Exhibit 2
STOCK PURCHASE AGREEMENT
AVALON COMMUNITY SERVICES, INC.
the "Company"
and
RSTW PARTNERS III, L.P.
the "Purchaser"
September 16, 1998
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") dated as of September 11,
1998, is by and between AVALON COMMUNITY SERVICES, INC., a Nevada corporation
doing business as Avalon Correctional Services, Inc. (the "Company"), and RSTW
PARTNERS III, L.P., a Delaware limited partnership ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Company, Southern Corrections Systems, Inc., an Oklahoma
corporation ("SCS"), and Purchaser have entered into a Note Purchase Agreement
(the "Note Agreement") dated of even date with this Agreement;
WHEREAS, the Company, certain shareholders of the Company and Purchaser
have entered into a Shareholder Agreement (the "Shareholder Agreement") dated of
even date with this Agreement; and
WHEREAS, Purchaser is willing to enter into and consummate the transactions
contemplated by the Note Agreement only if, among other things, the Company and
certain shareholders of the Company enter into, and perform under, this
Agreement and the Shareholder Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Purchaser and the
Company, intending to be legally bound, agree as follows:
Article I
Definitions
As used in this Agreement, the following terms have the meanings indicated:
Adjustment Fair Market Value. With respect to the issuance of any Capital
Stock by the Company, and as of any date of determination, the lesser of
(a) the Fair Market Value or (b) the purchase price in cash that a Person
not an Affiliate of the Company offers to the Company for such Capital
Stock (provided that the Company has received an opinion from an
independent investment banker acceptable to the Holders that such purchase
price is fair and reasonable under the circumstances).
Affiliate. With respect to any Person, (a) a Person that, directly or
indirectly or through one or more intermediaries, controls, is controlled
by, or is under common control with, such Person; (b) any Person of which
such Person or such Person's spouse is an officer, director, security
holder, partner, or, in the case of a trust, the beneficiary or trustee,
and (c) any Person that is an officer, director, security holder, partner,
or, in the case of a trust, the beneficiary or trustee of such Person. The
term "control" as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of such Person, whether through the ownership of
voting securities, by contract, or otherwise.
Agreement. This term is defined in the preamble.
Appraised Value. The value determined in accordance with the following
procedures. For a period of thirty (30) days after the date of a Valuation
Event (the "Negotiation Period"), each party to this Agreement agrees to
negotiate in good faith to reach agreement upon the Appraised Value of the
securities or property at issue, as of the date of the Valuation Event,
which will be the fair market value of such securities or property, without
premium for control or discount for minority interests, illiquidity, or
restrictions on transfer. In the event that the parties are unable to agree
upon the Appraised Value of such securities or other property by the end of
the Negotiation Period, then the Appraised Value of such securities or
property will be determined for purposes of this Agreement by a recognized
appraisal or investment banking firm mutually agreeable to the Holders and
the Company (the "Appraiser"). If the Holders and the Company cannot agree
on an Appraiser within fifteen (15) days after the end of the Negotiation
Period, the Company, on the one hand, and the Holders, on the other hand,
shall each select an Appraiser within twenty-one (21) days after the end of
the Negotiation Period and those two Appraisers shall select within
twenty-five (25) days after the end of the Negotiation Period an
independent Appraiser to determine the fair market value of such securities
or property, without premium for control or discount for minority
interests. Such independent Appraiser shall be directed to determine fair
market value of such securities or property as soon as practicable, but in
no event later than thirty (30) days from the date of its selection. The
determination by an Appraiser of the fair market value will be conclusive
and binding on all parties to this Agreement. Appraised Value of each share
of Common Stock at a time when (i) the Company is not a reporting company
under the Exchange Act and (ii) the Common Stock is not traded in the
organized securities markets, will, in all cases, be calculated by
determining the Appraised Value of the entire Company taken as a whole and
dividing that value by the sum of (x) the number of shares of Common Stock
then outstanding plus (y) the number of shares of Common Stock Equivalents,
without premium for control or discount for minority interests,
illiquidity, or restrictions on transfer. The costs of the Appraiser will
be borne by the Company. In no event will the Appraised Value of the Common
Stock or Other Securities be less than the per share consideration received
or receivable with respect to the Common Stock or securities or property of
the same class as the Other Securities, as the case may be, in connection
with a pending transaction involving a sale, merger, recapitalization,
reorganization, consolidation, or share exchange, dissolution of the
Company, sale or transfer of all or a majority of its assets or revenue or
income generating capacity, or imilar transaction. The prevailing market
prices for any security or property will not be dispositive of the
Appraised Value thereof.
Appraiser. This term is defined in the definition of Appraised Value.
Average Market Value. The average of the Closing Price for the security in
question for the thirty (30) trading days immediately preceding the date of
determination.
Buyer. This term is defined in Section 5.02(a)(ii) of the Shareholder
Agreement.
Capital Stock. As to any Person, its common stock and any other capital
stock of such Person authorized from time to time, and any other shares,
options, interests, participations, or other equivalents (however
designated) of or in such Person, whether voting or nonvoting, including,
without limitation, common stock, options, warrants, preferred stock,
phantom stock, stock appreciation rights, preferred stock, convertible
notes or debentures, stock purchase rights, and all agreements,
instruments, documents, and securities convertible, exercisable, or
exchangeable, in whole or in part, into any one or more of the foregoing.
Change of Control. This term is defined in Section 11.1 of the Note
Agreement.
Closing Date. September 11, 1998.
Closing Price.
(a) If the primary market for the security in question is a national
securities exchange registered under the Exchange Act or other market or
quotation system in which last sale transactions are reported on a
contemporaneous basis, the last reported sales price, regular way, of such
security for such day, or, if there has not been a sale on such trading
day, the highest closing or last bid quotation therefor on such trading day
(excluding, in any case, any price that is not the result of bona fide
arm's length trading); or
(b) If the primary market for such security is not an exchange or
quotation system in which last sale transactions are contemporaneously
reported, the highest closing or last bona fide bid quotation by
disinterested Persons in the over-the-counter market on such trading day as
reported by the National Association of Securities Dealers or such other
generally accepted source of publicly reported bid quotations as the
Holders designate.
Common Stock. The common stock, par value $.001 per share, of the Company.
Common Stock Equivalent. Any option, warrant, right, or similar security
exercisable into, exchangeable for, or convertible into Common Stock.
Commission. The Securities and Exchange Commission and any successor
federal agency having similar powers.
Company. Avalon Community Services, Inc., a Nevada corporation doing
business as Avalon Correctional Services, Inc., and any successor or
assign, and, unless the context requires otherwise, the term Company
includes any Subsidiary.
Convertible Note Agreement. The Debenture Purchase Agreement dated as of
August 26, 1997 by and between Company and the purchasers listed on
Schedule A thereto, as in effect on the Closing Date.
Convertible Notes. The Company's 7.5% Convertible Debentures due August 26,
2007 and September 12, 2007, respectively, in the aggregate principal
amount of $4,150,000, issued pursuant to the Convertible Note Agreement.
Co-Sell Shares. This term is defined in Section 5.02(c) of the Shareholder
Agreement.
Co-Sellers. This term is defined in Section 5.02(c) of the Shareholder
Agreement.
Dilution Fee. This term is defined in Article III of the Shareholder
Agreement.
Election Notice. This term is defined in Section 5.02(b) of the Shareholder
Agreement.
Employment Agreement. This term is defined in Section 11.1 of the Note
Agreement.
Exchange Act. The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Common Stock. This term is defined in Section 6.12 of the
Shareholder Agreement.
Exchange Company. This term is defined in Section 6.12 of the Shareholder
Agreement.
Exchange Notice. This term is defined in Section 6.12 of the Shareholder
Agreement.
Fair Market Value.
(a) As to securities regularly traded in the organized securities
markets, the Average Market Value; and
(b) as to all securities not regularly traded in the securities markets
and other property, the fair market value of such securities or property as
determined in good faith by the Board of Directors of the Company at the
time it authorizes the transaction (a "Valuation Event") requiring a
determination of Fair Market Value under this Agreement; provided, however,
that, at the election of the Holders, the Fair Market Value of such
securities and other property will be the Appraised Value.
GAAP. The generally accepted accounting principles, applied on a consistent
basis, as set forth in Opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question,
provided, that the Company may not change the use or application of any
accounting method, practice or principle without the prior written consent
of Purchaser, which consent may require that an adjustment be made to any
and all the financial covenants and the capital expenditure covenant set
forth herein. Accounting principles are applied on a "consistent basis"
when the accounting principles observed in a current period are comparable
in all material respects to those accounting principles applied in a
preceding period.
Holders. Purchaser and all Persons holding Registrable Securities, except
that neither the Company nor any Shareholder nor any Affiliate of the
Company or the Shareholder will at any time be a Holder. Unless otherwise
provided in this Agreement, in each instance that the Holders are required
to request or consent in concert to an action, the Holders will be deemed
to have requested or consented to such action if the Holders of a
majority-in-interest of the Registrable Securities so request or consent.
Indebtedness. For any Person: (a) all indebtedness, whether or not
represented by bonds, debentures, notes, securities, or other evidences of
indebtedness, for the repayment of money borrowed, (b) all indebtedness
representing deferred payment of the purchase price of property or assets,
(c) all indebtedness under any lease which, in conformity with GAAP, is
required to be capitalized for balance sheet purposes and leases of
property or assets made as a part of any sale and lease-back transaction if
required to be capitalized, (d) all indebtedness under guaranties,
endorsements, assumptions, or other contractual obligations, including any
letters of credit, or the obligations in respect of, or to purchase or
otherwise acquire, indebtedness of others, (e) all indebtedness secured by
a Lien existing on property owned, subject to such Lien, whether or not the
indebtedness secured thereby shall have been assumed by the owner thereof,
and (f) all amendments, renewals, extensions, modifications and refundings
of any indebtedness or obligations referred to in clauses (a), (b), (c),
(d) or (e).
Indemnified Party. This term is defined in Section 6.01 hereof and in
Section 10.01 of the Shareholder Agreement.
Initial Holders. Purchaser and any Affiliate of Purchaser to which any of
the Shares or any part of or interest in the Shares is transferred or
assigned.
Intellectual Property. This term is defined in Section 3.01(g).
Lien. Any lien, mortgage, security interest, tax lien, pledge, encumbrance,
financing statement, or conditional sale or title retention agreement, or
any other interest in property designed to secure the repayment of
Indebtedness or any other obligation, whether arising by agreement,
operation of law, or otherwise.
Negotiation Period. This term is defined in the definition of Appraised
Value.
New Securities. Any Capital Stock other than (a) the Shares, (b) the
Permitted Stock, (c) Capital Stock issued by the Company to any Person to
pay all or part of the purchase price of any Permitted Acquisition, and (d)
Capital Stock issued in a Qualified Secondary Public Offering.
Note. All or any portion of any of the Senior Subordinated Note (as defined
in the Note Agreement) and any and all documents evidencing the
indebtedness under the Note and any refinancing, refunding, or replacement
of the Note.
Note Agreement. This term is defined in the preamble and includes the Note
Purchase Agreement of even date with this Agreement between the Company and
Purchaser and all documents evidencing indebtedness thereunder or otherwise
related to the Note Agreement as the same may be amended from time to time,
and any refinancing, refunding, or replacements of the indebtedness under
the Note Agreement.
Notice of Sale. This term is defined in Section 5.02(a) of the Shareholder
Agreement.
Other Securities. Any stock, other securities, property, or rights that the
Holders become entitled to receive as a result of owning the Shares.
Permitted Acquisition. This term is defined in Section 11.1 of the Note
Agreement.
Permitted Stock. The Common Stock and/or options or warrants to acquire
Common Stock set forth on Schedule I attached hereto, issued or reserved
for issuance to the Persons set forth on Schedule I.
Person. This term will be interpreted broadly to include any individual,
sole proprietorship, partnership, joint venture, trust, unincorporated
organization, association, corporation, company, institution, entity,
party, or government (whether national, federal, state, county, city,
municipal, or otherwise, including, without limitation, any
instrumentality, division, agency, body, or department of any of the
foregoing).
Purchaser. This term is defined in the preamble.
Put Option. This term is defined in Section 4.01 of the Shareholder
Agreement.
Put Option Closing. This term is defined in Section 4.05 of the Shareholder
Agreement.
Put Option Period. This term is defined in Section 4.01 of the Shareholder
Agreement.
Put Price. This term is defined in Section 4.02 of the Shareholder
Agreement.
Put Shares. The Shares plus any other shares of Capital Stock issued to any
Holder from time to time pursuant to Section 2.07 as a result of owning the
Shares.
Qualified Secondary Public Offering. A firm commitment underwritten public
offering of Common Stock to the general public pursuant to one or more
registration statements declared effective by the Commission which results
in gross cash proceeds of at least $25,000,000.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
Registrable Securities. (a) The Shares and (b) the Other Securities.
Related Party. An entity wholly owned by a Selling Shareholder or one or
more Related Parties.
RSTW. RSTW Partners III, L.P., a Delaware limited partnership.
Selling Shareholder. This term is defined in Section 5.02 of the
Shareholder Agreement.
Securities Act. The Securities Act of 1933, as amended, and the rules and
regulations thereunder.
Senior Lender. This term is defined in Section 11.1 of the Note Agreement.
Senior Loan Agreement. This term is defined in Section 11.1 of the Note
Agreement.
Senior Loan Documents. This term is defined in Section 11.1 of the Note
Agreement.
Shareholder and Shareholders. This term is defined in the preamble of the
Shareholder Agreement.
Shareholder Agreement. This term is defined in the preamble and includes
the Shareholder Agreement dated as of the Closing Date between the Company,
certain shareholders of the Company and Purchaser in substantially the form
attached to this Agreement as Annex A and incorporated in this Agreement by
reference.
Shares. The 1,622,448 shares of Common Stock referred to in Section 2.01
issued to Initial Holders on the Closing Date, and all securities issued
upon the subdivision, combination or reclassification, or in respect of, or
in substitution for, such shares of Common Stock.
Subsidiary. Each Person of which or in which the Company or its other
Subsidiaries own directly or indirectly fifty-one percent (51%) or more of
(i) the combined voting power of all classes of stock having general voting
power under ordinary circumstances to elect a majority of the board of
directors or equivalent body of such Person, if it is a corporation or
similar person; (ii) the capital interest or profits interest of such
Person, if it is a partnership, joint venture, or similar entity; or (iii)
the beneficial interest of such Person, if it is a trust, association, or
other unincorporated organization.
Valuation Event. This term is defined in the definition of Fair Market
Value.
Article II
The Shares
2.01 The Shares. On the Closing Date, Purchaser agrees to purchase from the
Company for the purchase price set forth beneath the name of Purchaser on the
signature page of this Agreement, and the Company agrees to issue to Purchaser,
the Shares, all in accordance with the terms and conditions of this Agreement.
2.02 Legend. The Company will deliver to Purchaser on the Closing Date one
or more certificates representing the Shares purchased by Purchaser in such
denominations as Purchaser requests. Such certificates will be issued in
Purchaser's name or in the name or names of its designee or designees, as the
case may be. It is understood and agreed that the certificates evidencing the
Shares will bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR FOR SALE. THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY
NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL
APPLICABLE STATE SECURITIES LAWS."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
PROVISIONS OF A STOCK PURCHASE AGREEMENT AND A SHAREHOLDER AGREEMENT, EACH
DATED AS OF SEPTEMBER 16, 1998, BETWEEN AVALON COMMUNITY SERVICES, INC.
(THE "COMPANY") AND RSTW PARTNERS III, L.P., AMONG OTHERS (AS SUCH
AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO
TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE AVAILABLE AT THE
EXECUTIVE OFFICES OF THE COMPANY."
2.03 Taxes. The issuance of the Shares and any Other Securities will be
made without charge to any Holder for any tax, other than income taxes assessed
on such Holder, in respect of such issuance.
2.04 Stock Register. The Company will, at all times while any of the Shares
remain outstanding, keep and maintain at its principal office or other location
a register in which the registration, transfer, and exchange of the Shares will
be provided for. The Company will not at any time, except upon the dissolution,
liquidation, or winding up of the Company, close such register so as to result
in preventing or delaying the transfer of any Shares.
2.05 Transfer and Exchange. The Shares and all options and rights under the
Shares are transferable, as to all or any part of the Shares, by the Holders of
the Shares, in person or by duly authorized attorney, on the books of the
Company upon surrender of the certificates representing the Shares at the
principal offices of the Company, together with the form of transfer
authorization attached to the certificates representing the Shares duly
executed. Absent any such transfer and subject to the Shareholder Agreement, the
Company may deem and treat the registered Holders of the Shares at any time as
the absolute owners of the Shares for all purposes and will not be affected by
any notice to the contrary. If any of the Shares are transferred in part, the
Company will, at the time of surrender of the certificate representing such
Shares, issue to the transferee a certificate representing the Shares
transferred and to the transferor a certificate representing the Shares not
transferred.
2.06 Lost, Stolen, Mutilated, or Destroyed Certificates. If any certificate
representing the Shares is lost, stolen, mutilated, or destroyed, the Company
will issue a new certificate of like denomination, tenor, and date as the
certificate so lost, stolen, mutilated, or destroyed. Any such new certificate
will constitute a binding obligation of the Company, whether or not the
allegedly lost, stolen, mutilated, or destroyed certificate is at any time
enforceable by any Person.
2.07 Adjustments to Number of Shares Purchasable.
(a) The number of shares of Common Stock constituting Shares shall be
adjusted, to the extent necessary, to give effect (without duplication) to
the following events:
(i) In case at any time or from time to time, the holders of any
class of Common Stock or Common Stock Equivalent have received, or (on
or after the record date fixed for the determination of shareholders
eligible to receive) have become entitled to receive, without payment
therefor:
(A) consideration (other than cash) by way of dividend or
distribution; or
(B) consideration (including cash) by way of spin-off,
split-up, reclassification (including any reclassification in
connection with a consolidation or merger in which the Company is
the surviving corporation), recapitalization, combination of
shares into a smaller number of shares, or similar corporate
restructuring;
other than additional shares of Common Stock issued as a stock dividend
or in a stock-split (adjustments in respect of which are provided for
in Sections 2.07(a)(ii) and (iii)), then, and in each such case, the
Holders will be entitled to receive for each Share, as of the record
date fixed for such distribution, the greatest per share amount of
consideration received by any holder of any class of Common Stock or
Common Stock Equivalent or to which such holder is entitled less the
amount of any Dilution Fee actually and irrevocably paid to such
Holders. All such consideration receivable with respect to such a
distribution will be deemed to be outstanding and owned by the Holders
for purposes of determining the amount of consideration to which the
Holders are entitled with respect to any subsequent distribution.
(ii) If at any time there occurs any stock split, stock dividend
or distribution (including, without limitation, any distribution of
Common Stock to the holders of the Convertible Notes in lieu of cash
interest payments thereon), reverse stock split, or other subdivision
of the Common Stock, then the number of Shares will be proportionately
adjusted.
(iii) In case of any reclassification or change of outstanding
shares of any class of Common Stock or Common Stock Equivalent (other
than a change in par value, or from par value to no par value, or from
no par value to par value), or in the case of any consolidation of the
Company with, or merger or share exchange of the Company with or into,
another Person, or in case of any sale of all or a majority of the
property, assets, business, income or revenue generating capacity, or
goodwill of the Company, the Company, or such successor or other
Person, as the case may be, will provide that the Holders of the Shares
will thereafter be entitled to receive the highest per share kind and
amount of consideration received or receivable (including cash) upon
such reclassification, change, consolidation, merger, share exchange,
or sale by any holder of any class of Common Stock or Common Stock
Equivalent that the Shares entitle the Holders to receive immediately
prior to such reclassification, change, consolidation, merger, share
exchange, or sale (as adjusted pursuant to Section 2.07(a)(i) and
otherwise in this Agreement). Any such successor Person, which
thereafter will be deemed to be the Company for purposes of the Shares,
will provide for adjustments that are as nearly equivalent as may be
possible to the adjustments provided for by this Section 2.07.
(iv) If at any time the Company issues or sells any shares of any
Common Stock or any Common Stock Equivalent, other than Permitted
Stock, at a per unit or share consideration (which consideration will
include the price paid upon issuance plus the minimum amount of any
exercise, conversion, or similar payment made upon exercise or
conversion of any Common Stock Equivalent) less than the Adjustment
Fair Market Value (which determination shall exclude any underwriter
commissions or discounts payable in respect of any such issuance) per
share of Common Stock immediately prior to the time such Common Stock
or Common Stock Equivalent is issued or sold (the "Additional
Securities"), then the number of shares of Common Stock issued to all
Holders will equal the aggregate number of Common Stock set forth
beneath the name of each Purchaser on the signature pages of this
Agreement, as adjusted upwards by taking the product of the Adjustment
Fair Market Value of the Shares multiplied by a fraction, the numerator
of which is the total Adjustment Fair Market Value of the Shares (i.e.,
the number of shares of Common Stock held by such Holder multiplied by
the Adjustment Fair Market Value per share) plus the total
consideration paid to Company for the Additional Securities (i.e., the
number of Additional Securities multiplied by the price per share paid
to the Company), and the denominator of which is the total number of
shares of Common Stock outstanding after the issuance of the Additional
Securities (for purposes of this Section 2.07(iv), the date as of which
the Adjustment Fair Market Value per share of Common Stock will be
computed will be the earlier of the date upon which the Company (aa)
enters into a firm contract for the issuance of such shares, or (bb)
issues such shares); and
(v) In case any event occurs as to which the preceding Sections
2.07(a)(i) through (iv) are not strictly applicable, but as to which
the failure to make any adjustment would not fairly protect the
purchase rights represented by the Shares in accordance with the
essential intent and principles of this Agreement, then, in each such
case, the Holders may appoint an independent investment bank or firm of
independent public accountants, which will give its opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this Agreement, necessary to preserve the
purchase rights represented by the Shares. Upon receipt of such
opinion, the Company will promptly deliver a copy of such opinion to
the Holders and will make the adjustments described in such opinion.
The fees and expenses of such investment bank or independent public
accountants will be borne by the Company.
(b) The Company will not by any action, including, without limitation,
amending, or permitting the amendment of, the charter documents, bylaws, or
similar instruments of the Company or through any reorganization,
reclassification, transfer of assets, consolidation, merger, share
exchange, dissolution, issue or sale of securities, or any other similar
voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Agreement or the Shares, but will at all times in
good faith assist in the carrying out of all such terms and in the taking
of all such actions as may be necessary or appropriate to protect the
rights of the Holders against impairment or dilution. Without limiting the
generality of the foregoing, the Company will (i) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock and Other
Securities, free and clear of all liens, encumbrances, equities, and claims
and (ii) use its best efforts to obtain all such authorizations,
exemptions, or consents from any public regulatory body having jurisdiction
as may be necessary to enable the Company to perform its obligations under
the Shares. Without limiting the generality of the foregoing, the Company
represents and warrants that the board of directors of the Company has
determined the purchase price for the Shares to be adequate and the
issuance of the Shares to be in the best interests of the Company.
(c) Any calculation under this Section 2.07 will be made without
rounding, using fractions expressed with a numerator and a denominator. The
number of Shares resulting from such calculations will be expressed as such
a fraction and the Company and any successor will issue such fractional
shares with respect to such shares and will not issue scrip, cash, or
property in lieu of fractional shares.
(d) Except for preferred stock issued by the Company for Fair Market
Value to any Person to pay all or part of the purchase price of any
Permitted Acquisition, the Company will not issue any Capital Stock other
than Common Stock and Common Stock Equivalents, and will not permit any
Subsidiary to issue any Capital Stock (other than the shares of Capital
Stock owned, directly or indirectly, by the Company on the Closing Date).
Article III
Representations and Warranties
3.01 Representations and Warranties of the Company. The Company represents
and warrants to Purchaser that:
(a) The Company is a corporation duly organized and existing and in
good standing under the laws of its state of incorporation and is qualified
or licensed to do business in all other countries, states, and
jurisdictions the laws of which require it to be so qualified or licensed.
The Company has no Subsidiaries or debt or equity investment in any Person
except as set forth on Schedule 4.15 to the Note Agreement. No Person has
any rights, whether granted by the Company or any other Person, to acquire
any portion of the equity interest of the Company or the assets of the
Company except as set forth on Schedule 4.15 to the Note Agreement.
(b) The Company has, and at all times that this Agreement is in force
will have, the right and power, and is duly authorized, to enter into,
execute, deliver, and perform this Agreement and the Shareholder Agreement,
and the officers of Company executing and delivering this Agreement and the
Shareholder Agreement are duly authorized to do so. This Agreement and the
Shareholder Agreement have been duly and validly executed, issued and
delivered and constitute the legal, valid and binding obligations of
Company, enforceable in accordance with their respective terms.
(c) The execution, delivery and performance of this Agreement and the
Shareholder Agreement will not, by the lapse of time, the giving of notice,
or otherwise, constitute a violation of any applicable provision contained
in the charter, bylaws, or organizational documents of the Company or
contained in any agreement, instrument, or document to which the Company is
a party or is bound.
(d) As of the Closing Date, the authorized capital stock of the Company
consists of (i) 20,000,000 shares of Common Stock, of which 3,041,880
shares are issued and outstanding and owned of record by the persons
designated on Schedule I attached hereto, (ii) 4,000,000 shares of Series B
common stock, no par value per share, of which -0- shares are issued and
outstanding and owned of record by the persons designated on Schedule I
attached hereto, and (iii) 1,000,000 shares of preferred stock, $.001 par
value per share, of which -0- shares are issued and outstanding and owned
of record by the persons designated on Schedule I attached hereto. All such
issued and outstanding shares have been duly authorized and validly issued,
are fully paid and nonassessable, and have been offered, issued, sold, and
delivered by Company free from preemptive rights, rights of first refusal,
or similar rights and in compliance with applicable federal and state
securities laws. Except pursuant to this Agreement and except for the
Permitted Stock, the Company is not obligated to issue or sell any Capital
Stock, and, except for this Agreement and the Shareholder Agreement,
neither the Company nor the Shareholder is party to, or otherwise bound by,
any agreement affecting the voting of any Capital Stock. Except for the
Shareholder Agreement and the Convertible Note Agreement, existing warrant
agreements, and underwriter warrant agreements previously issued, the
Company is not, nor will it be, a party to, or otherwise bound by, any
agreement obligating it to register any of its Capital Stock.
(e) The Shares have been duly and validly authorized and, when issued
in accordance with the terms of this Agreement will be validly issued,
fully paid, and nonassessable and free of preemptive rights, rights of
first refusal, or similar rights.
(f) The Company has good, indefeasible, merchantable, and marketable
title to, and ownership of, all of its assets free and clear of all liens,
pledges, security interests, claims, or other encumbrances except those in
favor of (i) the Purchaser pursuant to the Note Agreement or (ii) the
Senior Lender pursuant to the Senior Loan Documents.
(g) The Company has the exclusive right to use all patents, patent
rights, patent applications, licenses, inventions, trade secrets, know-how,
proprietary techniques, including processes and substances, trademarks,
service marks, trade names, and copyrights used in or necessary or
desirable to its business as presently, or presently proposed to be,
conducted (the "Intellectual Property"), and the use by the Company of the
Intellectual Property does not infringe the rights of any other Person. No
other Person is infringing the rights of the Company in any of the
Intellectual Property. The Company owes no royalties, honoraria, or fees to
any Person by reason of its use of any of Intellectual Property.
(h) There is not now, and at no time during the term of this Agreement
or the Shareholder Agreement will there be, any agreement, arrangement, or
understanding involving the Company or any shareholder of the Company,
other than this Agreement, the Shareholder Agreement, and the documents
contemplated hereby and thereby, modifying, restricting, or in any way
affecting the rights of any security holder to vote securities of the
Company.
(i) Each of the representations and warranties made by the Company
pursuant to the Note Agreement and the Shareholder Agreement is true and
correct.
(j) None of the documents, instruments, or other information furnished
to the Purchaser by the Company, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to
make any statements made therein not misleading. No representation,
warranty, or statement made by the Company in this Agreement, the Note
Agreement, the Shareholder Agreement or in any document, certificate,
exhibit or schedule attached hereto or thereto or delivered in connection
herewith or therewith, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to
make any statements made herein or therein not misleading. There is no fact
that materially and adversely affects the condition (financial or
otherwise), results of operations, business, properties, or prospects of
the Company or any of its Subsidiaries that has not been disclosed in the
documents provided to Purchaser.
(k) The Company has filed with the Commission all proxy statements and
periodic reports required to be filed by it under the Exchange Act
(collectively, the "SEC Reports"). The Company has furnished or made
available to the Purchaser copies of the SEC Reports, each as filed with
the Commission. Each SEC Report was in compliance in all respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder and did not on the date of its filing (and the SEC
Reports as a whole will not on the Closing Date, except as otherwise
disclosed to the Purchaser in writing), contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.02 Representations and Warranties of Purchaser. Purchaser represents and
warrants to the Company:
(a) It is a limited partnership duly organized and existing and in good
standing under the laws of the state of its organization.
(b) It has the right and power and is duly authorized to enter into,
execute, deliver, and perform this Agreement and the Shareholder Agreement,
and its partners, officers or agents executing and delivering this
Agreement and the Shareholder Agreement are duly authorized to do so. This
Agreement and the Shareholder Agreement have been duly and validly
executed, issued, and delivered and constitute the legal, valid, and
binding obligation of Purchaser, enforceable in accordance with its terms.
(c) It (i) is an "accredited investor," as that term is defined in
Regulation D under the Securities Act; and (ii) has such knowledge, skill,
and experience in business and financial matters, based on actual
participation, that it is capable of evaluating the merits and risks of an
investment in the Company and the suitability thereof as an investment for
Purchaser.
(d) Except as otherwise contemplated by this Agreement and the
Shareholder Agreement, Purchaser is acquiring the Shares for investment for
its own account and not with a view to any distribution thereof in
violation of applicable securities laws.
(e) It agrees that the certificates representing the Shares will bear
the legends referenced in this Agreement, and the Shares, will not be
offered, sold, or transferred in the absence of registration or exemption
under applicable securities laws.
Article IV
Covenants
The Company covenants and agrees as follows:
4.01 Financial Statements. The Company will keep books of account and
prepare financial statements and will cause to be furnished to Purchaser or
other Holder (all of the foregoing and following to be kept and prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis):
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Company (unless the Company has
requested an extension from the Commission regarding the date of filing of
the Company's Form 10-K, in which case the ninety (90) day period
referenced above shall instead be one hundred-five (105) days), beginning
with the fiscal year ending December 31, 1998, (i) a copy of the financial
statements of the Company for such fiscal year containing a balance sheet,
statement of income, statement of stockholders' equity, and statement of
cash flow as at the end of such fiscal year and for the fiscal year then
ended, in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and audited by Grant
Thornton, LLP or any "Big Four" firm of independent certified public
accountants (or any other firm of independent certified public accountants
of recognized national standing selected by the Company and consented to by
the Holders to the effect that such financial statements have been prepared
in accordance with GAAP; (ii) a letter from such independent certified
public accountants confirming the calculations set forth in the officers'
certificate delivered simultaneously therewith in accordance with Section
4.01(g); and (iii) the Company's unaudited comparison of the actual results
during such fiscal year to those originally budgeted by the Company prior
to the beginning of such fiscal year, along with management's discussion
and analysis of variances, as well as, variances between actual results for
such fiscal year and actual results for the previous fiscal year. The
annual audit report required hereby shall not be qualified on the basis
that the Company is not a going concern or otherwise qualified or limited
because of restricted or limited examination by the accountant of any
material portion of any of the records of the Company.
(b) As soon as available, and in any event within thirty (30) days
after the end of each calendar month, a copy of an unaudited financial
report of the Company as of the end of such calendar month and for the
portion of the fiscal year then ended, containing balance sheets,
statements of income, and statements of cash flow, in each case setting
forth in comparative form the figures for the corresponding period of the
preceding fiscal year, along with management's discussion and analysis all
in reasonable detail, including, without limitation, a comparison of the
actual results for such period to those originally budgeted by the Company
prior to the beginning of such fiscal period and for the fiscal year to
date.
(c) Simultaneously with the delivery of financial information pursuant
to Section 4.01(b) in respect of any month which is the last month of any
fiscal quarter, management's discussion and analysis of variances between
the results for the portion of the current fiscal year ended on the last
day of such fiscal quarter and the corresponding period of the preceding
fiscal year.
(d) As soon as available, and in any event within 60 days after the
Closing Date, an unaudited balance sheet of the Company, dated as of the
Closing Date, which gives effect to the issuance of the Senior Subordinated
Note and the Securities Documents, and the financing transactions
contemplated by the Senior Loan Agreement as if all commitments therein
available to the Company as of the Closing Date were fully utilized,
certified by the Chief Executive Officer and the Vice President of Finance
of the Company as fairly presenting the Company's financial position.
(e) On or before thirty (30) days prior to the beginning of each fiscal
year of the Company, an annual budget or business plan for such fiscal
year, including a projected consolidated and consolidating balance sheet,
income statement, and cash flow statement for such year, and, promptly
during each fiscal year, all revisions thereto approved by the Board of
Directors of the Company.
(f) as soon as available, copies of all final reports or letters
submitted to the Company by its independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of the Company made by such accountants, including, without
limitation, any management report, and the Company agrees to obtain such a
report in connection with each of the annual audits.
(g) Concurrently with the delivery of each of the financial statements
referred to in Section 4.01(a) and Section 4.01(b), a certificate of an
authorized officer of the Company in the form of the officer's certificate
attached to the Note Agreement as Exhibit C (i) stating that the financial
statements attached have been prepared in accordance with GAAP and fairly
and accurately present (subject to year-end audit adjustments, for the
annual certificates) the financial condition and results of operations of
the Company at the date and for the period indicated therein, (ii)
containing summaries of accounts payable (including a list of any payables
that are more than thirty (30) days past due), accounts receivable agings,
and inventory, (iii) (A) containing a schedule of the outstanding
Indebtedness for borrowed money of the Company describing in reasonable
detail each such debt issue or loan outstanding, the name, address and
telephone/fax numbers of each of the holders or lenders, as the case may
be, of such debt issue or loan outstanding, the principal amount and amount
of accrued and unpaid interest with respect to each such debt issue or loan
outstanding and (B) making a statement in respect each thereof similar to
statement required in clause (g)(i) above.
(h) As soon as available, (i) a copy of each financial statement,
report, notice or proxy statement sent by the Company to its stockholders
in their capacity as stockholders, (ii) a copy of each regular, periodic or
special report, registration statement, or prospectus filed by the Company
with any securities exchange or the Commission or any successor agency,
(iii) any material order issued by any court, governmental authority, or
arbitrator in any material proceeding to which the Company is a party, (iv)
copies of all press releases and other statements made available generally
by the Company to the public generally concerning material developments in
the Company's business, and (v) a copy of all correspondence and reports
sent by the Company to the Senior Lender (except for ordinary loan
administration reporting pertaining any assets that serve as collateral for
the Senior Loans and accounts payable, unless otherwise requested by the
Holders).
(i) Promptly, such additional information concerning the Company as any
Holder may request, including, without limitation, auditor management
reports and audit "waive" lists.
4.02 Laws. The Company will comply with all applicable statutes,
regulations, and orders of the United States, domestic and foreign states, and
municipalities, agencies, and instrumentalities of the foregoing applicable to
the Company.
4.03 Inspection. The Company will permit any representative designated by
the Holders to (a) visit and inspect any of the properties of the Company; (b)
examine the corporate and financial records of the Company and make copies
thereof or extracts therefrom; and (c) discuss the affairs, finances, and
accounts of the Company with the directors, officers, key employees, and
independent accountants of the Company.
4.04 Certain Actions. Without the prior written consent of the Holders,
which consent may be withheld in the sole discretion of the Holders, the Company
will not:
(a) permit to occur any amendment, alteration, or modification of its
Articles of Incorporation, Bylaws or other charter or organizational
documents of the Company, as constituted on the date of this Agreement, the
effect of which, in the sole judgment of the Holders, would be to alter,
impair, or affect adversely, either the rights and benefits of the Holders
or the duties and obligations of Company under this Agreement or the
Shareholder Agreement;
(b) declare or make any dividends or distributions of its cash, stock,
property or assets or redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of the Capital Stock or capital stock or
securities of any Affiliate of the Company, or any securities convertible
or exchangeable into Capital Stock or capital stock or securities of any
Affiliate of the Company, except (i) pursuant to this Agreement or the
Shareholder Agreement or (ii) to the extent permitted pursuant to Section
7.4 of the Note Agreement;
(c) effect any sale, lease, assignment, transfer, or other conveyance
of any portion of the assets or operations or the revenue or income
generating capacity of the Company (other than inventory in the ordinary
course of business and other assets reasonably and in good faith determined
by the Company to be obsolete or no longer necessary to the business of the
Company) or to take any such action that has the effect of any of the
foregoing;
(d) issue or sell, or otherwise dispose of any Capital Stock or Capital
Stock of any Subsidiary (except for Permitted Stock or pursuant to this
Agreement, the Shareholder Agreement or the Convertible Note Agreement), or
dissolve or liquidate, or effect any consolidation or merger involving the
Company or any Subsidiary or any reclassification, corporate
reorganization, stock split or reverse stock split, or other change of any
class of Capital Stock;
(e) enter into any business that the Company is not conducting on the
date of this Agreement or acquire any substantial business operation or
assets (through a stock or asset purchase or otherwise);
(f) except for the issuance of Permitted Stock, enter into any
transaction or transactions with any director, officer, employee, or
shareholder of the Company, or any Affiliate or relative of the foregoing
except upon terms that, in the opinion of the Holders, are fair and
reasonable and that are, in any event, at least as favorable as would
result in a comparable arm's-length transaction with a Person not a
director, officer, employee, shareholder, or Affiliate of the Company or
any Affiliate or related party of the foregoing, or advance any monies to
any such Persons, except for travel advances in the ordinary course of
business;
(g) increase the amount of benefits payable under any benefit plan in
the aggregate, or increase beyond the amounts permitted pursuant to the
Note Agreement, the aggregate amount of salary and any other direct and
indirect remuneration (including, but not limited to, employee benefits,
professional, management, and consulting fees and expenses, and bonuses
under any plans) paid or accrued by the Company during any fiscal year to
or for the direct or indirect benefit of any of its officers, directors,
Affiliates or security holders;
(h) except for Permitted Acquisitions, acquire any debt or equity
interest in any Person or establish or acquire a Subsidiary or make any
additional capital contribution or purchase any additional equity in any
Subsidiary or make any advances or loans to any Subsidiary or transfer any
technology or assets to any Subsidiary;
(i) modify, amend, terminate or waive any provision of the Employment
Agreements; or
(j) obligate itself or otherwise agree to take, permit or enter into
any of the events described in subsections (a) through (i) above.
4.05 Records. The Company and each of its Subsidiaries will keep books and
records of account in which full, true, and correct entries will be made of all
dealings and transactions in relation to its business and affairs in accordance
with GAAP.
4.06 Accountants. The Company will retain independent public accountants
who will audit the consolidated financial statements of the Company at the end
of each fiscal year, and in the event that the services of the independent
public accountants so selected, or any firm of independent public accounts
hereafter employed by Company, are terminated, the Company will promptly
thereafter notify each Holder and upon the Holders' request, the Company will
request the firm of independent public accountants whose services are terminated
to deliver (without liability for such firm) to each Holder a letter of such
firm setting forth the reasons for the termination of their services and in its
notice to each Holder the Company will state whether the change of accountants
was recommended or approved by the board of directors of the Company or any
committee thereof.
4.07 Existence. The Company will maintain in full force and effect its
corporate existence, rights, and franchises and all licenses and other rights to
use Intellectual Property.
4.08 Notice.
(a) In the event of (i) any setting by the Company of a record date
with respect to the holders of any class of Capital Stock for the purpose
of determining which of such holders are entitled to dividends, repurchases
of securities or other distributions, or any right to subscribe for,
purchase or otherwise acquire any shares of Capital Stock or other property
or to receive any other right; or (ii) any capital reorganization of the
Company, or reclassification or recapitalization of the Capital Stock or
any transfer of all or a majority of the assets, business, or revenue or
income generating capacity of the Company, or consolidation, merger, share
exchange, reorganization, or similar transaction involving the Company; or
(iii) any voluntary or involuntary dissolution, liquidation, or winding up
of the Company; or (iv) any proposed issue or grant by the Company of any
Capital Stock, or any right or option to subscribe for, purchase, or
otherwise acquire any Capital Stock, then, in each such event, the Company
will deliver or cause to be delivered to the Holders a notice specifying,
as the case may be, (A) the date on which any such record is to be set for
the purpose of such dividend, distribution, or right, and stating the
amount and character of such dividend, distribution, or right; (B) the date
as of which the holders of record will be entitled to vote on any
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up; (C) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger, share
exchange, conveyance, dissolution, liquidation, or winding-up is to take
place and the time, if any is to be fixed, as of which the holders of
record of any class of Capital Stock will be entitled to exchange their
shares of Capital Stock for securities or other property deliverable upon
such event; (D) the amount and character of any Capital Stock, property, or
rights proposed to be issed or granted, the consideration to be received
therefor, and, in the case of rights or options, the exercise price
thereof, and the date of such proposed issue or grant and the Persons or
class of Persons to whom such proposed issue or grant will be offered or
made; and (E) such other information as the Holders may reasonably request.
Any such notice will be deposited in the United States mail, postage
prepaid, at least thirty (30) days prior to the date therein specified.
(b) If there is any adjustment as provided above in Article II, or if
any Other Securities become issuable in lieu of the Shares, the Company
will immediately cause written notice thereof to be sent to each Holder,
which notice will be accompanied by a certificate of the Vice President of
Finance of the Company setting forth in reasonable detail the basis for the
Holders' becoming entitled to receive such Other Securities, the facts
requiring any such adjustment in the number of shares receivable after such
adjustment, or the kind and amount of any Other Securities that are
issuable in respect of the Shares, as the case may be. At the request of
any Holder and upon surrender of any certificate or certificates
representing its Shares, the Company will reissue one or more new
certificates to such Holder conforming to such adjustments.
4.09 Taxes. The Company will file all required tax returns, reports, and
requests for refunds on a timely basis and will pay on a timely basis all taxes
imposed on either of it or upon any of its assets, income, or franchises.
4.10 Maintenance of Quotation. The Company covenants and agrees that so
long as any Shares are held by any Holder, the Company will cause the Common
Stock to continue to be quoted on the Nasdaq Stock Market, Inc., or listed for
trading on either the New York Stock Exchange or the American Stock Exchange
(unless the Company's Common Stock fails to be so quoted or listed solely as a
result of the increase by any such exchange of the minimum market capitalization
requirements applicable to its listed companies).
4.11 Board of Directors. The Company will deliver to Purchaser and the
Holders Representative (i) a certified copy of all materials distributed at or
prior to all meetings of the Company's board of directors, certified as true and
accurate by the Secretary of the Company, promptly following each such meeting
and (ii) a certified copy of the minutes of each of the meetings of the
Company's board of directors, certified as true and accurate by the secretary of
the Company, as soon as available but in any event promptly following the end of
the next subsequent regular meeting of the Company's board of directors. The
Company (a) will permit Purchaser, at all times during which (i) RSTW is a
Holder of all or any portion of the Senior Subordinated Note or the RSTW Common
Stock or any stock, warrants or other equity interest in the Company issued to
it or received by it upon exercise, conversion or exchange thereof or as a
dividend or other distribution with respect thereto, to designate, by written
notice, one Person to serve as a member of the Company's board of directors and
(ii) RSTW is not a Holder of all or any portion of the Senior Subordinated Note
or the RSTW Common Stock or any stock, warrants or other equity interest in the
Company issued to it or received by it upon exercise, conversion or exchange
thereof or as a dividend or other distribution with respect thereto, to
designate, by written notice, one Person to serve as a member of the Company's
board of directors (but only if Purchaser then owns, directly or indirectly,
five percent (5%) or more of the fully diluted capital stock of the Company) and
(b) will permit the Majority Holders (as defined in the Note Agreement), at all
times during which all or any part of the Senior Subordinated Note remains
outstanding, to designate one Person in addition to the Person designated by
Purchaser under the immediately preceding clause (a) to attend and observe all
meetings of the Company's board of directors. The Company will (a) provide such
designee or designees, as the case may be, notice of all such meetings not less
than seven calendar days in advance, except that (x) if longer advance notice is
given to the members of the board of directors, the same advance notice will be
given to such designee or designees, as the case may be, and (ii) if exceptional
circumstances arise which make it prudent for a special meeting of the board of
directors to be called on less than seven calendar days' notice, then such
meeting may be called with such notice as may be reasonable at the time and the
same advance notice given to the members of the board of directors will be given
to such designee or designees, as the case may be, and (b) provide to such
designee or designees, as the case may be, a copy of all materials distributed
at such meetings. Such meetings shall be held in person at least quarterly, and
may be called at any time on two occasions per calendar year on seven calendar
days' actual notice to the Company by the Person designated to serve as a member
of the Company's board of directors by Purchaser (unless no such Person has been
designated to serve as a member of the Company's board of directors by
Purchaser, in which case any Person designated to serve as an observer of the
Company's board of directors by the Majority Holders shall be permitted to call
such meetings). The Purchaser may change its designee by written notice to the
Company. The Company shall reimburse each such observer for all reasonable
expenses incurred in traveling to and from such meetings and attending such
meetings.
4.12 Employment Agreements. The Company will maintain the Employment
Agreements in full force and effect, and diligently enforce the Employment
Agreements against any parties thereto who violate or attempt to violate such
Employment Agreements.
Article V
Conditions
The obligations of Purchaser to effect the transactions contemplated by
this Agreement are subject to the following conditions precedent:
5.01 Opinion. Purchaser will have received favorable opinions, dated the
Closing Date, from Robertson & Williams, Inc., counsel for the Company covering
matters raised by the Note Agreement, this Agreement, the Shareholder Agreement
and such other matters as Purchaser or its counsel may request, and otherwise in
form and substance satisfactory to Purchaser and its counsel.
5.02 Note Agreement Conditions. All of the conditions precedent to the
obligations of Purchaser under the Note Agreement will have been satisfied in
full.
5.03 Material Change. There will have occurred no material adverse change
in the business, prospects, results, operations, or condition, financial or
otherwise, of the Company.
5.04 Shareholder Agreement. The Company and certain shareholders of the
Company will have entered into the Shareholder Agreement with Purchaser.
5.05 Representations and Agreements. Each representation and warranty of
the Company set forth in this Agreement will be true and correct when made and
as of the Closing Date, and the Company will have fully performed all their
covenants and agreements set forth in this Agreement.
5.06 Proceedings; Consents. All proceedings taken in connection with the
transactions contemplated by this Agreement, and all documents necessary to the
consummation of this Agreement, will be satisfactory in form and substance to
Purchaser and their counsel, and Purchaser and their counsel will have received
certificates of compliance and copies (executed or certified as may be
appropriate) of all documents, instruments, and agreements that Purchaser or
such counsel may request in connection with the consummation of such
transactions. All consents of any Person necessary to the consummation of the
transactions contemplated by this Agreement and the Shareholder Agreement will
have been received, be in full force and effect, and not be subject to any
onerous condition.
5.07 Closing Fee. The Company shall have paid to Purchaser a closing fee of
$100,000 (2.0% of the purchase price for the Shares), in immediately available
funds, which fee shall be deemed fully earned and nonrefundable on the Closing
Date. Purchaser may, at its option, deduct the amount of the closing fee from
the purchase price for the Shares.
Article VI
Miscellaneous
6.01 Indemnification. In addition to any other rights or remedies to which
Purchaser and the Holders may be entitled, the Company agrees to and will
indemnify and hold harmless Purchaser, the Holders, and their Affiliates and
their respective successors, assigns, officers, directors, employees, attorneys,
and agents (individually and collectively, an "Indemnified Party") from and
against any and all losses, claims, obligations, liabilities, deficiencies,
diminutions in value, penalties, causes of action, damages, costs, and expenses
(including, without limitation, costs of investigation and defense, attorneys'
fees, and expenses), including, without limitation, those arising out of the
sole or contributory negligence of any Indemnified Party, that the Indemnified
Party may suffer, incur, or be responsible for, arising or resulting from any
misrepresentation, breach of warranty, or nonfulfillment of any covenant or
agreement on the part of the Company under this Agreement, the Shareholder
Agreement, or under any other agreement to which the Company is a party in
connection with this transaction, or from any misrepresentation in or omission
from any certificate or other instrument furnished or to be furnished to
Purchaser or the Holders under this Agreement.
6.02 Default. It is agreed that a violation by any party of the terms of
this Agreement cannot be adequately measured or compensated in money damages,
and that any breach or threatened breach of this Agreement by a party to this
Agreement would do irreparable injury to the nondefaulting party. It is,
therefore, agreed that in the event of any breach or threatened breach by a
party to this Agreement of the terms and conditions set forth in this Agreement,
the nondefaulting party will be entitled, in addition to any and all other
rights and remedies that it may have in law or in equity, to apply for and
obtain injunctive relief requiring the defaulting party to be restrained from
any such breach or threatened breach or to refrain from a continuation of any
actual breach.
6.03 Integration. This Agreement and the Shareholder Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and thereof and supersede all previous written, and all previous or
contemporaneous oral, negotiations, understandings, arrangements, and
agreements. This Agreement may not be amended or supplemented except by a
writing signed by Company and each Holder.
6.04 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement. References
in this Agreement to Sections and Articles are references to the Sections and
Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree that it is
not the intention of any of them to violate any public policy, statutory or
common law rules, regulations, or decisions of any governmental or regulatory
body. If any provision of this Agreement is judicially or administratively
interpreted or construed as being in violation of any such policy, rule,
regulation, or decision, the provision, section, sentence, word, clause, or
combination thereof causing such violation will be inoperative (and in lieu
thereof there will be inserted such provision, sentence, word, clause, or
combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties, unless the inoperative provision would
cause enforcement of the remainder of this Agreement to be inequitable under the
circumstances.
6.06 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
will be deemed to have been validly served, given or delivered (and "the date of
such notice" or words of similar effect will mean the date) five (5) days after
deposit in the United States mails, certified mail, return receipt requested,
with proper postage prepaid, or upon receipt thereof (whether by non-certified
mail, telecopy, telegram, express delivery, or otherwise), whichever is earlier,
and addressed to the party to be notified as follows:
If to Purchaser, at: RSTW Partners III, L.P.
5847 San Felipe, Suite 4350
Houston, Texas 77057
Attention: James P. Wilson
Fax: (713) 783-9750
with courtesy copies to: Patton Boggs LLP
2200 Ross Avenue
Suite 900
Dallas, Texas 75201
Attn: R. Jeffery Cole, Esq.
Fax: (214) 871-2688
If to the Company, at 13401 Railway Drive
Oklahoma City, Oklahoma 73114
Attn: Donald E. Smith
Randall J. Wood, Esq.
Fax: (405) 752-8852
with courtesy copies to: Robertson & Williams
3033 N.W. 63rd Street, Suite 160
Oklahoma City, Oklahoma 73116
Attn: Mark Robertson, Esq.
Fax: (405) 843-6707
or to such other address as each party may designate for itself by like notice.
Notice to any Holder other than Purchaser will be delivered as set forth above
to the address shown on the stock transfer books of the Company unless such
Holder has advised the Company in writing of a different address to which
notices are to be sent under this Agreement. Failure or delay in delivering
courtesy copies of any notice, demand, request, consent, approval, declaration,
or other communication to the persons designated above to receive copies of the
actual notice will in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration, or other communication. No
notice, demand, request, consent, approval, declaration or other communication
will be deemed to have been given or received unless and until it sets forth all
items of information required to be set forth therein pursuant to the terms of
this Agreement.
6.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
6.08 Remedies. The failure of any party to enforce any right or remedy
under this Agreement, or promptly to enforce any such right or remedy, will not
constitute a waiver thereof, nor give rise to any estoppel against such party,
nor excuse any other party from its obligations under this Agreement. Any waiver
of any such right or remedy by any party must be in writing and signed by the
party against which such waiver is sought to be enforced.
6.09 Survival. All warranties, representations, and covenants made by any
party in this Agreement or in any certificate or other instrument delivered by
such party or on its behalf under this Agreement will be considered to have been
relied upon by the party to which it is delivered and will survive the Closing
Date, regardless of any investigation made by such party or on its behalf. All
statements in any such certificate or other instrument will constitute
warranties and representations under this Agreement.
6.10 Fees. Any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings arising
out of or in connection with this Agreement will be borne and paid by the
Company within ten (10) days of demand by the Holders.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
6.12 Other Business. It is understood and accepted that Purchaser, the
Holders, and their Affiliates have interests in other business ventures that may
be in conflict with the activities of the Company and that nothing in this
Agreement will limit the current or future business activities of such parties
whether or not such activities are competitive with those of the Company. The
Company and the Shareholder agree that all business opportunities in any field
substantially related to the business of the Company will be pursued exclusively
through the Company.
6.13 Choice of Law. THIS AGREEMENT HAS BEEN EXECUTED, DELIVERED, AND
ACCEPTED BY THE PARTIES IN THE STATE OF TEXAS WILL BE DEEMED TO HAVE BEEN MADE
IN THE STATE OF TEXAS, AND WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO
AND THE INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO AN AGREEMENT EXECUTED,
DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES
THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE
SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
6.14 Duties Among Holders. Each Holder agrees that no other Holder will by
virtue of this Agreement be under any fiduciary or other duty to give or
withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as such other Holder
may, in its discretion, elect.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
COMPANY:
AVALON COMMUNITY SERVICES, INC.
By: \Donald E. Smith
Name: Donald E. Smith
Title: Chief Executive Officer
PURCHASER:
RSTW PARTNERS III, L.P.
By: RSTW Management, L.P.,
its general partner
By: Rice Mezzanine Corporation,
its general partner
By: \Philip Davidson
Name: Philip A. Davidson
Title:
Number of Shares: 1,622,448
Purchase Price: $5,000,000