on July 20, 2000.
▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇ reside at a farmhouse located on the
Company's property adjacent to the Company's winery on a rent-free basis.
In August 1999, the Company entered into an employment agreement with
▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇ ▇▇▇▇▇▇▇▇' National Sales Manager. The agreement
provides that ▇▇. ▇▇▇▇ receive annual compensation of $135,000,
subject to a 4% increase on the anniversary date of the
agreement. ▇▇. ▇▇▇▇ is also eligible for an annual bonus of up to
4
50
20% of his annual compensation. In addition, on each of the
first and second anniversary of the employment agreement,
▇▇. ▇▇▇▇ shall be granted an option to purchase 15,000
shares of the Company's common stock. The employment
agreement expires on February 1, 2002.
The employment agreement provides that ▇.▇. ▇▇▇▇▇▇▇▇ may
terminate ▇▇. ▇▇▇▇'▇ employment at any time upon granting
notice to ▇▇. ▇▇▇▇, and that ▇▇. ▇▇▇▇ may resign
for good reason prior to the agreement's expiration date.
If employment is terminated by ▇.▇. ▇▇▇▇▇▇▇▇ other than
for cause, or if ▇▇. ▇▇▇▇ terminates his employment for good
reason, ▇.▇. ▇▇▇▇▇▇▇▇ shall continue to pay ▇▇. ▇▇▇▇'▇
salary and health insurance benefits through the end of
the agreement, subject to reduction in the event ▇▇. ▇▇▇▇
obtains other employment during the period in which severance
payments are made.
On September 15, 1999, ▇.▇. ▇▇▇▇▇▇▇▇ purchased 313 acres
of land for $490,000, and immediately began development
of 115 acres of the land into vineyard. On
September 29, 1999, ▇.▇. ▇▇▇▇▇▇▇▇ sold the land and
improvements to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
(▇▇▇▇▇▇) for $989,000, and entered into a Vineyard
Development and Lease Agreement (the Agreement) with
▇▇▇▇▇▇. ▇▇. ▇▇▇▇▇▇ is a shareholder of ▇.▇. ▇▇▇▇▇▇▇▇,
attends meetings of the Board of Directors, and serves as an
advisor.
5
51
Attachment A
1. The South half of Section 9; the North half of the Section 16;
and the North half of the Northwest quarter and the Southwest
quarter of Section 15, all in Township 11 North, Range 1 West, M.D.B.&M.
2. Parcel One of the Parcel Map No. 3255 for ▇▇▇▇▇▇▇▇ Ranch,
Inc., filed for record in the Office of the Yolo County Recorder
on November 14,1983 in Book 7 of Parcels Maps, page 16.
3. Parcels Two and Three as shown on Parcel Map No. 3256
for ▇▇▇▇▇▇▇▇ Ranch, Inc., filed for record in the Yolo County
Recorder's Office on November 14,1983 in Book 7 of Parcel Maps, page 16.
4. Parcel Three as designated on Parcel Map No. 4135, files
for record in the Office of the Recorder of Yolo County on
June 14, 1994 in Book 11 of Parcel Maps, pages 45 and 46,
Yolo County Records.
Excepting therefrom all oil, gas, minerals and other hydrocarbon
substances located in, on and under said property as contained
in deed to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ et al., recorded July 29, 1981 in
Book 1484, page 523, Yolo County Records.
5. The West half of the Southwest Quarter and the Southeast
Quarter of the Southwest Quarter of Section 17, Township 11
North, Range 1 West.
The North half; Southeast Quarter, and the Northeast Quarter of
the Southwest Quarter of Section 17, Township 11 North, Range 1
West. The West half of the West half of the Southwest Quarter
of Section 16, Township 11 North, Range 1 West. The
North half of the Northeast Quarter and the Northeast Quarter
of the Northwest quarter and the Northwest Quarter of the
Northwest Quarter of Section 20, Township 11 North,
Range 1 West, the Northwest Quarter of the Northwest Quarter
of ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇ ▇▇▇▇.
▇▇▇▇: ▇▇-▇▇▇-▇▇, ▇▇-▇▇▇-▇▇, ▇▇-▇▇▇-▇▇, ▇▇-▇▇▇-▇▇, ▇▇-▇▇▇-▇▇,
▇▇-▇▇▇-▇▇, ▇▇-▇▇▇-▇▇
52
SCHEDULE III
FORM OF OPINION OF ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇▇, LLP
(i) The Company:
(a) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation;
(b) has all requisite power and authority (corporate and other) (1) to
own and operate its properties, (2) to conduct its business as
currently conducted and as currently proposed to be conducted, (3)
to offer, issue, sell and deliver the Notes, (4) to enter into the
Agreement and (5) to perform its respective obligations under the
Agreement and the Articles of Incorporation; and
(c) has made all filings and holds all franchises, licenses, permits and
registrations which are required under the laws of each jurisdiction
in which the properties owned (or held under lease) by it or the
nature of its activities makes such filings, franchises,
licenses, permits or registrations necessary, except for filings,
franchises, licenses, permits or registrations which individually
or in the aggregate are not material to the Company.
(ii) All of the outstanding capital stock of the Company has been
duly authorized and validly issued and is fully paid, nonassessable
and free of preemptive rights. All issued and
outstanding securities (as defined in the Securities Act) of
the Company have been offered, issued, sold and delivered in
compliance with, or pursuant to exemptions from, all applicable
federal and state laws, and the rules and regulations of federal
and state regulatory bodies governing the offering, issuance,
sale and delivery of securities.
(iii) The Company has taken all corporate action necessary to be
taken by it to authorize the execution and delivery of the
Agreement, the offer, issuance, sale and delivery of
the Notes and the performance of all obligations to be
performed by it under each of them.
(iv) The Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the
Company in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, fraudulent conveyance
and similar laws regarding debtor/creditor relationships and
the effect of general principles of equity. The Notes,
when executed and delivered by the Company, will
constitute the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance
with their terms, except as limited by applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws regarding
debtor/creditor relationships and the effect of general
principles of equity.
(v) No prior consent, approval or authorization of, registration,
qualification, designation, declaration or filing with, or notice
to any federal, state or local governmental or public
authority or agency including, without limitation, any
filing under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended, is or was required for (a) the
valid execution, delivery or performance of the Agreement
by the Company or (b) the valid offer, execution,
issuance, sale or delivery of the Notes or the performance
of the Notes by the Company. The Company has obtained
all consents, approvals or authorizations of, made all declarations or
filings with, and given all notices to, all applicable federal,
state or local governmental or public
Schedule III-1
53
authorities or agencies
which are necessary for the continued conduct by the Company of its
businesses as now conducted or as proposed to be conducted and
which the failure to so obtain, make or give could have a
Material Adverse Effect.
(vi) Neither the execution, delivery or performance
of the Agreement by the Company nor the offer, issuance,
sale or delivery of the Notes by the Company or the performance of the
Notes by the Company does or will: (a) conflict with
or violate the charter or by-laws of the Company; (b)
conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under,
or result in the creation of any Lien on any of the properties or
assets of the Company pursuant to the terms of, any evidence
of Indebtedness, or any instrument or agreement under or
pursuant to which any evidence of Indebtedness has been
issued, or any other instrument or agreement to which the
Company is a party or by which it is bound in each
case resulting in a Material Adverse Effect; or (c) require
the consent of, or other action by, any stockholder, trustee
or any creditor of, any lessor to or any investor in, the
Company or any other non-governmental Person.
(vii) Neither the execution, delivery or performance of
the Agreement by the Company, the offer, issuance, sale
or delivery of the Notes by the Company nor the performance
of the Notes, does or will cause the Company to be in
violation of any statute, law or ordinance
or any judgment, decree, writ, injunction, order, award
or other action of any court or governmental authority or
arbitrator or any order, rule or regulation, of any federal,
state, county, municipal or other governmental or public
authority or agency.
(viii) Neither (a) the execution and delivery of the
Agreement by the Company, (b) the offer, issuance, sale
and delivery of the Notes by the Company, (c) the acquisition
of the Notes by you, (d) the application by the Company of
the proceeds of the sale of the Notes nor (e) the
consummation of any of the other transactions contemplated
by the Agreement will result in either a prohibited
transaction as described in Section 406(a) of ERISA or a tax under
Section 4975 of the Code.
(ix) There is no action at law, suit in equity or other
proceeding or investigation (whether or not purportedly on
behalf of the Company) in any court or by or before any other
governmental or public authority or agency, or any arbitrator
or arbitration panel pending or, to the best knowledge of the
Company, threatened against or affecting the Company, or any of their
properties that, either individually or in the aggregate, (a)
could reasonably be expected to have a Material Adverse Effect
or (b) could reasonably be expected to question the validity or
enforceability of the Agreement or the Notes. The Company is
not in default with respect to any order, writ, injunction,
judgment or decree of any court or other governmental or public authority
or agency or arbitrator or arbitration panel.
(x) The Company is not, and the ownership of its properties
by the Company does not cause it to be, (a) a public utility
company or a holding company, or a subsidiary company
of a holding company, or an affiliate of a holding
company or of a subsidiary company of a holding company,
as such terms are defined in the Public Utility Holding Company Act of
1935, as amended or (b) a public utility within the meaning
of the Federal Power Act, as amended.
Schedule III-2
54
(xi) The Company is not an investment company or an
affiliated person of an investment company or a company
controlled by an investment company, as such terms
are defined in the Investment Company Act of 1940, as amended,
that is subject to registration and regulation under such act.
The Company is not an investment adviser or an affiliated
person of an investment adviser as such terms are defined
in the Investment Advisers Act of 1940, as amended.
(xii) None of the transactions contemplated by the Agreement
(including, without limitation, the direct or indirect use of
the proceeds from the sale of the Notes) will violate or
result in a violation of Section 7 of the Exchange Act or
any regulations issued pursuant thereto, including, without
limitation, Regulation T (12 C.F.R., Part 220), as amended,
Regulation U (12 C.F.R., Part 221), as amended, and
Regulation X (12 C.F.R., Part 224), as amended, of the Board
of Governors of the Federal Reserve System, or will
require you to obtain a statement in conformity with the
requirements of Federal Reserve Form FR G-3 or to register on Federal
Reserve Form FR G-1 under such regulations.
(xiii) The offer and sale of the Notes pursuant to the terms
of the Agreement are exempt from the registration requirements
of Section 5 of the Securities Act of 1933 and from the
qualification requirements of the California Corporate
Securities Law of 1968.
Schedule III-3
55
EXHIBIT C
To Securities
Exchange Agreement
FORM OF SUBORDINATED NOTE
▇.▇. ▇▇▇▇▇▇▇▇, INC.
Subordinated Note
due March 15, 2000
$2,500,000.00 CUSIP PPN No:
San Francisco, California
▇.▇. ▇▇▇▇▇▇▇, Inc., a California corporation (the "Company"), for value
received, hereby promises to pay to ▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company
or registered assigns, the principal sum of TWO MILLION FIVE HUNDRED
THOUSAND DOLLARS ($2,500,000.00) as specified herein; and to pay interest
on the unpaid principal balance hereof until this Note shall become due
and payable in accordance with the terms hereof and of that certain
Securities Exchange Agreement dated as of March 15, 2000 (the
"Securities Exchange Agreement") between the Company and ▇▇▇▇
▇▇▇▇▇▇▇ Life Insurance Company at the rate of 14% per annum.
If any installment of principal, premium or interest is not paid
as and within the date when such payment is due or following
acceleration or maturity, the provisions of Section 7 of the
Securities Exchange Agreement shall apply.
1. Interest and Principal Payments. If the Company shall have paid
or agreed to pay any interest or premium on this Note in excess of that
permitted by law, then it is the express intent of the Company and the
holder hereof that all excess amounts previously paid or to be paid by
the Company be applied to reduce the principal balance of this Note,
and the provisions hereof immediately be deemed reformed and the amounts
thereafter collectable hereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable
law, but also so as to permit the recovery of the fullest amount
otherwise called for hereunder.
Interest shall be due and payable on each March 15 and September 15
beginning September 15, 2000 and ending when all outstanding amounts
hereunder have been paid. Principal in the amount of $833,333 shall
be due and payable on each of March 15, 2004 and March 15, 2005 and
in the amount of $833,334 shall be due and payable on March 15, 2006.
Notwithstanding anything to the contrary contained herein or in the
Securities Exchange Agreement, however, the final payment due hereunder
(whether at maturity, by acceleration or otherwise) shall be in an amount
sufficient to pay in full all outstanding principal, together with all
accrued interest and premiums due hereon.
The interest rate payable on this Note shall increase by one percent
upon any failure of the Company to make payments when due hereunder.
Interest on this Note shall be computed on the basis of a 360-day year
of twelve 30-day months.
C-1
56
2. Series. This Note is one of a series of Unsecured Subordinated
Notes issued pursuant to the Securities Exchange Agreement and is
entitled to the benefits thereof. All capitalized terms not otherwise
defined herein shall have the meanings set forth therein in the
Securities Exchange Agreement. The Company agrees to perform and
observe duly and punctually each of the covenants and agreements set
forth in the Securities Exchange Agreement. All such covenants and
agreements are incorporated by reference in this Note, and this Note
shall be interpreted and construed as if all such covenants and
agreements were set forth in full in this Note at this place.
3. Prepayment. As and to the extent provided in the Securities
Exchange Agreement, this Note is subject to prepayment, in whole or
in part, with premium. The Company agrees to make required prepayments
on account of this Note in accordance with the provisions of the
Securities Exchange Agreement. Under certain circumstances, as
specified in the Securities Exchange Agreement, the principal of
and accrued interest on this Note may be declared due and payable
in the manner and with the effect provided in the Securities Exchange
Agreement.
4. Restrictions on Transfer. This Note has not been registered
under the Securities Act of 1933, as amended, or the laws of any
state and may be transferred in whole or in part only pursuant to
an effective registration statement under such Act and applicable
state laws or under an exemption from such registration available
under such Act and applicable state law. Subject to the foregoing,
transfers of this Note shall be registered upon registration books
maintained for such purpose by or on behalf of the Company as provided
in the Securities Exchange Agreement.
5. Method of Payment. Payment of principal, premium, if any, and
interest shall be made to the registered holder hereof by direct
wire transfer of immediately available funds pursuant to the
instructions provided by the registered holder or shall otherwise
be made by such other method as directed by the registered holder
hereof in accordance with the Securities Exchange Agreement. Prior
to presentation of this Note for registration of transfer, the
Company shall treat the registered holder hereof as the owner and
holder of this Note for the purpose of receiving all payments of
principal and interest hereon and for all other purposes whatsoever,
whether or not this Note shall be overdue, and the Company shall
not be affected by notice to the contrary.
6. Subordination. Anything in this instrument to the contrary
notwithstanding, the indebtedness evidenced by this instrument
shall be subordinated and junior in right of payment, to the
extent and in the manner hereinafter set forth, to all Senior
Debt of the Company and its Subsidiaries. The term "Senior Debt"
shall mean the principal of, premium, if any, and interest on any
present or future Indebtedness of the Company that is not, by the
express terms of the instrument that evidences the Indebtedness or
any related agreement, subordinated in right of payment to any
other Indebtedness of the Company.
6.1. Payments on Subordinated Notes. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, make
or agree to make, and neither the holder nor any assignee or successor
holder of any Notes will demand, accept or receive, (a) any payment
(by set-off or otherwise), direct or indirect, of or on account of
any principal, premium, if any, or interest in respect of any Notes,
or (b) any payment for the purpose of any redemption, purchase or
other acquisition, direct or indirect, of any Notes, and no such
payment shall be due, if, at the
C-2
57
time of making any such payment a
default (a "Payment Default") in the payment when due (whether
at the stated maturity thereof, by acceleration or otherwise) of
all or any portion of any of the Senior Debt shall have occurred
and be continuing.
Following an acceleration of the maturity of any Senior Debt, and as
long as such acceleration shall continue unrescinded and unannulled,
such Senior Debt shall first be paid in full in cash, securities or
other property before any payment is made on account of or applied
on the Notes.
6.2. Insolvency, etc. In the event of (a) any insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment,
composition or other similar proceeding relating to the Company,
its Subsidiaries or its property, (b) any proceeding for the
liquidation, dissolution or other winding-up of the Company, voluntary
or involuntary, and whether or not involving insolvency or bankruptcy
proceedings, (c) any assignment for the benefit of creditors, or (d)
any distribution, division, marshalling or application of any of the
properties or assets of the Company or the proceeds thereof to
creditors, voluntary or involuntary, and whether or not involving
legal proceedings, then and in any such event:
(i) all Senior Debt shall first be paid in full (including all
principal, premium, if any, and interest, including interest accruing
after the commencement of any such proceeding) before any payment or
distribution of any character, whether in cash, securities or other
property shall be made in respect of any Notes;
(ii) all principal or premium, if any, and interest on the Notes
shall forthwith become due and payable, and any payment or distribution
of any character, whether in cash, securities or other property,
which would otherwise (but for the terms hereof) be payable or
deliverable in respect of any Notes, shall be paid or delivered
directly to the holders of the Senior Debt, for application to the
payment of the Senior Debt, until all Senior Debt shall have been
paid in full, and the holders of the Notes at the time outstanding
irrevocably authorize, empower and direct all receivers, trustees,
liquidators, conservators, fiscal agents and other having authority
in the premises to effect all such payments and deliveries;
(iii) each holder of the Notes at the time outstanding irrevocably
authorizes and empowers each holder of the Senior Debt and such holder's
representatives (without imposing any obligation on any holder of the
Senior Debt or such holder's representative) to demand, ▇▇▇ for, collect
and receive such holder's ratable share of all such payments and
distributions and to receipt therefor, and to file and prove all
claims therefor and take all such other action (including the right
to vote the Notes) in the name of such holder or otherwise, as such
holder of the Senior Debt or such holder's representative may
determine to be necessary or appropriate for the enforcement of
this 6.2; and
(iv) the holders of the Notes shall execute and deliver to each
holder of the Senior Debt or such holder's representative all such
further instruments confirming the above authorization, and all
such powers of attorney, proofs of claim, assignments of claim and
other instruments, and shall take all such other action as may be
reasonably
C-3
58
requested by such holder of the Senior Debt or such
holder's representative to enforce all claims upon or in respect
of the Notes.
For all purposes of this instrument, Senior Debt shall not be deemed
to have been paid in full unless the holders thereof shall have
received cash, securities or other property equal to the amount
of principal, premium, if any, and interest in respect of all
Senior Debt at the time outstanding, and in case there are two
or more holders of the Senior Debt any payment or distribution
required to be paid or delivered to the holders of the Senior
Debt shall be paid or delivered to such holders ratably according
to the respective aggregate amounts remaining unpaid on the Senior
Debt held by such holders.
6.3. Payments and Distributions Received. If any payment or
distribution of any character, whether in cash, securities or
other property, shall be received by any holder of any of the
Notes, or such holder's representative, in contravention of any
of the terms of this instrument, such payment or distribution or
security shall be held in trust for the benefit of, and shall be
paid over or delivered and transferred to, the holders of the
Senior Debt or such holders' representative or representatives
for application to the payment of all Senior Debt remaining unpaid,
to the extent necessary to pay all such Senior Debt in full.
In the event of the failure of any holder of any of the Notes
to endorse or assign any such payment or distribution, any holder
of the Senior Debt or such holder's representative is hereby
irrevocably authorized to endorse or assign the same.
6.4. Subrogation. In case cash, securities or other property
otherwise payable or deliverable to the holders of the Notes shall
have been applied pursuant to 6.2 or 6.3 hereof to the payment
of Senior Debt in full, then and in each such case, the holders
of the Notes shall be subrogated to any rights of any holders of
Senior Debt to receive any further payments or distributions in
respect of or applicable to the Senior Debt.
6.5. Security. So long as any of the Senior Debt shall not have
been paid in full, the Company shall not, and shall not permit any
of its Subsidiaries to, give, and the holders of the Notes shall
not demand, accept or receive, any security, direct or indirect,
for any Notes.
6.6. Limitation on Exercise of Remedies. Each holder of all or
any part of the Notes shall not exercise any right or remedy available
to it on account of any Default or Event of Default unless (a)
payment on any Senior Debt shall have been accelerated or (b)
at least six months have elapsed from the date the holder of
such Notes otherwise would have had the right to exercise any
such right or remedy. If the acceleration of any Senior Debt
is subsequently rescinded, then each holder of Notes shall also
rescind its exercise of any right or remedy available to it only
if the Default or Event of Default giving rise to such right is
cured within six months of the occurrence of such Default or Event
of Default.
6.7. Right to Current Payments on Notes. Nothing in this Section
6 shall limit the right of any Note holder to receive payments and
prepayments on the Notes when no payment default has occurred with
respect to the Senior Debt or when any acceleration of the payment
of any Senior Debt has been rescinded as provided in 6.6.
C-4
59
7. Governing Law. This Note shall be governed by and construed
in accordance with the law of the State of California without
reference to conflicts of law rules.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed.
▇.▇. ▇▇▇▇▇▇▇▇, INC.,
a California corporation
By:
Name:
Title:
60
▇.▇. ▇▇▇▇▇▇▇▇, INC.
$2,500,000 AGGREGATE PRINCIPAL AMOUNT
OF
14% UNSECURED SUBORDINATED NOTES
SECURITIES EXCHANGE AGREEMENT
Dated as of March 15, 2000
61
TABLE OF CONTENTS
SECTION 1. AUTHORIZATION AND EXCHANGE OF SECURITIES 1
1.1 Authorization of Securities 1
1.2 Exchange of Securities 2
1.3 Definitions, etc. 2
SECTION 2. GENERAL REPRESENTATIONS AND WARRANTIES 2
2.1 Capital Stock; Subsidiaries 2
2.2 Organization and Authority 3
2.3 Corporate Proceedings 3
2.4 Validity of Agreement and Notes 3
2.5 Consent, etc 4
2.6 Business 4
2.7 Financial Statements 4
2.8 No Material Adverse Change 5
2.9 Licenses, Registrations, etc 5
2.10 Properties 5
2.11 Compliance with Other Instruments, etc 5
2.12 No Conflict, etc 5
2.13 No Materially Adverse Contracts, etc. 6
2.14 Compliance with Law, etc. 6
2.15 Compliance with ERISA; Multiemployer Plans 6
2.16 Pending Litigation, etc. 7
2.17 Taxes 7
2.18 Holding Company Act; Investment Company Act 8
2.19 No Margin Regulation Violation 8
2.20 Compliance with Environmental Laws 8
2.21 Labor Relations 8
2.22 Insurance 9
2.23 Offerees 9
2.24 Other Names 9
2.25 Investments 9
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62
TABLE OF CONTENTS
(continued)
2.26 Broker's or Finder's Commissions 9
2.27 Full Disclosure 9
SECTION 3. REPRESENTATIONS OF THE PURCHASER 10
3.1 Investment Intent, etc. 10
SECTION 4. CONDITIONS OF OBLIGATION TO PURCHASE NOTES 10
4.1 Opinion of Special Counsel 10
4.2 Opinions of Counsel for the Company 10
4.3 Performance of Obligations 10
4.4 Representations True 10
4.5 Certificate of Company 11
4.6 Private Placement Number 11
4.7 Fees and Disbursements of Your Special Counsel 11
4.8 Legality 11
4.9 Consents and Approvals 11
4.10 No Material Adverse Change 11
4.11 Notes 11
4.12 Insurance 11
4.13 Proceedings, Instruments, etc. 11
SECTION 5. NOTE PAYMENTS 12
5.1 Required Amortizing Payments 12
5.2 Optional Prepayments with Premium 12
5.3 Restrictions on Prepayment 13
5.4 Application of Payments 13
5.5 Method of Payment 13
5.6 No Set-off or Counterclaim 13
5.7 Taxes 14
5.8 Acquisition of Notes 14
SECTION 6. REGISTRATION, EXCHANGE AND REPLACEMENT OF NOTES 15
6.1 Registration 15
6.2 Exchange 15
6.3 Replacement 15
-ii-
63
TABLE OF CONTENTS
(continued)
6.4 Effect of Transfer or Exchange 15
SECTION 7. DEFAULTS AND REMEDIES 15
7.1 Events of Default; Acceleration of Notes 15
7.2 Remedies of Note Holders Upon an Event of Default 17
7.3 Rescission of Acceleration 19
7.4 Remedies 19
7.5 Remedies Cumulative 19
7.6 Costs and Expenses, Attorneys Fees, etc. of the
Note holders 20
7.7 No Waiver, etc. 20
SECTION 8. CERTAIN COVENANTS OF THE COMPANY 20
8.1 Maintenance of Office 20
8.2 Corporate Existence 20
8.3 General Maintenance of Properties and Business, etc. 21
8.4 Inspection 21
8.5 Compliance with Law, etc. 22
8.6 Payment of Taxes and Claims 22
8.7 ERISA 22
8.8 Transactions with Affiliates 22
8.9 Merger or Consolidation 22
8.10 Indemnification 23
8.11 Subsidiary Dividends 24
8.12 Tax Consolidation 24
8.13 Environmental Law Compliance 24
8.14 Insurance 25
8.15 Transfer and Sale of Assets 26
8.16 Reporting Company Status 26
8.17 Nasdaq Listing 26
8.18 Right of First Refusal 26
SECTION 9. EXPENSES 27
9.1 General Expenses 27
9.2 Costs and Expenses, Attorneys Fees, etc. of Holders
of Notes 27
-iii-
64
TABLE OF CONTENTS
(continued)
9.3 Delivery Expenses 28
9.4 Issuance Taxes 28
9.5 Survival 28
SECTION 10. INFORMATION TO BE FURNISHED TO HOLDERS OF NOTES 28
10.1 Financial Statements of the Company 28
10.2 Notice of Certain Events and Conditions 29
10.3 Other Information 30
SECTION 11. INTERPRETATION OF AGREEMENT AND NOTES 31
11.1 Definitions 31
11.2 Directly or Indirectly 38
11.3 Accounting Terms 38
11.4 Governing Law 38
11.5 Independence of Covenants 39
11.6 Saturdays, Sundays, Holidays, etc 39
SECTION 12. MISCELLANEOUS 39
12.1 Notices 39
12.2 Survival 39
12.3 Successors and Assigns; Transfer of Notes 39
12.4 Amendment and Waiver 39
12.5 Confidentiality 40
12.6 Integration 40
12.7 Consent to Jurisdiction and Venue 40
12.8 Waiver of Jury Trial 41
12.9 Counterparts 41
12.10 Reproduction of Documents 41
-iv
65
SCHEDULE I Purchaser of the Securities
SCHEDULE II Information Provided by the Company
SCHEDULE III Opinion of Counsel to the Company
EXHIBIT A FORM OF SUBORDINATED NOTE
