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EXHIBIT 10.19
AMENDED AND RESTATED SERIES A AND B PREFERRED STOCK PURCHASE AGREEMENT
This Amended and Restated Series A and B Preferred Stock Purchase Agreement (the
"Agreement") is entered into as of March 21, 2001 (the "Effective Date") by and
among Restoration Hardware, Inc., a Delaware corporation (the "Company"),
Palladin Capital IX, LLC, a Delaware limited liability company ("Palladin"),
Reservoir Capital Partners, L.P., a Delaware limited partnership ("Reservoir
Partners"), Reservoir Capital Associates, L.P., a Delaware limited partnership
("Reservoir Associates"), Reservoir Capital Master Fund, L.P., a Cayman Islands
limited partnership ("Reservoir Master Fund," and collectively, with Reservoir
Partners and Reservoir Associates, "Reservoir"), Mr. ▇▇▇▇ ▇▇▇▇▇▇▇▇, an
individual ("▇▇▇▇▇▇▇▇"), and each of the investors listed on Schedule A attached
hereto (each an "Investor" and collectively, the "Investors").
In consideration of the mutual promises, covenants and conditions hereinafter
set forth, the parties hereto agree as follows:
1. DEFINITIONS.
1.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following respective meanings:
"Common Stock" shall mean the Company's common stock, $.0001 par
value per share.
1.2 Index of Other Defined Terms. In addition to the terms
defined above, the following terms shall have the respective meanings given
thereto in the sections indicated below:
Defined Term Section
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"Act" 4.5(b)
"Acquisition" 7.1
"Acquisition Proposal" 7.1(d)
"Action" 4.10
"Additional Series A Shares" 4.2(b)
"Affiliates" 11
"Agreement" Preamble
"Alternative Transaction" 6.5
"Balance Sheet Date" 4.16
"Break-up Fee" 6.5
"Business Plan" 4.21
"Certificate" 2.1
"Closing" 3.1
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"Commission" 7.1(b)
"Company" Preamble
"Contracts" 4.12
"Control Affiliate" 13.3
"Conversion Shares" 4.2(c)
"Effective Date" Preamble
"Employee Plans" 4.28(a)
"ERISA" 4.28(a)
"ERISA Affiliate" 4.28(a)
"Exchange Act" 6.3
"Exclusive Period" 6.6
"Financial Statements" 4.16
"Fixed Expense Fee" 6.5
"Governmental Consents" 4.11
"Hazardous Materials" 4.19
"Intellectual Property" 4.8
"Investor(s)" Preamble
"Material Adverse Effect" 4.26
"Material Contracts" 4.9
"1997 Registration Rights Agreement" 4.14
"Original Purchase Agreement" 13.15
"Related Agreements" 4.4
"Restricted Period" 7.1
"Schedule of Exceptions" 4
"SEC" 4.14
"Series A Shares" 2.2
"Series B Shares" 2.2
"Shares" 2.2
"Short Sales" 7.2
"Stockholders Meeting" 6.4
"Subsidiaries" 4.3
2. AGREEMENT TO PURCHASE AND SELL STOCK
2.1. Authorization. The Company has authorized the issuance,
pursuant to the terms and conditions of this Agreement, of up to 28,037 shares
of the Company's Series A Preferred Stock, $.0001 par value per share, and up to
21,217 shares of the Company's Series B Preferred Stock, $.0001 par value per
share, each having the rights, preferences, privileges and restrictions set
forth in the Certificate of Designation of the Company attached to this
Agreement as Exhibit A (the "Certificate").
2.2. Agreement to Purchase and Sell. Subject to the terms and
conditions hereof, on the date of the Closing, the Company will issue and sell
to each Investor, and each
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Investor agrees, severally and not jointly, to
purchase from the Company, the number of shares of Series A Preferred Stock (the
"Series A Shares") and Series B Preferred Stock (the "Series B Shares," and
collectively with the Series A Shares, the "Shares") of the Company set forth
opposite such Investor's name on Schedule A at a price of One Thousand Dollars
($1,000) per share. The purchase price for the Shares shall be paid by wire
transfer of funds to a designated account of the Company, provided that wire
transfer instructions are delivered to each Investor at least two (2) business
days prior to the Closing.
3. CLOSING; DELIVERY.
3.1. The Closing. The purchase and sale of the Shares hereunder
shall be held at 1 P.M. (PST) at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP,
1530 Page Mill Road, Palo Alto, CA, on (a) Wednesday, March 21, 2001 if all of
the conditions set forth in Sections 8 and 9 have been satisfied or (b) if the
purchase and sale has not occurred pursuant to clause (a), one (1) business day
after the satisfaction of all of the conditions set forth in Sections 8.4, 8.9,
8.11, 8.12 and 8.14, or at such other time and place as Company and the
Investors purchasing a majority of the Shares may mutually agree upon (the
"Closing").
3.2. Delivery. At the Closing, the Company will deliver to each
Investor a certificate representing the Shares to be purchased by such Investor
hereunder against payment in immediately available funds of the full purchase
price therefor by wire transfer.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to each Investor that, except as set forth in the Schedule of
Exceptions dated as of March 19, 2001 as supplemented by the Supplement to the
Schedule of Exceptions dated March 21, 2001 (the "Schedule of Exceptions") all
attached to this Agreement as Exhibit B (which Schedule of Exceptions shall be
deemed to be representations and warranties to the Investors and which Schedule
of Exceptions shall expressly identify the specific representation and warranty
in this Section 4 to which such exception pertains), the statements in this
Section 4 are all true and correct:
4.1. Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under,
and by virtue of, the laws of the State of Delaware, and the Company has all
requisite corporate power and authority to own its properties and assets and to
carry on its business as now conducted and as presently proposed to be
conducted. Each subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own its
properties and carry on its business as now conducted and as presently proposed
to be conducted. The Company is qualified to do business as a foreign
corporation in all jurisdictions where it is required to be so qualified except
for jurisdictions where the failure to be so qualified would not in the
aggregate have a material adverse effect on its financial condition, business,
prospects or operations. Each subsidiary of the Company is qualified to do
business as a foreign corporation in each jurisdiction where the nature of its
business or operations so requires except for jurisdictions, individually or in
the
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aggregate, in which the failure to be so qualified would have a material adverse
effect on the Company's financial condition, business, prospects or operations.
4.2. Capitalization.
(a) As of the date hereof, the authorized capital stock of the
Company consists of the following:
(i) Common Stock. A total of 40,000,000 authorized shares
of Common Stock, $.0001 par value per share, of which 18,907,704 shares are
issued and 18,906,915 shares are outstanding.
(ii) Preferred Stock. A total of 5,000,000 authorized
shares of Preferred Stock, $.0001 par value per share, and none of which are
issued and outstanding.
(iii) Options, Warrants, Reserved Shares. Except for
currently outstanding options to purchase or commitments to issue 3,027,201
shares of Common Stock, warrants for 550,000 shares of Common Stock pursuant to
existing credit agreements and an additional 81,055 shares of Common Stock
reserved for issuance, either directly or through options to employees,
directors, agents and consultants to the Company, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock.
(b) Immediately prior to the Closing, the authorized capital
stock of the Company will consist of the following:
(i) Common Stock. A total of 40,000,000 authorized shares
of Common Stock, $.0001 par value per share, of which 18,907,704 shares are
issued and 18,906,915 shares are outstanding.
(ii) Preferred Stock. A total of 5,000,000 authorized
shares of Preferred Stock, $.0001 par value per share, 28,037 of which will be
designated Series A Preferred Stock, 21,217 of which will be designated Series B
Preferred Stock, and none of which will be issued and outstanding. The Company
has reserved 21,217 shares out of the total of 28,037 shares of authorized
Series A Preferred Stock ("Additional Series A Shares") for possible issuance
upon the conversion of the shares of Series B Preferred Stock to be issued
hereunder.
(iii) Options, Warrants, Reserved Shares. The Company has
reserved 14,018,500 shares of its Common Stock for possible issuance upon the
conversion of the shares of Series A Preferred Stock to be issued hereunder,
including the Additional Series A Shares (the "Conversion Shares"). Except for
(a) the conversion privileges of the Series A Preferred Stock to be issued
hereunder, (b) the conversion privileges of the Series B Preferred Stock to be
issued hereunder, and (c) currently outstanding options to purchase or
commitments to issue 3,027,201 shares of Common Stock, warrants for 550,000
shares of Common Stock pursuant to existing credit agreements and an additional
81,055 shares of Common Stock reserved for issuance, either directly or through
options to employees, directors, agents and consultants to the Company, there
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are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock.
4.3. Subsidiaries. Except as set forth in Section 4.3 of the
Schedule of Exceptions (the "Subsidiaries"), the Company does not presently own
or control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association or other entity. Each of the
Subsidiaries is wholly-owned by the Company, and there are no agreements,
contracts, commitments (oral or written), understanding or other obligations to
which the Company is a party or by which it is bound to sell any of its
interests in any of the Subsidiaries.
4.4. Due Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of the Company under this Agreement and the related Amended and Restated
Investor Rights Agreement attached to this Agreement as Exhibit C (collectively,
the "Related Agreements"), and the authorization, issuance, reservation for
issuance and delivery of all of the Shares being sold under this Agreement has
been taken or will be taken prior to the Closing. The Board of Directors of the
Company has adopted resolutions (i) recommending that the stockholders of the
Company approve the conversion features of the Series B Preferred Stock and (ii)
directing the officers of the Company to submit such recommendation to the
stockholders of the Company. This Agreement and each of the Related Agreements
is a valid and binding obligation of the Company enforceable in accordance with
its terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles. The Shares are not subject
to any preemptive rights or rights of first refusal.
4.5. Valid Issuance of Stock.
(a) The Shares, when issued, sold and delivered in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and non assessable. The Additional Series A Shares and the Conversion
Shares have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Certificate, will be duly and validly issued,
fully paid and non assessable.
(b) The outstanding shares of the capital stock of the
Company are duly and validly issued, fully paid and non assessable, and the
shares underlying outstanding warrants and options, when issued, will be duly
and validly issued, fully paid and non assessable, and such shares of such
capital stock, and all outstanding stock, options and other securities of the
Company have been issued in compliance in all material respects with (i) the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "Act"), (ii) the registration and qualification requirements of
all applicable state securities laws, or in compliance in all material respects
with applicable exemptions therefrom and (iii) all other provisions of
applicable federal and state securities laws.
4.6. Liabilities. Except as set forth in the Financial Statements
(as defined in Section 4.16) and liabilities and indebtedness that in the
aggregate do not exceed $250,000, the
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Company and the Subsidiaries have no liabilities, or other indebtedness for
borrowed money, that any of them has directly or indirectly created, incurred,
assumed, or guaranteed, or with respect to which any of them has otherwise
become directly or indirectly liable.
4.7. Title to Properties and Assets. The Company and the
Subsidiaries have good and marketable title to their respective material
properties and assets held in each case subject to no mortgage, pledge, lien,
encumbrance, security interest or charge of any kind, other than such mortgages,
pledges, liens, encumbrances, security interests or charges that would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
With respect to the property and assets it leases, each of the Company and the
Subsidiaries is in material compliance with such leases, and each of the Company
and the Subsidiaries holds valid leasehold interests in such assets free of any
liens, encumbrances, security interests or claims of any party other than the
lessors of such property and assets, other than such liens, encumbrances,
security interests or claims that would not, individually or in the aggregate,
have a Material Adverse Effect on the Company.
4.8. Intellectual Property. The Company (and/or its wholly-owned
subsidiaries) owns or has licenses to use certain patents, copyrights and
trademarks ("Intellectual Property") associated with its business. The Company
and its subsidiaries have all Intellectual Property rights which are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted or as proposed to be conducted. Other than as set forth in Section 4.8
of the Schedule of Exceptions, the Company and its subsidiaries have no reason
to believe that the Intellectual Property rights which it owns are invalid or
unenforceable or that the use of such Intellectual Property by the Company or
its subsidiaries infringes upon or conflicts with any right of any third party,
and neither the Company nor any of its subsidiaries has received notice of any
such infringement or conflict. The Company and its subsidiaries have no
knowledge of any infringement of its Intellectual Property by any third party.
4.9. Material Contracts and Obligations. All agreements,
contracts, leases, licenses, instruments, commitments (oral or written),
indebtedness, liabilities and other obligations to which any of the Company and
its Subsidiaries is a party or by which any of them is bound that (i) are
material to the conduct and operations of its business and properties; (ii)
involve any of the officers, consultants, directors, employees or stockholders
of the Company or the Subsidiaries; or (iii) obligate the Company or any of the
Subsidiaries to share, license or develop any product or technology are listed
in Section 4.9 of the Schedule of Exceptions (collectively, "Material
Contracts") and copies thereof have been made available to each of the Investors
and their respective counsel. For purposes of this Section 4.9, "material" shall
mean any agreement, contract, indebtedness, liability or other obligation
either: (i) having an aggregate value, cost or amount in excess of $150,000, or
(ii) not terminable upon sixty (60) days notice. The Company is not in, nor
shall the conduct of its business as currently proposed by the Company to be
conducted result in, any material violation, breach or default of any term of a
Material Contract, and the execution, delivery and performance of and compliance
with this Agreement and the consummation of the transactions contemplated hereby
will not result in any such violation, breach or default, or be in material
conflict with or constitute, with or without the
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passage of time or the giving of notice or both, either a material default under
any of the Material Contracts.
4.10. Litigation. There is as of the date hereof no (and
immediately prior to the Closing, there will be no material) action, suit,
proceeding, claim, arbitration or, to the Company's knowledge, investigation
("Action") pending (or, to the Company's knowledge, currently threatened)
against or affecting the Company or the Subsidiaries, their respective
activities, properties or assets or, to the Company's knowledge, against any
officer, director or employee of the Company or the Subsidiaries in connection
with such officer's, director's or employee's relationship with, or actions
taken on behalf of the Company or such Subsidiary. To the Company's knowledge,
there is no factual or legal basis for any such Action that could reasonably be
expected to result, individually or in the aggregate, in any material adverse
change in the business, properties, assets, financial condition, affairs or
prospects of the Company or any of the Subsidiaries. By way of example but not
by way of limitation, there are no material Actions pending or, to the best of
the Company's knowledge, threatened relating to the prior employment of any of
the Company's or the Subsidiaries' employees or consultants, their use in
connection with the Company's or any of the Subsidiary's business of any
information, technology or techniques allegedly proprietary to any of their
former employers, clients or other parties, or their obligations under any
agreements with prior employers, clients or other parties. Neither the Company
nor any of the Subsidiaries is a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality, and, as of the date hereof, there is no (and immediately prior
to the Closing there will be no material) Action by the Company or any of the
Subsidiaries currently pending or which the Company or any of the Subsidiaries
intends to initiate.
4.11. Governmental Consents. No consents, approvals, orders,
authorizations or registrations, qualifications, designations, declarations or
filings with any foreign, federal, state or local governmental authority on the
part of the Company (collectively, "Governmental Consents") are required in
connection with the consummation of the transactions contemplated herein or
performance of the Company's obligations hereunder, and all Governmental
Consents shall have been obtained prior to and be effective as of the Closing.
Based in part on the representations of each Investor set forth in Section 5
below, the offer, sale and issuance of the Shares in conformity with the terms
of this Agreement are exempt from the registration and prospectus delivery
requirements of the Act.
4.12. Compliance with Other Instruments. Neither the Company nor
any of its Subsidiaries is in, nor shall the conduct of their respective
businesses as proposed to be conducted result in, any violation, breach,
default, modification or termination of any term of their respective charter
document or the Certificate or their respective bylaws or in any material
respect of any term or provision of any mortgage, indenture, contract, agreement
or instrument to which the Company or any of the Subsidiaries is a party or by
which any of them may be bound (the "Contracts") or of any provision of any
foreign or domestic state or federal judgment, decree, order, statute, rule or
regulation applicable to or binding upon it. The execution, delivery and
performance of and compliance with this Agreement and the consummation of the
transactions contemplated hereby will not result in any such violation, breach
or default, or be in
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conflict with or constitute, with or without the passage of time or the giving
of notice or both, either a default under the Company's or any of its
Subsidiaries' charter or the Certificate or the bylaws, or any agreement or
contract of any such entity, a default under the Certificate, such entity's
bylaws or the Contracts or, to the best of the Company's knowledge, a violation
of any statutes, laws, regulations or orders, or an event which results in the
creation of any lien, charge or encumbrance upon any asset of the Company or any
of the Subsidiaries or which results in acceleration or vesting of any rights
granted by the Company or any of the Subsidiaries, material change of terms or
the creation of any obligation to make payments to any person.
4.13. Disclosure. No representation or warranty by the Company in
this Agreement or in any statement or certificate signed by any officer of the
Company furnished or to be furnished to the Investors pursuant to this Agreement
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they are made, not misleading.
4.14. Registration Rights. Except as provided in the Amended and
Restated Investor Rights Agreement and in the Restated Investors Rights
Agreement, dated as of May 16, 1997, by and among the Company and the other
parties described therein (the "1997 Registration Rights Agreement"), the
Company has not granted or agreed to grant any person or entity any rights
(including piggyback registration rights) to have any securities of the Company
registered with the United States Securities and Exchange Commission (the "SEC")
or any other governmental authority. The Company further represents and warrants
that, pursuant to the terms of the 1997 Registration Rights Agreement, the
registration rights granted therein shall terminate on or before June 24, 2002.
4.15. Insurance. Each of the Company and the Subsidiaries has
obtained and will maintain to and including the Closing, fire and casualty
insurance policies with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed, other than those which if not obtained or maintained
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. The Company has also obtained and will maintain directors' and
officers' insurance policies covering certain liabilities which may be incurred
by its officers or directors in the performance of their obligations to the
Company.
4.16. Financial Statements. Section 4.16 of the Disclosure
Schedule sets forth an audited balance sheet of the Company dated January 29,
2000, and an audited income statement and statement of changes in cash flows of
the Company for its fiscal year ended January 29, 2000; an unaudited balance
sheet of the Company dated February 3, 2001, and an unaudited income statement
and statement of changes in cash flows of the Company for its fiscal year ended
February 3, 2001 (the "Balance Sheet Date"), (all such financial statements
being collectively referred to herein as the "Financial Statements"). Such
Financial Statements (a) are in accordance with the books and records of the
Company, (b) are true, correct and complete and present fairly the financial
condition of the Company at the date or dates therein indicated and the results
of operations for the period or periods therein specified, and (c) have been
prepared in
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accordance with generally accepted accounting principles applied on a consistent
basis, except as to the unaudited financial statements, for the omission of
notes thereto. Specifically, but not by way of limitation, the respective
balance sheets of the Financial Statements disclose all of the Company's
material debts, liabilities and obligations of any nature, whether due or to
become due, as of their respective dates (including, without limitation,
absolute liabilities, accrued liabilities, and contingent liabilities) to the
extent such debts, liabilities and obligations are required to be disclosed in
accordance with generally accepted accounting principles. The Company has good
and marketable title to all assets set forth on the balance sheets of the
Financial Statements, except for such assets as have been spent, sold or
transferred in the ordinary course of business since their respective dates. The
Company acknowledges that its auditors are auditing the unaudited Financial
Statements for the fiscal year ended February 3, 2001, and such unaudited
Financial Statements shall not materially differ from the results of the audit.
4.17. Tax Matters.
(a) There have been no examinations or audits of any tax returns
or reports of the Company or any of the Subsidiaries by any applicable foreign,
federal, state or local governmental agency. Each of the Company and the
Subsidiaries has duly filed all federal, state, county and local tax returns
required to have been filed by it and paid all taxes shown to be due on such
returns, and all such returns are complete and accurate. Each of the Company and
the Subsidiaries has withheld or paid all other taxes it is required to have
withheld or paid. Each of the Company's and the Subsidiaries' respective
reserves for any liability with respect to any taxes are not materially
inadequate. There are in effect no waivers of applicable statutes of limitations
with respect to taxes for any year.
(b) Except as disclosed on Section 4.17 of the Schedule of
Exceptions: (i) there are no asserted or, to the Company's knowledge, threatened
tax deficiencies against the Company or the Subsidiaries; and (ii) there are no
encumbrances for taxes upon any property or assets of the Company, except
encumbrances for current taxes not yet due.
(c) The Company has delivered to the Investors true and complete
copies of all federal, state and foreign income tax returns (together with any
Revenue Agent's Reports), filed by the Company relating to its operations for
the taxable years ended January 31, 1998, 1999, and 2000.
(d) The Company is not a party to any tax allocation or sharing
agreement. The Company has never been a member of an affiliated group filing a
consolidated federal income tax return and has no liability for taxes of any
other person under Treasury Regulations Section 1.1502-6 (or any similar state,
local, or foreign law), as transferee or successor or, by contract or otherwise.
4.18. Employment Matters. (i) Neither the Company nor any of its
subsidiaries is subject to any collective bargaining agreement and no such
agreement is being negotiated by the Company or any of its subsidiaries; (ii)
there is no pending or, to the best knowledge of the Company, threatened labor
dispute, strike or work stoppage against the Company or any of its
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subsidiaries that could reasonably be expected to have a material adverse effect
on the Company or any of its subsidiaries; (iii) to the best knowledge of the
Company, neither the Company nor any of its subsidiaries nor any representative
or employee of the Company or any of its subsidiaries has committed any material
unfair labor practices in connection with the operation of the business of the
Company and its subsidiaries; and (iv) there is no pending or, to the best
knowledge of the Company, threatened charge or complaint against the Company or
any of its subsidiaries by the National Labor Relations Board or any comparable
agency of any state of the United States.
4.19. Environmental Matters. During the period that the Company
has owned, operated or leased its properties and facilities, (a) there have been
no disposals, releases or threatened releases of Hazardous Materials (as defined
below) on, from or under such properties or facilities, (b) neither the Company,
nor to the best of the Company's knowledge, any third party, has used,
generated, manufactured or stored on, under or about such properties or
facilities or transported to or from such properties or facilities any Hazardous
Materials. The Company has no knowledge of any presence, disposals, or releases
of Hazardous Materials on, from or under any of such properties or facilities,
which occurred prior to the Company having taken possession of any of such
properties or facilities. For purposes of this Agreement, the terms "disposal",
"release", and "threatened release" shall have the definitions assigned thereto
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of
this Section, "Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is regulated under, or defined as a "hazardous
substance," "pollutant," "contaminant," "toxic chemical," "hazardous material,"
"toxic substance," or "hazardous chemical," under (i) CERCLA; (ii) the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (iii)
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.;
(iv) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (v) the
Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; (vi)
regulations promulgated under any of the above statutes; or (vii) any applicable
state or local statute, ordinance, rule, or regulation that has a scope or
purpose similar to those statutes identified above.
4.20. Interested Party Transactions. To the best knowledge of the
Company, no officer or director of the Company or any "affiliate" or "associate"
(as those terms are defined in Rule 405 promulgated under the Act) of any such
person has had, either directly or indirectly, a material interest in: (a) any
person or entity which purchases from or sells, licenses or furnishes to the
Company any goods, property, technology, intellectual or other property rights
or services; or (b) any contract or agreement to which the Company is a party or
by which it may be bound or affected.
4.21. Internal Accounting Controls. The Company and each of its
direct and indirect subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company's Board of Directors, to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is
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permitted only in accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
4.22. Exempt Offering. Based in part upon each Investor's
representations in Section 5, the offer and sale of the Shares pursuant to this
Agreement are exempt from the registration requirements of Section 5 of the Act
by virtue of Section 4(2) of the Act, or Regulation D thereunder, from the
qualification requirements of the California Corporate Securities Law of 1968,
as amended by virtue of Section 25102(f) thereof, and from the registration or
qualification requirements of any other applicable state securities laws, and
the issuance of the Conversion Shares and the Additional Series A Shares in
accordance with the Certificate will be exempt from such registration and
qualification requirements.
4.23. NASD Contacts. The Company has not been contacted by the
National Association of Securities Dealers ("NASD"), either orally or in
writing, concerning potential delisting of the Common Stock from the NASDAQ
National Market System.
4.24. Stockholder Approval. The affirmative vote of a majority of
the votes cast at the Stockholders Meeting (as defined in Section 6.3) with
respect to the antidilution features of the Series A Preferred Stock and the
conversion features of the Series B Preferred Stock are the only stockholder
votes required in connection with the transactions contemplated hereby.
4.25. SEC Documents. The Common Stock of the Company is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the Company has filed all reports, schedules,
forms , statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "SEC Documents"). The Company has
delivered or made available to the Investors (including via ▇▇▇▇▇) true and
complete copies of all SEC Documents (including, without limitation, proxy
information and solicitation materials and registration statements) filed with
the SEC since April 14, 1998. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such SEC Documents,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto.
4.26. No Material Adverse Change. Since October 28, 2000, except
as disclosed in the SEC Documents, no Material Adverse Effect has occurred or
exists, and no event or circumstance has occurred that with notice or the
passage of time or both is reasonably
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likely to result in a Material Adverse Effect with respect to the Company and
the Subsidiaries, and the business of the Company and each Subsidiary has been
operated only in the ordinary course of business. "Material Adverse Effect"
means any adverse effect on the business, operations, properties, prospects, or
financial condition of the entity with respect to which such term is used and
which is material to such entity and other entities controlling or controlled by
such entity taken as a whole, or any material adverse effect on the transactions
contemplated under this Agreement, the Amended and Restated Investor Rights
Agreement or any other agreement or document contemplated hereby or thereby.
None of the Company and the Subsidiaries have taken any action that would be
prohibited by Section 6.7.
4.27. Section 203 of the Delaware General Corporation Law. The
Company's Board of Directors has taken all actions required to be taken so that
the restrictions contained in Section 203 of the Delaware General Corporation
Law applicable to a "business combination" (as defined in Section 203) will not
apply to the execution, delivery or performance of this Agreement or the Amended
and Restated Investor Rights Agreement or the consummation of the transactions
contemplated by this Agreement or the Amended and Restated Investor Rights
Agreement, and no Investor will be an interested stockholder under such section.
4.28. Employee Benefit Plans.
(a) Section 4.28 of the Schedule of Exceptions lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and equity plans, programs or arrangements and any current or former employment
or executive compensation or severance agreements written or otherwise
maintained or contributed to or for the benefit of or relating to any employee
of the Company or any of the Subsidiaries, any trade or business (whether or not
incorporated) which is a member of a controlled group including the Company or
which is under common control with the Company or any of the Subsidiaries within
the meaning of Section 414 of the Internal Revenue Code (an "ERISA Affiliate")
as well as each plan with respect to which the Company or any Subsidiary or an
ERISA Affiliate could incur liability under Section 4069 (if such plan has been
or were terminated) or Section 4212(c) of ERISA (together the "Employee Plans"),
excluding former agreements under which the Company or any Subsidiary has no
remaining obligations and any of the foregoing that are required to be
maintained by the Company or any Subsidiary under the laws of any foreign
jurisdiction. Each of the Company and the Subsidiaries has made available to the
Principal Investors (as defined below) a copy of (i) the most recent annual
report on Form 5500 filed with the Internal Revenue Service for each disclosed
Employee Plan where such report is required and (ii) the plan documents and
trust agreements, if any, governing each such Employee Plan (other than those
referred to in Section 4(b)(4) of ERISA). To the knowledge of the Company, no
event has occurred and there currently exists no condition or set of
circumstances in connection with which the Company or any of the Subsidiaries
could be subject to any liability (other than liability for routine claims for
accrued benefits thereunder and ongoing costs of administration, reporting,
disclosure and premiums) under the terms of any Employee Plans, ERISA, the
Internal Revenue Code or any other applicable rule or regulation, including,
without limitation, any liability under Title IV of
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ERISA, which, when combined with all other such liabilities, would be material
individually or in the aggregate.
(b) Except as set forth in Section 4.28 of the Schedule of
Exceptions, there will be no payment, accrual of additional benefits,
acceleration of payments or vesting in any benefit under any Employee Plan or
any agreement or arrangement disclosed under this Section 4.28 solely by reason
of entering into or in connection with the transactions contemplated by this
Agreement.
(c) No Employee Plan that is a welfare benefit plan within the
meaning of Section 3(1) of ERISA provides benefits to former employees of the
Company or any of the Subsidiaries or their respective ERISA Affiliates other
than pursuant to Section 4980B of the Internal Revenue Code.
(d) Each of the Employee Plans has been administered in
accordance with its terms and applicable laws in all material respects.
4.29. Employment Agreements and Employee Incentive Plans. Neither
the Company nor any Subsidiary is a party to an employment agreement, nor does
the Company or any of the Subsidiaries have any employee incentive plan, which
contains a "change of control" definition therein that would be triggered by the
transactions contemplated by this Agreement or the exercise by the Investors of
their rights under the terms of this Agreement and the Shares.
5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
represents and warrants, severally and not jointly, to the Company as follows:
5.1. Authorization. This Agreement and each of the Related
Agreements when executed and delivered by such Investor will constitute a valid
and legally binding obligation of such Investor, enforceable in accordance with
their respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium, reorganization and similar laws affecting
creditors' rights generally and to general equitable principles.
5.2. Investigation; Economic Risk. Such Investor acknowledges
that he or it has had an opportunity to discuss the business, affairs and
current prospects of the Company with its officers. Such Investor further
acknowledges having had access to information about the Company that he or it
has requested. Such Investor acknowledges that he or it is able to fend for
himself or itself in the transactions contemplated by this Agreement and has the
ability to bear the economic risks of his or its investment pursuant to this
Agreement.
5.3. Purchase for Own Account. The Shares will be acquired for
his or its own account, not as a nominee or agent, and not with a view to or in
connection with the distribution of any part thereof.
5.4. Exempt from Registration; Restricted Securities. Such
Investor understands that the Shares, the Conversion Shares and the Additional
Series A Shares will not be registered under the Act, on the ground that the
sale provided for in this Agreement is exempt
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from registration under the Act, and that the reliance of the Company on such
exemption is predicated in part on such Investor's representations set forth in
this Agreement. Such Investor understands that the Shares, the Conversion Shares
and the Additional Series A Shares being purchased hereunder are restricted
securities within the meaning of Rule 144 under the Act; that the Shares, the
Conversion Shares and the Additional Series A Shares are not registered and must
be held indefinitely unless they are subsequently registered or an exemption
from such registration is available.
5.5. Restrictive Legends. It is understood that each certificate
representing (a) the Shares, (b) the Conversion Shares, (c) the Additional
Series A Shares, and (d) any other securities issued in respect of the any of
the foregoing upon any stock split, stock dividend, recapitalization, merger or
similar event shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
5.6. Removal of Restrictive Legend. The legend set forth above
shall be removed by the Company from any certificate evidencing Shares,
Conversion Shares or Additional Series A Shares upon delivery to the Company of
an opinion by counsel that a registration statement under the Act is at that
time in effect with respect to the legended security or that such security can
be freely transferred in a public sale without such a registration statement
being in effect and that such transfer will not jeopardize the exemption or
exemptions from registration pursuant to which the Company issued the Shares,
Conversion Shares or Additional Series A Shares.
5.7. Accredited Investor. Such Investor is an "accredited
investor" as defined in Rule 501 of Regulation D under the Act.
6. COVENANTS OF THE COMPANY. The Company covenants to each Investor as
follows:
6.1. Use of Proceeds. The Company will use the proceeds from the
sale of the Shares as contemplated by this Agreement to repay existing
indebtedness and for general
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corporate purposes as reasonably approved by the Board of Directors of the
Company and the Investors' designees to the Board of Directors of the Company.
6.2. Registration and Listing. Until such time as no Shares or
Additional Series A Shares are outstanding, the Company shall cause the Common
Stock to continue at all times to be registered under Section 12(g) of the
Exchange Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such reporting and filing obligations. Until such time
as no Shares or Additional Series A Shares are outstanding, the Company shall
continue the listing or trading of the Common Stock on the NASDAQ National
Market System and comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of NASDAQ. The Company shall
cause the Conversion Shares to be listed on the NASDAQ National Market System by
the Closing, and shall continue such listing on NASDAQ National Market System.
6.3. Stockholder Approval. As soon as reasonably practicable
after the date hereof, the Company shall give notice of a meeting of its
stockholders, and the Company shall prepare a proxy statement and present to a
stockholders' meeting (the "Stockholders Meeting"), anticipated to be held as
soon as reasonably practicable and in any event by August 31, 2001, resolutions
approving the antidilution features of the Series A Preferred Stock and the
issuance of the Series B Preferred Stock on the Closing Date as well as the
conversion features of such Series B Preferred Stock. The Company agrees not to
hold any meeting of stockholders unless and until resolutions approving the
issuance of the antidilution features of the Series A Preferred Stock and the
Series B Preferred Stock on the Closing Date as well as conversion features of
such Series B Preferred Stock are included in the matters to be voted upon at
such meeting. Palladin, Reservoir and Glenhill Capital LP, a Delaware limited
partnership (unless such Investor ceases to hold at least twenty five percent
(25%) of the shares of Preferred Stock (or underlying Common Stock) held by such
Investor upon the consummation of the transactions contemplated hereby, the
"Principal Investors") shall have the right and sufficient time to review the
proxy materials prior to mailing to the Company's stockholders, and the Company
shall promptly notify the Investors upon the receipt of, and provide copies of,
any comments and correspondence from the SEC with respect to such proxy
materials. The Company shall respond promptly to any comments and correspondence
from the SEC. In connection with the Stockholders Meeting, the Company shall
also cause the mailing of the proxy materials to its stockholders and shall
solicit proxies in favor of such resolutions and shall use its best efforts to
obtain stockholder approval thereof, including using its best efforts to
continue to seek stockholder approval until such approval is obtained. The proxy
statement relating to the Stockholders Meeting shall comply with all applicable
laws and shall not contain any material misstatements or omit material
information at the time of the mailing of such proxy statement to the
stockholders of the Company and at the time of the Stockholders Meeting. The
Board of Directors of the Company shall recommend (and include such
recommendation in the proxy statement) to its stockholders the approval of the
resolutions presented at the Stockholders Meeting.
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6.4. Break-up Fee. Following the date hereof, if this Agreement
is terminated (other than by reason of the Principal Investors' breach of this
Agreement) and the Company executes a binding agreement with respect to or
consummates an Alternative Transaction with any person other than the Investors
during the period commencing on the date hereof and ending on the first
anniversary of the date hereof, the Company shall pay to the Investors (pro
rated in accordance with its allocation of Shares), at the time of such
execution or consummation, whichever is first, an amount equal to the sum of
Seven Hundred and Fifty Thousand Dollars ($750,000) (the "Break-Up Fee") plus up
to an additional Two Hundred Thousand Dollars ($200,000) to cover all
out-of-pocket expenses, including, without limitation, attorneys' and
accountants' fees to the extent actually incurred by the Investors in connection
with the transactions contemplated by this Agreement (the "Fixed Expense Fee").
The Break-Up Fee and the Fixed Expense Fee shall be payable by the Company in
the form of cash. For purposes of this Agreement, an "Alternative Transaction"
means any direct or indirect acquisition or purchase of twenty percent (20%) or
more of any class of equity securities of the Company or any of its subsidiaries
or any securities of the Company or any of its subsidiaries convertible into any
class of equity securities of the Company or any of its subsidiaries by any
person other than the Investors, the consummation of any tender offer or
exchange offer that would result in any person beneficially owning twenty
percent (20%) or more of any class of equity securities of the Company or any of
its subsidiaries, any merger, consolidation, business combination, sale of
substantially all of the assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its subsidiaries, other than
the transactions contemplated by this Agreement, or any other transaction the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the consummation of the transactions contemplated by
this Agreement or which would reasonably be expected to dilute materially the
benefits to the Investors of the transactions contemplated by this Agreement.
Upon any failure by the Company to make any payments to the Investors or
otherwise fulfill its obligations under this Section 6.4, the Investors shall be
entitled to recover from the Company all their reasonable costs, fees and
expenses incurred in connection with the enforcement of this Section 6.4,
including all fees and expenses of counsel to the Investors, together with
interest at the prime rate of Bank of America, N.A.
6.5. Due Filing of the Certificate. Prior to the Closing, the
Company shall duly file the Certificate with the Secretary of State of the State
of Delaware prior to the Closing, and the Company shall cause such Certificate
to be duly accepted by the Secretary of State of the State of Delaware. Prior to
the Closing the Company shall provide to each Principal Investor a copy of such
Certificate as duly filed with the Secretary of State of the State of Delaware.
6.6. Exclusivity. For the period commencing on the date hereof
and ending at 5:00 PM, EST on April 3, 2001 (such period being referred to
herein as the "Exclusive Period"), the Company will not (nor will it permit any
of its subsidiaries, directors, officers, stockholders, employees or
representatives to), directly or indirectly, take any of the following actions
with any person or entity other than the Investors and their respective
partners, directors, officers, employees and representatives (i) solicit,
initiate, entertain or encourage any proposals or offers from, or conduct
discussions with or engage in negotiations with, any person or entity relating
to any sale or issuance of any Common Stock, Preferred Stock or other capital
stock or equity
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interest, or right to purchase or receive any of the foregoing, in the Company
or any of its Subsidiaries, other than the issuance of capital stock pursuant to
the exercise of options, warrants or other rights outstanding on the date
hereof; (ii) provide information with respect to it or any of its Subsidiaries
to any person or entity relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any person or entity with regard to, any kind
of transaction described in Clause (i); or (iii) enter into any agreement with
any person or entity providing for or relating to any kind of transaction
described in Clause (i). The Company represents and warrants that it has
discontinued any negotiations or discussions concerning any kind of transaction
described in Clause (i) with any person or entity other than the Investors. The
Company shall notify Investors immediately of any such proposals, offers or
requests for information received after the date hereof and prior to 5:00 PM,
EST on April 9, 2001. The Company acknowledges and agrees that the foregoing
provisions constitute an essential and necessary inducement to the Investors'
willingness to enter into this Agreement, and any failure by the Company to
comply with such provisions will constitute a material breach of this Agreement.
6.7. Investors Consent. Commencing on the date hereof and ending
on the Closing Date, the Company shall not take any actions or enter into any
obligations that would require the consent of the Investors or their director
designees after the Closing.
6.8. Boards of Subsidiaries. Upon the request of any Investor
designee currently holding a seat on the Company's board of directors that such
designee be appointed to a board of directors of a subsidiary of the Company,
the Company shall promptly appoint or elect such designee to such subsidiary's
board of directors unless contrary to applicable law.
6.9. Commercially Reasonable Efforts of the Company. The Company
shall use its commercially reasonable efforts to satisfy all of the conditions
set forth in Section 8.
6.10. Voting Agreements. The Company shall ensure that holders of
forty-two percent (42%) or more of the outstanding shares of Common Stock of the
Company shall have executed agreements (the "Voting Agreements") to vote at the
Stockholders Meeting to approve and ratify the issuance and conversion features
of the Series B Preferred Stock, and such agreements shall be valid, binding and
in full force and effect as of the Closing Date.
6.11. Additional Stock Issuances. If during the year commencing
on the Closing Date, the Company issues any Additional Stock (as defined in the
Certificate) at a consideration per share less than the Conversion Price of the
Series A Preferred in effect immediately prior to the issuance of such
Additional Stock, and the number of shares of Common Stock issuable on
adjustment of the Conversion Price resulting from such issuance shall be less
than the number which would be issuable if the Conversion Price were reduced to
the consideration per share for such Additional Stock, the parties shall
negotiate in good faith with respect to the issuance to the holders of Series A
Preferred at that time of a new security having terms substantially identical to
those of the Series A Preferred which will reflect the additional economic
benefits would accrue to the holders of the Series A preferred if the
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Conversion Price were adjusted to equal such consideration, and which will be
acceptable to Nasdaq.
7. COVENANTS OF THE INVESTORS. Except as provided in Section 7.4, each
Investor covenants, severally and not jointly, to the Company as follows:
7.1. Standstill Agreement. For a period (the "Restricted Period")
of three years following the Closing, neither it or he nor any of its or his
affiliates nor any representatives shall, without the prior written consent of
the Company's Board of Directors:
(a) acquire, offer to acquire, or agree to acquire,
directly or indirectly, by purchase or otherwise, any voting securities or
direct or indirect rights to acquire any voting securities of the Company (other
than the Shares) or any subsidiary of the Company, or of any successor to the
Company, or any assets of the Company or any subsidiary or division of the
Company or of any such successor other than the purchase in open market
transactions of shares of Common Stock of the Company representing in the
aggregate for Palladin and Reservoir, not more than five percent (5%) of the
total number of outstanding shares of Common Stock of the Company;
(b) Other than with respect to the election of the Series
A Directors to the Board of Directors or the approval by the Company's
stockholders of the issuance of the Series B Preferred Stock and the conversion
features of the Series B Preferred Stock, make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" to vote (as such
terms are used in the rules of the Securities and Exchange Commission
("Commission")), or seek to advise or influence any person or entity with
respect to the voting of any voting securities of the Company;
(c) make any public announcement with respect to, or
submit a proposal for, or offer of (with or without conditions) any
extraordinary transaction involving the Company or any of its securities or
assets;
(d) form, join or in any way participate in a "group" as
defined in Section 13(d)(3) of the Exchange Act, in connection with any of the
foregoing;
(e) take any action that could reasonably be expected to
require the Company to make a public announcement regarding the possibility of
any of the events described in clauses (a) through (d) above;
provided, however, the foregoing provisions and restrictions
shall not apply to the Company's Chief Executive Officer acting in his sole
capacity as an officer of the Company.
During the Restricted Period, each Investor shall promptly advise
the Company of any inquiry or proposal made to it or, to its knowledge, any of
its affiliates, directors, officers, or employees with respect to any of the
foregoing. Notwithstanding anything to the contrary contained in this Agreement,
the provisions and restrictions set forth in this Section 7.1 shall
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terminate with respect to an Investor and its affiliates and representatives
immediately on the date of occurrence of any of the following:
(i) when the equity interest of such Investor and its
affiliates and representatives is less than eight (8) percent of the outstanding
Common Stock of the Company at such time, excluding the Series B Preferred to
the extent that the Voting Agreements have expired;
(ii) the Company enters into a definitive agreement with
respect to an Acquisition Proposal;
(iii) when any person or group other than the Investors or
their affiliates acquires or commences a tender offer to acquire more than
thirty-five percent (35%) of any class of equity securities of the Company or
any of the Subsidiaries; or
(iv) when any nominee to the Company's Board of Directors
of an Investor entitled to designate a Series A Director (as defined in the
Certificate) pursuant to Section 3(C)(4)(b) of the Certificate or Section 10.3
hereof who is a reasonable candidate, ready, willing and able to serve, and for
whom Palladin and Reservoir have voted all of their shares, is not elected to,
or kept as a member of, the Company's Board of Directors.
For the purposes of this Section 7.1, an "Acquisition Proposal"
means any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of thirty-five percent (35%) or more of any
class of equity securities of the Company or any of its subsidiaries, any tender
offer or exchange offer that if consummated would result in any person
beneficially owning thirty-five percent (35%) or more of any class of equity
securities of the Company or any of its subsidiaries, any merger, consolidation,
business combination, sale of substantially all of the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries, other than the transactions contemplated by this Agreement, or
any other transaction the consummation of which could reasonably be expected to
materially impede, interfere with, prevent or materially delay the consummation
of the transactions contemplated by this Agreement or which would reasonably be
expected to dilute materially the benefits to the Investors of the transactions
contemplated by this Agreement.
7.2. Short Sales. Certain of the Investors are parties to an
agreement ("Short Sales Agreement") dated the date hereof regarding short sales
rights, and if such Investors engage in short sales transactions, or in
derivative transactions with the economic effect of short sales that
substantially relieve such Investors of the economic risks and benefits of
ownership of equity in the Company (collectively, "Short Sales") in an aggregate
amount totaling, (i) on or before June 24, 2002, more than fifty percent (50%)
of the number of shares of Common Stock which the then current number of Series
A Preferred Stock held by all the Investors are convertible into, either
directly or through affiliates, at any time while holding any of the Series A
Preferred Stock, or (ii) after June 24, 2002, more than the greater of (A) the
aggregate outstanding amount of Short Sales of such Investors as of June 24,
2002 and (B) twenty-five percent (25%) of the number of shares of Common Stock
which the then current number of
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Series A Preferred Stock held by all the Investors are convertible into, either
directly or through affiliates, at any time while holding any of the Series A
Preferred Stock, any such excess shares shall be treated as a sale of the
Investors' equity interests in the Company for purposes of determining the
Investors' rights in the Company, including but not limited to voting rights and
standstill obligations; provided, however, that any Investor not party to the
Short Sales Agreement shall not have any right to engage in Short Sales.
7.3 Commercially Reasonable Efforts of the Investors. The
Investors shall use their commercially reasonable efforts to satisfy all of the
conditions set forth in Section 9.
7.4. Lock-up of ▇▇▇▇▇▇▇▇ Shares. ▇▇▇▇▇▇▇▇ covenants and agrees
with the Principal Investors that except for the pledge of stock to secure loans
made to him by the Company, he will not, during the period commencing on the
date hereof and ending on the two year anniversary of the Closing, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly,
including, without limitation, by entering into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership ("Transfers"), any Series A Preferred, Common Stock or other
securities of the Company held by ▇▇▇▇▇▇▇▇ upon consummation of the transactions
contemplated hereby (including any securities subsequently issued upon
conversion or exchange for such other securities such as Common Stock issued
upon conversion of the Preferred Stock) if, as a result of such Transfer,
▇▇▇▇▇▇▇▇ shall have Transferred, in the aggregate from and after the date
hereof, securities representing more than twenty percent (20%) of the Common
Stock Equivalents (as defined below) held by ▇▇▇▇▇▇▇▇ upon consummation of the
transactions contemplated hereby, whether any such transaction described above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. "Common Stock Equivalents" means shares of Common Stock and the
number of shares of Common Stock into which a Convertible Security (as defined
below) is convertible, exchangeable or exercisable. "Convertible Security" means
the Series A Preferred Stock and any other security convertible into or
exercisable and exchangeable for Common Stock. In addition to the right to make
Transfers as described in the first sentence of this Section 7.4, ▇▇▇▇▇▇▇▇ shall
also be entitled to make Transfers of such additional percentage of the Common
Stock Equivalents held by ▇▇▇▇▇▇▇▇ upon consummation of the transactions
contemplated hereby as is equal to the aggregate cumulative percentage of
Transfers of Common Stock Equivalents made from time to time by the Principal
Investors of their original investment in the Preferred Stock of the Company
since the Closing (the percentage of securities subject to a Transfer by the
Principal Investors shall be measured in the aggregate based on the amount of
Common Stock Equivalents originally acquired by all of them as of the Closing
and shall exclude any Transfers by any of them to a parent corporation,
subsidiary or a Control Affiliate (as defined in Section 13.3)). The
restrictions in the first sentence of this Section 7.4 shall not apply to (a)
shares of Common Stock or other securities acquired in open market transactions
or otherwise after the Closing, (b) Transfers made (1) to ▇▇▇▇▇▇▇▇'▇ spouse,
lineal descendants, father, mother, brother or sister or any trust for the
benefit of any such family member (collectively, "Immediate Family Members") or
(2) to a trust or otherwise for bona fide estate planning purposes if the
beneficiaries of such trust consist solely of ▇▇▇▇▇▇▇▇ and/or his Immediate
Family Members so long as in the case of
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each of (1) and (2) the transferee agrees to be bound by the restrictions of
this Section 7.4 and (c) shares of Common Stock or other securities owned by the
spouse of ▇▇▇▇▇▇▇▇ or any other Immediate Family Member other than any
securities subject to this Section 7.4 that are acquired by a transferee
pursuant to the exception in (b) above. ▇▇▇▇▇▇▇▇ and the Company also agree and
consent if requested by the Principal Investors to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of ▇▇▇▇▇▇▇▇'▇ shares of Common Stock or other securities except in
compliance with the foregoing restrictions.
7.5 Failure to Purchase. Each Investor agrees that, if such
Investor fails to consummate the purchase of the Shares listed on Schedule A by
delivering the purchase price therefor at the Closing, such Investor waives any
and all right to purchase such Shares (the "Lost Shares") and the Company shall
offer to each Principal Investor the right to purchase its pro rata portion
(based on the total number of Shares to be purchased by the Principal Investors)
of the Lost Shares immediately following the Closing.
8. CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING. The obligation
of each Investor to purchase the Shares at the Closing is subject to the
fulfillment, to the satisfaction of such Investor on or prior to the Closing, of
the following conditions:
8.1. Representations and Warranties Correct. The representations
and warranties made by the Company in Section 4 hereof shall be true and correct
when made, and shall be true and correct as of the date of Closing with the same
force and effect as if they had been made on and as of such date, subject to
changes contemplated by this Agreement; and the Company shall have performed all
obligations and conditions herein required to be performed or observed by it on
or prior to the Closing.
8.2. Performance of Obligations. The Company shall have performed
and complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by them on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
8.3. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Principal Investors, and the Principal
Investors shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
8.4. Consents and Waivers. The Company shall have obtained any
and all consents and waivers necessary for consummation of the transactions
contemplated by this Agreement, except for the failure to receive consents and
waivers, which in the aggregate, would not have a Material Adverse Effect on the
Company and the Subsidiaries, taken as a whole.
8.5. Compliance Certificate. At the Closing, the Company shall
deliver to each Investor a certificate, dated the date of Closing, signed by the
Company's President certifying that the conditions specified in Sections 8.1,
8.2, 8.4 and 8.7 have been fulfilled.
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8.6. Securities Laws. The offer and sale of the Shares to the
Investors pursuant to this Agreement shall be exempt from the registration
requirements of the Act and the registration and/or qualification requirements
of all applicable state securities laws.
8.7. Amendment to Certificate. The Certificate shall have been
duly adopted by the Company by all necessary corporate action of its Board of
Directors and stockholders and shall have been duly filed with and accepted by
the Secretary of State of the State of Delaware.
8.8. Opinion of Company's Counsel. Each Investor shall have
received from counsel to the Company an opinion addressed to each Investor,
dated the date of Closing, in form and substance reasonably acceptable to each
Principal Investor.
8.9. Voting Agreements. Holders of forty-two percent (42%) or
more of the outstanding shares of Common Stock of the Company shall have
executed agreements to vote at the Stockholders Meeting to approve and ratify
the issuance and conversion features of the Series B Preferred Stock, and such
agreements shall be valid, binding and in full force and effect as of the
Closing Date.
8.10. ▇▇▇▇▇▇▇▇'▇ Employment Agreement. ▇▇▇▇▇▇▇▇ and the Company
shall have entered into an employment agreement reasonably satisfactory to the
Investors, and such employment agreement shall be in full force and effect as of
the Closing Date.
8.11. Credit Facility; Consent of Lenders. The Company shall have
entered into a new or amended credit facility with its lenders on terms and
conditions satisfactory to each Principal Investor, and such credit facility
shall be available to the Company as of the Closing Date. The Company shall have
also received written approval from each of its lenders to the transactions
contemplated by this Agreement, including, without limitation, the payment of
any dividends payable in kind and accrued and payable under the Shares.
8.12. Nasdaq Listing. The Company shall have received reasonable
assurance, reasonably satisfactory to each Principal Investor, that the shares
of Common Stock underlying the Shares will be approved for listing by The Nasdaq
Stock Market.
8.13. Investors' Designees to the Board of Directors. The Company
shall have nominated to its Board of Directors the Investors' designees to the
Board of Directors, and such Investors' designees shall have been elected to the
Board of Directors on the Closing Date.
8.14. Closing by the Other Investors and ▇▇▇▇▇▇▇▇. Each of the
other Investors is concurrently consummating the purchase of its or his Shares
listed on Schedule A hereto, and ▇▇▇▇▇▇▇▇ has purchased, or is concurrently
purchasing, 571,428 shares of Common Stock of the Company for $1,000,000.
9. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations
of the Company under this Agreement are subject to the fulfillment at or before
the Closing of the following conditions:
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9.1. Representations and Warranties. The representations and
warranties of the Investors contained in Section 5 hereof shall be true and
correct when made, and shall be true and correct as of the date of Closing with
the same force and effect as if they had been made on and as of such date,
subject to changes contemplated by this Agreement; and each Investor shall have
performed all obligations and conditions herein required to be performed or
observed by it or him on or prior to the Closing.
9.2. Payment of Purchase Price. Each Investor (or the Principal
Investors as provided in Section 7.5) shall have delivered to the Company the
purchase price in accordance with the provisions of Section 3, and shall
otherwise have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied by it or him on or before the Closing.
9.3. Securities Exemptions. The offer and sale of the Shares to
the Investors pursuant to this Agreement shall be exempt from the registration
requirements of the Act, and the registration and/or qualification requirements
of all applicable state securities laws.
9.4. Compliance Certificate. At the Closing, each Investor shall
deliver to the Company a certificate, dated the date of Closing, signed by the
Investor in his personal capacity, or by a duly authorized representative of
such Investor, certifying that the conditions specified in Sections 9.1 and 9.2
have been fulfilled.
10. BOARD OF DIRECTORS
10.1. Committees. The Company shall establish or maintain the
following committees of the Board of Directors (and such other committees, as
the Board of Directors deems necessary): compensation committee, real-estate
committee, audit committee and nominating committee. At least one of the
Investors' designees to the Board of Directors shall be represented on all
committees and, the Chief Executive Officer shall be represented on all
committees other than the audit committee and the compensation committee, unless
otherwise provided by law. The compensation committee shall be composed solely
of independent directors (qualifying under Rule 16b-3 under the Securities
Exchange Act of 1934 and Section 162(m) of the Internal Revenue Code).
10.2. Major Decisions. The following actions, without limitation,
will require approval of a majority of the entire Board of Directors: (i) the
issuance of securities (whether equity or debt securities) and (ii) acquisitions
or dispositions of material assets, joint venture arrangements and material or
extraordinary licensing arrangements. The following actions will require
approval of a majority of the Board of Directors and, so long as the Investors
and their affiliates hold, in the aggregate, more than thirty (30%) of the
shares of Series A Preferred Stock originally issued to such Investors and their
affiliates, or more than fifty (50%) of shares of Common Stock received upon
conversion of their Series A Preferred Stock (including any Series A Preferred
Stock on an as-if converted basis), at least one Investors' designee to the
Board of Directors: (x) the incurrence of debt over ten million dollars
($10,000,000), other than debt incurred for the purpose of redeeming in full the
Preferred Stock or refinancing existing debt; provided that such refinancing is
not on terms materially less favorable to the Company, (y)
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the approval of, and any amendment or changes to, the corporate budget, and (z)
the hiring, dismissal, election or removal of the Chairman, Chief Executive
Officer, President, Chief Financial Officer and Chief Operating Officer as well
as any equivalent members of senior management and any material changes to the
terms and conditions of such officers' employment.
10.3. Investors' Designees. So long as the Investors and their affiliates hold,
in the aggregate, (a) more than fifty percent (50%) of their total Series A
Preferred Stock or shares of Common Stock received upon conversion of their
Series A Preferred Stock, they shall be entitled to have two (2) designee
nominated to the Board of Directors and be represented by the Investors'
designees on all Board committees and (b) more than twenty-five percent (25%) of
their total Series A Preferred Stock or shares of Common Stock received upon
conversion of their Series A Preferred Stock, they shall be entitled to have one
designee nominated to the Board of Directors and be represented by and
Investor's designee on all Board committees; provided that the Company may make
the nomination of an Investor designee conditional upon the receipt from such
designee of an agreement to resign from the Board of Directors in the event that
the Investors are no longer entitled to designate a director pursuant to this
Agreement or the Certificate. Notwithstanding anything else to the contrary, the
total number of directors that the Investors are entitled to elect pursuant to
this Agreement and the Certificate shall in no event exceed the total number of
directors the Investors would be entitled to elect pursuant to this Section 10.3
if this Section 10.3 alone were operative. Notwithstanding the foregoing, (i) as
long as Palladin Capital Group, Inc. and its affiliates (collectively, "Palladin
Group") continue to hold at least fifty percent (50%) of the shares of Series A
Preferred originally issued to the Palladin Group or such equivalent number of
shares of Common Stock upon any conversion of such Series A Preferred, the
Company shall cause a Palladin Group designee to be nominated as a Series A
Director, and the Company shall use its best efforts to cause the election of a
Palladin Group designee to the Board of Directors and (ii) as long as Reservoir
Capital Group, L.L.C. and its affiliates and Glenhill Capital LP (collectively,
"Reservoir Group") continue to hold at least fifty percent (50%) of the shares
of Series A Preferred originally issued to the Reservoir Group or such
equivalent number of shares of Common Stock upon any conversion of such Series A
Preferred, the Company shall cause a Reservoir Group designee to be nominated as
a Series A Director, and the Company shall use its best efforts to cause the
election of a Reservoir Group designee to the Board of Directors; provided,
however, that in no event shall the total number of directors which the holders
of the Series A Preferred Stock and the Investors (including Palladin Group and
Reservoir Group as such terms are defined above) are entitled to (i) elect by a
class vote of the Series A Preferred; or (ii) to have nominated for election by
the Company, and have the Company exercise its best efforts to secure the
election of; be greater than two (2) members of the Board of Directors.
11. LIMITATION ON TRANSACTIONS WITH AFFILIATES
As long as any shares of Preferred Stock of the Company remain
outstanding, the Company will not directly or indirectly enter into any
transaction with any of its officers, directors, holders of five percent (5%) or
more of its outstanding shares and the holders of Preferred Stock and their
respective related persons (collectively, "Affiliates"), including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any
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service, with or to any of its Affiliates and investments, loans or advances by
or to any of its Affiliates, except for transactions entered into in good faith
pursuant to the reasonable requirements of the business and on terms
substantially no less favorable than could be obtained from an independent party
as determined by the Board of Directors and each of the Investors' designees to
the Board of Directors.
12. TERMINATION
12.1. Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and two-thirds (2/3) in interest of the Investors.
12.2. Other Termination. This Agreement may be terminated by
action of the Board of Directors of the Company or by any of the Investors at
any time if the Closing shall not have been consummated by April 9, 2001, and
failure to consummate does not result from breach of this Agreement by the
terminating party; provided, however, that the party (or parties) prepared to
close shall retain its (or their) right to ▇▇▇ for any breach by the other party
(or parties).
12.3. Survival. Notwithstanding the termination of this Agreement
pursuant to Sections 12.1, 12.2 or 12.3, the provisions contained in Sections
6.4 (Break-Up Fee), 13.8 (Transaction Fees and Expenses) and 13.9 (Finder's
Fees) shall survive such termination.
13. MISCELLANEOUS
13.1. Governing Law. This Agreement shall be governed in all
respects by the laws of the state of New York without regard to provisions
regarding choice of laws.
13.2. Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any party hereto
and the closing of the transactions contemplated hereby.
13.3. Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto whose rights or obligations hereunder are affected by such
amendments. This Agreement and the rights and obligations therein may not be
assigned by the Investors without the written consent of the Company (not to be
unreasonably withheld) except to a parent corporation, a subsidiary or a Control
Affiliate (as defined below). It is expressly agreed that it shall not be
unreasonable to withhold consent to any assignment to a Competitor (as defined
in the Amended and Restated Investor Rights Agreement). This Agreement and the
rights and obligations therein may not be assigned by the Company without the
written consent of the Investors holding two-thirds (2/3) of the outstanding
Shares. For purposes of this Section 13.3, "Control Affiliate" means: (a) with
respect to a specified person (including, without limitation, Reservoir) (i) any
person directly or indirectly owning, controlling or holding with power to vote
80% or more of the outstanding
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voting securities or other voting ownership interests in the specified person,
(ii) any person 80% or more of whose outstanding voting securities or other
voting ownership interests are directly or indirectly owned, controlled or held
with power to vote by the specified person, (iii) any person 80% or more of
whose outstanding voting securities or other voting ownership interests are
directly or indirectly owned, controlled or held with power to vote by a person
that directly or indirectly owns, controls or holds with power to vote 80% or
more of the outstanding voting securities or other voting ownership interests of
the specified person, (iv) a partnership, limited liability company or other
entity in which the specified person acts as a general partner, managing member,
manager or in a similar capacity and (v) any general partner, managing member or
manager of (or person acting in a similar capacity with respect to) the
specified person; (b) with respect to Reservoir, in addition to any person
covered by clause (a) above, any investment fund, partnership, limited liability
company, corporation or similar collective investment vehicle for which
Reservoir Capital Group, L.L.C. or one of its Control Affiliates acts as general
partner, manager, managing member, principal investment adviser or in a similar
capacity or any managed account or similar contractual arrangement over which
Reservoir Capital Group, L.L.C. or one of its Control Affiliates has a bona fide
investment management relationship; or (c) with respect to Palladin, in addition
to any person covered by clause (a) above, any investment fund, partnership,
limited liability company, corporation or similar collective investment vehicle
for which Palladin or one of its Control Affiliates acts as general partner,
manager, managing member, principal investment adviser or in a similar capacity
or any managed account or similar contractual arrangement over which Palladin
Capital Group, Inc. or one of its Control Affiliates has a bona fide investment
management relationship
13.4. Entire Agreement. This Agreement and the schedules and
exhibits hereto which are hereby expressly incorporated herein by this reference
constitute the entire understanding and agreement between the parties with
regard to the subjects hereof and thereof; provided, however, that nothing in
this Agreement shall be deemed to terminate or supersede the provisions of any
confidentiality and nondisclosure agreements executed by the parties hereto
prior to the Effective Date, which agreements shall continue in full force and
effect until terminated in accordance with their respective terms.
13.5. Notices. Except as may be otherwise provided herein, all
notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been duly
given (a) when hand delivered to the other party; (b) when received when sent by
facsimile at the address and number set forth below; (c) when received after
deposit in the U.S. mail with first class or certified mail receipt requested
postage prepaid and addressed to the other party as set forth below; or (d) when
received after deposit with a national overnight delivery service, postage
prepaid, addressed to the parties as set forth below with next-business-day
delivery guaranteed, provided that the sending party receives a confirmation of
delivery from the delivery service provider.
To the Company:
Restoration Hardware, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
Two Embarcadero Place
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
To Palladin:
Palladin Capital IX, LLC
▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
To Reservoir:
Reservoir Capital Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
To other Investors:
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c/o Morrison & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax Number: ▇▇▇-▇▇▇-▇▇▇▇
Each person making a communication hereunder by facsimile shall
promptly confirm by telephone to the person to whom such communication was
addressed each communication made by it by facsimile pursuant hereto but the
absence of such confirmation shall not affect the validity of any such
communication. A party may change or supplement the addresses given above, or
designate additional addresses, for purposes of this Section 13.5 by giving the
other party written notice of the new address in the manner set forth above.
13.6. Amendments and Waivers. Any term of this Agreement may be
amended only with the written consent of the Company and the holders of two
thirds of the outstanding Shares; provided, however, that any amendment shall
apply equally to all Investors.
13.7. Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to the Company or to the Investors, upon any
breach or default of any party hereto under this Agreement, shall impair any
such right, power or remedy of the Company, or the Investors nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of any similar breach of default thereafter occurring; nor shall any
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of the
Company or the Investors of any breach of default under this Agreement or any
waiver on the part of the Company or the Investors of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to the Company or the Investors
shall be cumulative and not alternative.
13.8. Transaction Fees and Expenses. The Company shall pay
promptly upon receipt of any invoices, all reasonable due diligence fees and
expenses and reasonable attorneys' fees and expenses of all counsel to the
Investors, up to a maximum of $200,000, incurred by the Investors in connection
with the preparation, negotiation, execution and delivery of this Agreement, the
Investors Rights Agreement, the Certificate and the related agreements and
documents and the transactions contemplated hereunder and thereunder. At
Closing, the Company shall pay the amount due for such fees and expenses (which
may include fees and expenses estimated to be incurred for completion of the
transaction including post-closing matters). In the event such amount is
ultimately less than the actual fees and expenses, the Company shall promptly
pay such deficiency upon receipt of an invoice regarding the same. Furthermore,
in the event of any action at law, suit in equity or arbitration proceeding in
relation to this Agreement or any Shares or other securities of the Company
issued or to be issued, the prevailing party shall be paid by the other party a
reasonable sum for attorney's fees and expenses for such prevailing party plus
interest at the prime rate of Bank of America, N.A.
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13.9. Finder's Fees. Except as set forth in Section 13.9 of the
Company's Schedule of Exceptions, each party (a) represents and warrants to the
other parties hereto that he or it has retained no finder or broker in
connection with the transactions contemplated by this Agreement, and (b) hereby
agrees to indemnify and to hold harmless the other parties hereto from and
against any liability for any commission or compensation in the nature of a
finder's fee of any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
indemnifying party or any of its employees or representatives are responsible.
13.10. Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
13.11. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
13.12. Severability. Should any provision of this Agreement be
determined to be illegal or unenforceable, such determination shall not affect
the remaining provisions of this Agreement.
13.13. Specific Performance; Consent to Jurisdiction; Jury Trial.
(a) The Company and the Investors acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
(b) THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF A UNITED STATES DISTRICT COURT SITTING
IN THE STATE OF NEW YORK IF SUCH COURT WILL MAINTAIN JURISDICTION, OR IF A
UNITED STATES DISTRICT COURT SITTING IN THE STATE OF NEW YORK WILL NOT MAINTAIN
JURISDICTION, THE NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES
SITTING IN NEW YORK COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES,
AND AGREES NOT TO ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER. THE COMPANY AND EACH OF THE
INVESTORS CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR
NOTICES TO IT UNDER THIS AGREEMENT AND AGREES
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THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND
NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
(c) THE COMPANY AND EACH INVESTOR HEREBY WAIVES ALL RIGHTS TO A
TRIAL BY JURY.
13.14. Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the matters covered by this
Agreement or any agreement and document executed herewith without the prior
written consent of the Principal Investors (which consent shall not be
unreasonably withheld) or the name of any Investor without the prior written
consent of such Investor (which consent shall not be unreasonably withheld),
unless and until the Company determines in good faith and based on advice of
counsel to the Company that such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. The Company agrees
that it will deliver a copy of any public announcement regarding the matters
covered by this Agreement or any agreement and document executed herewith to the
Principal Investors and any public announcement including the name of an
Investor to such Investor, prior to the release of such announcements. The
Investors agree that the Company may issue one press release announcing this
transaction containing only such disclosure as the Company's counsel determines
is required under the federal securities laws, subject to the requirements of
this Section 13.14.
13.15 Original Series A and B Preferred Stock Purchase Agreement
Superseded. Pursuant to Section 13.6 of the Series A and B Preferred Stock
Purchase Agreement, dated as of March 21, 2001, between the parties hereto (the
"Original Purchase Agreement"), the parties hereto hereby amend and restate the
Original Purchase Agreement to read in its entirety as set forth in this
Agreement, such that as of the date hereof the Original Purchase Agreement is
entirely superseded by this Agreement and the Original Purchase Agreement shall
be of no further force or effect; provided, however, that, so long as the
Company and the holders who hold at least two-thirds of the outstanding shares
have executed this Agreement, all other parties to the Original Purchase
Agreement, whether or not they have executed this Agreement, shall be deemed to
have executed this Agreement and to have received and accepted both the
benefits and the obligations hereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year herein above first written.
RESTORATION HARDWARE, INC. PALLADIN CAPITAL IX, LLC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------- ---------------------------------
---------------------------------- ------------------------------------
Printed Name Printed Name
Managing Member
---------------------------------- ------------------------------------
Title Title
RESERVOIR CAPITAL PARTNERS, L.P.
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
----------------------------------
Printed Name
Managing Member
----------------------------------
Title
RESERVOIR CAPITAL ASSOCIATES, L.P.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
----------------------------------
Printed Name
Managing Member
----------------------------------
Title
RESERVOIR CAPITAL MASTER FUND, L.P.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
----------------------------------
Printed Name
Managing Member
----------------------------------
Title
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GLENHILL CAPITAL LP
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
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Printed Name
Managing Member
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Title
32
33
▇▇▇▇ ▇▇▇▇▇▇▇▇
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33
34
GB RETAIL FUNDING, LLC
By:
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Printed Name
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Title
34
35
▇▇▇▇▇ ▇▇▇▇▇▇▇
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35
36
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & CO., INC., FBO, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇
By:
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Printed Name
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Title
36
37
BM PARTNERS I
By:
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Printed Name
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Title
37
38
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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38
39
▇▇▇▇▇▇ ▇▇▇▇▇▇
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39
40
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
By:
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Printed Name
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Title
40
41
BUILDING C PARTNERS
By:
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Printed Name
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Title
41
42
TAMARACK INVESTMENTS II, LLC
By:
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Printed Name
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Title
42
43
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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44